費利浦·麥克莫蘭銅金 (FCX) 2014 Q1 法說會逐字稿

Welcome to the Freeport-McMoRan First Quarter Earnings Conference Call.

(Operator Instructions)

I would now like to turn the call over to over to Miss Kathleen Quirk, Executive Vice President and Chief Financial Officer.

Please go ahead ma'am.

Thank you, and good morning.

Welcome to the Freeport-McMoRan first quarter 2014 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 is being broadcast live on the internet, and anyone may listen to the call by accessing our website homepage 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 the call include forward-looking statements.

Please refer to the cautionary language included in our press release and presentation materials, and to the risk factors described in our SEC filings.

On the call today are Jim Bob Moffett, our Chairman of the Board, Richard Adkerson, Vice Chairman, President and Chief Executive Officer, Jim Flores, Vice Chairman, President and Chief Executive Officer of Freeport McMoRan Oil and Gas, and we have a number of senior team members in the room with us today.

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

After our comments, we'll open the call for questions.

Today, FCX reported net income attributable to common stock of $510 million or $0.49 per share for the first quarter of 2014, which compared with $648 million or $0.68 per share for the first quarter of 2013.

Our first quarter results were negatively impacted by lower sales from Indonesia, attributable to the regulatory ban on concentrates imposed in mid-January and to lower copper prices.

We benefited from strong operating performance from the oil and gas business, and from our of Americas and Africa mining operations, which partly offset the unfavorable impacts.

The consolidated first quarter copper sales of 0.9 billion pounds were about 9% below last year's first quarter, primarily as the result of the deferral of exports from Indonesia, which reduced or deferred our copper and gold sales by approximately 125 million pounds of copper, and 140,000 ounces of gold.

We are actively engaged in discussions with the Indonesian government to work to resume exports as soon as possible.

Our first quarter sales of oil and natural gas totaled 16.1 million barrels of oil equivalence, which was above our recent forecast.

The first quarter average recorded copper price of $3.14 per pound was below last year's first quarter of $3.51, and gold prices at $1300 per ounce were 19% below the year-ago quarter.

Oil prices remained strong during the quarter, with Brent prices averaging about $108 per barrel.

The average realization by our oil and gas division was $99 per barrel, before the impacts of derivative contracts.

During the quarter, we generated operating cash flows of $1.2 billion, that was net of about $400 million in working capital uses, and our capital expenditures for the quarter totaled $1.6 billion.

We ended the quarter with total debt of $20.9 billion, and our consolidated cash position was $1.4 billion.

I'll now turn the call over to Richard, who will be referring to the presentation materials.

Thanks, Kathleen.

Good morning, everyone.

Looking at page 3, you can see the cover of our new annual report, which we're just now beginning to distribute.

It's got a band of a depiction of our resources like a rising sun coming over the earth, which I think is a good way of thinking about our Company.

We have this great long line of geographical diverse set of assets.

At today's commodity, prices you'll see that across our set of assets we have really strong margins, in both our mining and oil and gas business, and that generates good cash flows.

We have, of course, exposure to what we believe will be improving markets for commodities over time.

And in addition to that we have the opportunity to grow volumes through our production profile.

We've got good strong exploration leverage, both in the mining business through our Brownfield expansions, and in the oil and gas business where we have Brownfield type growth opportunities from exploration, as well as Greenfield in the Deepwater and in our gas exploration play.

We'll be talking about that.

Our Company is financially strong, and we've got a great team to do things in the right way.

We're experienced.

And we manage our environmental responsibilities and our [community] responsibilities in the right way.

All through 2013 and going into 2014, our code word for our Company has been execution.

And we have assets that we can benefit from if we execute our plans well, and we have another quarter where we've done that.

We had solid performance in our mining operations in the Americas and Africa.

We're going to talk about the restrictions that we have currently on our sales from PT Freeport Indonesia, because of these government export regulations.

But we benefited from a very meaningful contribution from the oil and gas business.

This is our third full quarter of operations after closing the transaction in June of last year, and the oil and gas business had strong operating and financial performance during the quarter.

We also will report that we've advanced our growth projects.

The Morenci expansion expected commissioning startups in this current quarter.

The Cerro Verde expansion is construction as well in progress towards the 2016 startup.

The Lucius development Deepwater Gulf of Mexico project has its first oil expected to be produced in the second half of this year, and then we have very positive results from the exploratory results at our Highlander prospect in offshore in South Louisiana that Jim will be talking about.

Financially, our financial results were affected of course by the we're going to call deferral of volumes as a result of this Indonesian this pending resolution of the Indonesian export situation.

That reduced our volumes in the first quarter by about 125 million pounds of copper and 140,000 ounces of gold.

So other than that, if you look at our actual volumes for the quarter, we were on target with the guidance that we gave you at our last quarterly outlook.

So, we have the situation where we were affected by that, we're going to talk about it.

But other than, operation performance in terms of volumes produced and cost structure was really, really attractive.

The situation that we have now in Indonesia is because of the government regulations that were adopted on January 12th.

We have had no export shipments from PT Freeport Indonesia.

We are able to ship concentrate to the smelter in Indonesia that our Company arranged to be constructed back in the 1990s.

It's operated by a company called PT Smelting, which we have a 25% equity interest in PT Smelting.

The operator of the smelter is Mitsubishi, so we have adjusted our production of concentrate to align the volumes of concentrate that we're producing with the requirements that can be processed at PT Smelting.

That results in our mill operating at roughly half capacity, and of course the inability to sell concentrates at full capacity does have negative financial impacts.

Not only to our Company, but to the government of Indonesia through reduced taxes, royalties, and ultimately dividends from that.

What we're doing operationally is we are putting priority on the operation of our DOZ underground mine the block caving operations, since that operation needs to continue to operate to preserve the caving activities that are part of it.

We're mining lower grade material, and focusing on stripping in the Grasberg open pit.

We're also doing maintenance activities so that we will be prepared to return to full operations when the government regulatory situation is resolved.

To date, we have not made significant cuts in employment.

We have not had significant deferrals of our ongoing major capital projects, which are important as we look at a transition from the open pit mine at Grasberg to mining underground at the Grasberg Block Cave beneath the pit, which we're looking at roughly at the end of 2016, 2017.

So essentially, where we have today and you see reflected in our financial results, also reflected in the benefits that government gets is maintaining basically 100% of our cost structure, but having sales at 50% or lower than the issue.

We are working with the government to achieve a resolution for this.

The government ministries are focused and appear to be making progress towards reaching a resolution of it.

Indonesia had last week a major collection of its national Parliament and also local bodies.

It was a massive undertaking, and that election situation took focus away from many people in government from resolving our issue.

It's also created a political context, in which resolution of some of these issues is complicated.

But that election is behind us.

There's a presidential election in early July.

We know that the government is focused on getting a resolution, and we're working to encourage them.

One of the complications is that we're viewing this issue in the context of our contract of work.

Our contract of work was signed in 1991.

It defines our financial obligations and our operating rights there.

Many in government are focusing on the 2009 mining law, which represented a change going forward in Indonesia from a contract of work environment to more of an operating license situation.

The government is looking to move [calholders] more to the mining law requirements, and that's part of the complications we're having in how to deal with this issue.

We have reached out to the government to try to be responsive to some of their aspirations.

We have indicated a willingness to develop additional smelter capacity in Indonesia in the form of where their government would provide us certain financial incentives, because the economics of building a new smelter are really unattractive within global smelter economics.

We're talking potential partners, including ANTAM, the state owned mining company there, in terms of working with us on this project.

When you see our outlook numbers that Kathleen referred to, that's based on a resumption of beginning operations in May, and we're optimistic about doing that.

But that is dependent on the government moving forward to change its regulations.

Because currently under the regulations, we don't have the authority to export.

So we need to have this authority granted, and then we'll deal with the regulations that are adopted in giving us that authority.

If we are delayed any further, the deferral would result at a rate of about 50 million pounds of copper a month and 80,000 ounces of gold.

Our numbers reflect beginning to operate in May that we're going to be sharing with you, and that we shared with you in this release.

While we don't think this will continue for a long period of time, in the event that it does, we could operate as we are now physically.

But economically, a continuation of this over a long period of time would require us to take actions to reduce costs.

That means layoffs, and deferred capital expenditures.

That's not really good for anyone.

And particularly, we have a particular concern about the impact of that on our workforce of having layoffs, and on our long-term ability to realize the benefits of this ore body, both for our Company, and the government of Indonesia and the local community.

