費利浦·麥克莫蘭銅金 (FCX) 2014 Q2 法說會逐字稿

Ladies and gentlemen, thank you for standing by.

Welcome to the Freeport-McMoRan second-quarter earnings conference call.

(Operator Instructions)

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

Please go ahead, ma'am.

Thank you.

Good morning.

Welcome to the Freeport-McMoRan Second-Quarter 2014 Earnings conference call.

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

Our conference call today is being broadcast live on the Internet, and anyone may listen to the call by accessing our website 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; and actual results may differ materially.

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 Form 10-K and subsequent SEC filings.

On the call today are Jim Bob Moffett, our Chairman of the Board; Richard Adkerson, President and Chief Executive Officer; Jim Flores, President and Chief Executive Officer of Freeport-McMoRan Oil & Gas; and we've got other senior members of our team here with us today.

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

Today, FCX reported net income attributable to common stock of $482 million, or $0.46 per share, for the second quarter of 2014.

The net income attributable to common stock during the second quarter of 2014 included charges totaling $130 million, or $0.12 per share, comprised of $68 million for environmental obligations and related litigation charges; $58 million for deferred taxes recorded in connection with the reduction of goodwill associated with the sale of the Eagle Ford during the quarter; and $4 million for net non-cash mark-to-market losses on oil and gas derivative contracts.

The second-quarter results, we reported strong operating performance in our Americas and Africa mining operations, and from our oil and gas business.

The results also reflected the impacts of reduced productions and sales from Indonesia, associated with export restrictions imposed in mid-January.

Consolidated second-quarter copper sales of 968 million pounds were above the year-ago quarter, reflecting growth in North America.

But gold sales of 159,000 ounces were below the year-ago quarter.

Our copper and gold sales volumes were below our April 2014 estimates, primarily as a result of the deferral of exports from Indonesia, which reduced copper and gold sales by approximately 150 million pounds of copper and 240,000 ounces of gold during the second quarter.

As indicated in our press release, we expect to complete an agreement with the Indonesian government imminently, which would enable exports to resume immediately.

The second-quarter sales of oil and natural gas totaled 16 million barrels of oil equivalents.

That included the Eagle Ford results through June 19, just prior to the sale.

That exceeded our April estimates by 5%, primarily as a result of higher production from Eagle Ford and the deepwater Gulf of Mexico.

Our second-quarter average realized copper price of $3.16 per pound approximated the year-ago quarterly average of $3.17.

Gold prices of $1,296 per ounce were slightly below the year-ago quarter of $1,322 per ounce.

Oil prices remained strong during the quarter, with Brent prices averaging $110 per barrel, and the average realization by Freeport-McMoRan Oil & Gas was $100 per barrel before the hedging impacts.

Operating cash flows generated during the quarter totaled $1.4 billion.

That was net of $400 million (sic, press release, "$364 million") for working capital uses and changes in other tax payments during the quarter.

And our capital expenditures totaled $2 billion during the quarter.

As previously reported, we completed the sale of the Eagle Ford field during the second quarter for gross proceeds of $3.1 billion, before purchase price adjustments, and also completed the acquisition of additional assets in the deepwater Gulf of Mexico for $900 million.

Combined, the transactions provided $1.8 billion of after-tax net proceeds, before purchase price adjustments.

We ended the quarter with total debt of $20.3 billion and consolidated cash of $1.5 billion.

We also reported today that we redeemed $1.7 billion of face amount of our senior notes, and that was called for redemption last month.

That transaction has been completed.

And now I'd like to turn the call over to Richard, who will be referring to the slide materials.

Good morning, everyone.

As Kathleen talked about, the results for the second quarter reflect strong performance from our mining operations in the Americas and Africa, and from our oil and gas business.

It does reflect the impact of the restricted sales from Indonesia because of this export situation, and I'll be talking more about that.

Our outlook at the first quarter end release was based on an assumption of resuming production in May, and the export restrictions lasted throughout the quarter.

We did make good progress on our growth projects at Morenci.

We commenced commissioning of our new mills, started in May, and we are in the ramp-up process for it.

The major construction project at Cerro Verde is progressing well towards a 2016 start-up.

Jim will be talking about the Lucius development.

The operator, Anadarko, expects first oil in the second half of this year.

And the Highlander project, onshore in South Louisiana, is advancing towards completion activities also in the second half of this year.

We completed the sale of the Eagle Ford asset and the acquisition of the deepwater Gulf of Mexico interest that enhanced our position for the focus area of our growth in our oil and gas business for the future.

We are actively in the process of pursuing additional asset sales transactions, all part of our goal of targeting a major debt reduction by the end of 2016.

As a matter of information, we have changed the name of our Company to Freeport-McMoRan from Freeport-McMoRan Copper & Gold, to reflect the expanded scope of our business.

Our ticker symbol remains FCX.

The financial highlights that Kathleen reviewed are included on page 4. The major difference from the guidance that we presented to you earlier has to do with the Indonesian restricted production situation.

Otherwise, our operations performed in accordance with our previous guidance.

The current status of where we are at PT Freeport Indonesia is that since mid-January -- regulations were adopted dated January 11 -- we have not had authorization to export copper concentrate.

In those regulations, the Indonesian government provided for a process to export concentrates.

But they enacted a prohibitively large export duty, which is still in the regulations.

But we understand the export duty is in the process of being reduced.

The impact of this is that we've had deferred sales of 150 million pounds of copper and 240,000 ounces of gold.

I use the term deferred because the resources are still there, available for our production and sale in the future.

We also have a sizable level of inventory of copper concentrates at our site available for shipment.

Year to date, these deferrals have accumulated 275 million pounds of copper and 380,000 ounces of gold.

We've been working with the government of Indonesia for roughly two-and-a-half years now to try to reach a common ground on dealing with our long-term contract situation and our ability to continue our operations post 2021.

That's a key date because our current contract of work, signed in 1991, had a 30-year initial term; and it provided for our having the rights to two 10-year extensions, to 2041.

Those extensions require approval by the government of Indonesia.

The contract provides, though, that the government cannot unreasonably withhold or delay these applications.

On the basis of that contract, we report reserves through 2041.

The complication that we face is that in 2009, the government passed a new mining law that transitioned Indonesia's dealings with miners from a contract of work system, which is what we have, to a licensing system.

The licensing system provides, in general terms, that holders of licenses are subject to prevailing laws and regulations.

And so you don't have assurance of fiscal terms that we and other contract of work holders.

The law provides the contracts of work will be honored through their terms.

And our discussions have been dealing with finding a way that's acceptable for us in terms of protecting our shareholders' interest, and finding a way that the government officials in Indonesia can feel comfortable with in terms of their view of their responsibilities under the government's laws and regulations.

Our initial objective in recent discussions with the government has been to find a way forward of getting exports approved and returning to normal operations.

The financial consequences of not being able to export are significant.

Where we are, because we have an interest in a smelter that we arranged to be built in Indonesia in the mid-1990s, is we have the ability to ship copper concentrates to this smelter, owned by a company called PT Smelting -- of which we own 25%, and our partner, Mitsubishi, owns a majority interest and operates -- we can ship there.

And so as a result, we can ship about half the level of normal sales of concentrates that we have the capacity to produce.

And we've been flexing our operations to deal with that.

We have not made major reductions to our cost structure to date because that has potentially long-term implications to our operation, and potential for disruptions in the local community and with our workforce.

As a result of that, the reduced margins amounts that we've earned from our operations there have amounted to an aggregate of $1.4 billion.

And that's shared roughly half and half by Freeport and the Government of Indonesia.

So we are working diligently to, first, find a way forward to resume exports and normal operations.

And doing that in a way that protects our positions for the ongoing discussions about the arrangements for us to be able to continue operations beyond 2021 on an acceptable basis.

Over the past two months or month and a half, we have been working with the Government on a Memorandum of Understanding.

We believe that we have reached an agreement with the Government officials we've been working with, on the terms of that MOU.

It has yet to be signed.

Indonesia had a presidential election on July 9, and the results of that vote were only announced on July 22.

The elections during the first half of the year for the President, for the parliament earlier, have been a distracting issue in terms of our ability to reach this agreement with the Government.

But we believe we've reached agreement on the terms of an MOU.

Under that MOU which, as I said, has not yet been signed but we expect it to be signed shortly, we would agree to provide for payment of an export duty over the next three years -- 2014, 2015, and 2016 -- but at significantly-reduced rates from the regulations that were adopted in January.

In addition, we would provide a $115 million assurance bond for the development of new smelter capacity in Indonesia.

