費利浦·麥克莫蘭銅金 (FCX) 2013 Q3 法說會逐字稿

Ladies and gentlemen, thank you for standing by.

Welcome to the Freeport-McMoran's Copper and Gold third quarter 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.

Welcome to our third-quarter 2013 earnings conference call.

Our results were released earlier this morning and a copy of the press release and slides for today's call are available on our website at FCX.com.

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

Anyone may listen to the call by accessing our website home page and clicking on the webcast link for the conference call.

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'd 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 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, Vice Chairman, President and Chief Executive Officer, Jim Flores, Vice Chairman, President and Chief Executive Officer of Freeport-McMoRan Oil and Gas.

We also have a number of senior executives in the room today with us.

I will briefly summarize the financial results and then turn the call over to Richard, who will be referring to our slide materials located on our website.

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

Today, FCX reported net income attributable to common stock of $821 million, or $0.79 per share for the third quarter of 2013, which compared with $824 million or $0.86 per share for the third quarter of 2012.

The third quarter 2013 results included net charges for unrealized mark-to-market losses on oil and gas derivative contracts totaling $98 million to net income, or $0.09 a share.

As you will see in the third quarter, our results benefited from a return to normal operations at Grasberg and we had a significant contribution from a full quarter of results from the recently acquired oil and gas business.

Our consolidated third-quarter copper sales totaling over 1 billion pounds were 13% above the year ago period.

We had higher production throughout our global mining business.

And our gold sales were 50% above last year's third quarter because of anticipated higher ore grades in Indonesia.

Our third-quarter sales of oil and gas totaled 16.5 million barrels of oil equivalents.

That was about 10% higher than our July 2013 estimate of 15 million barrels of oil equivalents.

That primarily reflected, as Jim will be talking about, strong performance in the Eagle Ford and the deepwater Gulf of Mexico fields.

Our third-quarter 2013 average recorded copper prices of $3.28 per pound were below last year's third quarter of $3.64 and gold prices of $1,329 were approximately just over 20% below the year ago quarter.

Oil prices were strong in the quarter, with Brent pricing averaging almost $110 per barrel and the realization by our oil and gas division was -- oil realization was $106 per barrel before hedging impacts.

We generating strong operating cash flows of $1.9 billion in the quarter.

That was net of about $300 million in working capital uses.

And our operating cash flows exceeded capital expenditures of $1.6 billion during the quarter.

We ended the quarter with total debt of $21.1 billion.

That was similar to our June 30 balances.

Our consolidated cash balance totaled $2.2 billion at the end of June, and that was -- at the end of September, and that was reflecting a $1 billion supplemental dividend, which was paid during the third quarter.

I now like to turn the call over to Richard, who will be going through the slide materials.

Good morning everyone.

You've heard us talk about all throughout 2013, about the word execution.

That's been the theme for our management team, as we combined our new oil and gas business with our existing mining business.

What's so good about this quarter, as you saw the first full quarter of the oil and gas operations, we had strong execution across all of our business.

That's really what we are going to be focused on going forward.

Kathleen talked about the strong margins and cash flow for the quarter.

That reflected solid operating performance from our global mining business and particularly important, was the improvement at Grasberg and its operations.

As, it is now returning to more normal grade access because of our mining sequencing and improved operating performance at that important asset.

Really happy to report that today in Indonesia, our last night, we signed our CLA agreement for the next two years.

The good news with that, is that we avoided any kind of work stoppage.

The strike two years ago was a major negative for all the stakeholders involved there and with this new CLA agreement, we are going forward on a more positive basis with our workforce in general, and with the union.

Both sides -- while neither side got everything it wanted, both sides are very happy with the results and it's an important step for our Company.

The quarter reflects a significant contribution from our oil and gas business and that's very exciting.

Jim is going to be talk about the details of that in a few minutes.

Our expansion projects and our mining business progressed.

The Morenci expansion is on track for completion in the first half of next year.

At Cerro Verde, we've completed 70% of the engineering.

Construction is in process.

I visited the operations a couple of weeks ago and it was good to see the ground works making great progress and we are starting physical construction, ordering equipment and going forward with that project.

In the oil and gas area, the Lucius development is progressing so that we would have first production next year.

That's a very exciting project and really a precursor for other things that we can be doing from an exploration standpoint in the deepwater of the Gulf of Mexico.

We are continuing to emphasize throughout our operations the need for cost and capital discipline.

That is a theme for all of our efforts in these marketplaces and the cash position, debt position Kathleen talked about reflect the fact that we paid $1 per share supplemental dividend the first of July.

In looking at the financial highlights, which for your information are included on page 4 and that Kathleen talked about, it reflects the strong volumes, the improvement in our unit cost situation from a mining standpoint, net unit cost is now, for the quarter was below $1.50 per pound.

So, we have high margins there, down, from $1.85 in the second quarter and then we have strong volumes, very strong margins in our oil and gas business.

90% of that revenue is driven by oil products and that gives us the kind of strong margins that we have.

From copper market standpoint, I was at APAC in Bali and then at LME week.

There was a lot of talk about Asia economic activity and the levels of demand.

China remains, of course, the important global user of copper and the source of copper growth globally.

The demand in China during this year has been stronger than many people expected.

The Chinese are confident about their economy going forward and all our indications from our business there is optimistic.

What we are also seeing is improvement in the US demand in sectors that are important to copper usage.

Construction, both residential and commercial, automobile activity is very positive and despite all the political uncertainties associated with economy, our business and our customers' business in the US in the current conditions is progressing well.

And, we are seeing some initial signs of improvement in Europe through some demand activities.

Globally, premiums for downstream copper uses are strong.

Consumer inventories remain low and the demand side is positive.

Many people are pointing to copper supply issues and as Grasberg and Escondida have returned to more normal levels of operations that's providing more copper, there is some development projects that are going to be coming on stream in the next two years.