So there would be nothing good from laying off people or deferring projects, and that's why we've deferred doing this to this point.

But we would be required to do that if this goes for a long period of time.

Page 7, just reference how positive our work with the government of Indonesia at PT Freeport Indonesia has been over the last 40 years.

Since our contract was signed in 1991, we've contributed $60 billion to the national GDP.

We're over 90% of the economy in the region where we operate, over 40% of the province's economy and a significant contributor to the national GNP.

We have a workforce that includes employees and full-time contractors of 30,000 people.

We're one of the largest taxpayers in Indonesia.

As I mentioned, we were the developer of Indonesia's only copper smelter there.

It produces more copper than Indonesia as a country consumes, and we've invested to date over $10 billion.

As we move underground, we have a business plan that provides for additional investments of over $15 billion.

We contribute significantly to the local community, including a voluntary contribution of 1% of our revenues that has provided over $600 million since that fund was started in 1996.

That's an enormous social program for a relatively small population group, and we remain committed to being a positive partner with the government and with all stakeholders in Indonesia.

Over the last five years, we've paid over $7 billion of direct benefits, and that is more than has been paid to Freeport-McMoRan as the major shareholder of this operation.

Turning to copper markets, we saw in March a downturn in the market in the copper price.

It's rebounded some since then.

And there was a lot of concern when the downturn occurred about growth in China, about the existence of a significant amount of copper in off exchange bonded warehouses in China, and whether that might come to the marketplace in a context of relatively low global growth.

What we see though in terms of the business we're doing there now, and with what the market seems to be, is a situation of not where the copper market is being flooded by a large amount of new supplies.

We're not seeing a situation of where fundamental demand has dropped off any clip.

The market reaction is more dealing with issues that the margin place.

The fundamental demand in China remains healthy.

It's supported by consumer and infrastructure investment.

And the Chinese government has talked about incentives, relatively modest but important ones, in areas where copper is consumed.

The lower price is reduced the availability of scrap, and that creates more demand for copper cathodes.

Market reports that some of the bonded warehouse stocks are now being purchased by China as strategic reserve.

There's difference of views of how much that, is but it's an indication I think of volumes in bonded warehouses are not going to be dumped onto the market in any place.

Demand in the US, where we provide over 40% of the copper wire, is improving.

Our downstream customers are doing well, consumer confidence is growing.

Automobile and construction continues to be positive.

We have a smelter in Europe, and we're seeing an uptick in Europe from its low base.

But globally, copper cathode markets are tight.

Exchange in the consumer stocks are at historically low levels.

Scrap availability is tight, and premiums for copper cathode are strengthening globally.

And if we look into the future, we continue to be encouraged by the basic fundamentals of a commodity which its use is inherently positive in terms of in developing countries, as well as uses in the economy in general, and where development of supplies and maintaining production of the existing mines is challenged.

Page 9 looks at our cost structure, and this when we look and generally views at one the gas operations, you'll see what strong margins we have there.

But this margin story applies to our copper business as well.

First quarter, our consolidated unit cost net of byproduct credits was just over $1.50 a pound.

That gives us a good margin at $3 copper, and of course we are positive about copper prices moving forward.

You can see how that breaks down by areas.

And outside of the situation in Indonesia, you can see our cost performance has been strong.

Red's team in the Americas is doing a great job.

Our African project is doing well.

And you can see that in our distribution of our copper sales between North America, South America, and Indonesia and Africa gives us a good diversity in our copper business, and that's aided by our investments in the oil and gas business.

Our Brownfield development projects are proceeding well.

Cerro Verde is the big product.

It's $4.6 billion current estimate.

We started construction a little over a year ago, and we're on target to complete it in 2016 to add 600 million pounds of copper per year.

We've incurred just under $2 billion to date.

This will be the world's largest single site concentrating milling facility, and to can see groundwork being completed, physical destruction started, this is a site where construction can be undertaken on a relatively low risk basis because it's at an existing site where we were already operating.

Morenci is really exciting.

This $1.6 billion project is being completed.

Commissioning startup is expected to occur this quarter at 225 million pounds of copper, $1.3 billion we've incur to date.

What so really great about Morenci, is this is a mine people thought 10 years ago was dead, and now we've got this expansion project.

We're making a lot of money there with what we already have.

And we have a place where our exploration team is working hand-in-hand with our development group to give us the next stage which could be a very large scale expansion there and making Morenci one of the largest most profitable mines in the world.

So it's a real excitement for this to happen here at the flagship mine in North America for the industry, and our team is very enthusiastic about it.

And when you look at our copper potential around the world, with what's going on with Morenci, what we have Grasberg, what we're doing with Cerro Verde, and the opportunity at El Abra in Chile, to have potential for a massive concentrator development project there.

And with Tenke, which is this massive mineralization area, we have the chance to have in our portfolio five of the very largest mines in the world.

And that's what we're working towards.

I'll come back and talk about the outlook, but, Jim, turn it over to you and let you talk about our oil and gas business.

And congratulations on such a great quarter for you and your team

Great, Richard.

Thank you.

Welcome everybody to the call.

This morning I want to start with page 12, and gold through the Brent LLS crude oil pricing relationship, and how it affects our business or how well-positioned our business really is.

And you see the curve there with the green and orange on our slide 12, you can see that it's very consistent through the past 10 years.

Except for right at the end, where we saw a little pressure on the LLS side and the merger from the Brent.

We believe that's a one-time type event with the opening of the southern leg at Keystone.

We saw the tremendous crude oil inventory exiting cushing and going down to the Gulf Coast, namely Saint James.

The refiners obviously took advantage of that and doubled down by having a significant amount of turnarounds, and therefore you had some downward pressure there on margins that affected a lot of margins of all upstream businesses.

I refer you to the black box down below, where you can see what FM O&Gs realizations per barrel before hedges are, and you can seen in June 2013 $97 a barrel.

Obviously we a fad this quarter, in the third quarter, 2013, $106, $94, $100, these are basically reflecting that same curve volatility, as well as its basis differentials.

But in the first quarter of 2014, to a have a $99 differential when you have that type of [boil] [out] in basis, just shows you the resilience and positioning of our assets, also the quality of the oil that we're producing.

When we talk about HLS, LLS, and Brent, we produce a significant amount of HLS crude oil in the Gulf of Mexico oil heavy Louisiana sweet, which basically trades at a premium to LLS.

Therefore, when you se basis differential created here like on page 12 between Brent and LLS, we are actually in excellent position to continue to sell our oil at the highest prices, and therefore reflects that $99 a barrel differential.

One more thing operationally there, is we're continuing to produce more crude oil versus natural gas or liquids or condensate.

And with that crude oil margin so strong in the upper [$80s], then we're able to obviously continue to expand that margin, instead of contracting it to offset these market conditions.

The market has since rebounded, LLS and Brent is now trading closer to in parity, and we're taking advantage of that obviously with ongoing operations.

Page 13, with our oil and gas assets gives you a snapshot of our four major producing areas.

California, the study producer, has continued to generate very strong returns for our invested capital, and supports underlying consistency of our $900 million of operating cash margin we had in the first quarter of about $59 a barrel margin, almost $60.

The Eagle Ford, we've continued to add out performance there beyond our initial curves on our tight curves for reserves and production.

But an excellent job of managing our completion inventory, and continued to outperform in the Eagle Ford, and do a very good job of extracting the resources there.

Our Haynesville is a significant gas resource.

We continue to keep that incubated as we develop our inboard tertiary Crestaceous gas play.

We feel like it's going to be a balancing act between that reservoir and the large flows we'll have coming out of our South Louisiana asset base.

But the Haynesville continues to be a significant gas reserve, and when gas prices move up 90% our margins move up 90% due to a 25%, 30% increase in gas prices, it certainly feels a lot better to be in the Haynesville than in years passed.

Then on to the beast, the Gulf of Mexico Deepwater we're continuing to outpace our production goals there.

We have superior production management and reservoir management.

We have offset any projected natural declines with those activities, and have actually drilled our first well in Deepwater after our acquisition of the Gulf of Mexico assets back in the Fall of 2013.

It feels like a decade ago, doesn't it, Richard?

The first well, the A-16 well off our Holstein platform, we have now 60 feet of gorgeous 30% porosity boxcar pay that we're going to be bringing on here in the next month.

And we'll be talking about that as we flow.

It's always good when you've got a long-term campaign to try to bring on 8 to 10 of these type projects a year, about 40,000 tor 50,000 barrels of oil a day for the next six years in our development plan just on those assets each year.