And we have indicated a willingness to meet the Government's objective of developing the smelter capacity, subject to further negotiations.

And those negotiations include having an agreement on acceptable terms for continuing our operations beyond 2021.

We are talking with the Government of providing financial incentives.

Because building a new smelter in today's world is financially uneconomic, we're also looking at involving strategic partners in the process.

And so there's work to be done on the smelter issue that will require further work.

But we are making this deposit of an assurance bond, which would be released as progress on the smelter is achieved.

The new mining law and related regulations provided for increased royalties.

We currently pay a royalty of 3.5% for copper.

The mining laws, regulations, raises that to 4%.

We pay 1% on gold, and the new mining law is 3.75%.

As an accommodation to the Government to achieve this MOU allowing us to resume exports, we've agreed to, upon signing of the MOU, to pay the new royalty rates.

Now, all of these issues are things that we've done that represent prudent steps in building good relationships with the Government of Indonesia, which we have had over the 40 years of our operations there.

And building the basis, a bridge, for our continuing good relationships for the long-term.

It's a situation that we've had a lot of experience with, not only in Indonesia but around the world, in terms of trying to find ways of protecting our interests of our shareholders, at the same time, trying to meet the aspirations of the Government officials.

And so that is the basis for these concessions that we have agreed to make in this MOU.

We are have agreed with the Government that upon signing the MOU, we will commence immediate negotiations for amendments of our COW on items that we will be addressing -- including importantly, the ability to continue operating beyond 2021, on the basis of assurance of legal and fiscal terms to support the significant investments in developing our underground resources.

Our current outlook numbers, as you see in our release, are based on resumption of exports in August.

Any delays in obtaining these approvals result in monthly deferrals of additional 50 million pounds of copper and 80,000 ounces of gold.

If for whatever reason this falls apart -- we don't expect it to, we think we have a way forward with these things -- then we would take steps to adjust our cost structure and reduce our CapEx, because it is not sustainable to go forward on the basis that we've been operating on since January.

Slide 6, I won't just refer to in general.

It talks about our long-term positive relationship in Indonesia.

As you know, this has been a fabulous asset for Freeport and for Indonesia and the worker, and the local community.

It's world-class.

It's been very profitable.

We've made investments of significance during very risky times in the copper markets, and risky times in Indonesia and Papua.

And we've all benefited over the last ten years as copper prices and gold prices have risen so much.

And we've got a huge reserve base to go forward for many years in the future.

We've been there for over 40 years, contributed over $60 billion to the country's GNP.

We represent over 90% of the economy in an area that we operate in and a significant contributor to Indonesia's national GDP, 30,000 workers.

We developed already the Company's only copper smelter, which has capacity that exceeds Indonesia's national copper consumption.

Very significant investments to date, with a $15 billion program to develop our underground resources.

We contribute significantly to the local community, including this voluntary contribution of 1% of our revenues to the Freeport Partnership Fund.

And so we've done a lot of things; and you can see that the Government benefits from taxes, royalties and dividends.

Notice the bulk of that is through taxes, which we have a fixed rate on.

And the Government gets more than 50% of the financial benefits.

So there's a lot of reasons, incentives for the Government to work with us.

And we're going to work with the Government to establish, rebuild and maintain our long-term goodwill and partnership going forward.

We'll be available to answer questions on this.

Turning to copper markets, the first half of 2014 has been, in some ways, a mixed bag.

Going into the year, there were a lot of questions about China's economy and growth rates, and how they were going to maintain that.

They had this unusual situation of apparently fraudulent activity at a port in China that spooked the market for a while.

And some elements of China have been less strong than people anticipated.

But on balance, China has had solid demand and has kind of shaken off some of the earlier issues of the year and remains key to the marketplace.

In the rest of the world, there has been a degree of general economic recovery.

Again, that has been spotty, with the mixed data we've had here in the US.

Europe, we see in our business in Europe a gradual strengthening.

Of course, there are a lot of geopolitical uncertainties going around the world today that could have economic consequences.

But having looked at that, to see the level of copper prices that we have today, I think, demonstrates the long-term strength of the copper markets.

Prices continue to be supported by supply-side challenges, which we've talked about for so many years.

Exchange inventories are at extraordinarily low levels.

There's limited scrap availability.

Consumer stocks are low.

And the industry continues to struggle to maintain production levels from aging mines and to advance expansion projects.

There's a significant deferral of major projects around the world, as companies look to cut capital and focus on returns to shareholders.

The supply-side issue will continue to be a major supportive factor for the marketplace.

And we're very excited about the copper markets and where we stand in that market, with our large and growing level of production and our very large resource base that will give us future growth opportunities.

The projected market surpluses that people were pointing to now appear to be at much lower levels than anticipated.

So we remain very positive on the long-term fundamentals of the marketplace.

Turning to our business, specifically the slide on page 8 demonstrates that we have performed well.

You can see in relation to our first-quarter results strong performance in North America, South America.

Indonesia reflects the issues that I just spoke about.

And in Africa, where we've had relatively good reliability of our power sources (technical difficulties) there, we've really performed very well.

So our businesses are doing well.

You can see the results from a volume standpoint at the bottom of the chart.

With our projects, we undertook three projects to expand our copper volumes by roughly 1 billion pounds a year.

Last year, we brought the Tenke project online and did that in a very effective way.

And that expanded operation is performing well.

We achieved another milestone in this quarter by executing the growth project with the start up at Morenci.

And that is a significant high-return project that will add 225 million pounds of copper per annum.

And Morenci is a resource that we're looking for future, long-term, significant growth.

We benefit with these projects by bringing talent from our global operations to supplement the work done by contractors.

Every project has its challenges.

You see that throughout the industry.

But when you're working with it, it's easy to look at these numbers and see how we do it.

But it's a lot of difficult work in getting the job done.

We are very optimistic about our footprint of our business in the United States, about our ability to repeat what we've done at both at Morenci and other sites.

Cerro Verde is a huge project.

When it's completed, this will be the largest concentrator milling operation in the world at 360,000 tons a day.

360,000 tons a day.

Our team is totally focused.

It's a project that has less risk than many other expansion projects because of the footprint, what we've done in the past.

We've virtually completed engineering procurement.

Now we're focused on managing this very large-scale construction project.

None of these is without its challenges, and Cerro Verde has its.

But it's really going well, and we see a clear line of sight to start up late 2015.

And despite all of the issues constraining production at Grasberg, we continue to make good progress in our underground development.

And this is important in terms of our being able to execute our mine plan of completing mining in the pit, which will likely now extend until the first quarter or so, early 2017.

The Deep MLZ mine, the extension of our current producing DOZ mine, was a targeted start up in the second half of 2015.

And this just represents the continuation of block caving that PT Freeport Indonesia started in the early 1980s.

So these projects are going well.

What we're looking to is a portfolio of world-scale mines that span the globe with great growth opportunities.

There are just a handful of mines today that produce a billion pounds of copper per year.

We have Grasberg in that category.

Morenci will reach that.

Cerro Verde will reach that.

Tenke Fungurume has the resource availability to ultimately reach it.

And we're looking at expanding our El Abra mine with sulfide resources that would put in that category.

So we feel great about having this portfolio of assets, with potentially five world-class operations.

We're really pleased with what Jim and his team's doing in the oil and gas business, and now he will give us some comments on it.

Thank you, Rich.

Good morning, everyone.

The oil and gas business continues to click along quite nicely, backed with a strong crude market.

I think everybody's paid attention to the political unrest around the world.

And it's helped buoy not the near-term but the long-term tail of the crude oil market.

So it helps our transaction business.

But also, from the standpoint of realizations, has continued to hold up real well, mainly in the Gulf of Mexico.

When we talked about sales, about 16 million barrels, 5% above our investment.

And Kathleen said it's due to strong performance in the Gulf of Mexico and also our Eagle Ford, with a $58 barrel margin and 50% of that coming from the Gulf of Mexico, $73 of BOE margin.

The results to date do include our Eagle Ford production because actually we sold it right at the end of the second quarter.

So third quarter going forward will not have the Eagle Ford in it, but will have additional resources from the Gulf of Mexico as it continues to replace those reserves that we sold for $3.1 billion.

Talking about that transaction on page 12, we sold to Encana it says here, and we acquired, we rotated it for about $900 million of deepwater Gulf of Mexico interest.

We consolidated more interest in the Lucius oil development, that's operated by Anadarko, that we have significant interest in.

Gives us just about a quarter interest in that development, and it's on schedule for the second half of this year --September/October start-up -- as far as bringing that nice oil reserve on production.