But, the projected surpluses that people are pointing to are small in relation to the overall marketplace.

Lots of things can happen that would change that outlook, as it has over the past 10 years when we've seen copper supply continually underperforming expectations.

In the longer run, the delay in projects, companies cutting back capital, points to a supportive supply situation for copper in the long run.

We remain very optimistic about that.

The slide 6 shows our unit cost by region and our sales by region.

During the third quarter we saw improvements in every region where we operate.

Most notably, at Grasberg, as it has returned to higher grades and more normal operations.

As we look forward, the higher volumes at Grasberg, as we complete mining from the open pit over the next few years, will be very supportive of our overall cost structure.

Volumes performed well, particularly in North America, we had Congress here and as I mentioned, Grasberg.

We had very strong quarter in Africa, even though at the very end of the quarter, we and other miners there were affected by power deliveries.

That's something we are working with the government on to rectify.

But, our team there is doing a great job in running the business and managing the mining and logistics operations there.

We were short of our expectations, even though volumes were up in South America, because of ore characteristics, both at Candelaria and El Abra.

These are kind of short term issues that we manage our way through.

It was a good quarter with our volumes up, just weren't up as much as we had initially expected and we are working to deal with that, as we go forward into 2014.

The oil and gas business is -- has its regional operation results summarized on page 7 and you can see very strong margins, California historically a high-cost place to operate, but the kinds of levels of global oil pricing and the nature of our revenue realizations there, it is a high-margin business.

Then you look at the Eagle Ford, the onshore South Texas shale play, and the deepwater in the Gulf of Mexico, you can see just how attractive operations are in that business.

Then, from operating results, California was on expectations.

Eagle Ford, which with its gas liquids production averaged 46 million a day, the operations there went very well and the deepwater outperformed.

We benefited from the fact we didn't have -- we had a quiet storm season through the end of September and no interruptions there.

Overall, it's really gratifying to see just how well our new business activities operated there.

Grasberg, you can see on page 8, the details of my comments about returning to more normal levels of operations where our mill rates was at 200,000 tons a day.

Copper grades were essentially at our reserve grade levels and our unit cost levels were down from that.

We expect a strong volume situation going into the fourth quarter.

We are going to have some unusual sales activity in that quarter.

We are expecting we'll have fairly large intercompany sales deferral, because Atlantic Copper has been engaged in a turnaround that occurs every eight years.

That's being completed but, it will result in some deferrals of intercompany sales during the fourth quarter that we think will have an impact of about $0.05 a share.

But, operationally, we are anticipating a good quarter and we're certainly off to a great start this year.

I mean, this quarter, in October.

Our projects, which I mentioned at the outset are going well, the Tenke project is essentially complete, other than adding a new acid plant there.

That was a project that was on-time and within budget and a very difficult place to achieve that kind of performance.

Cerro Verde is progressing, as is Morenci.

Our exploration activity continues.

It reflects to what we've been doing over a long period of time.

We're analyzing results from the extensive amount of core drilling that we've done over the past six years.

Our actual budget for next year is down and that just reflects the nature of where we are in the process; certainly no lack of emphasis on exploration.

The real underlying strength of this Company has to do with our proved and probable copper reserves, which at $2 mine plans are over 100 billion pounds.

And then resources beyond that, which have already been identified, beyond those proved reserves is another 100 billion pounds and that gives us the ability to have very long lived continuing production and the opportunity to develop new growth projects beyond the ones that we're working on currently.

Jim, why don't you take over and I will let you talk about our oil and gas business.

Right, Richard.

Thank you.

Good morning everyone.

Looking on page 11, looking at the oil price curve is always a great place to discuss the oil business, especially when it's a strong curve like what we've seen.

The market we feel the market is pretty stable.

You've got a lot of political unrest, you've got a lot of market swings in WTI that we are not experiencing because of our location of our reserves being on the coastal areas of the United States and the Gulf of Mexico, where we are pricing at our California spot, or our LLS off of the Brent pricing.

As you see or hear more and more about the increase in the production coming out of the Bakken, the Permian, so forth, they are really going to have widening differentials in the mid-comment part of the United States.

Our projects won't have to suffer those differential widenings, and therefore we will be able to maintain the margins that Richard and Kathleen alluded to in their talks and so forth.

We believe our oil and gas business is a high-margin business.

It's reflected in the numbers that came out here in the third quarter.

We stake to protect that.

One of the interesting things, when you grow production 10% above your plan, your costs go down.

Because we have a large fixed cost component to our oil and gas business on the operating side, just like on the mining side.

As production goes up, you divide those costs by a fixed number.

And that's why you see our costs going down from $19 of BOE to $16.80 for the quarter, which is a real big improvement.

It points to the statement Richard made about execution, execution, execution is where oil and gas business is really turned on.

We've obviously had strong oil prices to help that margin, as well.

The disciplined capital spending and so forth, we obviously stayed within budget and we are able to execute in spite of the awesome task of putting two companies together with a third one in our three-way merger that closed June 3. So I can't say enough about the guys and gals in the oil and gas group being able to rally, having an outstanding quarter in spite of all the disruptions of who reported to who and find out who's e-mail worked and whose didn't.

So, great job all around there.

Moving to page 12, the operating assets are very consistent from what we've talked about in the transaction, and also as far as going forward.

You can see where our oil business in California, Eagle Ford and Gulf of Mexico is the focus of our Company with almost 98% of our assets.

Obviously, the gas business is large.

With prices impaired where they are, like we had forecast, it's going to be a small piece of our business until that market has price recovery, sometime in the future.

We've got the details here with a lot of the strong attributes, I'm not going to go through them to save everybody some time.

The third quarter 2013 operating cash margin of $1.1 billion is a great place to start for this important growth business for the Company.

Flipping to page 13, the Lucius deepwater project is one of our significant projects coming on next year.

Besides the initial drilling starting in the fourth quarter at our Holstein field in the Gulf of Mexico, this is going to be a very large production add.