That it's always great to get off on a good start.

It's like a good drive in the first round of Augusta, it feels good getting off the number one tee box.

So all is good on the operating side, and the strong cast margin that Richard was talking about is well intact and we're looking forward to good from the operating standpoint.

The cash margin is detailed here on page 14.

You've got California Eagle Ford, the gas assets, and Haynesville, [madden] and other, our GOM and the consolidated where you get you to the $58.71.

You can see the strong emphasis on the Gulf of Mexico, and the Eagle Ford with our strong LLS pricing there is where our top performers there, and as well as I mentioned the large increase that we had on a margin basis in Haynesville due to gas prices, and then California has continued to be steady around $55 a barrel.

Moving on to page 15, we were very successful in the 2014 central Gulf of Mexico lease sale.

We outlayed $330 million of total high bids.

We're waiting for those bids to be awarded, and it's to cover 20 blocks, and over 106,000 gross acres.

Our net unrisk resource potential of 1.1 billion barrels associated with these new acreages, it's very important and added to our inventory.

But it's the continued execution of the strategy we had.

As we acquired these, assets we wanted to core up all the tie back opportunities to our facilities and give us our infrastructure leverage.

Remember in 2013, we were very active around the Holstein area in Green Canyon.

Buying leases, like we bought $6 million in 2013, the majority of these leases in 2014 were around the Musubi Canyon, the [Aspa] [Nobo] area around our Marlin, and Horn Mountain, and [Ran] [Pau] facilities.

This puts us in position to have those type of development activities I talked about by bringing that production forward through 2020, and helping drive our total production volumes in 2020 up to about 110 million barrels a year, versus where we are today at about 64 million.

This business is in tact.

We have the real state.

And like Richard talked about, it's execute, execute, execute, and we're very excited about having this opportunity.

Just to refresh everybody, on page 16 are those three large facilities that were producing about 65,000 barrels a day total right now, which is consistent with where we've been.

And that's why I was talking about the production management of offsetting any projected declines, and we have about 250,000 barrels a day or we have 75% of unutilized capacity going forward.

So to be in a unique position to have the resources under our control, under our budget, and have the infrastructure in place where we can actually execute this plan in the Gulf of Mexico without the capital outlays for facilities and things of that nature is very unique.

And we're finally in a position to do that, assuming all the leases get awarded to awarded to us here this Summer.

Looking forward, on the near-term production growth side, our Lucius Deepwater development is on time, on schedule.

Our operator, Anadarko, is doing a fantastic job there.

And there's always a few bumps and bruises, they make it look easy, and we really appreciate that.

But we're on schedule here, and hopefully third quarter now as we're bringing in the world class reservoir on and deliverabilty will be impactful to our Company going forward very soon.

So, on the oil and gas front in the Deepwater, everything's moving forward.

We have a lot of drilling activity coming up in the next 18 months, so spirits are very high.

One of the other areas that's really helping focus our capital budget and causing us to think about a long-term exciting area is our inboard lower tertiary Cretaceous activity, and it all queues Iraqis off of our Highlander discovery.

It's going to be easy talk about Highlander the rest of this decade and so forth, and offsets and so forth.

But remember, it all started with Blackbeard and Davey Jones.

Blackbeard proved that we could drill the wells, and there were sands below the salt wells.

Davey Jones was one of the deepest wells in this area that not only drilled the Miocene and [Oligocene], the lower tertiary, but it also drilled it our first Crestaceous well South of the Port Hudson Tuscaloosa Cretaceous trend that's on map 18, and north of the BP Tiber well which is about 250 miles offshore.

So that key well stratographically set up the drilling toward Highlander as we move closer to the better sands to the north, and develop not only a huge structure, but also had the reservoir characteristics that we feel is very correlative to excellent production and reserve deliverability capabilities in the Gulf Coast basin and that's our Highlander discovery.

So we're in the process of completing Davey Jones number two in the Crestaceous.

It's in a different sand facies, carbonate facies, that Highlander has.

However, we want to continue to learn from the Davey Jones well, and we should have that well tested here in the second quarter.

We're probably a month away.

Then we've got to move on to Highlander development.

We have that well moving quickly toward completion in the third quarter, and we hope to have the Blackbeard West completion sometime in early fourth-quarter.

The Blackbeard West completion because of the laminated sands are going to tell us a lot about our Lafitte discovery that made two years ago.

And that we're purchased the leases due to expirations.

And also, we've drawn a lot of correlations to a recent well we've drilled with Shell at Ran Pau, our A-11 well in the L Sand which is a highly laminated sand that made over 220 million barrels at Ran Pau.

So the Blackbeard West completion is very important to understanding what the aspects of that are.

And moving to the west, after drilling this (inaudible) in creek, we moved the ridge.

We're getting ready to farthest [gate] West prospect from the [Melakascene] refuge up there in Cameron Parish, and we're looking forward to the drilling results of that here in about 9 to 10 months.

All in all, we're moving forward on development here and look forward to having a tremendous gas resource year to deliver to the marketplace starting in late 2015, 2016.

Richard, with that, that's the ops update, I'll turn it back over to you.

Thanks a lot, Jim.

On page 19, we give our update that we do every quarter for the year 2014.

Again, this is based on returning to normal operations at Grasberg in May.

While our sales have been restricted, we have produced concentrate into inventory.

And that will allow us, as we coordinate future shipments to customers, and our customers have been working very cooperatively with us as we go through the situation with the export ban, would allow us to recover much of the shortfall that we had in the first quarter.

So on that basis, we are looking at 4.3 billion pounds of copper sales for 2014, 1.6 million ounces of gold, 97 million pounds of molybdenum.

Dave Thornton, is here, the price of moly had gone up 30% in the past month, which is positive for us.

And then the positive outlook of 64.2 million equivalent barrels of 70% of oil.

Unit cost on the basis of $1,300 gold and $10 molybdenum, we're above that right now, would be $1.41 for copper, as Jim talked about, attractive unit cost for oil at $19 per BOE.

At $3 copper, last quarter we were using $3.25.

We're not predicting, we're just showing you a model here that shows operating cash flows at $7.7 billion on the basis of that plan.

Each $0.1 change in for the remainder of 2014 is significant to $275 million.

No changes in our capital expenditure outlook of just over $7 billion.

Page 20 shows our sales profile as we go forward.

You can see the significant increase in volumes that come about as we bring these development projects online.

2016 is a special year, in the sense that it's our last really full-year of production in Grasberg open pit.

So we'll have access in that case to very high grades of copper and gold, low stripping, and that ends up with an extraordinary year particularly for gold at you can see it.

An outlook for 3 million ounces, but also for copper, strong molybdenum sales, growing oil and gas sales, as Jim talked about, and with significant growth beyond 2016 oil and gas business.

Our quarterly outlook is presented on slide 21.

You can see increasing volumes as we go through the quarter.

Gold sales at Grasberg are affected by mine sequencing, and you can see our outlook for our oil and gas business as well as our molybdenum business.

The outlook for site costs in the mining business is presented on page 22, based on $1300 gold, $10 molybdenum outlook for consolidate unit cost at $1.41.

You can see the spread for our copper sales.

You know have more than 40% in North America, more than 30% in South America, roughly just over 20% in Indonesia, and 10% in Africa.

With our cobalt coming from Africa, our molybdenum principally from North America, and our gold from Indonesia.

Our model outlook for EBITDA and cash flows is presented on page 23.

What we're showing here is an average of our 2015 and 2016 operating plans.

And then with set prices with variances for copper and it's the most significant driver of our earnings and cash flows.

And at $3 copper EBITDA of just over $13 billion and $10.5 billion of operating cash flows, $16 billion EBITDA at $3.50 and $12.5 billion of operating cash flows.

And then if copper were to average $4 during those two years, then the amounts to very significant levels, $18.5 billion and $14 billion.

Sensitivities for our year on [youth] in developing your models are presented on page 24.

And our capital expenditures, which are unchanged from our previous outlook, are presented on page 25.

This year, there's just over $4 billion for mining, just over $3 billion of that is for the major projects, and $3 billion for oil and gas.

The commitment to balance sheet management, as we've been talking about since we announced the oil and gas acquisitions, we are focused on reducing the acquisition debt.

That focus is unchanged.

We are dealing with lower copper prices currently.

None of us know what it's going to be as we look forward.

We have some headwinds currently from the Indonesian export situation.

We expect that to be resolved and recover from that very quickly.

