費利浦·麥克莫蘭銅金 (FCX) 2015 Q3 法說會逐字稿

Thank you for standing by.

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

At this time, all participants are in a listen-only mode.

Later, we will conduct a question-and-answer session.

(Operator Instructions)

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

Please go ahead, ma'am.

Thank you and good morning.

Welcome to the Freeport McMoRan third quarter 2015 earnings conference call.

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

Our conference call today is being broadcast live on the internet, and anyone may listen to the call by accessing our website home page and clicking on the webcast link for the conference call.

In addition to analysts and investors, the financial press has also been invited to listen to today's call, and a replay of the webcast will be available later today on our website.

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.

Today on the call we have Jim Bob Moffett, Richard Adkerson, Jim Flores and several other of our senior members of the team in the room here.

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

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

During the third quarter, we had an active quarter of announcements on revised plans and cost reductions.

We've got further announcements in today's press release regarding our Sierrita mine, which Richard will talk more about in his presentation.

Today, FCX reported a net loss attributable to common stock of $3.8 billion.

That was $3.58 per share in the third quarter of 2015.

The net loss attributable to common stock included net charges totaling $3.7 billion, or $3.43 per share, primarily related to the reduction of the carrying values of oil and gas properties.

After adjusting for the net charges, the third quarter 2015 loss attributable to common stock totaled $156 million, or $0.15 a share.

Our adjusted EBITDA, or earnings before interest, taxes, depreciation and amortization during the third quarter, approximated $940 million.

We reported total sales of copper during the quarter of 1 billion pounds, gold sales of 294,000 ounces, 23 million pounds of molybdenum, and 13.8 million barrels of oil equivalents.

Our average realized price for copper was $2.38 per pound.

That was below last year's third-quarter average of $3.12 per pound.

And gold prices of $1,117 per ounce were below the year-ago quarter average of $1,220 per ounce.

Our oil and gas realized price for crude was $55.88 per barrel.

That included about $11 per barrel of realized cash gains on derivative contracts.

That was substantially below last year's average price of $88.58, which included $6.77 of cash losses on derivative contracts.

Operating cash flows during the third quarter totaled $822 million, and capital expenditures totaled $1.5 billion.

We ended the quarter with total debt of $20.7 billion and consolidated cash of $338 million.

We have information in the press release on our progress on our after-market equity programs.

To date, we've raised proceeds of $1.2 billion, out of a total announced program of $2 billion.

We ended the quarter with a strong liquidity position.

We had availability under our $4 billion revolver of $3.5 billion, and availability under our Cerro Verde credit facility, $1.8 billion credit facility, of roughly $300 million.

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

Good morning, everyone.

What we're going to talk about here today is what our Company is doing to respond to the current weakness in the commodity price market.

Almost all of you have heard me talk in the past about how positive the long-term market is for copper.

Continue to believe that.

But we need to -- we are recognizing the need to prudently manage ourself in the short run, and we've taken some really important steps to allow us to do that, so that we can maintain our financial situation and our liquidity and our assets for what we believe is going to be a very positive market for us, in our business, as we go forward.

We have taken, and continue to assess, very aggressive steps to control cost and limit capital expenditures.

We have, as we will show in a later slide, a very positive view about our free cash flow generation, particularly beginning in 2016, as we get the benefit of the expansion projects, the project at Cerro Verde.

In this quarter, we've had some really positive steps for our Company, the things we've worked on for a very long period of time.

The Cerro Verde start-up is really going well, really proud of our team there.

It's coming up very quickly.

Our costs are under control.

It's good to see where we are, as we complete that project.

And then we had an important step.

We got a letter from -- of assurances from the Indonesian government about our ability to extend our operations beyond 2021, and a commitment from the government that we'll do so on terms that are consistent with the existing rights on fiscal matters and enforceability matters that's in our existing contract of work.

Jim Flores will report on our continuing positive drilling results, as we execute our development activities in the Deepwater Gulf of Mexico.

As Kathleen said, with reluctance, we made a decision to raise some equity for FCX to strengthen our balance sheet, and to provide insurance against unforeseen potential negative situations, and we've executed that in a very efficient manner.

Just two weeks ago, our Board announced that we're undertaking, and we're now engaged in, a strategic review of alternatives for our oil and gas business.

There are some alternatives there.

The market is a difficult market, unquestionably, right now, but we have an overriding goal of being able to manage that business, under these alternatives, in a way that funds itself with its cash flows or outside financing.

Copper markets, copper averaged $2.39 in the third quarter, ranging from $2.21 to $2.62.

I just returned last week from the LME event in London, where we got a full dose of the financial market's view of the situation in China and the declining growth in outlook for there.

Chinese consumption of copper remains significant.

Our fiscal business there, and actually globally, is relatively strong.

Stronger than the sense you would get by looking at the financial market's view of the situation.

And consumption in China continues to increase, admittedly at a much lower rate.

US and Europe are recovering slowly, and certain sections remain positive, in automobiles and construction.

But the price volatility, without question, creates short-term demand uncertainty that we're taking into account in the way we run our business and manage our financial affairs.

Global macroeconomic conditions are weaker than many expected right now, and so I said we're being realistic about what we face here.

But underlying that, in the copper business, the industry continues to be supported by mine supply limitations.

We've announced, and we're making a new announcement today, about curtailing high-cost production throughout the industry.