Our operator Anadarko is working to make sure we have this production timely in the second half of 2014, and all indications are that we are going to be able to accomplish that.

So, looking forward to our 23.33% interest at 80,000 barrels a day and the gas production related to it.

On page 14, you can see more of a pictorial depiction of our deepwater Gulf of Mexico business.

You see our production facilities in red.

Those are our large facilities that have one quarter of a million barrels of production capacity running at about 25% right now, or 65,000 barrels a day.

Remember, our intent here is to take that infrastructure and fill it.

And fill it by drilling new wells on adjoining prospects, adjoining leases and our existing field by redeveloping it.

That's what our business plan is all about, and those are the projects in blue that we plan on subsea tie back into our infrastructure.

A great way to return projects.

50% to 60% rate of return projects.

This is the cornerstone of our CapEx budget in the oil and gas business.

On top of that we have our Lucius project in green.

Our Phobos discovery that we will be looking at developing for the later part of this decade, those are both Anadarko operated and there is a little star over here on the left called Tara.

That's an exploratory project that's very high potential like Lucius that we're going to be drilling midyear with -- when one of the drill ships show up about the second quarter.

Stay tuned for exciting results on that.

Speaking of exploration on page 15, our ultradeep activities, we continue to lead the industry here with several great partners like Energy 21, Moncrief and Chevron.

We're in the process of moving to the completion mode with production tests at Davy Jones II, [Linum] Creek, and Blackbeard West in 2014.

Other than that, we're drilling a very exploratory well in Lomond North and we're looking forward to getting those results hopefully by year-end.

At the same point in time, we've got one to two wells planned next year to really capture the exploration phase of this project, and then we will have to evaluate how we want to develop it and in what timeframe to be responsive to what the gas price is doing.

We've got plenty of time, we've got the resources, obviously, to do it.

Richard, that's brief, but it gives you kind of a taste and I'll turn it back over to you.

Thanks, Jim.

Pulling this all together and seeing what our outlook is for 2013, our sales outlook continues to, after adjustments, round to 4.1 billion pounds of copper.

Our gold is 1.1 million ounces for 2013.

Again, this is essentially rounding for adjustments.

92 million pounds of molybdenum and 37.5 million barrels equivalent for oil.

That's up a bit from our previous guidance.

Kathleen reminds me, thank you Kathleen for always doing, when I was talking about Eagle Ford, I said millions rather than thousands.

Make sure that we are talking about thousands of equivalent barrels there at Eagle Ford earlier.

Our unit cost continues to be the same.

We are working to try to constrain costs, increase volumes and our unit cost for oil is down a bit with our positive operation results.

At $3.25 copper, that would give us operating cash flows in the range of $6 billion and that's after $300 million working capital use.

That number always moves around as we get to the end of the quarter.

Each $0.10 change in copper for the remainder of 2013 is a $90 million variance in operating cash flows.

Capital expenditures continued to be estimated at $5.5 billion.

Then, as we look forward to production volumes over the next two years beyond 2013, you can see increasing volumes for copper and the 2015 reflects the target that we've had with our three expansion projects in the restoration of Grasberg at more normal levels to get up in the 5 billion-pound a year range.

Gold volumes reflect, again, the positive situation at Grasberg and the growth in oil production reflects Lucius and other improvements in activities there in offshore.

As we go beyond 2015, we see really significant growth continuing.

Unit production cost situation, it's on page 18.

We show the details of just where that is.

It's essentially really in line with where we gave guidance in the second quarter.

Then, our sales by region, are outlined at the bottom of the page.

Again, the volumes are consistent with previous guidance.

We will work to beat it.

Our cash flow models, our EBITDA and cash flow models are shown on page 19, showing vary in copper prices from $3 to $4.

Then, with -- for our '14 and '15 averages, EBITDA ranges from $10 billion to $15 billion in operating cash flows from $8 billion to $11 billion.

Then, the increases that comes into play in 2016, which is very significant, shows 45% increases there as we get our projects on stream and get those additional volumes in place.

You can see how that varies with copper prices going with EBITDA from $15 billion to $21 billion and operating cash flows net of taxes and cash interest of $12 billion to $16 billion.

The sensitivities that we present for your use are shown on page 20.

The big sensitivity, of course, is copper prices where $0.10 means $325 million of operating cash flows on an annual basis.

Our capital expenditures are shown on page 21.

Showing roughly $4 billion a year for '13, '14, and '15, and oil and gas CapEx $2.7 billion, $2.9 billion for the next two years, again, in line with our funding from its cash flows.

After 2015, mining projects will drop off with the completion of Cerro Verde so our CapEx will drop up, our volumes will increase and we will get benefit of our expansion projects.

We remain committed, as our Board has instructed us to, to maintaining a strong balance sheet.

We have a good track record of doing that.

We have set a target of reducing our debt to a $12 billion level, and that's an approximation over the next three years that includes continuing our common stock dividend at its current $1.25 per share annual rate.

With our large resource base, our strong cash flows and capital discipline, we can do this.

Our Board has challenged us to find ways of advancing our debt reduction target and we have a great set of assets that allows us to consider a range of alternatives for doing that, that could include things like asset sales, joint venture arrangements, special purchase financing.

We are looking at the opportunity for a master limited partnership involving additionally some of our oil and gas assets.

All of those are alternatives that we're working diligently on to see how to advance our debt reduction target.

We are in a position where we are not -- we don't have to do anything.

Anything we do will be to achieve -- in achieving that target, will be done in a way to enhance shareholder value.

So, that is something that we are working on.

End of the day, we have a strong and focused organization on execution.

Focused on returning, on generating shareholder returns, managing our base operations to achieve our production costs, manage our costs and do that in a way that is -- provides a safe working environment for our employees and positive results for all stakeholders and communities where we operate.

We are looking, over the long run, to find ways to invest and grow our business because we have the resources to do it.