But despite those situations, we're still looking at targeting reducing our debt to something in the range of $12 billion by the end of 2016.

We anticipate continuing our current cash dividend on our common stock at $1.25 per share.

And we will reach this target by managing our large resource base, generating strong cash flows through execution, and being very disciplined in the way we run our business.

We're continuing to work on divestiture and monetization opportunities.

We're working with third parties, both in the oil and gas business and the mining business, and advancing potential transactions that would allow us to move towards our debt targets more quickly.

If we run our plans without any divestitures, the story is a good one.

Even at $3 copper, we get down to the range of $14 billion, even at the reduced copper level by the end of 2016.

But we want to get there quicker, and we're working hard to do it.

We have opportunities to do it with our asset base.

We can't announce specifics today, but we can report that the management team we feel good about what we're pursuing.

And we're looking at other opportunities beyond straight asset sales in terms of joint-venture arrangements potential, MLP opportunities focusing in on our California properties, which would be very attractive for the MLP market.

So all of those things are at work, and the story today is there's no wavering in our commitment to get to where we need to get to to have a strong balance sheet.

So that's our report for this quarter.

Some challenges, but that's the nature of our business.

We've been there before, and we've met them, and we'll meet these.

And we look forward to answering your questions.

(Operator Instructions)

David Gagliano, Barclays

Let me just ask a couple quick questions on Grasberg please.

First of all, on the commentary regarding the contingency plans you mentioned i.e.

more workforce reductions, capital spending reductions, what's a reasonable time period to expect for the start of these contingency plans?

Is this something we should expect to start to occur in Q2, Q3, or next year?

Well, Dave, what would drive that is not anything that's from a timing standpoint forces us to do it.

So long as we feel as we do now that we're moving towards a resolution of this issue, then we will not go through the negative impacts of having workforce reductions and capital defer us.

That's where we've been so far.

If there were to be something happening within the government that would lead us to conclude at any point in time that they are just going to leave the situation in place for a long period of time, that's when we would act.

So we believe this is going to be resolved in the relatively near future.

That there's progress being made, that people are working towards reaching a resolution.

And we would only act if we got word from the government, hey, we're not going to do anything.

We're just going to leave is in place.

So it's not a specific time, but more of a reading of the progress that's being made towards resolution.

Okay.

That's helpful, thanks.

And then just somewhat related, the rate of deferral each month I think it's now you're indicating about 50 million of deferred volume each month that you're unable to export concentrates.

I'm just curious, why did that deferral rate increase, I think it was 40 million previously, 40 million pounds a month?

Dave, this is Kathleen.

We're just getting into some higher grade potential, and so that just reflects that.

The gold is the same as what we had said, before but the copper is a little higher impact

What we did, Dave, is when this first started, is we moved out of the lower regions of the pit and started focusing on mining at the higher areas where we had waste material.

All of these were things that we were going to have to do over time in our mine plan.

So we mine higher grade material, I mean lower grade material, waste, lower grade material, put some in stockpiles.

And now just because of mine sequencing, we end up getting into some higher grade material

All right.

Perfect.

I got it.

Why don't I hop out.

thanks for taking the questions, and good quarter by the way.

Tony Rizzuto, Cowen & Company

Congrats on a better performance and must better costs in Indonesia than we expected, especially during this very difficult time.

And it seems as though there was a bit of a breakthrough recently, at least in the regaining the ability to export, and this morning it looks like there's an article the Jakarta Post that indicates that the government has revised the controversial export duty.

And according to the Deputy Finance Minister, I guess, which is being quoted, but is the progressive export tax now no longer an issue Richard?

Well, Tony, let me just make a comment.

And this is not just unique to Indonesia, you see it here in newspapers.

As you know, because you've followed us over a long period of time, we just caution you about reacting to daily press releases.

Comments are made by a variety of people in government, and there's inconsistencies.

We will keep everybody informed when there are major developments and so forth.

Now, we think the current export duty is prohibitive.

It goes up to 60%.

You just can't pay that and run your business.

So, when we talk about progress, it is progress in the sense of dealing with this export duty, and that would mean adjusting it downward.

Our contract says that we pay no taxes or duties other than the ones listed in the contract.

And so that's one of these issues of where people in the government are focusing the new mining law, we're focusing on our contract.

And that's part of the discussions that are going on.

So, there is progress being made.

The progress would necessarily entail a dealing with the currently prohibitively high export duties, but there's no announcements that we're prepared to make today about conclusions.

And when there are, we would make them.

It will require the Ministry of Finance to adopt new regulations.

They have not done that yet.

We have had an important step in being designated as an authorized exporter by the Ministry of Trade, but there's several procedural steps that we have to go through to get this behind us.

Okay.

Could you maybe discuss in greater detail that the complexities you guys are facing as it relates to [COW] extension?

And then, in light of the 2009 mining law, I know there's been some there were further changes in 2012, and the government seems like it is trying to convert the COW to that new business license structure.

Should I be looking at these discussions, all of these whether it be the concentrate exports, export types of smelters, as being linked, or are they separate and distinct from the COW extension discussions?

Okay, it's all linked fundamentally.

But we are focusing immediately on trying to get to a point of where we can export concentrates and return to normal operations.

That will not require dealing with all of the COW issues.

We would like to see the COW issues dealt with.

We been working very actively with the government for 2.5 years now to do that.

That's complicated and difficult to do in the current political environment.

So, it's a two-step process.

First step, is to reach a basis through regulatory changes and government approvals, so that we can resume exports, get back to working in a normal way.

And we'll continue to have discussions on the COW extension, and that's where this issue comes up of our being committed to supporting and sending our COW.

The government wanting to move COW holders to the new regime that's defined by the 2009 mining law, and that's the basis for the debate.

Okay.

And then just to switch gears a little bit here, in terms of the asset sales and in the discussion you indicated that you're actively engaged in discussions.

I was wondering, does the expansion enhance long-term viability of Morenci make it more likely you guys could part with other lesser core assets in North American mining?

Well, that's an interesting question.

We have opportunities to do that, but I think you were down in CESCO week in Chile, unfortunately I couldn't make it this year.

But I think one of the things that comes out of there is the reality of the mining industry is basic.

The US is increasingly looking attractive for development.

The energy situation here that's affecting industrial development across the board in the US comes into play here in the US for our mining projects.

So today, the US has a very significant advantage over expansions in South America because of the cheaper energy here.

We're also seeing, increasingly, the benefits of the US workforce.

We're non-unionized here.

We have a very flexible workforce, where it's easier to staff up for expansions and then adjust if you have to adjust than in South America, where you have unions and government policies that make it difficult to flex your workforce.

Water is an issue in the United States, but Red and his group have done a great job in securing water opportunity for us here in Arizona.

Water is a huge, huge problem in Chile, and that ties into energy because of having to use [desile] projects that requires a lot of energy to pump the water and run the projects.

So, when we size things up, we're increasingly encouraged about opportunities to expand in the US, and more than half of our resources now are in the US.

So in any event, this Southwest copper district has rolled away the stone from the tomb and is looking really good for us.

What we wouldn't want to do is sell assets that have significant growth opportunities, because we're so positive about the long-term future for copper.

And we have those in the US.

That makes a lot of sense.

I think that I appreciate the insights.

And yes, I did miss you at CESCO there, Richard

I missed you too, Tony.

All right.

Thanks a lot.

If you have further questions, we'll let you get back in line.

Sal Tharani, Goldman Sachs

Wanted to just ask you if your current labor force, you are still keeping them -- my understanding is that they are doing maintenance work pre-stripping.

Does it imply that the future cost could be better if once these things (inaudible) as all the preparation work is being done right now?

Well, the answer is yes.

Our cost structure in large part is fixed.

We do have some variable costs, but we have a lot of fixed costs.

So obviously, when your volume is backed up you're going to see the unit costs come down.

But we are getting ahead of the curve on, as you mentioned, some stripping activities and some maintenance activities, and that will have some benefits at the margin as we go forward.

But the theme to it is getting those volumes flowing.

That's where we make the money because [asked for the tri] margins, and we just need to get the shipments going to our customers outside Indonesia.

Got you.

And, Richard, is there any difficulty or concern if you reach an agreement and the new government comes in they may have a different view again, is that also hampering the discussion?

Or are you confident that whatever deal you make or whatever solution you make with the current government will actually be honored by the next government?

And we have seen Indonesian government have what they have done with their COW, and change the rules during the game.

And if there's a concern that it may happen again, even after the resolution with the current government.

Listen, we've been there for over 40 years.