Our Heidelberg oil development is a new entry for us.

Anadarko also operates at 12.5% interest in Heidelberg.

It's another significant Miocene play, just west of our Holstein.

So it's very integrated into our geologic thinking and development thinking.

We think there are a lot of oil reserves there.

And that development is scheduled to come on second half of 2016.

And then we got some complementary oil and gas leases to some of the resources we were capturing.

So all in all, it was a very good swing.

By the end of 2017, we project these assets to be producing as much as the Eagle Ford assets were going to produce once the decline sets in there, and after the drilling is finished in the Eagle Ford assets, where we have an engineer.

So we feel like we're in a play with a lot more growth and a lot better margin in the Gulf of Mexico.

It was an important step in the debt reduction program.

We wanted to accelerate the corporate goals of getting down to $12 billion by 2016.

It's definitely value accretive on an EBITDA basis, and it helps refocus our portfolio.

There's strategic growth there in terms of the Gulf of Mexico.

These are going to be our big areas of growth with higher investment returns.

Currently, we're on the eve of beginning to start drilling with our mobile units out in the Gulf of Mexico.

Next week, the Noble Sam Croft goes to work out at our Holstein facility.

We've got a rig on our Holstein platform that's drilling development wells.

And as of this morning, just drove our second excellent-looking development well there, the first one producing over 3,000 barrels a day.

So as we sell these onshore assets and redeploy the capital on our balance sheet and some of the capital in Gulf of Mexico, we will not only be replacing the production, but growing production much faster in the years to come now that the rigs are in place.

We have the Noble Sam Croft that starts next week.

We have the Noble Tom Madden that starts at year end.

And then we have a new relationship out there in the deepwater, but an old relationship in the drilling contracting business, with Rowan Drilling Company, with the Rowan Relentless that's going to start first half of 2015.

And what you're going to see there is a tremendous amount of upside pressure to our production profile there in the Gulf.

Our guys have done a great job at Holstein.

For example, we bought the property that was producing about 11,000-12,000 barrels a day.

Today, it's over 20,000 barrels a day after just drilling one well and some great production maintenance.

So with this activity, it's been a long time coming since the acquisition in 2012.

And it's one of the genesis of our combination, was able to accelerate the development activity going forward on these properties.

At the same point in time, further invest in the Gulf of Mexico.

So we project that we'll have $4 billion to $5 billion more of onshore asset sales to further accelerate the debt paydown, debt reduction plan here at the Company.

At the same point in time, we will be buying additional interest in the deepwater Gulf of Mexico to complement our portfolio in the hundreds of millions of dollars.

So we'll be selling in the $4 billion to $5 billion range, and we'll be buying in hundreds of millions of dollars to add to our potential going forward.

This has been a very successful program so far.

We spent about $500 million on the last two oil and gas lease sales in the Gulf of Mexico, including a significant onshore effort to buying leases.

And we feel like we've doubled the resource potential of our business from 3 billion barrels to over 6 billion barrels that we've captured.

And at the same point in time, paying down significant amount of debt here at the Company.

So we're going to continue this process.

And going forward, and the future looks bright on all fronts -- the asset sales as well as the Gulf of Mexico strategic positioning.

On page 13, this just kind of gives you the breadth of our operations now.

We're fully integrated in the deepwater Gulf of Mexico.

We have operating producing assets with a great staff, great systems, top-flight operations, and doing a great job out there with all the guys and all the partnerships with all our vendors, as well that really stepped up so we can get our jobs done on time, and on budget.

We have major developer projects that we're doing.

This is a tieback to our existing facilities, as well as major developments that our partners are doing, like Anadarko.

They've done a great job at Lucius and also the Heidelberg.

And then with our exploration and exploitation opportunities, here's the picture of the Sam Croft right here.

Now that we have top-flight equipment, we'll have three of these drilling by the middle of next year.

And we'll see some real action on the development side on the wells and the production going forward.

Those three rigs will be situated between Horn Mountain, Ram Powell, Holstein, Heidelberg and Lucius areas on page 14.

Right now at Holstein, we have the rig running on the platform, as I said before.

We've got the Transocean Deepwater Champion drilling our copper well right now, exploratory wells south of Holstein that, if successful, will be tied back to Holstein.

And then we have the Sam Croft, as I said, that's moving onto the west side of Holstein structure to redrill some discoveries we made a few years back.

So Holstein is going to look like it's invaded, but you'll really see a lot of great production growth in 2015 to 2016 because of it.

Going on to our development projects at Lucius and Heidelberg, as I said, these are both on time.

And you see the net interest now -- about a quarter of Lucius; about 12.5% of Heidelberg; and then the fall of this year, Lucius comes on; and then the fall of 2016, the Heidelberg project will come on.

Both significant development assets that Anadarko's done a great job with.

On the emerging exploration plays in the new Lower Tertiary and Cretaceous activity, we continue to monitor activity out there.

We're getting ready to move a rig in on our Farthest Gate West project to work on Lineham Creek.

It would be a (inaudible) test at 25,000 feet, that we're excited about.

And we're moving forward on the completion of Highlander.

That's on schedule for either late September or early October.

Well tests as well as at Blackbeard East and Blackbeard West, we're moving forward to complete those wells as well.

So we've got a lot of completion activity.

We're going to have a lot of understanding of (inaudible) reservoirs and hopefully some fantastic production coming, especially out of Highlander going forward.

The 2014 outlook -- Richard, you want to take over from here?

Okay.

Thanks, Jim.

We're updating our outlook.

It reflects from our previous outlook, the delay in getting restarted at Grasberg.

This is based on a resumption of exports returning to normal operations in August, and shows sales outlook for our Company as a whole of 4.1 billion pounds of copper; 1.3 million ounces of gold; 98 million pounds of molybdenum -- by the way, the price of molybdenum is up over 30% this year; and oil equivalents of 58.4 million barrels, equivalents.

That's lower than previous because of the Eagle Ford sale.

And as Jim said, we've got investment activities to look for future growth in that area.

We are now projecting for the year, unit costs of $1.50 a pound.

That's at $1,300 gold and $12 molybdenum, and $20 a barrel equivalent for oil.

Operating cash flows at $3.25 copper for the second half would be at $6.8 billion, and capital expenditures now are looking to come in at $7.6 billion.

Our sales profile, looking forward, shows the significant growth for copper as we complete our expansion projects and see the effects of those expansion projects.

Plus, the year 2016 reflects, in essence, the final activities in the Grasberg open pit, where we will have very high grades of copper.

And you'll note the planned gold sales for that year are exceptionally high.

Note also at the bottom right, the growth in our oil and gas sales, as these expansion projects Jim just talked about, come on stream.

Quarterly outlook is presented on page 19.

Again, based on restart at Grasberg in August, and having a very strong second -- particularly the fourth quarters -- for copper and for gold.

That's our details.

That would result, on that basis, of an improvement in our unit costs from the experience in the second quarter, where we would look to bring in the year, combined with what we had in the first half of the year, at $1.50 per pound for copper.

And you can see how that breaks down in our different regional areas.

When we look at our models for cash flows on page 21, you see EBITDA numbers at the top, operating cash flows, which take into account cash taxes and cash interest, excluding working capital changes.

And you can see this is an average for 2015 and 2016.

And very strong cash flows, between $3 and $4, ranging from over $10 billion to over $14 billion with that range.

So we've got a business that generates great margins, strong cash flows, that allows us to fund our expansion projects.

You can see our current outlook for capital, as our mining projects wind down going into 2016.

And then, as our oil and gas investments reflect the opportunities that we've created there.

So this is really no change in the 2016 outlook for that.

We have referred a couple of times to our commitment to our balance sheet management, when we announced the oil and gas deal.

We talked about targeting reducing debt to $12 billion by the end of 2016.

We've had some challenges.

Copper prices have been weaker than they were prior to that announcement.

And we've had the issue with deferred revenues from Grasberg.

But we still are committed to having this strong balance sheet.

We sold a very good asset in the Eagle Ford asset in the second quarter.

We are working now directly on additional asset sales across our business.

We are prepared to respond to market conditions.

We can't predict near-term market outlooks; but we will respond to those, whatever they may be.

And we look for other opportunities to repay, reduce our debt, improve our maturity structure, and so forth.

We are committed to continuing to pay our current dividend of $1.25 a share per year until we get our balance sheet in shape.

And once that happens, with our business and with the outlook for commodity prices, we'll have a chance of paying additional dividends.

Besides asset sales, we have the opportunity of looking for participation by strategic partners in some part of our business to reduce capital expenditures.