We will do that in a disciplined way that recognizes market realities, the best uses of cash, the ones that give us our strong returns in where we can execute in a positive way.

We will protect our balance sheet and our dividends and very pleased with this first quarter start to achieving all those goals.

Jim Bob, we are ready to take questions, if you have comments you'd like to make now or we can move straight into the question-and-answer session.

Let's just go right into the questions.

Okay.

Operator, we have a queue here.

Let's start with questions.

(Operator Instructions)

Sal Tharani with Goldman Sachs.

First question, Kathleen, quickly on interest expense.

It appears to be a little lower than 4.4% average cost you mentioned.

Should we consider that as going forward?

Or, is there something special this quarter?

I don't think there's anything special in there, Sal.

There is some interest that gets capitalized.

But, I think the quarter is reflective of where we are with our current debt position.

So, if we assume that debt remains the same, we can use the same ratio going forward?

Right.

Okay.

Thank you.

On the Grasberg, Richard, you had given some number in the past of what was the cost of labor was in that total production.

I know you have a new contract where obviously, you probably offered some incentives.

I was just wondering how should we look at the cost for next year on the Grasberg side?

Well, our base rates that we agreed to was to increase base salary rates by 10% this year and 10% next year.

There were other features that were built into our package that aren't included in this package this year.

Our labor costs are roughly 25% of our total costs and so, they will be somewhat higher.

That deals with our union workers.

There's a ripple effect that it goes into our nonunion workers, our staff workers and some of our contractors.

But, we reached a level that -- there's a press release out talking about how the union is pleased with it.

We are pleased with it.

Considering, Sal, where we came from with all of the very tough issues that we had in 2011, it really carried on all through 2012, in terms of getting people to work together in a positive way.

This is really a big thing for us, for all of the workers, the communities, the central government, everybody there.

So, we are very pleased with it.

So, our labor costs are going to go up some, but within a reasonable level.

And, what is the opportunity here, is that now, with a more harmonious working relationship with our workforce and with the union, I was out there and directly engaged in discussions this year.

We are all committed to finding productivity measures which are certainly there, that have the potential for far offsetting any increase in wage costs and we all shook hands on a common effort to achieve that.

Thank you very much, Richard.

I will get in the queue again.

Thanks.

All right, Sal, thank you.

David Gagliano with Barclays.

I just have a quick one.

The production profile beyond 2013, can you just talk a little bit about the slight decline in the copper and the gold sales volume expectations for 2014?

Strictly rounding, Dave.

Okay.

From our previous guidance.

Yes, Dave, this is Kathleen.

We rounded to 4.5 last time and I think the volumes are like 30 million pounds lower through a combination of Grasberg and North American volumes.

It just rounded down to 4 rather than 4.5.

Okay.

Perfect.

Thanks.

As a quick follow-up, could you give us a little more information about the thoughts around the MLP?

Obviously there's been quite a bit of chatter.

I'm wondering, given the work you've done so far on it, if you could give us a sense of terms of types of assets, size, et cetera?

Thanks.

Dave, it's a work in progress.

So, we are looking at this, among other alternatives and it's really too early to give specifics on it.

There is a range of opportunities of what we could do with it.

MLPs have performed so well in the marketplace, and of course there are different types of MLPs going from midstream infrastructure type assets to upstream assets.

We have a large asset base that gives us lots of opportunities.

Jim and I are talking about it, we're getting input from people experienced in that business.

So, we will report on it as this thing evolves.

It's an opportunity and we are going to look at it to see if it makes sense for us.

Okay.

Thanks very much.

Lee Cooperman with Omega Advisors.

Lee, your line is open.

Okay, operator.

Let's see if he comes back and have the next question.

Michael Gambardella with JPMorgan.

Good morning and congratulations on the excellent operating performance in the third quarter.

I have a couple questions.

One, just a follow-up on the sales question on the new labor agreement at Grasberg.

I understand, Richard, you expect to get productivity enhancements.

Just assuming you had the new Grasberg contract for the entire third quarter, that you just put up, how would that have affected the $1.46 per pound cash cost that you have companywide for your copper operations?

Mike, this is Kathleen.

We spend, currently, about between $550 million and $600 million a year on our total labor in Indonesia.

So, if you -- if you take 10%, you can see what the impact would be in the first-year.

Then, another 10% in the second year.

We've also got some exchange rate movements, as well, which offset some of that.

But, that will give you a feel for the annual impacts.

Okay.

Last question.

I think back in 2001, you had acquired about a 9% additional interest in the Grasberg mine from local Indonesians that were entered to some financial distress.

Can you talk about the potential?

I know you've said it's for sale for the past several years.

Could you give us any idea in terms of the real potential of selling that, in terms of really accelerating your debt repayment program?

Okay, Mike.

The -- actually, it was half of that 9.6% that we acquired.

It was originally that level, but back in the 1990s, we had acquired half of it in an earlier transaction.

So, it was half of 9.36%, or roughly 4.7% that we acquired back in that 2001 timeframe.

Probably seven years ago, or more, the government asked us if we would make that interest available to Indonesians on a business to business fair market-type basis and we have.

Over time, we worked to find a structure that would provide the opportunity for the people of Papua, the province, and some appropriate structure to acquire that.

Those transactions haven't been done.

Now, in connection with our current contract of work discussions, the Government of Indonesia undertook a review of all contracts of work following the 1999 mining law, and we are in the process of obtaining an extension, which we have the rights to for our contract of work beyond its primary term, which ends in 2021.

We have been engaged for over two years now, in discussions of various aspects of our contract with the government of Indonesia and include it as part of that package of discussions is discussions about the potential of our entering into a divestiture of additional interests in the PT-FI shares.

We are looking and think it would be attractive to have a listing of those shares on the Indonesian stock exchange and the government feels very positive about that, and potentially, a transaction involving a sale to the province.

Obviously, the listing on the stock exchange would provide cash for us and that would assist us in our debt management.