You think about the huge concerns that were there from the unknowns that happened when Suharto stepped down in 1998, and the government has evolved since then.

The government will continue to be evolved.

In Indonesia, there's a lot of places in the world, there's a lot of nationalistic political views that's popular with the local population.

It really comes into play with natural resources, and that's just something we have to do with.

So the answer is, we're going to be dealing with this issue forever, and we've had experience with it.

There's a lot of reasons for whoever -- the basic issue for Indonesia is this.

Indonesia has grown so much and it has developed over the 25 years that I've been going there.

They still have a growing young population with a lot of unemployment.

And while their local economy has developed, they need to create jobs.

Any political leader that comes in there from whatever party, is going to be faced with the necessity of creating jobs, or they're going to fail.

And to create jobs, Indonesia does not have an internal savings rate that's enough to fund the capital investment to create jobs.

So they're going to need foreign investment.

And regardless of nationalistic views or feelings about self-sufficiency, which you hear a lot of today in Indonesia, the reality that people face there as around the world people face, is creating jobs for young people.

And in Indonesia, that's going to require foreign investment, and that's going to require Indonesia being part of the world's economy and that's the reality.

We stay out of politics.

The people of Indonesia choose the kind of government they want to have, and we don't try to influence that.

We prepare ourselves to work with whatever governor the people elect.

I did understand the smelter is going to create 500 jobs, and if you shut half the mine down, that's going to will cost 15,000 jobs to go away.

We've had those discussions.

You can be sure that those discussions are made.

Part of the problem that's a complication, I'm sure as you know, Sal, is this was originally directed at other minerals.

Where Indonesia is the world's largest export of nickel ores.

I think they provide two-thirds of the bauxite to China, significant tin exports.

And in those industries where they were just exporting ores, Indonesia was seeing value creation going to other countries.

That's not what it is for copper, but politically we're in a complicated situation and trying to say treat copper and a Company like Freeport differently than your treating the small nickel exporters, and that's a tough political situation for the government to be in.

But yes, we've made a point, and you're right.

Curt Woodworth, Nomura

If you can expand on the asset sale potential?

I think in the past, Company has talked about potential of $3 billion to $4 billion in asset sales.

And then specifically with regards to California, as you're thinking in the MLP opportunity that you would want to divest that to an existing MLP, or potentially create your own?

This is Jim.

Regarding asset sales, we're looking and exploring all options.

The LMP study and the discussion we've been having internally is basically maximizing the value of our [onturoyal] oil assets.

They're long lived, they're low decline, they're the prototype MLP asset in the investment banker and any of your firms will come tell you that aspect of it.

But the key is, and foremost, what does it do for the FCX shareholder?

And as Richard and Kathleen talked about our balance sheet discipline and with high oil prices, gives us an opportunity to transfer some of that value from the assets themselves to the FCX to shell to form a debt repayment.

That being said, we still want to maximize our oil business because of the high margins and the growth.

And what we're seeing, this is going to be a long-winded answer to your MLP question, but what we're seeing in the Gulf of Mexico is all the growth potential we have, all the development activity, and the ability to grow that business much faster.

So we're in the early stages of getting our hands around rotating out of our onshore oil business at the highest value possible.

And the MLP might be a vehicle to do that either internally, or sell, or a joint venture with it existing MLPs, or just sell outright those assets.

And monetize those assets, and help accelerate the Gulf of Mexico.

What we've found in our modeling is that we can grow faster in the Gulf, and hit the same targets by monetizing the onshore assets and rotating into the offshore business.

The MLP discussions or valuations are going to be one part of doing that successfully, because of the valuations for those assets.

The current headwinds in the MLP market are severe, with the banks exiting the hedging market and the severe backwardation.

You've got 20% to 25% backwardation in the crude oil curve over the next 36 months, yet you've got oil demand never stronger, it's up 1 million, 1.5 million barrels a day worldwide with 3% GDP growth.

So there's going to be continued headwinds to doing a traditional MLP of just hedging the oil volumes, levering it up, and selling it to another set of investors.

At the same point in time, these properties are to be around for a long, long time.

So what you could see is the next several years is us rotating that business, continue to use the excess sales proceeds to reduce the balance sheet, as well as rotate to higher growth assets in the Gulf of Mexico.

And the $3 billion to $4 billion target that we've all talked about is going to be underpinned by that activity as well as anything on the mining side.

Here's where it comes together.

Here's, fundamentally, where we're approaching the oil and gas business and the mining business the same from this perspective.

We're big believers in the future of the commodities.

We're big believers in the future of growth through our set of assets.

So we're looking to enhance the assets where we can grow.

And looking at our other assets, which have value and are good assets, that we might could monetize through sale, joint venture, MLP and reach this debt target.

But we've not, as I mentioned in the response to Tony, we don't want to sell assets that take away from our future growth opportunities.

In fact, we want to look for ways to enhance those assets.

So we've got those opportunities across the board.

And, Curt, we're just not at the point where we are and have discussion to be able to tell you specifically what we're doing, but our targets remain the same and we're optimistic about achieving them.

That's very helpful, and I appreciate it.

And just a follow-up on Indonesia, it seems like one of the key points the government is trying to make is to get companies to adhere to obviously the new licensing agreements that you guys stated.

And I think that for most companies operating under those IUPs, is there's a mandatory investment process.

Whereas, after five years, you have to start divesting your ownership stake, and I think by year 10 it's below I think 51%.

And I was wondering is this going to affect your view towards capital allocation going forward at Grasberg?

Obviously, there's a substantial CapEx swing as you go underground.

And do you have confidence that you'll be able to effectively uphold the existing terms that you have regarding your ownership stake?

You're right about the IUP.

We have a contract of work, and under that contract we have no divestiture obligations.

As we've talked before, what were trying to do is to sit down with the government, find ways that we can be responsive to certain of their aspirations, and voluntarily change the contract without throwing it out the window and abandoning it as a way of protecting our interest.

For example, with divestitures, we think if we as part of an agreement to extend the contract and to resolve all these issues related to the review of the contract and the mining law, that for us to list an interest of PT-FI on the Indonesian exchange would be positive for all parties.

Positive for the government, and positive for us.

So that's the sort of thing that we're talking about doing.

But as I mentioned earlier, the challenges of our debate is this issue you raised with the government wanting to go more in the direction of the 2009 mining law, we wanting to extend the contract, and trying to reach agreement on that during an election year where all the politics are volatile.

So, that's why we're focusing first on getting back to work with our exports, and continuing the discussions on the contract beyond that.

If we could resolve the whole issue, then we'd do it.

We want to do it.

But we've got to face the realities of where we are in the context of Indonesia today.

Okay, thank you.

But let's go back to your deal, we are confident we're going to be able to have a resolution of this.

So we continue our underground development, so we can operate there through 2041 in a very profitable low-cost way.

This has changed our view about exploration outside of PT-FI.

And looking at other places in Indonesia, unfortunately for the country, this new mining law is making it very difficult to doing new projects there in the mining business.

And so we have backed off of some of our exploration opportunities that we were pursuing because of the new mining law.

That doesn't apply to PT-FI.

Ralph Profiti, Credit Suisse

Indonesia, perhaps for Kathleen, I'm wondering how Indonesia may affect liquidity decisions in the next say six months.

We saw a net cash draw down in the quarter, and which bringing the cash balance down.

While between substantial lines of credit available, the dividend, CapEx, and as Indonesia and as all things come together, how is that strategy, if any, likely to change over the next six months as it pertains to liquidity?

Well as we've been talking about, our current plan is that we'll be able to resume normal exports in the second quarter.

And obviously we have contingency plans as well that deal with if the situation is extended.

We're not currently expecting that, but we do have contingency plans.

As you point, out we do have a very large undrawn revolver and do have the cash on hand.

But we'll manage the situation.

We'll manage our outflows, we'll manage our CapEx, all to maintain a very strong liquidity position.

Okay, thank you.

And my second question is maybe a little bit more of housekeeping.

There was $0.49 per pound that was excluded in the site production costs at PT-FI.

And I'm just wondering, is that related to the increased rate of [voice] stripping?

If we can have a little bit of discussion on what's actually in that $0.49.

Those were costs that were charged directly to cost of sales, rather than going through the normal process of going through inventory and then into cost of sales as the concentrate is sold.

What we did, and this is consistent with accounting rules, when you're not operating at normal levels you need to keep your inventory balances at what they would otherwise would have been.