So we're looking at this at all angles.

2016 will be a very important year in terms of achieving this because of the nature of our business plans.

So the story at Freeport stays the same.

We're working on shareholder returns; managing our base assets; investing in growth, as we reduce our debt.

We had a good discussion last night about the challenges of doing that.

And there's not many businesses that can do it, but we have the opportunity to do it.

We are going to protect the balance sheet, because our Board and we are convinced that matching up the kind of assets we have and the nature of the markets that we're in with a strong balance sheet is the key to success in our business.

And we want to continue our legacy of returning cash to our shareholders, and look forward to the time when we reach that dividend level from where we are today.

That completes our summary of our business.

And now we will open the floor up for questions.

(Operator Instructions)

Jorge Beristain, Deutsche Bank.

Just wanted to follow up a little bit on the comments, Richard, maybe, that were made at the start on presentation 5, where you had mentioned that there was a possibility of selling other assets.

And then just picking up, as well, on Jim Flores' comments about potentially even shrinking your oil and gas footprint further from potentially selling things in the $5 billion range, and then rebuying stuff in the hundreds of millions of dollars range.

So just wanted to understand from a balance sheet perspective, how is Freeport feeling right now?

Do you feel that on a go-forward basis you're going to have to really do some asset sales to really make those the $12 billion net debt -- sorry, debt target three years out?

Trying to understand really what's driving the divestiture landscape a little bit, there's been some rumors on Candelaria, and now there's some talk of further oil and gas asset sales.

So trying to understand how you're feeling on your balance sheet right now.

Well, we are facing the fact that we've had lower copper prices than we had going into the acquisition of the oil and gas deal.

We've had the deferrals at Grasberg.

That's just part of the nature of our business.

We have issues that we face, and those create headwinds to reaching that.

We don't know what copper prices are going to be in 2015 and 2016, and we're not going to bet our business on predicting prices.

The way we've been looking at assets to sell -- and I think Eagle Ford is a great example of this, this was a very good asset.

There was a very strong market of buyers wanting to invest in that, as many companies are transitioning from a natural gas orientation to an oil orientation.

We're looking at other assets, where, good assets, but assets that don't have the growth profiles that our other assets have, and seeing if there's aggressive buyers who will step up and pay good prices for them, as we then focus on our assets that have good growth potential.

As the future of our oil and gas business, the strategy there is built around the deepwater Gulf of Mexico, and our gas exploration play -- our deep gas exploration play, so we're continuing to do that.

We're assessing the market, working with interested buyers.

And if we can find transactions that, in effect, advance our ability to repay debt, or de-risk the ability to repay debt, since we don't know how things are going to unfold in 2015, 2016, we'll act to take place with that.

These things require actions.

We look at assets and test the market at times, and decide, those assets, it really doesn't make sense to sell those assets when we look at their underlying cash flows.

So this is a dynamic process.

We are focused on debt reduction.

And if we find assets that don't undermine our ability to grow in the future, and where we have buyers that will pay reasonable prices in relation to cash flows they generate, we'll execute those transactions.

This is Jim.

Just to echo what Rich talked about, all of the above balance sheet management is the mantra across all sectors of the business.

And with our large CapEx budget, we could manufacture more oil, as we're going to do in the Gulf -- as we're doing in the Gulf of Mexico, and so forth.

And the fact of the matter of selling onshore oil assets, that is a premium market right now, the MLP market's very hot, debt markets are very low, oil prices are significantly strong.

Even in the near-term and long-term, we can get representative value for those assets, and then replicate those assets in an area in the Gulf of Mexico deepwater very quickly, in an area where we have higher margins and strength.

It's a fantastic arbitrage that complements, that accelerates our corporate objective of reducing the leverage Company-wide.

At the same point in time, we're still hitting the same targets of about 200,000 to 225,000 BOE a day in 2017.

And that's selling and drilling our development wells, and bringing it forth.

So by meeting those objectives operationally and bringing that cash flow forward out of those asset sales, to accelerate the financial standing of the Company, I think what it's going to highlight is all the resources we've captured adjoining our platforms in the lease sales and so forth.

And everybody's going to get used to growing production in the Gulf of Mexico, and monetization of production elsewhere in the Company, that will go toward the balance sheet repair.

And I think that's what Richard talked about earlier, that's a two-edged sword that's very difficult to do, grow a business rapidly and pay down debt at the same time.

But we're in a position to do it and take advantage of the prices.

So it's just more of a strategic initiative than a defensive -- it would just be more aggressive in trying to get our balance sheet very, very strong, and being in good shape to take advantage of the opportunity that comes after 2017.

And we have a great set of assets that allows us to do that.

And thanks.

Jim, since you brought it up, the CapEx did increase for Freeport, and it was mostly on the oil side, about a $400 million increase for 2014.

I was wondering if you could talk about, is that accelerating growth in the Gulf of Mexico?

Could you flesh out what that incremental growth CapEx is, especially just after a recent asset sale there?

Yes.

Number one, we added some CapEx for the Heidelberg development, which we acquired interest there, that obviously wasn't in our portfolio before.

But the main driver of that is that due to the stricter terms on some of the lease extensions and delays, that the federal authorities put out there, we had to go ahead and move some rigs in and try to get completions on our Blackbeard East, Blackbeard West and some of the inboard lower tertiary Cretaceous completion.

So that was a more regulatory-driven acceleration of that activity, and we certainly hope at least higher production rates and volumes.

So it is accelerating completion activity in the ultradeep is really the back -- so it's short-term either way.

Got it.

Thank you.

Michael Gambardella, JPMorgan.

Question on Indonesia.

In terms of the new agreement, this memorandum of understanding that you have an agreement to but are waiting to sign, it seems like the government is undoing a lot of the terms of the contract of work, and replacing it with what you call these license agreements.

Will they also -- will your tax rate now revert back to the statutory rate?

Under the contract of work you're paying a 35% tax rate which was in place when you signed the agreement in the 1990s.

And now I believe the statutory rate -- corporate rate is 25% in Indonesia.

Will your corporate tax rate drop, as these other royalties go up?

Mike, let me -- I'm going to go back over some things that I said earlier, and just to make sure we've got the stage set.

With this MOU, the basic terms of our contract of work are not being changed.

And both our rights and obligations, and the government's rights and obligations for the basic contract are not being changed now.

And we've agreed to enter into a series of negotiations as to how to bridge this gap between our viewing the world through the eyes of our contract, and the government viewing the world through eyes of their mining law and related regulations, and that's the work to be done.

The only three things that are currently actions that will be taken as a result of this MOU are the agreement to pay royalties, the agreement to pay these duties for a limited period of time, and the agreement to make this escrow deposit.

So the tax rate will remain the same.

The government's expectation is that the tax rate would remain the same going forward.

And in fact, under their licensing regulations, for the form of license that would apply to us if we were under a license situation, there is a current 35% tax rate.

So these things that we're doing now, are in reality, Mike, concessions that we are making, and our business judgment is that those concessions are warranted in terms of resolving the current impasse we have on the export bans.

So it is a compromise to create a bridge for us, so that we can return to normal operations, so that we maintain goodwill with the government, to help us reach a resolution that protects our shareholders' interest in the long run, and that's our reasoning for doing it.

But all of the other terms for the contract are not being changed with this MOU.

Okay.

And another question, just taking a few steps forward from here.

In regards to the construction of a new smelter in Indonesia, is it your expectation that Rio Tinto would be responsible for funding 40%, or some percent of the CapEx, to build this smelter, since they will be achieving -- receiving the benefit of it in the future?

The structure of the ownership interest, and how we deal with the smelter is yet to be finalized.

Rio Tinto does have an interest in the operation, as you mentioned, in the long run, so they'll certainly be at the table on this.

We will also -- we've had interest expressed by strategic partners about participating both in Indonesia and outside of Indonesia.

And then, the government, we have noted in this MOU, a discussion about financial incentives that the government would be at the table to talk about.

So that is a work in progress, like much of this MOU.

The first step is the agreement to get us to work.

Then we've got a lot of work to do in terms of the long-term situation, including the smelter.

And last question --

And the reality, Mike, is we know the commission that managed the elections just announced the results of the vote.

There's going to be a transition of a new government that will come into play at the end of October.

And so as we go forward, we're going to have a period of time of dealing with the existing administration, and then dealing with a new government, that has a five-year term.

So that's another factor that will come into play as we begin these negotiations on how to go forward.

Okay.

This is the last question on this.

It's going to be a tough one to answer.

But you have a contract with the government that's supposed to supersede any changes in law, in the country.