A sale to the province would probably be some sort of structure where we would assist with financing and wouldn't generate near-term cash to us.

But, those are all part of it.

I want to emphasize those aren't independent steps, but part of our overall discussions with the government about reaching a mutually satisfactory resolution of the government's review of contracts and our getting an extension to give us surety of our contracts through 2041.

We are confident we are going to get there on both scores.

And, would this be a sale of the entire 9.63%?

Well, no.

We are looking at, that's independent of the 9.36%.

This is an overall package that could involve a sale of that -- roughly a 5% would be one of the largest IPOs in the history of the stock exchange.

So, it's an overall package that involves something independent of this 9.36% interest.

Okay.

As I said, we already own half.

We already owned half of that before the 2001 transaction.

Okay.

Great.

Thanks, Richard.

Okay, Mike.

Thanks for your question.

Brian Yu with Citi.

Congratulations on a solid quarter, too, guys.

First, Rich, you guys are typically measuring your language.

On the oil and gas side with the shelf assets, you've changed the wording from initiated process to divest to evaluating alternatives, including possible divestment.

Does this signal a change in plans?

Then, as a follow-up to that, you did up your second-half oil and gas volume guidance.

What's the thought or how should we think about you guys maintaining the 2014 volume at 57?

Thanks.

Okay.

I'm going to let Jim comment on it.

But, we have been in the process of looking at sales of shale properties, given the marketplace out there.

It's a set of assets that doesn't have a huge number of buyers.

We are looking at what makes sense for us, going forward.

The volumes going forward do not include the shelf volumes.

That's a point of information.

Jim, so, we are looking at a number of different possibilities there.

Jim, you want to comment on it?

Sure, Richard.

Thanks.

On the shelf sale, one of the interesting aspects of it is, basically, the companies we're talking about selling it to are smaller and the financing constraints are there.

There's a lot of behind pipe reserves and upside that we're trying to derive some type of value structure to get what we think is representative -- what we know is representative value.

Basically, recompletions are not flowing right now.

We are debating internally whether we just might be better to continue to operate those fields a little while, get those big wells on and then look at selling some at a later date.

A later date, within months or maybe next year type thing.

So, nobody's in a distressed situation, but we are trying to make sure we representatively look at the value from a standpoint of what's best for the FCXS shareholders.

That debate is going on.

At the same point in time we did have a robust process.

We have got several people that are flipping documents to try to push towards getting something done this year.

That's going to be the Office of the Chairman discussion and Board discussion later this fall what we exactly do.

Now, as far as the guidance for '14 going forward, there's a lot of operations that we are going to be doing in '14 that provide volatility to our production numbers.

We are going to shut in a couple platforms for a period of time to do a platform modifications to prepare for long-term production growth for offset fields coming into those fields in the Gulf of Mexico.

The actual start date of our Lucius production.

Obviously, we have our storm shut-ins put in our planning.

So, we think, while it's a pretty conservative number, as far as growth and so forth, we think with the volatility in operations, it's a number that we feel comfortable with putting out.

But, with operations going smoothly, and a quiet storm season, our numbers could, obviously, be significantly higher next year in actual.

But as far as the planning process, this business is one quarter old as far as being part of Freeport.

I would say we are conservatively modeling and going forward and just going to have to enjoy the upside on a quarter to quarter basis going forward.

Thanks, Jim.

Brian, as I indicated with all these things, we are in the fortunate position of not having to do anything.

So, as we look at these alternatives, we want to generate cash to reduce debt.

We are challenged to do it, and we are going to work to meet that challenge.

At the same time, we look at the fundamental economics and make decisions on what creates best values for shareholders.

Okay.

Makes sense.

Great.

Thank you.

Thank you.

Curt Woodworth with Nomura.

Richard, you commented that your sense for the market surplus next year in the copper market would be relatively small in relation to the overall market size.

I'm just curious.

What do you view the level of surplus to be next year?

What's kind of the over under, if you will, on what would manageable for the market, in terms of surplus?

Well, Curt, as I think most of these people on here know, one of the things that all my experience this natural resource business has been, is to not make predictions like that.

Literally, as a Company, we don't run our business on any sort of particular predictions on short-term movements.

I read the same analyst reports that are out there.

I was at LME and I was sort of struck by the two different views at LME.

A lot of people within investors, and who follow the investor community were really pessimistic about metals in general and about copper, because of this expectations of supply coming on stream.

Then, as I talked to end-users and customers and traders and other companies, CEOs, the theme that came back was, hey, demand is stronger in 2013 than we expected.

Premiums are strong.

When you get and look at a number of these projects, while Escondida and Grasberg are performing well, the timing of when other projects come on is uncertain.

That's been a feature of the industry forever.

So, when I look at the most recent CRU outlooks, I see relatively small surpluses that could swing one way or another, depending on what happens.

So, I think the story is, even as a situation of where there's as much concerns about the global economic market, about new supplies, we see a copper market and fundamentals that's relatively tight, we are prepared for whatever comes down the pike.

I mean, we have a flexible set of assets that allows us to make a lot of money if prices are strong and as we've shown in the past, we can adjust the deal with prices that are weak if that is something we have to deal with.

My point is that the longer range story about the copper business is intact.

Demand from global development and global economic growth, over time, will be strong and supplies will continue to be challenged.

Okay.

That's helpful.

Just a follow-up for Jim, regarding Davy Jones and Blackbeard, in terms of going to completion in '14.

Can you just give us an update on where you are currently and maybe more specifics around the exact timing in '14 you expect for those two?

It's pretty much front-end loaded.

I think all three, Davy Jones, Blackbeard West and Lineham are all going to be scheduled in the first half of the year.

The only thing is if we have extensive testing in one area it may delay West Blackbeard because it's a subsequent rig operation between Davy Jones West, it should start right at the beginning of the year.

If we do extensive testing on Davy Jones 2, we may push Blackbeard towards the second half of the year.