So during the quarter, we incurred those costs that were outside of -- because we didn't have the volumes in inventory, those went directly to cost of sales.

But they were just the normal cost of our operations, it just was excess of what our normal inventory values would have been had we been operating at normal capacity.

I see.

Thank you very much.

That's clear.

It was explained as the cost of excess capacity to me.

For example, if we couldn't export anything or couldn't ship anything, we charge all the costs that were occurring directly as an expense of having excess capacity, and this is the element of excess capacity that we have.

Thank you.

That's very clear.

Ralph, I'm glad you called on Kathleen.

One of the benefits I have, is she looks over my shoulder as I'm making all these comments.

I mentioned that the Indonesian elections were last week, they were actually on April the 9th, just to be accurate.

Tony Robson, BMO Capital Markets

Following on from Tony's comments regarding the Jakarta Post article, and I understand your comment not to jump on the latest things you hear from Indonesia.

But to reiterate it again, the comments from the Energy and Mineral Resources Ministry that had talked about a flat export duty of 10%, would a flat 10% export duty for say the next three or four years while you're building a smelter, would that be acceptable to Freeport and to PT-FI?

Or would that be because it cuts across your contact of work as you've well pointed out, would that be an unacceptable compromise to you guys?

Thank you.

Well, I'm going to repeat the caution about assigning too much weight to even specific comments that are attributed to individual government officials.

So, I would again just suggest, like I do, I read the papers every morning, every evening, but don't react specifically to what people are quoted as to having said.

So, I would just caution you about putting too much weight on that.

But you do touch on an important issue for us and other contracted work holders, is that whatever the rate is, if one is imposed it would be contrary to the contract provision to say that we're only subject to taxes that are identified there.

We have urged the government, if they do impose a rate, to treat it as an income tax payment, and have it credible against income taxes as an offset to income taxes.

And that way, our taxes would be limited to what's in the contract.

We recognize that that might be difficult for the government to implement.

So what we will be faced with is how to deal with this.

We have a strong incentive about going back to work, principally to avoid harm to our workers and the local community.

We can manage this ourselves financially for the Company.

But we will have to work with the government on how we deal with this conflict, and how it preserves our rights for the contract.

And we're just going to have to wait to see what the regulations are before we respond specifically to that.

So, Tony, I'm sure you can appreciate, we can't speculate on that right now until we see what comes out of the government.

I understand, and thank you for that, Richard.

Oscar Cabrera, Bank of America Merrill Lynch

First of all, congratulations on the strong results.

We're starting to get used to oil and gas exceeding expectations, so hopefully that can be kept up.

Just want to start first with a clarification.

During your remarks, Richard, you mentioned that at $3 copper you expected the net debt to be down to $14 billion.

Does that imply that you expect to get about $2 billion in the monetization of whatever the case may be joint ventures or asset sales?

No.

And that's based on a model of just running our business and achieving our production volumes, and costs, and based on $3 copper and $1,300 gold, and $10 molybdenum, and oil prices being roughly at where they are today.

The point I was making is even though we've had the drop in copper prices, we still have a very strong business of generating cash flows at today's prices.

Now, if prices weaken or our costs go up or we have production disruptions, one of the reasons we want to derisk the balance sheet by advancing these sales and get all this debt talk behind us.

But if in fact we have other headwinds to deal with, which in our business you might have that, we always have the flexibility of reducing capital spending.

Particularly in the oil and gas business, as we talked about before.

Much more so in the mining business, you can defer capital spending and cut back.

It's more discretionary.

You don't lose resources by doing that.

As you know, Oscar, because you've been there, it would be very tough for us to back off of Cerro Verde now given where we are.

With our oil and gas capital spending, we have more flexibility if we were to have to adjust capital spending.

But my only point was, we haven't run off any cliff here from our basic operating situation, and we still have a strong business because of our margins at today's copper prices and commodity prices.

We still generate a lot of cash.

It's going to be backend loaded, because of our capital spending and the fact that we get the benefit of volumes after the capital projects are finished.

But even with that backend loaded and copper prices coming off of $3.30 to over $3 now, we still have a very strong outlook.

And, Oscar, I was reiterating the fact that the Gulf of Mexico as we get further into this we're getting more comfortable with it.

We're getting some of the planning and volatility we're starting to see success and results and so forth, and it's really allowing us to have more flexibility, as Richard said, to support the aspect of strengthening the balance sheet.

And at the same point in time, have a dynamically growing world business to support their long corporations growth long-term.

So as we're going through this process, there's nothing like a little low copper prices to make you refine the business strategy and look at things in a different way.

And I think it's been a positive result, and everybody that's been involved in the situation and asked stepped up the execution on the operations front has responded.

And I just continue to be pleased with our ability to work in tandem to the corporate goals, and at the same point in time ring out some operating excellence and flexibility in each and every business here.

And we expect that to continue.

Thank you both.

Not questioning the strength of the operation whatsoever.

It's more like if you're building a new smelter refinery in Indonesia, then just want to gauge the flexibility on that net debt target.

Because the expenditure of $3.5 billion or $4 billion over there, and I know you probably get a joint venture partner, it would be a different story.

But anyway, second question --

Let me make clear on that, just to be specific, Oscar.

That doesn't include that kind of spending in Indonesia.

We are talking with partners, and we've also talked with the government about the need to have government incentives to deal with part of that cost.

But that's not in the numbers that I've talked about, but that's something that would have to be dealt with.

But there's several moving parts right now.

Oscar is saying maybe we get B of A as a partner, Richard.

You don't know.

Well, we're talking to the wrong guy though.

Sorry, and then in the spirit of educating the mining guy, your oil and gas sales projections for 2016, and at the end of the of the year you said 81 million barrels of oil equivalent in 2016.

Now we're looking at 78 million.

And I'm guessing this is just deferral, but could you just go over where the change was or what's causing that reduction?

Oscar, this is Kathleen.

I think you'll notice that we moved some production into 2014.

We were previously saying 61 million BOE's, and now we're 64 million.

And we have moved some of the planned shut ins into 2015, and then moved some from 2015 into 2016.

So, that's affected the volumes.

But that's really what's driving it, and I think you'll see getting some volumes accelerated to do what we can to offset some of the shortfalls we've had in the mining business.

Right.

Oscar, and the shut ins she's talking about are the platform modifications, so we can bring on incremental production from the tie backs.

As we look, again, thinking about the business and every day and making sure we're making the best decisions that they make operational sense to group all those together at the end of 2015 and the first quarter of 2016.

And so those have affected production.

It wouldn't be individual well, it's just timing of those 45 day shut ins for each one of those major facilities.

And it's worth pointing out that these facilities were acquired from BP and Shell in the Fall of 2012.

So the team is learning more and getting experienced with it, and so changes in this range, Oscar, are just to be expected.

There's nothing that's significant about it, as Kathleen said, it's just we try to give you an outlook every quarter and outlooks are going to change.

No, I appreciate that, Richard.

Thank you all.

And it is just again, educating the mining guy.

Paretosh Misra, Morgan Stanley

At Grasberg, I see that the mill operating rate declined versus the last quarter, but what about the mining rate?

Did that remain pretty much unchanged, so you just basically did more stripping?

It did.

It was -- in the range of changes it was down a little bit.

Our mine rate in our DOZ mine, which is at relatively full capacity is still, what, Mark?

50,000 tons a day instead of 65,000 or 70,000.

We are making some adjustments to that.

And listen, somebody mentioned earlier, Mark Johnson is here.

Those guys have done a great job.

We completed our labor contract last Fall.

We've had a harmonious situation working.

We've had a good safety performance in the first quarter, which is a big concern and focus of our Company after the experiences of the last couple of years.

But the team has worked very well together.

We appreciate the support of our union and our workers.

So we've tweaked it, Paretosh.

It's down slightly, but we are continuing to operate at essentially full mining rates.

Got it.

And maybe a quick one for Jim, a question similar to Oscar's question.

For the second half of 2014, third quarter guidance is up, but fourth-quarter is unchanged.

Anything major that's driving that?

Yes, that was what Kathleen talked about.

We had previously planned to shut our Marlin facility down for the entirety of the third quarter of 2014.

We've now shift that to the third quarter of 2015.

So that's between 30,000 and 40,000 barrels a day that will be on stream here in the fourth quarter, and add to those volumes and those numbers.

John Tumazos, John Tumazos Very Independent Research

Thank you very much for all your efforts resolving the issues overseas, and the patient deliberations on the refinancing.

I'm a small shareholder and appreciate your hard work.