And the government comes in with a new mining law, and basically changes part of the game.

What's to stop the government from doing that again in a couple of years?

Well, we are going to have an arrangement -- and Mike, we've been dealing -- you've asked a tough question.

We've been dealing with real tough questions here, for 2.5 years.

And so this is not an easy answer.

But if you read what we've said in our release carefully, and in the MOU, we've carefully crafted an acknowledgment and understanding that, with however we come out of this, we're going to have to have a basis for assured operations on fiscal and legal terms that protect our shareholder interests.

So we will have those legal protections, and then the business judgment will come out as to how do you deal with that going forward?

And experience has taught us that the best way to do that, if it's achievable, is to find a way to deal with it in a way that reaches common acceptability.

Indonesia needs foreign investment.

Their economy has performed very well over the last 10 years.

They have a very large internal economy that's growing.

They've become a member of the G20.

The country has changed so much over the past 25 years I've been going there.

And yet, they have a very large young population.

And to put people to work, they don't have an internal savings rate that's large enough to create the investments, to create jobs, that whoever's the President's going to be -- have to have.

So at the end of the day, they're going to need foreign investments.

It's an emerging country, an emerging democracy.

They don't do everything as in the way that a more developed country, more mature countries do.

But there's going to be some imperatives to them to put people to work.

It is a true democracy, and so whoever's President, and whoever's running the government is going to be responsible to these people, because of the way that they can vote.

And so it's not an easy path, and we have to make business judgments.

But again, we come back to the fact that those business judgments reflect our desire to have goodwill, and a partnership going forward, and not just dig our heels in and point to our legal rights.

So we've done this, and you saw what we went through in the Congo.

We had a situation there, where we had to make some concessions, but as a result of that, we, we kept our asset, it's operating very well.

I believe, five years from now, we'll look back and say we did the right thing.

And that's how we're having to look at it, from the long-term, because this is a very long-term asset, a very valuable asset for our shareholders.

You just look at those numbers in 2016, and it becomes real apparent to you, we want to be operating there and taking benefit of all this work we've done, since -- actually since 1988 when we discovered the Grasberg, and all during the 1990s to develop our mine plans.

We've been looking forward to that year for a long time.

And we've made a lot of money in the interim through difficult times in Indonesia, through operational issues, through political, social changes there, through tough copper markets, you and I know that all too well, Mike.

So anyway, we're working on this, and in a way that we're long-term shareholders and going to protect their interests.

Let me add -- this is Jim Bob -- there's a restructuring going on in the industry.

People that have the concentrate want to have the smelters on their soil.

So all this concentrate is being banned for export, meaning that the smelters around the world, are going to have the reality -- they're going to have to develop smelters in the country where the concentrate is.

That's what this whole export controversy's about, it's going on in other countries.

And that's why strategic partners build the smelter, going to be coming -- because you can't take and cut off this much concentrate, that has to stay on soil that is produced.

So if you take that into consideration, and realize that as where we are in these negotiations, which is the government -- not only are there changes in the social structure of Indonesia, but there is a definite change of policy around the world.

So the traditional markets that have concentrate being smelted in other countries is going to change quickly.

So we're in the middle of that.

We're in the middle of the social developments in Indonesia.

But, understand that we built this bridge with this MOU.

To get in and take on the [steppage], like what the tax rates are going to be, and what kind of long-term agreement we have to have.

We've got a huge reserve in front of us and we're converting this mine to an underground mine and the government's well aware that we found the resource.

We know where the traditional ore bodies are, and so we have a long-term credibility with this government.

And we'll come up with something, especially with this restructuring of the whole market, when you talk about the refinery smelter requirements.

But you're going to see that around the world.

And there's going to be a lot of statements about when to control assets -- but if you look at the world, you see people who have tried to get too aggressive with their control of assets.

Look at what's going on in Venezuela today.

Headlines that you're seeing, we've got headlines yesterday, chaos in Venezuela, that is a result of the political decisions that were made.

So we'll work through this.

We've been talking to these people a long time, and we have this partnership that was iced by our discovery of the Grasberg 88.

And the government needs us to continue to help on that ore, and the government needs us to build the technical facilities.

We're going to be building the largest underground mine in the world.

So you have to look at this on a global basis, when you're over there negotiating.

And I think we've addressed that.

So the contract work is a very great plus for us.

And that's why we can negotiate differently than people that don't have it.

Thank you for those comments, Jim Bob.

Sal Tharani, Goldman Sachs.

Can you tell us again, what's the relationship between the expansion of COW talk and the MOU?

Are they dependent on each other, or are they exclusively independent of each other?

Well, they're not independent of each other.

The MOU is a bridge to further negotiations on the contract of work, and the rights to operate beyond -- including the rights to operate beyond 2021.

The MOU has two components to it.

One is a current agreement to take three actions, that I have described earlier.

And then it sets up for a further process for the renegotiation, extended negotiations for an extension, and so forth.

So it does not -- it's a first step -- it's a first step, and it was a first step to resolve this export situation, and then lead into further negotiations.

So would you be willing to -- so your terms would be that MOU, sorry, COW extension should stay, as is, where which is sort of post-MOU agreement, which is higher royalty and so forth, that it extends that those conditions just remain the same for the next 20 years for the extension?

Is that where you would stand?

Well, I think as a practical matter, with this agreement, we are agreeing to these new royalty rates for the life of the mine.

And you saw that chart that we had on page -- where we showed the benefits to the government of Indonesia.

Page 6. You can see that royalties are a relatively small part of what we pay to the government.

And yet it's a lightning rod issue.

Publicly in Indonesia, many people think of Grasberg as a gold mine.

We pay a 1% royalty on gold.

It is an amount of money, but it's not major, in relation to our total financial situation.

So this represents for the royalty -- what our royalty rates are going to be for the life of the mine.

When you get to this export duty, that's a short-term situation, leading to the smelter development, and that remains to be negotiated.

So that's the duties, the deposit, that's all parts of the smelter picture.

That's gotten to be a hot bucket target.

The purpose of this mining law in large part had to do with the nickel industry, and the bauxite industry, where Indonesia is a major global supplier.

And what Indonesia was doing was mining raw ores, shipping them to Japan and China for further processing, and for aluminum and nickel, the major part of the value was created downstream.

And they have prohibited those and put a lot of small businesses and other size businesses in Indonesia out of business.

And politically, people view copper, even though it's economically different, to be in a similar situation.

So that's the problem we've been dealing with.

In a country, Indonesia's not alone like this, where you have resource nationalism, to think about penalizing Indonesian companies, and giving a different situation for foreign investors like Freeport, is politically a tough pill to swallow, and that's what we've been dealing with.

And last thing for me is, Rio Tinto obviously is going to be a major part of this Indonesian mine, starting in 2021.

I'm just wondering, are they involved in these negotiations, and will they be part of it, and would they have a say in it?

Or is it, you are dictating the terms?

We're certainly not dictating the terms.

We have a participation agreement with Rio Tinto, we've got a great partnership that started in 1995.

They have rights under their participation agreement.

We have been negotiating with the government directly, having discussions with them.

There are many issues that we're going to have to work with together, as we go forward.

But we have a joint venture that has a participation agreement.

They have rights under that.

And we will work with them, consistent with their rights.

But you are right.

They are going to be a significant participant in the operations going forward.

Thanks.

This is Jim Bob again.

In 1988, we had the blessing of finding the largest ore body in the world.

When you look at the copper gold, silver, penny ore and copper prices and gold prices, so to find a 100-year life mine in the middle of New Guinea, up at 13,000 feet, was quite a challenge.

In fact, as you have an evolving world, all the market forces at work, from the day we found the mine, trying to get up there and get that copper down from 13,000 feet, in a remote area that had no infrastructure.

And had no current employment base, we looked at every aspect of this, from the day we found the property.

The blessing is, that it was the king-maker, and gave us an opportunity to build our business to what it is today.

So the challenge of how you deal with a 100-year mine life is, in an ever-changing world, we have to keep that in perspective.

But the good news is, we have the richest ore body in the world.

And that rich ore gives us gold and silver byproduct, especially with what's happened to the price of gold, and price of copper since we found the mine.

The price of copper was under $1 for all those years, as we found the mine.

So we talk about negotiations and looking forward, and operations in 2041, we have to look back and say, especially the fact that we've got something that's probably going to be producing till 2061.

So that's what you have to do, is to keep your mind on the budget side of having that kind of asset.

We'll manage through this, just like we managed through all the other challenges.

Thank you very much.

Tony Rizzuto, Cowen and Company.