But Lineham is scheduled for the first half of the year as well.

Okay, thanks.

John Tumazos with John Tumazos Very Independent Research.

Thank you for taking my call.

Today's results seem to suggest that the performance of the four geographic regions of FCX copper operations are improving.

And, also, most of the regions of the oil and gas group.

Looking forward to the December and March quarters, should we expect each of the four regions of the copper business and the energy business to improve more?

That's my first question.

Second, can we infer that you are spending about $100 million a month at Cerro Verde based on the third quarter's spending rates?

Or will that accelerate a little more?

Okay.

With the copper business, we've given you the guidance for the fourth quarter.

So, you can see that.

We will still have some issues in South America, that we are recovering for in terms of some higher, some ore at Candelaria that is harder than expected.

We have had some issues in managing our leaching operations at El Abra that we are working our way through that will take some time.

So, you will see that going into 2014, which we will give more specific guidance on at our next call, we have some mine sequencing issue earlier in the year at Grasberg, so that will affect first quarter operations there with significant improvements as we go throughout the year there.

So, John, the overall situation is very good.

My top of the head thing says your number at Cerro Verde is pretty good.

We are 80% complete with engineering.

We've ordered a lot of the equipment.

We spent about -- we've spent over $1 billion and we've got commitments for another $750 million or so on a $4.5 billion project.

Some of that spending is not smooth, but chunky.

Now, we are going to be incurring labor costs for construction.

In general terms there.

And then we've got our new mill coming on stream in 2014 in Morenci that will be a very positive for us.

Jim, you want to respond to the oil and gas side?

The oil and gas to side, John, is, again, with the volatility in operations next year, we are in the process of starting our drilling rig in our Holstein field but we're waiting on three drill ships to show up.

So we can really get into the meat of our development in our offshore business.

That will be -- those ships will be showing up over the next 18 to 20 months.

At the same point in time, we will be correlative with our platform modification.

I think what you will look for is a year that is hopefully got a quiet year operationally, rather than some exploratory wells.

And beating some production guidance because operational execution is going real well.

Starting mid-'14, early '15, a tremendous production ramp up through the end of the decade through our Gulf of Mexico business is basically what I saw at the analyst meeting back in June, will become realized very quickly.

A lot of work being done in 2013 and 2014 to prepare for 2015 to 2020 to realize the value.

Our business across-the-board is a long-term business.

We operate on long-term plans.

We execute on a long-term basis.

Quarter to quarter fluctuations occur for any number of reasons.

It's great we have a very good quarter across-the-board this time.

We feel very good about our outlook and about our progress we are making for achieving our long-term plans.

Thank you.

Thanks, John.

Oscar Cabrera with Bank of America Merrill Lynch.

Thank you.

Richard, it's great to see strong execution across the board in all the businesses.

Just wanted to get back into the Grasberg contract of work.

I believe last conference call you mentioned that your expectations of resolving or reaching agreement with the Indonesian government by the end of this year.

I was wondering if that were still the case.

What I said, and I still say, is that a number of people of the Indonesian government are targeting getting this completed by the end of this year.

I will also say a number people were targeting for getting it complete by the end of 2012.

So, we are anxious to get this resolved.

We are going to work very cooperatively with the government to get it resolved.

We hope that it will get resolved by the end of this year.

Indonesia is facing a presidential election next year and the closer you get to that election, the political situation becomes more prominent and in many ways more complicated.

We are going to represent our shareholders and we're going to work cooperatively with the government to find a common ground so that both parties feel that they are satisfied with the results of this.

I would say that the government is targeting this year.

We hope that it gets done and we will work to achieve it.

We will just have to see what actually happens.

Okay.

Thank you.

I will say we are very -- our contract has firm legal standing.

Nobody denies that.

So, at the end of the day, that provides the basis for our rights to operate there and our rights to go forward.

We still believe that is one of the large positive catalysts for the stock.

Secondly, interested in your comments on the front page of your release where you talk about the opportunities to accelerate the deleveraging of the balance sheet, which I think is good.

Joint venture transactions.

Can you just provide more color around this?

You are talking about any type of asset?

Are you focusing more on the oil and gas side?

Any help there would be great.

Well, joint venture structures allow you to have a lot of flexibility and creativity as to how you can get together with someone who has some objectives and look at your own objectives and come up with something that would make sense for both parties.

That would be opportunities across the board with our business.

When you look back at Freeport's history, you can find cases, for example, our partnership at Grasberg, with Rio Tinto was a case study.

We had joint ventures with Sumitomo at a number of our operations.

We have a partnership at Tenke Fungurume.

The same way with oil and gas business, which joint ventures are a feature across-the-board in that industry.

There is an interesting financing structure that Jim and his team put together for Lucius.

The operator there, Anadarko, has done things.

So, that's such a broad range of ideas that we mentioned that as a way of having the flexibility of bringing in someone with financial wherewithal and objectives that you can be very creative about how you can match them up.

And there's no particular formula or no particular thing that you can say would be a specific outcome.

But, in the range of things, sometimes joint ventures are a way of bridging differences of views of values and gives you a way to deal with a potential interested and willing partner and bridge value considerations.

So, it's a feature of the natural resource business and an opportunity for us.

Okay.

Was interested in there's more Chinese companies than SOEs getting into joint ventures in different parts of the world, like the UK and uranium and now the potential purchase of Las Bambas.

Would you consider Chinese partners in all of these?

Yes.

We'd consider it.

We'd consider partners that would give us opportunities to meet our objectives.

If a Chinese partner would do that, then we would certainly consider it.

That's great.

Thanks, Richard.

Thanks, Oscar.

Mitesh Thakkar, FBR.

Congratulations guys.

Thank you.

Just a quick question on your hedging strategy.

It looks like you haven't done any hedging lately on the oil and gas side.

Are you maintaining the original hedging strategy?

Or is there any change to that?

Should we see any potential hedging going forward?