Some of Jim's comments about the oil and the gas properties went over my head.

Could you explain the unrisked potential?

Is that before a feasibility study saying what's recoverable?

And could you elaborate a little bit about the Highlander discovery and its relationship to Davey Jones and Blackbeard and the deep output potential please?

Sure, John.

On page 15, you're talking about the green box in our slide saying Total Net Unrisked Resource Potential of 1.1 billion BOE, barrels of oil equivalent.

That was respective to the blocks, the new tracks and new leases that we're the parent high bidder on, and are waiting to be awarded.

We're trying to give everybody a feel of what we feel is the resource potential.

When we start talking about putting it into a plan to be funded as a CapEx item and refining those plans, we will do it on a risk basis to make sure it's competitive with the rate of returns on a risk basis.

But when you're risking 1 billion barrels of oil, you get to a big number.

When you start with 1 billion barrels of oil and when you start risking, you get to a big number especially when you're talking about $10 to $15 a barrel, costs may be as low as $5 in some of these cases, some nice big reservoirs when you already have the infrastructure in place.

So I appreciate your question to give you a little more (multiple speakers) on that.

Let me see, because I've talked with John so long about this.

Maybe, John, what this is, this is a geologic analysis of what the opportunity is.

So in the oil and gas business what the next would be, would be to do further geologic analysis of the subsurface through seismic studies and so forth.

But ultimately, you have to drill wells to have discoveries or not, and then you delineate it, and then you move towards a development plan.

So this is sort of like in the mining industry of having widely spaced core holes, and now you have to do exploratory drilling, delineation drilling, and then you move towards deciding specifically how you have a development plan.

Does that make sense John?

Yes, that's real good.

Thank you, Jim, and, Richard.

And could you explain a little bit the Highlander discovery and the analogies to the other deep wells?

That was a little bit fuzzy to me.

John, this is Jim Bob.

Let me just pick up on the Highlander discovery.

The Highlander discovery is important because as we moved from the Deepwater and [Cod, from the Deepwater to Blackbeard and Davey Jones, we, as Jim said, we saw the [will] cross in Tuscaloosa, and with interfacings there that didn't have [porosities] and [perm] builders and thickness that you see on the Highlander discovery.

And the reason why the Highlander discovery is so important, is because we thought that as we moved to the north and blew between the Davey Jones and the Tuscaloosa trend, as you see to the north of Highlander and the logs on the right-hand column of slide 18 showed that two things have happened.

We've gone below the salt well.

This is the first well drilled below the salt well onshore.

And yet, if you look at this, even though we're 10,000 feet deeper, if you look at that (inaudible) below we've now got porosities in the high 20%s and spots of 30% porosity, and it has to do with the mineralogy of the Tuscaloosa Sands.

So what we've seen here, is a test that defines what the central part of onshore Louisiana is going to look like.

Now remember, this is a 200 -- about 100 square mile area, and as you see from that circle around the Tuscaloosa trend just like all be Miocene and well costs and other trends that are parallel to the coastline.

So what this Highlander well does, is it gives you a prototype well and what we think is happening is that you'll have and East West trend that parallels at the coast line working in.

So this opens up a whole new arena, and our database is the only one that has sufficiently working onshore.

So between that well and the well at (Inaudible), which has [yaybo] for the first time.

We got two new trends that are onshore and different than Blackbeard and different than Davey Jones, because were basically defining the East West opportunity in the [structure there] are huge.

Highlander is a 30,000 acre structure, so we're looking at trying to control all of these big sand plays.

So the Highlander discovery and the [laventry] discovery identified two new reservoirs that have good perm and good porosity.

They have long producing history.

Ironically, the press release that you send them for the Woodbine in Texas, which is the big [e-structures] field.

So we're talking about many potential different reservoirs that produce billions of barrels, so that's the significance of Highlander.

It opened up a whole new trend, and we've got the data and we're acquiring the major prospects.

We're way out in front of the rest of the industry on those.

I hope that clarifies why the Highlander is so important.

Brian Yu, Citigroup

Rich, I've got a couple of clarification questions.

One is just on the smelter costs.

I think last quarter, you guys said maybe less than $3 billion, and then Oscar earlier mentioned $3.5 billion to $4 billion.

I was wondering if you could just elaborate what your more recent studies or look suggests about the CapEx on a 100% basis before any government subsidies?

Yes, and part of it is, and this is just to indicate what the study is, the current smelter we have at Gresik is a Mitsubishi technology smelter that's continuous casting.

And the new smelters that are being built in China are outokumpu type flash smelters which we have a version of that, an early version of that in [quelva] at Atlantic copper, and also right in our Miami smelter here in the United States.

China, which has been constructing smelters aggressively in recent years because of their internal demand for copper, have advanced that technology and are building large-scale smelters using the outokumpu type flash smelting.

So one of the things we're studying is different aspects of that.

We had an international engineering firm do a prefeasibility type study, which was focused on the Mitsubishi type situation.

That's what we talked about earlier.

I think at this point, and we're working with ANTAM, which is suggesting within Indonesia we might could have beneficial labor costs, et cetera.

So, it's in the range of $2 billion to $2.5 billion is the number to think about.

There's some working capital issues associated with that.

But all of this is still within a pretty wide range of potential estimating, I won't call it errors, we're just estimating ranges because of the state of the studies today.

Got it.

Okay, that's helpful.

And then secondly, just back to the earlier discussion about MLPs.

And my understanding is that the valuations step up, a good portion of it has to do with tax savings.

But you don't pay any taxes, at least at the operations level, both at the energy or on the copper side.

So are there corporate tax savings that you would expect to realize from putting some assets into an MLP type structure that we should take into consideration?

Let me just make a couple of comments about taxes.

We pay substantial foreign taxes, as you know, where we operate.

So our cash tax obligations are substantial.

Not so much in the United States, particularly with oil and gas acquisition, because of some net operating loss carryforwards that transferred over and the current deductibility of intangible drilling and development costs.

So the benefit is not so much to the corporation, but to the investors.

In other words, the initial attractiveness of MLPs was to individual investors where you weren't faced with having taxes at a corporate level, and then taxes on dividends.

It was a true partnership, so it eliminated the INU level taxes, and then the tax attributes like IDCs and so forth flow-through directly to the unit holders.

But what's happened since the development of MLP concept is today, even a number of non-taxpaying investors, institutional investors, are attracted to MLPs because of the distribution aspects of it and the low interest rate environment.

In other words, they see distributions from MLPs providing current cash returns in relation to investments and other income yielding type vehicles.

so a lot of today's investors in MLPs they're not attracted to it from the tax attribute side, it's still there for individual investors, but more just from the fact that MLPs are structured in ways to give attractive current income distributions.

And so that's resulted in attractive multiples in the public marketplace.

Those are admittedly higher for what's called midstream MLPs, where you have contracts to give a surety by cash flows, and upstream MLPs typically trade at lower valuations.

But we have assets particularly in California that are attractive for the MLP model, and it gives us the opportunity to look at it.

As Jim talked about, our real objective here, which is maybe different from some other MLP developers, is to create a monetization event so we can meet our debt targets.

We're really focused on building value in FCX shares, that's what we really want to do.

As a management team, we're in the same shoes as our shareholders, and we're trying to find ways of increasing the value of FCX shares.

We feel they're significantly undervalued today, almost every management team you talk to if going to say that, but we believe we can by executing our plans experiencing what we believe will be favorable future markets, dealing the problems like this Indonesian problem, and strengthening our balance sheet, we think ultimately that will translate to higher share price.

And that's what we're all working towards.

Thanks, Richard.

David Lipshitz, CLSA

My quick question is, have you talked with other companies, other than the government, such as New [Mod] or something like that about building a smelter?

Are they involved in those talks as well?

Well, the answer is definitely yes.

We've talk with other companies in an appropriate way about their situations, and you might want to speak for themselves, but their resource is significantly different than the Grasberg resource.

Always has been, and particularly terms of mine life and so forth.

But I mentioned we're working with [aniga] Tamban, ANTAM, the state-owned mining company in Indonesia.

We've also had discussions with others, and so we are open to working with partners and have active discussions going on with them.

Okay, thanks.

Garrett Nelson, BB&T Capital Markets

I noticed there were some fairly significant upward revisions to third quarter sales guidance, for both copper, gold and oil and gas from your prior update.

I think it Jim covered the oil and gas side, but on the mining side, what's driving that relative to the guidance you put out in January?

It's mainly the changes in the Grasberg volumes, and the timing of those

It's the makeup.