As I was listening to your comments, Richard and Jim Bob, about the sensitivities there, it seems like there's some similarities with what you all are dealing with in Indonesia, with what Rio's dealing in Mongolia.

Seems like the government has an edge because the projects are further along, a lot of the value is underground.

And I'm wondering, how should we -- should we be unnerved by statements coming out of the press in Indonesia that the COW extension discussions would not begin until 2019?

And is that just, that's not true?

First of all, can you make me feel more comfortable about that, as you're going through this process, and clearly you're making concessions here.

Is that -- what's the guarantee that you will be able to take that next step here, number one?

All right.

Let me first of all just make a comment about this two-year situation.

That is the result of a regulation that was adopted by the government, it's not a provision in the 2009 mining law.

But the government that we've been dealing with considers that regulation to be important, and so that's been one of the barriers that we've had to getting completion of discussions on the contract extension.

We have spent a lot of time advising the government that we cannot wait until 2019, to understand our rights to operate beyond 2021.

And the terms of those operations, between now and 2019, our plans call for us to spend $8 billion of capital on developing underground mines, and then we have the smelter situation to deal with.

So there is an important provision of this MOU, is that we are going to -- we both agree to deal with this issue over the next six months.

So from the government standpoint, they've been looking at this regulation.

Our standpoint says our COW makes us not applicable to that, and the MOU says okay, we're going to work this out.

We didn't reach agreement on it now.

We're going to work this out over the next six months.

Okay.

The MOU, Tony, is a bridge.

And what that does is as opposed to waiting until 2019, that was the mechanism.

And that's why we made the concessions, so that we could force both ourselves and the government to come to the table, and realize that the good news is, we've got enough ore to be producing way and beyond 2014 -- 2041.

But having this smelter issue come up, this mining law, versus the COW and the license, that's exactly what we try to do to get this MOU, move this negotiation period from 2019 to today.

So that everybody could understand the realities, we can't be spending all this money underground or money on the smelter, without having some financial assurances.

It doesn't do any good to build a smelter if you don't build this underground mine, the condensate is not available to the smelter.

So this is a very complex situation, but as I said earlier, this mine is so rich and so big, it generates these kind of problems that we're having to negotiate.

But that's what the MOU does.

And it starts the negotiation to solve this problem in 2021.

Thank you.

And I guess my next question would be, I know you have been over there a lot, and this is consuming a lot of your efforts these days, but have you been in direct conversation with the new President Jokowi, or members of his team, the team elect, there at this point?

And what can you tell us about his certainly understanding of the seriousness of these matters, and his willingness now to meet you and his team at the table here?

As we go forward?

Well, Tony, we stayed out of the political process leading up to the election.

It was a very hotly-contested election, as elections tend to be, and it split parties, it split people in government.

And we always are in the position of not trying to influence elections, or get involved with them.

We work with the whatever government the people of the country elect, and so we stayed out of the political process.

The Vice President under Jokowi was a former Vice President under the first term of SBY, and we've known him for a long time.

He's a businessman.

We had past relationships with people involved on both sides of the election.

Jokowi has made some positive comments recently, about working to resolve the mining issue.

And we're going to be prepared to work with them as their transition goes from the current administration to his administration.

Our hopes are that we'll be able to engage with his transition team, his leadership team, and working with the current government to help us begin this process, before they come into office at the end of October.

Okay.

Thanks for that, Richard, and Jim Bob.

The final question I have is, I haven't heard any mention today of possibly to a sell-down provision.

And I know in the past, you've talked about you would be open to possibly divesting a steak that was previously owned by some Indonesian interest, but has that come up?

Is that something that is likely to be a part of a future contract or business license arrangement, and what can you say about that?

Yes.

It is one of the items.

There were six strategic items that we've agreed to discuss, in terms of the renegotiation in our contract of work.

This divestment issue is one of those, and we've tentatively agreed on a process of divestment that would involve increasing Indonesian ownership interests over time to 30%, from the current 9.36%.

That would involve giving initially the government an opportunity to acquire interest.

We have talked about having a listing on the Indonesian exchange, which we view positively, and the government views positively.

Any divestment would be at fair value.

But that is not something that is committed to under this -- our final agreement hasn't been reached under this memorandum of understanding, but that would be part of the amended COW.

But the current contemplation is that there would be divestment of fair value over time to raise Indonesian ownership interests to 30%.

Thank you, Richard.

Thank you, Jim Bob, too.

Jim Bob, I'm sorry.

You were going to say something, too?

What I'm saying is, in the making out here, is the government understands that the huge expenditure, first of all underground, and actually talking in the government about a regulation that has come out that says that people that have big underground mines will be set at 30%.

So there's a lot of people thinking about a lot of different things.

My open pit versus underground, the major expenditures for getting underground and getting those -- so again, build the bridge with this MOU, get all these subjects on the table and try to get them understood.

Thank you so much, gentlemen.

If I may sneak in sticking one final question I'm sorry about this, I just wanted to ask Jim a question.

And I notice -- I didn't hear anybody talk about this but -- and I'm sorry if this is redundant -- but the Davy Jones Well Test 2, I see that it was not a success.

Can you make any further comments on that, and just update us there?

Well, it wasn't a commercial success.

We have perforated a large section of resistive log section, plus also section of the log that was suspect.

We produced a lot of salt water and some gas out of it.

The only comment really that makes any sense, these are wildcat completions.

We're learning from each one.

The equipment worked flawlessly and so forth.

We immediately took all the equipment that we could and especially the tubing string and all the long lead items out of Davy Jones number two and moved it expeditiously over to Highlander.

And the Highlander test is really going to be one of the definitive commercial moments in this whole play.

And so from a technical engineering standpoint, we learned a lot.

It was, we would say everything was successful, safe, and so forth, but from a commercial standpoint, it was a failure.

We are in the process of P&A in the number one well, but we were unable to get it to flow, and we're going to take that equipment on the number one well, and perforate the lower tertiary, the Wilcox zone in the number two well before year-end.

Those operations, plus the operations at Blackbeard West and Blackbeard East, were, as I said, were regulatory driven, from a standpoint.

And we're going to learn how of these things, hope to establish production there, but all eyes are on Highlander at this point, Tony.

And what the timing on that, Jim?

Highlander, what should we be looking for?

My engineers are saying September, so I'm telling you October.

How's that?

Okay.

All right.

Fair enough.

Thank you, gentlemen.

Kathleen too, thank you.

Ralph Profiti, Credit Suisse.

Most of them have been asked, if I can ask just one more relating to PTFI and the state of the operation for when it's ready to go back to 100%, because for the better part of eight months, Richard, the workforce has been largely kept in place.

I was wondering, would it be safe to say that you have, say, eight months of advance stripping and equipment maintenance in place?

And to what degree could we see this as a positive impact in 2015 when you think about things like production, strip ratio and mining costs, if everything goes to plan?

Well, you make a good point, Ralph.

We have been -- kept our workforce productive during this time, and we have been able to mine some waste and low grade material that we would have had to have mined in the future.

We've done a lot of maintenance work.

We've kept the DOZ mine operating in a way so that we've kept the caving operation going in an effective way.

And so we've really had a period of time, despite the lower sales, of having safe productive operations from our workforce, and that will benefit us going forward.

As I said, we also have a substantial amount of concentrate inventory that we're going to have to work into the marketplace.

The concentrate market is pretty well supplied, already.

And so it will take some time to do that, but we will be able to have very positive operations beginning immediately upon our authorization to export.

And by this renewed guidance, would it be safe to say that the timing to get back to that would be a matter of weeks?

Yes.

Ralph, it's Kathleen.

We're projecting in the guidance that you've seen that we will start operations in August.

There'll be a period of ramp-up for the mill, and a period of time to get shifts scheduled to come in.

But as Richard said, we should get up to capacity pretty quickly.

As an example of that, Ralph, our second-quarter unit operating costs for PT Freeport Indonesia was $2.66 a pound, $1.53 in the first quarter.

If we return to normal operations for the year, we'd be down to $0.96 a pound.

So that just shows you how we can recover from this.

That's great.

Thank you very much.

Oscar Cabrera, Bank of America.

Just wanted to get back to, after you purchased the oil and gas assets from PSP and McMoRan, there was this notion of self-sustaining assets, meaning cash flows from the oil and gas operations will be basically sustaining the development CapEx for oil and gas operations.

With the intent to sell assets in oil and gas, should we think about it differently about that, i.e., mining operations providing the free cash flow for the development of oil and gas?

Oscar, good question.

When you sell the Eagle Ford cash flow, that was about $600 million a year of free cash flow to our business declining, but it was there.