There's been no change since the acquisition.

It's something that we monitor.

The oil and gas markets are much more liquid than the copper markets and we are -- in terms of the positions we have, we think they are good positions as we are working on delevering.

As we go forward, we will look to see what makes sense for the combined company.

We do buy -- we do have a lot of oil and gas consumption in our mining business, so we will take that into consideration, as well.

But, in terms of the structure we've got a position through 2015, and like I said, we will continue to monitor the markets.

For right now, that's what's in place.

Okay.

Great.

Just a question on the moly side.

There's some comments in the press release that you are looking at maybe lowering your primary moly production.

Can you give us an update?

I think you still make a little bit of margin on that business.

Any thoughts on that?

Lots of thoughts.

We are the world's largest moly producer and the lowest cost.

We have significant moly coming as byproducts out of our mines.

As we look forward to Cerro Verde, there's incremental moly volumes there.

Some at our other potential expansion projects and there's other byproduct moly coming to the marketplace.

We are in a position with our Henderson and our Climax mines, which are sole moly producers, to monitor our production levels there to be responsive to the marketplace.

So, that's what we do.

And, what we are doing, the moly markets have been weak.

We are heavily involved in the downstream side of that business, so we are right on top of what of our customers want.

We have a greater percentage of the higher volume chemical moly business than the industry as a whole.

So, we're just going to be responsive to what the market needs and that will come from swing production from Henderson and Climax.

Okay.

Great.

Thank you very much, guys.

Adam Duarte with Omega.

Good morning guys.

Given the completion schedule you have for the ultradeep wells, when do you actually expect first production and first distribution, first cash distributions for royalty trust?

Adam, I think we can give you a better schedule once we have the wells tested.

That's the thing.

So, we are in a infrastructure prone area in the shallow part of the Gulf of Mexico.

I would hope if we have some completions in the first half of the year, we would have production on by year-end '14.

But, that's just a guess at this point.

We have a lot of engineering between me and that guess.

Understood.

So, basically no change relative to what we've been talking about for the last three months, call it, around these wells and their scheduling?

I think Richard said it best.

These projects are long-term and we've got them scheduled and it's very hard for us to change those schedules because there is such a size of the projects that they are going to follow their own path, that's the best I could --

Got it.

Thank you.

Good luck, too.

Thanks a lot, Adam.

Joe Allman with JPMorgan.

Jim, in terms of the production outperformance for the oil and gas assets, in the press release you mentioned some well stimulation activities.

Could you speak specifically to what you are referring to there?

I guess, some of the outperformance just came from no real hurricane activity?

Well, Joe, a lot of it's like our Eagle Ford continues to outperform, we have the premium 60,000 acres we've got right there in the heart of the watermelon has continued to be spectacular.

We are reducing our rig count out there, just from a standpoint of trying to derive more free cash flow out of that and reap the benefits of the production decline to 50,000 barrels a day.

But, that was a spectacular quarter in the Eagle Ford.

Then, going to the well stimulation, our Holstein platform, we had a belief in the initial reservoirs at Holstein were impeded from their ultimate production because of basically migration of fines and skin damage on the well bores.

For instance, one well we had, was producing about 1,200 barrels a day.

We hit it with some xylene and basically an acid wash and they started producing over 7,000 barrels a day, and the tubing pressure increased about 50% as well.

That's pretty spectacular.

We are going to continue to maintain and go through the reservoirs that we have.

Any time you can take the production at Holstein from 9,000 barrels a day to 18,000 barrels a day without drilling or incompleting a well, you've done some really good things.

So, hats off to the guys and gals involved in that project.

We have a lot more to do out there.

Excitement and confidence is running high.

Okay, that's helpful.

Back to the MLP option.

I know it's very early stages in thinking about it.

But, what are you looking to achieve if in fact you do pursue an MLP option?

What would be some of the negatives, especially in terms of would it be difficult to get a tax basis step up if you just drop it down and have your own MLP?

You're deep in the details, Joe.

There's no impediment.

The benefit you're looking for, you've got a Company here with a 100 year copper reserve, 50 year gold reserve, 50 year moly reserve and we are trading at 5 times or something like that.

If we can -- if we can capture value by driving we think a representative value for the assets to maintain, we don't need more assets.

We've got plenty of assets.

We need the representative valuation.

So, that's what's driving all of our discussions and MLP is part of that discussion, on all sizes, the extraction business does cover not only oil and gas, it covers copper.

We've got excellent MLP type assets across the board.

So, Richard gave insight of what our discussions have been like when we've talked about joint ventures, they are far ranging and we are going to find -- we are going to find the answer here that I think will be visible in the marketplace, as well.

Great.

Just lastly on the deep shelf sale at Lineham Creek, I think Chevron was looking at a primary target below 25,000 feet.

It sounds if maybe things didn't work out there and you're really focused on completing above 24,000?

Can you just talk about that?

Also, Davy Jones 1, have you basically abandoned that well and just moving onto Davy Jones 2 at this point?

I think what you are misreading in the press release above 24,000, more of a engineering trying to focus on that we are going to be able to get the well at Lineham Creek closer.

We were very articulate that we found [yevo] sands in the 23,000-foot, as a new sand horizon for the ultradeep play and the log indications look towards favorable support for establishing production.

The aspect of we drill deeper and we ran into some drilling problems, we all elected not to go deeper into the lower tertiary.

We decided to take what we had right here and let's see if we can develop a large yevo structure and maybe that will open up a new trend for us.

It's a geologic and engineering coordination discussion, it wasn't based on any kind of disappointment in the ultradeep.

Now, on Davy Jones 1, at this point, we are not -- we don't have any operations planned.

We are studying the operation of fracking the zone or whatever, and we want to get the results from Davy Jones 2 and not only the lower tertiary but the cretaceous before we decide whatever plans we are going to have for Davy Jones 1 going forward.

Thanks Joe.