Companies are limiting CapEx.

This is resulting in reductions or deferrals of investments in long-term development of supplies.

That's going to be positive for the market, as we go forward.

As we go through this time, existing mines continue to decline in grades.

We're going to be moving underground at Grasberg and others in the industry.

In South America, going to have to convert from open pit operations to underground operations.

And some very important ore bodies are still being stymied by environmental concerns, community restrictions or government issues.

So our copper commodity continues to be supported by supply-side situations.

So let's go over what we're doing as a Company to be responsive to the current conditions.

We've made a 20% reduction in our 2016 consolidated CapEx, and we're continuing to review the CapEx that's currently in our plans for further reductions.

In the mining business, as we did in 2008, we've gone through, on a mine by mine basis, to optimize cash flows and consider low prices.

As a result of that, today we are announcing a 50% reduction in our mine rates at our Sierrita mine in Eastern Arizona.

This is a mine that goes back to the 19th century.

It was a mine that has very low grades of copper, but significant molybdenum byproduct, and we are reducing its rate by 50%, and I'll explain that in a few minutes as to why we're not doing 100%.

But aggregating together with previously announced cuts, we're cutting our annual copper production by 5%.

And with other actions we're taking in the molybdenum business, where prices have been very weak recently, we're reducing our molybdenum production by 20%.

We reduced mining CapEx by 25%, including 50% reduction in sustaining capital.

Our major project CapEx will be dropping off in 2016, as we complete the Cerro Verde project.

We're having a significant reduction in our unit site production delivery cost, 20%.

That's going, in 2015, from $1.78 to $1.45 before byproduct credits.

The way we've approached this, on a mine by mine basis, is we had Red Conger and our other members of our team look at each mine, and review their operations with a $2 copper assumption, and ensure that we can be cash flow profitable at $2, including sustainable capital.

As I mentioned, we're undertaking this review of our oil and gas business.

In our numbers today, we're reflecting a $1.8 billion reduction, or over 30% of CapEx, in 2016 and 2017.

We've deferred investments in several projects.

We're including some acceleration of production.

And then this review we're undertaking is going to be focused on an ongoing effort to eliminate the cash flow shortfall that exists between our -- this level of capital spending and our cash flows at low crude oil prices.

So here's what we've done with our mining operations.

In North America, we've taken steps to cut mine rates at the Tyrone SX/EW operations.

We suspended all mining at Miami, where we're engaged in significant reclamation activities.

And we reduced mining at Morenci and other North American operations.

That aggregates an annual rate that will come into play over time, because it takes time for the reduced placement of material and SX/EW stacks to affect production.

But that will result in about a 50 million pounds -- and we're talking pounds here -- reduction annually.

The previously announced reduction in stacking rates at El Abra will result in a 100 million pound reduction in 2016.

We've had a 35% reduction in molybdenum production at Henderson through adjusting operations there.

And today, with this reduction at Sierrita, that's another 100 million pounds.

We are continuing to look at the possibility of a full shutdown at Sierrita.

The barrier for that is, we have [waste stacks] there that were developed in the 1970s, where we have to capture water coming off those waste stacks, and we use that water in our mill to operate our mill.

If we shut our mill down, we have cost issues and operational issues as to what to do with that water, because we have to process it.

So we're looking at alternatives for that.

In the meantime, we're using the water and operating the mill at a 50% rate.

From costs, we've deferred projects.

We've reduced our workforce in connection with this cutback.

We're aggressively managing capital, operating and administrating costs.

And we're keeping our finger on the market, and in each of our operations, and we're prepared to do whatever it takes, whatever it takes, to keep our operations generating positive cash flows to protect our liquidity, hold onto these assets for a better day.

Slide 7 shows what we're looking at going into 2016, which we've been pointing to for some time, because it will reflect the benefits of investments that we started to pursue at the end of 2010, as we were coming out of the 2008, 2009 crisis, to invest in very high-return businesses.

We've spent, or will spend, roughly $7.5 billion at expanding our operations in the DRC at Tenke Fungurume, at the project that's completed now at Morenci, where we made significant mill additions and other improvements.

And now, with completion of the major project at Cerro Verde.

I want to make a couple of points, because there's a lot of focus on this.

Aggregate capital was $7.5 billion.

It was funded out of cash flows, plus a $1.8 billion bank line at Cerro Verde that's going to be repaid over the relatively short period of time.

So it's not a case of us going out and leveraging the Company to invest in these.

Funding it out of cash flows, these projects' economics were based with a view of looking at the possibility of the kind of economic environment we have now.

They establish a long-term base for future production, and they're going to give us increasing volumes in 2016, where we'll go to over 5 billion pounds consolidated a year, at what we think, based on today's rate, will be a net cash operating cost of $1.15 a pound.

You can see that decline in unit net cash cost, after byproduct credits, which is roughly at [$1.50] level now, going to $1.15 next year.

The combined impact on operating cash flows of higher volumes, lower unit costs, will be roughly at $2.40 copper, of doubling our cash flow from operations next year from $3.3 million this year to $6.8 million.

At the same time, CapEx will be falling from $6.3 billion to $4 billion.

That's roughly half in oil and gas, half in mining.

You can see sustaining capital of only $600 million a year.

And the $2 billion of oil and gas cash flows will be -- of oil and gas CapEx will be under review, as part of this process that we're now engaged in.