And you talk about selling additional assets the size we're talking about.

Basically we're going to absorb the short -- the CapEx deficiency or variance between the cash flow and the CapEx level through the asset sales.

So we're really -- we're going to the amount of asset sales we're going to sell will bridge negative cash flow in 2014 and 2015, on into a flat to positive year in 2016.

And then 2016 on will be self-sustaining.

So within the oil and gas unit, including the asset sales, we will absorb any negative cash flow.

So we're consistent with that approach, Oscar.

Nothing has changed.

It's just the CapEx will be funded from cash flow and asset sales, of oil and gas assets.

Understood, but with the additional sales that you mentioned between $4 billion and $5 billion, I'm assuming that's probably -- if it's onshore California and that's where the vast majority of the free cash flow's coming.

So would that still be the case?

Yes.

That would be the case.

Remember, those type assets have zero tax basis, so the IDCs during the spending of 2014 and 2015 really help for the tax basis offset.

And any kind of property acquisitions, smaller property acquisitions, like-kind exchanges.

So there is a tax component there, that it benefits to have a negative cash flow that year, to offset the tax burden of just outright selling those properties.

Okay.

That's helpful.

Thank you.

And then if I may, on Indonesia, there's a statement in the press release that talks about the MOU, and Freeport paying a reduced export duties that would decline as the smelter development progresses.

Can you give us an idea of what level of reduced export duties you're looking at?

Because 2016, in your mine plan for Grasberg, we still have significant increases in both copper production and gold production, that would be impacted by an export tax.

Yes.

The process for completing the MOU will include the ministry of finance adopting new reduced export duties, that will be declining rather than the current regulation, which provides for escalating export duties.

Currently, the export duty starts at 25%, growing to 60%.

We expect -- and it hasn't been adopted yet, but we'd expect export duties to be initially below 10%.

And then, they would decline, based on progress with the smelter.

Progress with the smelter would involve getting an agreement on the long-term rights to operate.

Our goal would be to work to get to a zero export duty by 2016.

Great.

That's helpful.

If I may, I'll be quick with this one.

Can you just remind me of your agreement with Rio Tinto?

With the divestment of 30% in Grasberg, how would that impact the 40% interest in production from the asset?

Well, we're talking about a divestment of shares in PTFI, and that's all we're talking about here.

PTFI would continue to own 60%, in the joint venture with Rio Tinto.

And in terms of production, does that affect their share of production, Richard?

No.

It's PTFI, is what we're talking about.

Great.

Thank you very much.

Joan Lappin, Gramercy Capital.

Jim, would you talk a bit -- I assume it's your domain -- about the Gulf Coast, the Gulf Coast Royalty Trust?

Because that was an important part of the complete transaction a year ago.

And when -- what of the properties that remain viable are going to come online, and when that will influence that?

And also, I would appreciate it -- I guess it's a variation on the previous questioner, on slide 27, where you show -- 26 and 27 fit together -- and you're showing your important areas going forward.

I assume the big, green -- the biggest green dot shows the most oil in these new -- in the new areas that you have just expanded your position in, and whatever.

And then my last part, related to that is, you've shown us these different rigs that you will be using.

Can you tell us how the cost of those relate to a drill ship or whatever, compared to the very expensive rigs that we were using in the shallow water ultra deepwater project?

Okay.

Joan, good morning.

The Gulf Coast Royalty Trust, I'm going to have to point you toward Kathleen Quirk.

And also you promised me a trip to Houston to go over all of this in person, and you haven't shown up yet.

So I'll take this as our meeting from there.

And the aspect of the Royalty Trust, it's not really driving any -- the aspects at Freeport.

Freeport, we're doing commercial decisions, based on good engineering data and geologic data affecting the plan.

The inboard lower tertiary Cretaceous play has grown beyond the Gulf Coast Royalty Trust footprint.

But the most significant potential production asset we have today, the Highlander project, is in the Gulf Coast Royalty Trust.

I would focus 100% on that.

And if we come up with some significant production at Blackbeard West, Blackbeard East, or Davy Jones 2 in the meantime, then that's a bonus.

What's depicted on page 26 is -- and 27, is our producing assets.

Our major operating producing assets, and I emphasize producing because we have not produced any gas or oil out of the inboard lower tertiary Cretaceous play.

It's a frontier exploration play.

On top of that, to your rig question and so forth, the different operations onshore versus deepwater, they don't really relate as we can tell, the jack-up market's pretty mushy right now.

But we continue to work with our partner, Rowan, to provide the premium equipment, and it's worked out fine.

These are a lot of intricate operations, you've got to have the top line equipment, so as far as rig costs, are about flat for where they were.

And Jim, as far as the royalty trust, the rig was discovery in the [Cotdale] area, and that prospects were reflected by -- because of the mainland prospect which is a parallel structure just in the East.

So those have tremendous potential in [our frio].

So those various bottom shales represent several structures -- 25,000 deep -- and you have Highlander which was -- we're focusing on, which led to the Cretaceous discovery and you have the Cotdale area, mostly in addition to the -- because we already the five [might have to hold the juror].

Thanks, Jim Bob.

And Chevron operates Lineman Creek, that's why I've omitted, because I was focused on our operations, and the Lineman Creek completion is scheduled for midyear 2015.

Once again, Joan, I issue that invitation for you to come down to Houston.

And get up to speed on all the specifics.

Thanks.

I accept.

John Tumazos, John Tumazos Very Independent Research.

I'm a shareholder, and I'm very happy, and I'm impressed at the good moves that the Company has made to pick up the Apache assets, the 20 new leases in the Gulf of Mexico, the reservoir joint venture in Europe, the Quitera joint venture just announced, and other new opportunities that you may consider.

I'm concerned that some other people might be worried the Company is obstructed by debt, or distracted by Indonesia.

And I'm very pleased at the progress you're making in new endeavors, in spite of all of the distractions.

Please explain in a little more detail how you're slowing down the less productive activities, and reallocating -- things change dynamically, you get a good drilling result at one property, you have a roadblock at another.

Tell us a little more how you're being disciplined with the weaker projects, to make more room for more of the good new opportunities, please?

Well, John, we have a great team.

Rich here, and just last week we met with 50 or so of his managers in the Americas, and reviewed every one of our projects there.

Those guys are interested in what's going on in Indonesia, but they're not involved.

They're playing different positions, and everyone's focused.

We had our Africa team there, too.

Everyone's focused on their own business, and we sit down and went through every one of our mines as to the operations they have done so far this year.

What we were looking forward, going forward, what were our growth opportunities?

We have a separate group that's working on going through our mining reserves and resources, and assessing how we focus on the next stage of operations.

That was the same process that we went through, that came up with the Tenke expansion, the Morenci expansion and the Cerro Verde expansion.

Jim and his team were very interested in what's going on in Indonesia, but they are really focused on running their assets well, and looking for growth opportunities and divestiture opportunities, divestment opportunities and so forth.

Jim Bob works very closely with Rich Lovell on our exploration, both our Brownfield and Greenfield exploration.

So ultimately, we step back from that and say, where is our business judgment for the greatest opportunity to put the development resources on?

And then we bring in our development team to focus on that.

Dave Thornton and his team has been running our molybdenum business very well.

Of course we did the expansion at Climax.

We monitored that market, managed production to meet the demands of the marketplace.

So while, as investors, of course you're going to focus on the things that are currently most important from a corporate standpoint, underneath that, we've got a great team that's working on the rest of the business.

And what I like about our Company as opposed to when I look at the way larger companies are run in the mining business, and in the oil and gas business, is because we've got such a great team, it frees -- when we do have a problem like we had in Indonesia or Africa, we can put senior management to work in working with our guys on that team and the rest of our business does just fine.

So we've come a long way, and you've been watching us for a long time, from where we started, to where we've ended up now.

And I couldn't be more pleased with the people we have, and the way our team works together.

To prioritize and deal with the broad scope of our business.

Thank you.

John, this is Jim Bob.

Just a quick comparison.

If we go back 10 years, this export problem related to the Grasberg mine, how would you like to have been dealing with the issues that we've dealt with in the last five years?

The strike, and the accident, and the export ban.

If we'd have been, Freeport McMoRan Copper & Gold with a single asset, although it's the best asset in the world.

So when you look at the press release today, that we've got all these greenfield prospects, for instance in the Congo, I just reviewed that recently, 60 kilometers of ore at the surface that we're going to tie them together, and using these projections and drilling some deeper -- we have a chance to have again another world-class ore body.