In other words, our production of copper concentrates is higher than our sales, and so we've increased our inventory of copper concentrates.

Which with clearance to export, will work its way into the marketplace over time.

So that's why we talk about the shortfall is not being lost volumes, but deferred volumes.

Okay.

And then switching over, as you noted, the moly market has shown some signs of life here over the past couple months.

As the world's largest producer of that metal, I was hoping you could provide some color as to what you're seeing fundamentally that's driving the price strengthening?

I'm going to asked Dave Thornton to come down here and get by the phone.

Dave is the guy that runs our moly business.

The fundamentals are basically is that the market has tightened up primarily in Europe as we've seen some improvement in the European economies, mainly Spain, Italy, big steel producing regions and countries.

And then the supply has been tight, so mainly you're going -- the traders in the market, the suppliers who are basically like us are meeting our contractual obligations.

So mine supply is tight.

Demand has picked up a little bit but not a lot, but because of the tightness in the market we're seeing that the traders are involved more.

And we're seeing some uptick, price has increased roughly $3 in a month.

That's still occurring, although we are seeing that the trade is backing off a little bit and taking some profits looks like recently.

So the price has come back off around [$1,250] is the last I heard.

Molybdenum is a relatively small global market.

And so changes can have a dramatic effect over short periods of time.

Most molybdenum goes as a metal into steel alloys.

A significant part of our production, because of our high grade of molybdenum that we produce at our standalone molybdenum mines in Colorado, Henderson and Climax, goes into higher values from a margin standpoint chemical marketplace where it's used as catalysts in refineries and for other high-end chemical uses.

But with Europe being a substantial steel producer and with some upticks in the steel marketplace, that's created a tightness in a relatively small global marketplace.

Okay, that's great detail.

Thanks a lot.

Charles Bradford, Bradford Research

I've just gotten back from China, and they've continued to revise their back data.

For right now it's 2013, the effect of which is to reduce the growth rates in March 2014.

The same thing occurred of course all of last year.

Do you have any evidence or have you seen anything whether the same is occurring in copper?

Because frankly our copper concentrate data out of China has almost disappeared, and we're sort of at a loss as whether the same thing is occurring.

Copper concentrate data?

Yes.

Well you are seeing a situation of where with the development of the smelter business in China, there's more imported concentrates in relation to cathodes than there's been historically.

But listen, Chuck, we commercially sell product into China.

And we sell copper, cobalt, occasionally some molybdenum, we work directly with customers.

But we're not traders, and you know the numbers you talk about get obscured because of this issue of how copper flows in and out of these bonded warehouses and so forth.

And I know it's a complicated situation, and we're not a great source of information for the that sort of thing.

All I can report on is how we're dealing with customers in the normal course of business.

And what we're seeing is relatively strong demand, both for copper and for cobalt.

Just we've been tracking in the past their own copper concentrate production tying it to imports, and then eventually into refined output, and the data just is a little bit more sparse than usual.

But they seem to have been reporting much lower growth rates than otherwise would have been the case if they hadn't revised up last year.

Well there's a CRU report that came out this morning.

I read it in the predawn hours, and you can look at it and see their commentary on that very subject.

Well, thank you very much.

Brian MacArthur, UBS.

Just a couple of quick questions.

For Indonesia, and I think it's come up before with the smelter, there's been different cost estimates and whatever, but I just want to be clear.

This smelter if it gets built, will be big enough to take the remaining concentrate out of Grasberg going forward so we're not going to get stuck with say 20% of the con still getting hit with a graduated tax.

It would seem to me that would be an awfully big smelter.

Well there are capacity limits for building a smelter.

The biggest smelters in the world are [flash pointed] smelters that can produce 400,000 tons a year, which say takes 1.6 million tons of concentrate.

That plus Gresik, would not cover us in all years.

But our production is variable.

Particularly as we make this transition from open pit to total underground operations, so that is one of the complicated issues we're dealing with.

I just want to point out something, Brian, under the current regulations, the export duty applies to all concentrate exports, not just what's net about smelter future smelter requirements.

So that's one of the issues that's still under discussions, and subject to regulatory changes.

There are other developers I might mention.

Indonesian companies who have indicated plans to develop smaller scale smelters in Indonesia.

There's not a lot of details on those plans.

We have signed conditional sales agreements to sell potentially certain amounts of concentrates to those Indonesian smelter developers.

Great, thanks.

My second question then just relates as mentioned, you do pay a lot of taxes to the Indonesians.

Can you just refresh my memory how you pay them, when they get their cash?

And secondly, the fact that now you're only at 40%, and therefore, you're not paying tax on exported concentrate.

Does that affect the overall tax structure at all going forward?

No.

Our taxes are defined by the contract of work.

We have a 35% tax rate, even though the tax rate generally in Indonesia today is 25%, and then -- and that tax is based on income.

There's some specific rules about how you calculate it, but it's an accounting-based taxable income determination and you apply that rate to it.

Then in addition, when dividends are paid from PT-FI to FCX, there's an incremental 10% tax on those dividends.

And so that's where you add that up, plus the royalties, plus the dividends on the government's 9.36% equity interest is where you get the Indonesian government's participation in total income at greater than 50%.

And so what's affecting the current income tax -- but income taxes are paid basically on a one-year lag basis.

In other words, your current year's taxes is essentially based on your earnings from the prior year.

But what's happening to the government today is because we're incurring 100% of the cost, selling half or less of our concentrates, the taxable income is shrinking, and so the government's tax take of that which is payable next year is being reduced.

For accounting purposes, and as you know well because you follow this I think more closely than anyone else, we accrue for the tax expense based on our current income recognition, not when the taxes are paid.

Right.

Okay, thanks.

And just last question, and again like Oscar being a mining guy, just on Eagle Ford, it obviously had a very good first quarter.

You provided different guidance a little bit for this year.

But if I looked at it in simple terms, it looks like there's a pretty fast decline rate going forward to get to your averages for the year.

Is that because you're harvesting that aggressively for cash, or is that something that was better-than-expected the first quarter, or how should I think about that going forward?

I think a little bit of both.

Obviously, we reduced our rig counts from nine rigs 2.5 years ago to two rigs.

And what that means, obviously, is less the completions in the future.

We've been managing that completion inventory, at the same point in time, the wells have performed better overall in the field.

So therefore, it's slowing that decline rate because they're staying at higher production rates early on in their lives.

So as we go forward, the production rates are probably a little conservative going forward.

And we'll probably be adjusting those later this year, as we get a little more time on those curves and feel like we can feel good about projecting giving you tighter projections.

But right now, the field continues to outperform on all fronts.

Great, thank you very much.

Thank you, Brian.

And listen, thanks everyone for joining us on our call.

Jim Bob?

I may just make a couple comments.

We've had so many questions, I would like for just a moment in 1900 President Suharto stepped down.

Prior to that, you had over 70 years between Sukarno and Suharto, no changes in political landscape.

Since the 1998 departure of President Suharto, you've had a series of events.

You've had Habbibi, who took over for Suharto.

And then you've gone from Habbibi to [gooseder] which was appointed President.

And Megawati, eventually appointed President, and then you had SBY, and SBY had two terms.

And for the first time in over 80 years that there's ever been term limits.

In other words, a lame-duck administration.

So the next President, which is going to be elected by the people in July and going forward, it's important because there will be a possibility if the President has the two terms of 12 years of a President.

And remember, every time we change a President, you change the cabinet, and that means you change philosophy.

So, this has been an interesting time in the development of the Indonesian society, both politically and socially economic.

So I think it's important to spend a moment on that, and realize that all of this dilemma about export tax and changing regulation, hopefully, once the new President is elected and the new cabinet is put in place they'll be a potential as I say for a two-term President.

And finally be a lot more predictable than it had been in the last few years since 1998.

And that's just a matter of fact.

So, we've been working with Indonesia for a long time, and Indonesia honors contracts.

And at the end of the day, the contractor work and the mineral law of 2009, there's a lot of legal things that we haven't a whole lot of time because it takes so much time to understand them on this, but there is contracts in place.

And, as I say, a long-term government to deal with them.

So we'll get there, and we appreciate everybody's patience.

Thanks, Jim Bob.

Thanks Jim, thanks to the team for everybody's good work, and thank all of you for being part of our call and your interest in our Company.

Let David know if you have any follow-up questions, and we'll respond to them.

Thanks.

Ladies and gentlemen, that concludes our call for today.

Thank you for your participation.

You may now disconnect.