We've had really exceptional execution of these projects at Tenke, Morenci and Cerro Verde.

Tenke achieved full operating rates early in 2013.

Morenci achieved full rates in mid-2015.

And Cerro Verde is ramping up now.

It's a major project.

It will be the world's largest concentrator facilities.

We're basically tripling output there, and full rates are expected to be achieved very early in 2016, and we're moving up on that right now.

You can see a picture of Cerro Verde on slide 9. Notably, we've done this without facing community opposition, as many mining projects have faced in Peru.

Our team there has done a great job in doing community projects, including providing fresh water to the city of Arequipa, the second largest city in Peru.

We're getting water for this project from a waste water collection plant.

Previously, that city was just dumping its waste water into the river.

And now, it's being modernized to collect waste water, treat it.

The ecology of the river is improving.

Farmers like that, and it's getting us a source of water without having to compete with agriculture interests for that.

It's a big step for us, and it's allowed us to complete this project, to date, without protest from the local community.

In fact, support and accolades from the local community.

A little complicated slide on slide 10, but just to show you how quickly we're ramping this up.

We've achieved two-thirds of production in a month and a half.

We have two major primary crushers.

One is operating, the other is commissioning.

We have secondary crushing with eight units.

Four are now operating, one is commissioning, three will be commissioned in the fourth quarter.

This will use modern high-pressure grinding roll mills, which we are using there now, and also using part of our operations in Indonesia.

Eight new mills, four operating, three -- one is being commissioned, three comes on in the fourth quarter.

Six modern 40,000 tonne per day ball mills, which are coming on-stream quickly in our flotation circuits.

This gives you a visual, just to see how quickly we're ramping this up.

So far, knock on wood, thanks to Red and his team, we are achieving this without hitches, and we're focused on completing it.

Turning to Indonesia, with our underground development.

This is a major long-term project for us.

You can see that the chart at the bottom, as we complete mining from the open pit scheduled by the end of 2017, our future operations will be all underground.

We have an existing mine called the DOZ, where we block cave, started doing that in the early 1980s.

The recent extension of that is starting up, has started up in the third quarter.

It's a deep MLZ mine, with very positive grades of copper and gold.

And then, when we complete mining the open pit, we'll be moving to the Grasberg block cave mine, which will begin ramping up in 2018.

Again, this is a mine with 1% copper, 0.8 gram of gold per tonne.

This is an exceptional project, exceptional project.

To date, we've spent $3.5 billion of capital on the operations.

And as we look forward, PT-FI share, this is a joint venture with Rio Tinto, but our Company's share of these underground projects, we will be spending capital of $800 million a year for the next several years, including power and processing facilities.

And then as we go forward, as we look in the first 10 years of the life of mine average for this underground operation, we will be, through our Company's interest, achieving 1.1 billion pounds of copper, and 1.5 million ounces of gold a year.

So that's the reason why we're spending this money, and working hard to secure our contract rights.

This spending is conditional on getting the approval of the government, on acceptable terms, for an extension of our contract.

And with this new step that we've gotten, which we got a quote from the letter that we received earlier this month on page 12, we feel that an important step has been made in getting documentation of these contract rights, on a basis that's acceptable to us and to the government.

Jim Bob met with the President in Indonesia, and worked with the mine minister in securing this commitment.

And it's a very, very important step for us.

At the same time, we are progressing with our negotiations with union officials, and expect to have our new CLA approved imminently.

Now looking at our worldwide large-scale mines, we have a group of mines globally that -- potential of having 1 billion pounds of copper, roughly 500,000 tonnes of copper a year, as we go forward.

That's the base for having a company that, when we acquired Phelps Dodge, our goal was to make ourselves the premier company in the copper mining industry.

And we've done that, and we have the resources to continue to do that.

So we have the Morenci mine now, with recent expansion and future expansion opportunities.

The Cerro Verde is being completed.

El Abra, even though we're curtailing current production, has an enormous resource that's available for future consideration.

Tenke Fungurume mine is operating well, generating cash, returning capital, has significant growth opportunities.

We just had some very positive exploratory drilling intercepts there that are expanding our knowledge of that orebody, and giving us opportunities for future growth.

And then the Grasberg mine, I've talked about earlier, with its underground development.

We have a really interesting greenfield exploration project in Serbia, where we've had some really significant intercepts, with substantial indicated volumes and high grades, 1% copper grades and gold byproduct.

So, now, we have all these great opportunities, development operations.

I want to be clear.

After we complete these current projects, until the market warrants further investments, we're not going to be making them.

We're going to be planning for them in the future.

But as we complete these projects, we're going to realize the benefits of the cash flow, our improved cost situation to de-lever our Company.

But underlying all that is an enormous future growth opportunity that will be available to us when the market warrants it.

Before turning off -- turning the -- handing the ball off to Jim to talk about oil and gas business, I want to go back and mention what we did at a Board meeting earlier this month, roughly two weeks ago.

First of all, we reconstituted the FCX Board, in response to discussions with shareholders broadly.

Previously, we had a Board with 13 members, 10 independent members and 3 management members.

That was reduced to six independent members and two management members.

And then we've added two representatives, Carl Icahn, who had a position in our Company.

And as we go forward, we're all going to be working together, with a common goal of trying -- of working to increase the value of shareholdings in FCX.