When you think about since the -- we've used our deeper sulfide ore exploration, drilling that reserves, we found the equivalent amount of copper and gold, equals another Grasberg just by drilling the Brownfield project.

So we're blessed with not some of only the biggest world-class mines in the world, but we're blessed with the prospects that are becoming world-class mines, because of our Brownfield exploration effort.

Paretosh Misra, Morgan Stanley.

I have a follow-up question on your potential sale of stake at Grasberg.

In case of a direct sale to the government, is it possible that you may have to provide financing for the sale of that stake?

Not for a direct sale to the government.

When I'm talking there, it's a central government, and that's the way their regulations work.

We have, in the past -- we've actually undertaken efforts to have a stake in the shares of PTFI, owned by the province of Papua.

We believe that could potentially be positive, and we would consider providing some financing for that piece of the transaction.

We tried to accomplish this several years ago, and just wasn't able to get there.

But we would be really focused on making sure that any sale like that would be for the benefit of the province and the people of the province, and not some third-party investor.

But that would be something that we will be considering as we go forward.

Got it.

So I guess if there's financing, it would be only for that chunk, 8% or 9%.

And currently you're looking at only either IPO or sale to the central government?

Well, the 8% or 9%, the percentage that we'd be talking about is not defined yet.

8% or 9% is a very large amount of money for an asset this size, so that's uncertain as to any percentage that would come about.

And the process, would be the central government under the way Indonesia works, would have the first call.

They had an opportunity to buy this interest that we reacquired from an Indonesian organization in the 2001 timeframe, and the government opted not to do it.

Then we have the potential of doing something with the province, then beyond that, and the listing the IPO on the Jakarta exchange.

And beyond that, then there would be an opportunity for potentially other Indonesian nationals to invest.

So it's a process that has yet to be worked out.

It could be a combination of all of these.

The important thing, is that our shareholders would get fair value out of it.

And it would take time to execute all of this.

Great.

Thanks, Richard.

Brian MacArthur, UBS.

Two questions.

Just to be clear on the MOU, the day you sign it, imminently, whatever that means, the 115 goes into effect, the higher royalties go into effect.

But then do the -- whatever the reduced export taxes on the concentrates go into effect, so if they were to be 10% going down to a lower number by 2016, that you will actually have certainty the day you start exporting, on what those taxes are going to be?

Or is that something that still has to be negotiated in a six-month comment you made about the MOU?

No, Brian.

That would be defined and known and in effect upon signing of the MOU.

Okay.

So when you re-export, that will all be laid out, so you have a clear runway for what you're paying?

As soon as we sign the MOU, we will advise the market of what its terms are, and what would be effective immediately.

So we will do that.

Okay.

Then my second question is, putting this all together, and you've been very good over the years about giving forecasts of EBITDA and cash flow at various prices every quarter, with all the moving parts now, you give guidance for 2015 and 2016.

We assume the resumption of exports in August from Grasberg, but in that, as Ralph brought up, you probably have better costs in 2015 than we used to, just because you pre-strip.

You obviously have a tax now on the smelter, going forward, we've obviously sold Eagle Ford and adjusted that.

Can I assume the stuff on page 21 now, given all those pluses and minuses, because it looks like it has changed a little bit, include all of those assumptions?

Or is it pre- the MOU, if I want to think of that way, because there's a lot of moving parts here?

It does not include the impact of the MOU, yet.

It does include the Eagle Ford and the acquisition of the Apache interest and so forth.

But it does not include the MOU, since that has not yet been signed.

And would it have the benefit, fair to go back to Ralph's point, because I think it's a good one, that you would have some better cost structure in 2015 and 2016 that you did before?

All else being equal, because you have done that all extra maintenance and pre-strip?

Well, this does reflect our current mine plan.

Now, we review that continually.

And as you know, Brian, over the years, we're always looking for ways of incrementally improving it.

And the guys will be looking at the ways of accessing higher-grade material, and with the pre-stripping, the opportunities for that are much better than they have been in the past.

We're talking with our guys for example, about having access to some very high gold grades in the pit, that we might be able to access earlier than later.

So --

Brian, the projections that are in the cash flow models, are consistent with the mine plans for PTFI, in the back, on page 29.

Right.

And just on that, I noticed gold's up again in 2017, I assume that's just flow back from the delay and everything this year, and it looks like maybe that can come back forward, things like that is what you're talking about?

Right.

That's right.

Okay.

Great.

Thank you very much.

We'll have the chance for optimization, and we'll keep you informed as we proceed with that.

Everyone, we've had -- wait we do have a couple more -- I'm sorry, David is pointing out.

Appreciate it.

Operator, do you want to, I think, do who else is on our list?

Brian Yu, Citi.

Thanks for your endurance with this long call, Richard and team.

On the duties where you said it starts less than 10 and goes down to zero, does this apply to both the copper and gold, or just copper?

And is there a portion of it that gets credited towards the smelter build?

It is on copper concentrates, so that would include the copper and gold.

We don't sell copper and gold separately.

We sell copper concentrates, which has gold and silver in it.

And we get paid for that concentrate, based on the prices of copper, gold, and silver metals.

But we don't actually sell those metals separately.

That's sold to the smelting company but we get paid for it, so it is going to be only on exports, and on concentrates, which will include all the metals in the concentrate.

No, there's no credit on the smelter.

That's a separate deal.

But the way this thing works, from a cost standpoint, is we only pay the export duty prior to the smelter coming onstream.

Once the smelter is built, if we can reach agreement on building and so forth, the export duty goes away.

Okay.

And when it goes to 0%, or planned to go to 0% in 2016, that would coincide with the start up of the smelter effectively?

No, not with the start up of the smelter.

These smelters are substantial industrial facilities.

And it takes time to build it.

The scale-down in the duty, as contemplated by the MOU, will be made on the basis of progress toward building the smelter, progress is currently contemplated to be measured on the basis of cost expended and omitted.

And the objective would be to say, once you reach a point of no return, once you spend enough so the government is satisfied that you're going to complete it, then the duty goes away.

Their view -- the government's view, they've been vocal about this, was that the duty was not designed to raise money for the government, but as to provide an incentive for the companies to build a smelter.

Okay.

And what percentage of spend committed would 0% export duty tied to, is that like 50%, 75%?

I think it's best, given the current stage of what we are -- it is not that I'm very -- it's not a majority of the cost is what we're talking about, it's something less than that.

But given that this thing has not been signed yet, although we believe the terms we discussed with the government are the ones that are going to be adopted, but it still has to be signed.

I think, Brian, it's best at this point not to get that specific with what the terms are.

Okay.

Appreciate it.

Thank you.

Mitesh Thakkar, FBR Capital Markets.

Just on the oil and gas side, I understand, when in May you announced the acquisition of additional interest in Lucius.

Your working interest was supposed to go up to 35%, but it looks like now it is at 25%.

Can you explain on a little bit, give us some incremental color around it?

Yes.

In the oil and gas transaction, the existing holders of the Lucius interest, additional partners have a preference for right of purchase to any sale that goes on within Lucius.

And so when we contacted to buy the Apache 10% interest, two parties of the original partners exercised their pref rights, which caused us to exercise our pref right.

So we got a reduced interest where Exxon and Impact, the Japanese company, both liked the price we were paying for Lucius, and exercised their right to get their percentage.

And it reduced our interest to the 5.1% versus the 10%.

So that's the reduction.

And therefore, instead of it being a $1.4 billion acquisition, it was $900 million.

Okay.

Great.

And just on Indonesia, the 2015 copper and gold guidance came down a hair, and I was just wondering, if you are doing all the pre-stripping today, shouldn't it actually go up instead of going down?

Or is the benefit just on the cost side?

No, there was some minor changes we made to the start-up of the deep MLZ in 2015, which affected the volumes in a modest way.

The open pit really didn't change significantly from what we had previously, but we're projecting a couple months' delay from what we had before for the deep MLZ, and that's the impact you're seeing.

And that impact has nothing to do with the negotiations going on right now in the quarter?

Correct.

During this whole period, we've been proceeding with the development of our underground resources, including the deep MLZ and the Grasberg block cave.

And so this is just an issue related to the completion of the deep MLZ mine, and it slipped roughly a quarter.

Okay.

Great.

Thank you very much, guys, and thank you for being kind with the time.

Okay.

We appreciate everybody's attention, and being kind with your time.

We had a lot to talk about, and we will have a lot to talk about, as we go forward.

And we look forward to -- if you have any follow-up questions, please direct them to David, and we'll get them answered.

Ladies and gentlemen, that concludes our call for today.

Thank you for your participation.

You may now disconnect.