We really are pleased to see all this interest in questions.

Time is going on.

So, if we don't get to your questions or if we answer them too shortly, we will get with David and we'll follow-up with you.

Let's if we can take a few more very quickly.

Paretosh Misra with Morgan Stanley.

Hi everyone, thanks for taking my question.

A question for Jim.

At Gulf of Mexico, your production rate went up sequentially and you highlighted a couple of reasons.

Is there -- should we expect that to be sustainable in the fourth quarter also?

The current rate?

We've got guidance out in the fourth quarter.

We are supportive of that guidance.

It's an orchestra.

We have a lot ins and outs and we continue to have positive execution by our people.

So, at this point in time, we are all confident of them being able to continue to show their good stuff.

The assets are certainly performing.

The people are performing.

So, the outlook would be positive there, but there's nothing more tangible than that.

Got it.

At Eagle Ford, you still expect production to start declining because of some of the CapEx cuts you made, right?

That's correct.

We are going to start harvesting free cash flow out of that field as our rig count drops.

We will be maintaining somewhere around 30,000 barrels a day next year, is what our rate is.

We can actually add rigs if we want to add production volumes or cut depending on what our cash flow and our CapEx requirements are.

Great.

Thanks so much, bye.

Brian MacArthur with UBS.

Taking my question.

I just want to follow-up on Grasberg.

We've talked a lot about -- you have got a labor contract, productivity will hopefully improve.

With that, is there any possibility of accelerating the development going forward of the underground?

Obviously, post 2016 there's a big transfer and you give us the long-term guidance about where production is going to go.

But, I imagine, just with all the uncertainty there, I want to get an update on where the development is going forward for that?

Well, Mark Johnson is here, but the development is going very well.

We were able to -- we had some delays developing following the Big Gossen training room incident.

But, we've really, actually to date, made up for some of the downtime we had there.

So, we've got aggressive schedules to bring in the Grasberg block cave to be prepared to begin production, as we complete mining from the pit.

We are still looking at roughly the end of 2016 for that and then the deep MLZ extension to the DLX complex is scheduled to come on stream in advance of that.

So, we are putting optimal amount of resources.

There's just practical limits to doing that.

But, it's all going, it's all going well and our long-term plan is intact.

Could I just ask, should I still, historically, you used to talk about $550 million to $600 million a year to do that going forward.

Is that still a reasonably good number?

Yes.

Great.

Thank you very much, Richard.

Okay, Brian.

Ralph Profiti with Credit Suisse.

Good morning, thanks for taking my question.

Just a quick one.

Richard, you mentioned power deliveries running into problems in Africa towards the end of the quarter.

Are these the normal availability and volatility that we've seen in the past?

If you can touch on whether or not industrial users have been asked to ration power in the DRC?

What are those sort of September and October production numbers looking like?

Thanks very much.

Well, actually, we have had some experience with power problems in the past but, they been much more pronounced here at the end -- at the end of September.

We had invested in hydroelectric power supplies, have a contract, but there's been issues on the grid of power availability from Zambia.

There is increasing requirements for mining activities in Katanga and the government has not kept up with maintenance activities, and that resulted in curtailments.

So, we have experienced those.

I spoke with the mines minister and he committed that everybody in government is working to resolve these.

There's some longer-term solutions that we and other miners are working for.

Fundamentally, there's lots of opportunities of hydroelectric power development in that country.

There are other alternatives being considered and we are working diligently on it.

But, it is -- it is a challenging issue for the mining industry, in general.

We think we are relatively placed in a relatively favorable position.

But, we are working hard to see what we do.

It's improved somewhat this month in October, but it's an issue.

Great.

I will leave it there.

Thanks very much.

All right, thanks.

Carly Mattson with Goldman.

My question is regarding the former PXP bonds and the equity claw.

Given Freeport's current cash balances and the cash flow outlook for this year, does it make sense to think that the likelihood of Freeport considering either issuing debt or drawing down the resolver to fund the equity claw on the PXP debt has increased?

Or how should we think about that?

Carly, this is Kathleen.

We are very focused on those equity claw and the opportunities there.

We're going to look at a variety of options to take those out, whether it be from monetizations or refinancing.

So, we are focused on taking advantage of the economics of those securities.

Okay.

Great.

Thank you.

You know, refinancing is a good option, not so much just drawing down on our credit facility.

Because that's a cushion that we want to have available for whenever we need it.

Harry Mateer with Barclays.

Hi, thanks.

First, just a follow-up on Carly's question.

There seems to be a lot of confusion and different views out there about when you have to exercise that equity claw if you choose to do so.

Can you just clarify for us?

Is there a six-month window you have to do that in from timing of the merger completion date, which I think would be the end of next month?

Or is that not the case?

Secondly, on the potential MLP, do you consider an MLP to be a deleveraging event?

Given that oftentimes it can just be moving debt from one box to another?

How do you think about that in relation to actually taking your debt balance down versus other options you have on the table such as asset sales?

Regarding the first question, the claw expires three years after when the bonds were issued.

So, there are varying expirations.

Most of them are in 2015.

We've got one in a smaller piece in 2014.

But, it's three years from the date of when PXP actually issued those notes.

In terms of the MLP situation, as we look at that, we will look at it as a way to enhance the overall credit profile of the Company.

So, we will look at how to do that, in terms of bringing in proceeds in a value accretive way and looking to use those proceeds to retire debt at the parent.

So, we are looking at it both from a credit standpoint, as well as an overall value standpoint.

Okay.

So, the equity issuance that would count for purposes of the equity claw?

You can just do that anytime in the next couple of years?

Yes.

It's really the equity being put down from the parent to the FMO&G subsidiary.

That's the equity event.

Okay.

Thank you.

All right.

Well, thanks everyone for all your interest and participation, and we look forward to speaking with you as we progress in the future.

Ladies and gentlemen, that concludes our call for today.

Thank you for your participation.

You may now disconnect.