To increase the value of our share price, to run the business in a prudent way, and we're going to be working with our Board to get everyone's ideas as to how we do that.

Our objectives with this oil and gas review, which we announced during the time of re-constituting our Board, is to achieve our original goal that we had, when the deal was first announced, of achieving self-funding of that business.

Now, the current market's a challenge for that.

No question, given where we were with our operations.

And we're going to look at a variety of alternatives to enhance values to the FCX shareholders.

What we have is an opportunity to do that, because of the quality of our assets in our oil and gas business.

These are high-quality assets that have very attractive opportunities for low-risk development growth over time.

We have significant existing Deepwater Gulf of Mexico infrastructure that has a large excess capacity, which will allow us to do drilling for resources that can be tied back to these facilities, and completed and brought on production in a low-cost way.

We have a talented and experienced team, led by Jim, and they know how to do this, and are committed to doing it.

Alternatives will include potential ideas for separating the business.

We've talked about an IPO.

We've gone through SEC process, and we are positioned to do that, if the market provides us that opportunity.

It's a difficult market right now, but that's an opportunity for us.

We will look at various alternatives for spinoffs.

All of these things are challenging in today's markets.

At the same time, we will be evaluating other funding alternatives through joint ventures, or other transactions.

And in the event there's a time required to get the markets to the point of where we can execute a separation-type transaction, we're going to come up with plans of significantly reducing spending, so that we achieve this goal of self-funding in any circumstance.

And I want to make that clear, as to where -- what we're doing with this oil and gas review.

So Jim is going to give us a report now on where we stand operationally with the oil and gas business.

Thank you, Rich.

On page 15, we have our third quarter 2015 highlights.

You can see where 61% of our sales were in the Gulf of Mexico.

It continues to be our most important asset area, while California continues to be a strong, steady producer.

And the rest is our gas business and onshore in Haynesville, and our Highlander area.

We had EBITDA of about $0.3 billion for the third quarter, trailing 12 months of $1.3 billion.

We had -- continue to have positive drilling results in the Gulf of Mexico, and de-risking our business plan.

The Horn Mountain Deep well, the King well, we announced two wells at tremendous reservoirs and producibility.

And we continue to deal with the success we have in our development drilling, as we try to manage costs and manage our CapEx.

At the same point in time, we did not plan for 100% success in our development activities at these fields.

And what I mean by that is the 100% success requires us to complete wells after drilling, and so forth, that we did not plan capital-wise.

So it has become very much an orchestra of cutting and deferring projects, at the same point in time, continue to execute our business plan to create value, long term, for our Company.

But also be in a situation of being able to provide an excellent production profile and value on a daily basis of production in 2016, going forth.

What I mean by that is, because of the positive drilling results in the Deepwater, is our oil production, crude oil production, 2015 to 2016, is going to increase by 25%, with our CapEx of $1.8 billion in 2016.

That 25% increase will be able to be kept flat going forward, 2017 on, in a $45 oil market, at $1 billion of spending and [$1 billion] of CapEx.

So that's flat from 2016 through 2017 on, at $1 billion of spending in 2017, after spending $1.8 billion in 2016 and increasing production by 25%.

Our business will be -- the cost will be variable from 2017 on, as we have drilling rig contracts and service contracts and commitments rolling off that have already been committed to, and execution in our production increase, much like finishing a large mining project in 2016.

So our ability to ratchet capital up or down from 2017, going forward, remains maximum flexibility.

The $1 billion CapEx in 2017 I mentioned is a 65% decrease from capital in 2015, at the peak of our spending and ramping up in the Gulf of Mexico.

The field developments in Heidelberg and Holstein Deep, first production anticipated in mid-2016, continues to stay on track.

Excellent execution by our operator, Anadarko, at Heidelberg.

And of course, we're 100% on project at Holstein Deep.

The announced CapEx reductions that Richard talked about, in 2016 and 2017, continue to expand, by deferring projects and right-sizing our business for a $45 long-term oil market.

Again, that is not a forecast.

It's just the way we're going to gauge our business, and we certainly hope oil prices are higher than $45, where our shareholders can reap the profits.

They've certainly taken the pain for the last 18 months, with the severe decline going down.

We suspect the substantial oil volumes with a 25% increase in 2016, and cash margins in the near term, going forward, by -- as we control our spending.

On page 16 is a familiar slide of our assets.

We continue to expand all the production here, and this is where our high-margin barrels, and it costs us about $20 a barrel to drill and hook up our wells to these facilities which is about 25% the cost of a new-build project, when you have to put all these facility costs ahead of it.

So with a $20 a barrel cost of hooking up the production, less our $12 a barrel LOE cost in the Gulf of Mexico currently, and $3 or $4 of G&A and interest and so forth, we're talking about a full-cycle business with a cost between $36 and $38 a barrel, which makes a profit in the $45 a barrel realm.

So it's a highly profitable business, and it's the best place for us to spend our capital.

The Deepwater Gulf of Mexico focus map on page 17 refreshes everybody's memory of where our assets are.

You'll see the red Power Nap discovery we discussed, which is [delineated] with the operator.

And we're working with regulators to figure out what our development plan will be there, over the long term.

Key slide on page 18, where we have production that's coming on in our 100% owned wells in 2015, 2016 and 2017.

You can you see 2016 is a very active year with Kilo/Oscar, Quebec/Victory, [KQOV].

That is not named after Kathleen Quirk, but it does -- because it's a prolific area.

And Holstein Deep 1, 2, and 3, and our Heidelberg wells, that's our significant oil production increase.

And then in 2017, interesting enough, we can put on Horn Mountain Deep, Horn Mountain Updip, King D-3 and King D-9.

But under the $1 billion CapEx scenario, we'll only put on one of these areas, and we're roll one of the areas to 2018.

You can start to see the flavor of the operations, and the flexibility, and keeping production steady, managing our capital and continue to provide returns back to the Company.

Richard, I'll turn it over to you for the outlook.

How's that?

That's great, Jim.

Thanks.

Our current outlook for sales for 2015 is 4.1 billion.

That's roughly 100 million lower than our previous outlook.

Most of that comes from Indonesia, where we're being affected by this very significant El Nino event.

And ironically, in an area where rainfall ranges from 200 inches to 400 inches a year, we have water constraints because of El Nino.

This happened to us in 1997, 1998, but it's limiting how much material we can run through our mill.

We have been taking exceptional steps of getting water there, including trucking water up the mountain from -- you guys have been there before.

So this is an effect.

Our production cuts really come in over time, because of the way that adjustments to SX/EW operations work.

They'll be more in place for 2016.

Our goal is down 100,000 ounces.

Again, this is because of Grasberg.

The -- I mentioned the operating cash flow numbers from the previous time.

Each $0.10 change in copper price for the fourth quarter means $110 million for us.

And we previously mentioned the unit cost and capital expenditure changes, which the CapEx changes to date represent no changes from what we disclosed in July, with oil and gas CapEx under review.

The sales profile by year is shown on page 20.

You can see the impact in 2016 of the completion of Cerro Verde, but also the access to very high-grade ore at the bottom of the Grasberg pit, as we complete mining there.

This is something we've been talking about since we started developing the Grasberg in the early 1990s, at an operation where we once -- where mine rates were 750,000 tonnes a day.

We're going to be dropping to 200,000 tonnes in 2016, and down to 100,000, 150,000 tonnes in 2017, with no stripping.

There will be no stripping, virtually, over those years, and we'll just have access to this very high-grade ore.

So it will be very profitable operations.

And you can see the impact of that on our gold production in 2016, 2017.

Our quarterly sales profile is presented in the reference slides.

Also, the longer-term outlook for Grasberg, beyond mining in the pit, is shown in the reference slides.

So on slide 21, you can see how our 2015 production breaks down by region, and how our cost structure would be for this year, where we're very consistent with previous guidance of having consolidated net cash cost, after byproduct credits, in the $1.50 range, and dropping down to $1.15 next year, under current commodity price environment.

Our EBITDA and cash flow opportunities are presented at various copper prices on slide 22.

This is an average for 2016, 2017, and excludes working capital changes.

But it shows how it varies, going from copper prices at $2.25 to $3.25.

And at the lower end of the prices, we'd have operating cash flows, after taxes and interest, of $5.25 billion, and that would rise to over $7 billion at $2.75, to show you how leveraged we are to prices.

We present a sensitivity chart that we present every quarter, for your use in looking at how to adjust that for commodity prices and certain cost elements.

And our capital expenditures are shown on page 24, where we're going from CapEx in 2014, at $7 billion plus to $6 billion plus this year, and dropping to $4 billion plus, with oil and gas CapEx under review at this time.

And I want to just comment on this at the market equity offering.

As I said, we took this step reluctantly.

None of us like raising equity in this kind of marketplace.

But we concluded it was prudent, as a further step to protect our liquidity and our balance sheet now.

We found this to be an efficient way to raise capital, without having to go to market and face the pressures that come about from a marketed deal, and the pricing implications of that.

We did this in the first quarter of 2009, and now we've executed a $1 billion range in the third quarter, where we raised capital at higher than market prices.

We have a second $1 billion program approved by our Board.

Had to back out to the market as we got close to Earnings Release.

But to date, we raised $200 million on that.

Since the initial offering, for what it's worth -- and you know, with the movement of our Company's and other commodity prices during the calendar year this year -- but we have significantly outperformed other companies since announcing the first ATM offering.

As I said, it gives us the advantage of deciding when we want to place the shares in the market.

We do it at significantly lower commissions and costs than you would have in a traditional follow-on offering, and it allows us to price share issuances in appropriate days in the marketplace, when there's demand for the shares, and gives us the flexibility of execution.

We are committed to debt reduction, challenged by commodity prices, but we recognize the need to do this.

We have a large resource base, and strong cash flows.

And with capital discipline, we have the ability to do this over time.

We will be generating cash with increasing volumes, declining CapEx.

This will enhance our credit metrics.

To date, the credit rating agencies have supported our investment-grade rating.

That's challenged by commodity prices, but we're taking steps that we believe will be positive in supporting that.

And as we move forward, the situation will be improved.

We work hard to maintain available liquidity under our bank credit facilities.

We have a $4 billion corporate facility at FCX, and $3.5 billion of that is currently available.

We have a $1.8 billion facility at Cerro Verde, which is being used to fund that expansion.

We have [$300 million] left on it.

And we have, because of our past financing, an attractive average interest cost of 3.7%.

Small maturities, for the next couple of years, and we'll be looking for opportunities to deal with our balance sheet as we go forward.

So with our long-lived reserves, our really strong production base, with this great portfolio of undeveloped resources across our businesses globally, and with the great team of workers and management we have, we are up to dealing with these issues, and working hard to create long-term values for our shareholders.

Thank you for your interest, and now, we're prepared to respond to your questions.

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

(Operator Instructions)

Our first question will come from the line of Jorge Beristain with Deutsche Bank.

Please go ahead.

My question is actually for Kathleen.

Could you talk a bit about what the stance is of the credit agencies toward the current commodity environment?

And obviously, everyone can appreciate your current leverage level.

But have you received any kind of language from them that they're starting to get concerned about the protracted nature of your net debt balance?

Jorge, I think you can see the press releases that both S&P and Moody's made during the quarter.

They have -- their commodities team have updated their outlook for commodities across the board, including copper, and they undertook a review of Freeport during the quarter.

That both agencies affirmed our rating, and we did go from a stable outlook to negative.

We've been in close contact with S&P, Moody's and Fitch, really to walk them through our plans for debt reduction, show them how we get there with our organic business, in terms of rising volumes, lower costs and lower CapEx.

And so the expectation is that, as we get through 2016, our credit metrics will improve significantly, and be within their parameters for our rating.

And we're very focused on executing those plans so that our outlook can be moved back to stable.

And that's really what they have been looking at, in terms of our plans.

But they've been running numbers at different commodity prices.

And like I said, we've been in close communication.

But they do see 2015, as we have signaled all year, as a bridge year, getting to this higher cash flow, and free cash flow, more importantly in 2016 and 2017.

(multiple speakers) And Jorge, this is Richard.

I think without question, they're giving us credit for what we did in deleveraging after the Phelps Dodge deal, and how we managed the crisis in 2008, 2009.

So they are looking at what we say we're going to do.

Now it's on us, as a management team, to show that same degree of discipline in executing our plans, as we go forward.

Got it.

And sorry, just maybe a technical question, I'm not sure if Kathleen or Jim would answer this.

What oil price assumption are you guys using to determine the carrying value of your oil assets, which obviously you took another write-down this quarter?

But where are we, just as a jumping off point, if we had to do a further mark-to-market?

What are you using as your baseline for oil at this point?

Jorge, we're required to use the SEC price deck, which is a trailing 12 month average.

If you use the forward curve, the forward curve is actually lower, by a few dollars, than the SEC price deck.

So you'll see us continue, if oil prices continue to stay in the $40, $45 range to $50 range, you'll see -- in the fourth quarter, you'll see a slight reduction there.

But it all depends if oil prices stay steady or go up or erode, going forward.

But we're at that apex point, where we may not totally be there, just because of the oil price in the fourth quarter so far, here in October, has been a few dollars below the SEC price, average price for the last 12 months, that we used for that reporting purposes.

Got it, thanks very much.

So Jorge, we use the realized prices in each region we have, but they're referenced off a WTI price of $59 a barrel, at the end of the third quarter.

So that's not the exact price we use, because we adjust it for what oil's selling for in California and offshore.

But the reference price, the WTI price -- and we don't have a choice on this.

This is these unfortunate SEC rules that require us to use this trailing 12 month average, and it was $59 WTI for the third quarter.

Got it.

But it sounds like, as you're saying, you're basically cycling that out by the fourth quarter.

That all depends.

It won't all cycle out, because in the fourth quarter, we'll use the four quarters in 2015.

And in the first quarter, the price was $70 something.

So it takes time for this to cycle through, using the 12 month average.

That's why I call these rules unfortunate.

But at the fourth quarter, we're getting through a lower average price.

And if you have a $55 oil price in 2016, for example, we'll be there, versus if it's $45 price in 2016, there will be some more revaluation ahead.

Does that help you?

Yes.

Thank you.

Your next question comes from the line of Brian Yu with Citi.

Please go ahead.

Thanks, and good morning.

On -- first question is just on Indonesia.

It sounded like the government was maybe seeking a little bit higher royalties.

Can you speak to that?

And then on the guidance that's built in there for next year, how much of a wage increase is reflected in those numbers?

Thanks, Brian.

We agreed last year, when we signed a memorandum of understanding with the government that allowed us to go forward with restoring exports at the time, and also set the stage for further discussions with the government, leading to this recent letter.

At that point, we agreed to increase the royalties that were in our contract of work to the royalties that were specified in the 2009 mining law.

That was a concession we made to meet the government's aspirations.

And so in our discussions with the government now, those are the royalty rates that would be reflected in our extended contract, going forward.

And they would be fixed.

They wouldn't be subject to further changes.

So the -- like we see here in the United States, with this presidential campaign, there will be a lot of comments, politically, coming out of Indonesia.

But that's the facts of where we are with our royalties, and with this recent understanding with the government, about how we'll go forward.

And Brian, the second part of your question, regarding the wages, we have made assumptions on what we expect the wage negotiations to be concluded at.

But it wouldn't be appropriate for us to give that at this point, because we're still finalizing those negotiations.

But the numbers that you're looking at include what we expect the results to be, in our ongoing discussions, which we're progressing as we speak.

Got it.

That's helpful.

Maybe the second question, just on the oil and gas, with your plans, either a partial IPO or a spinoff.

Is there a cash dollar amount that we can think about that you would put into those assets, under either of those scenarios?

That's really what we're reviewing now.

So -- and again, that depends on our alternatives and marketplace, and a view of -- we're going to have a view of how to make sure whatever we do is supportive of FCX's financial condition and financial position.

At the same time, if we do have a separation, we have to separate the business in a way of where it's sustainable on its own, and can trade well.

And so that's the tradeoffs we're going.

But Brian, it's -- again, that's subject to this review, and we'll be pursuing this aggressively.

And further information will come out as we -- as our Board reaches decisions on it.

Okay.

Definitely appreciate that.

All right.

Thank you.

Thank you.

Your next question comes from the line of David Gagliano with BMO Capital Markets.

Please go ahead.

Thanks for taking my questions.

I did want to drill in a little bit more on Indonesia.

Just the commentary in the press release regarding the longer term, the underground development, and potentially pushing some of that out.

I was wondering, first of all, if you could give us a bit more color on the thought process there?

The timing associated with more visibility on potentially deferring some of that CapEx?

And when we should hear more definitive commentary?

Yes, okay.

The numbers you see today actually reflect some of the work that we're doing about adjusting our longer-term mine plans.

Previously, the annual spending, on a gross basis for the joint venture, was $1 billion.

We've now -- annually, average -- we've now reduced that to $800 million.

And part of that has to do with how we mine, and ultimately process, ore that contains pyrites.

And that includes some of the Grasberg block cave ore, and that would, in the longer range, affect how we do with the Kucing Liar orebody.

But by altering the mine plans to avoid the bulk of this pyrite ore, we can defer capital spending on the processing facilities, and the transport and storage facilities for pyrite.

We're developing plans to do that with -- so that we don't end up wasting significant amounts of ore.

So it's a timing opportunity that would allow us to then go back and make those investments, and mine and process that ore in the future.

And we're continuing to do that.

But that's the major factor, Dave, along the lines of what you're talking about, as to how we're dealing with the long-term mine plans at Grasberg.

Okay.

All right.

Thanks.

And then just separately, on the strategic review of the energy business, the alternatives for the energy business.

I'm wondering if you could give us a feeling for timing when we should get more visibility on that process, as well?

We reconstituted our Board two weeks ago.

We announced this review.

We're starting the process, now, of coming up with alternatives and how to evaluate it.

We need -- there is a degree of urgency in dealing with these capital costs.

So I'm not in a position right now of giving you any red line time dates, but I can tell you it's a matter of focus, and we are approaching this immediately.

Is it reasonable to say within the next, say, six months, we'll get something?

Or is it longer?

Yes, within that time frame.

All right.

Great.

Thank you.

Your next question comes from the line of Tony Rizzuto with Cowen and Company.

Please go ahead.

Thank you very much.

Good morning, all.

Good morning.

Got a couple of questions here.

First one is on Indonesia.

It does -- sounds encouraging that the process is moving forward.

Assuming you get resolution of the extension of the CoW, how can you assure investors that you'll be able to get a fair value for the additional 20% stake in PT-FI?

There seemed to be conflicting reports about the ability to do an IPO, and I was wondering and associated if that's -- is that now off the table?

No, Tony, it's not off the table.

Throughout this whole process, our position has been, and now the government supports it, it was in the MOU in mid-2014.

It's reflected in what the letter says, is that any divestment would be on the basis of fair values.

And exactly how we'd invest depends on how we work with the government on it.

The government, the central government itself, will have the opportunity to acquire shares.

They've had that opportunity in the past, and haven't elected to do it, but we will work with them on it.

The possibility of sales to state-owned companies is there.

The possibility of an IPO is something we've done work on, and we can see some benefits to that, to be traded on the Indonesia exchange.

Government officials would.

Some government officials are very supportive of that.

So all of this process is, again, conditional on getting the final documentation of the extension, and then we're prepared immediately, at that point, to go forward in working with the government, as to exactly how to do that.

But the IPO is certainly one of the alternatives that we'll be talking with them about.

Okay.

And then I've got a question, also, on oil and gas.

And of the $2 billion CapEx, how much is purely sustaining?

And how much of that number is required to develop and reload inventory with prospects?

Tony, look at it this way.

About $750 million will keep production flat in the Gulf of Mexico and California.

So you're really talking about, $2 billion is forecasted.

And I might have mentioned [forecasting] -- that we're trying to work on -- continue to work on that number.

Everything above that would be towards the growth CapEx, and that's where we've got the 25% increase.

Going forward, in 2017, that's the $750 million to $1 billion, that's why at $45, and even lower, we can continue to be cash flow neutral, once we have this production on.

And just defend it by putting on one or two wells a year.

When you have 13 good discoveries in your inventory, it's pretty easy to see the visibility there.

Okay.

And just -- I'm curious, what do you think is the most preferable outcome?

A complete spinoff to existing shareholders?

Or what -- obviously, it's a matter of debt allocation and a lot of other factors, but I'm just curious as to Management's thinking.

Tony, that's something that's going to be a Board decision.

And so for us to come out now and say -- we're going to have lots of ideas.

Those ideas are going to be considered and assessed, in terms of creating value for the FCX shareholders.

And that's going to be a Board deliberation.

And all of us have ideas, and we'll present those ideas, do analysis on them.

We'll have expert advice on the markets, and what's best, and then the decisions are going to come out.

But wouldn't be appropriate at all for us to start speculating on where that's going to go.

Tony, Rich highlighted the Board reconstruction, I resigned from the Board and so forth.

The aspect -- we wanted to give the Board maximum flexibility to have, as far as separating the oil and gas business, if that made sense.

Their advisors advise them, and so forth, of where the highest and best value of FCX is.

That's the path forward.

But they have maximum flexibility.

There's no sacred path or no prohibited path, at this point.

So that's -- and value for the FCX shareholder, that's the number one goal here.

Okay.

And just -- thanks for that color.

And just a quick one on Sierrita And I was wondering if the evaluation you're doing now points to a full shutdown there?

What impact might this have on your overall unit cash costs?

Sierrita is at these -- it's really such an interesting mine, because it's got low grades and big moly content.

You don't have to look back many years ago to where it was our lowest cost mine, and now it's our highest cost mine.

So at current levels, its unit costs are $1.90, roughly, and so that's why we cut it back.

And if we could cut it back totally, with dealing with this water management issue, we would do it.

But it will -- it's not big enough to have a material impact on our consolidated cost.

But as our highest cost mine, or among our highest cost mines, it's the one, obviously, that deserves the cutback attention.

It was good to see the discipline.

Thanks very much.

Appreciate the color.

All right.

Thanks, Tony.

Your next question comes from the line of Jeremy Sussman with Clarksons.

Please go ahead.

Hello, and thanks for taking my question.

You spoke, obviously, quite a bit about some of the oil and gas initiatives that you are reviewing.

But I'm just curious, on the copper side, outside of some of the production potential curtailments that you're looking at, if you'd consider something either small or even large, on the asset sale side?

And I guess the context is, copper does seem to still be the one commodity that the majors -- or at least one of the commodities, I guess, that some of the majors are looking to expand upon.

Thank you.

Yes.

Thanks, Jeremy.

Listen, we have an open mind on how we approach things.

We have a constant flow of people coming to us with ideas, both companies, bankers, some of these private equity funds.

So we get opportunities to consider a lot of things.

If you look at the majors, though, there's a consistent positive view of the longer-term copper markets.

And so the better assets in that market are owned by the larger companies.

And so that's what is really a barrier for doing major transactions.

But listen, we are -- as I said, I was in London last week, saw a lot of people, had a lot of discussions.

A lot of people want to meet and present ideas, and we're open minded, and we're going to listen to the ideas.

That's great.

Thanks very much for taking my question.

Sure.

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

Please go ahead.

Thank you very much for all the decisions you've made in the last 90 days for the shareholders, and progress since your last call has just been spectacular.

First question, if you sell down from 90% to 70% in Indonesia, would you be required -- would Freeport be required to fund the entire $800 million average four-year CapEx budget?

Or would the buyer be required to pay its share?

First question.

Second question, if I may, have any of your commodity long-term price expectations changed in the last year or two, as everything has fallen in price?

It's notable that a week or two ago, Toyota said that by 2050, they'll stop making gasoline engines.

In New Jersey, there's a 3,400 megawatt, 100 mile long wind farm the Federal Government auctioned without asking New Jersey.

West Texas, there's one Company putting up 400,000 solar panels.

And Fort Stockton, and I guess there's several others coming after them.

All these investments are being made, not on the basis of price, as they affect the energy market.

It can create some doubts in our minds, once in a while.

But the point is, we want to thank you for all the good decisions.

Okay.

Thanks, John, for your comment about steps we've taken.

With regard to your first question, the divestment we're talking about is a divestment of shares, common stock and PT-FI.

And so whereas now, we own 90% plus, the government has a 9.36% interest.

After we go through this process of divestment, which will occur after we get the documentation of our contract extension, we would own 70%, but it's a share investment.

And all of these PT-FI funding of CapEx is coming out of its cash flows.

So we don't contemplate any of the shareholders, including FCX or the new shareholders, having any requirements to make capital investments in the Company.

So it would come out of cash flows.

Then with respect to this future of the energy business, I'll make one side comment.

Everything you talked about, from electric cars to alternative energy investments, requires substantial amounts of copper.

And so that's going to be the demand factor for the future of the copper business.

And all of these issues, related to the future of energy and the future of climate change and so forth, are -- is an unfolding story, still to be played out for the foreseeable future.

The world's going to require substantial volumes of oil and gas to run these economies and maintain standards of living.

John, as long as Exxon, Shell, Chevron and BP are in the oil business, I'm going to be the oil business.

So that's the way I look at it.

Thank you.

Your next question comes from the line of Chris Mancini with Gabelli & Company.

Please go ahead.

Hi.

Thanks for taking my call.

Just a quick question on the dividend.

How are you thinking about paying the dividend now, especially considering that you're issuing stock?

And it would seem that you're free cash flow negative, at least at the current point in time.

So is there a potential for that dividend to be cut back?

And second thing is, in terms of the equity raises, how much more do you think you would need to raise to have an appropriate buffer for whatever might transpire in the commodities market?

Again, given that it seems like next year, with the high grades at Grasberg and in 2017, you'll be pretty significantly free cash flow positive.

Yes, good questions.

This dividend issue, we made the decision to substantially reduce the dividend earlier this year.

We maintained a relatively small dividend, because certain institutions have dividend requirements.

The Board's going to continue to review that, and we will continue to look at it.

With respect to equity raises, the Board's approved this $2 billion raise.

We're going to have our finger on the market, with the factors that you mentioned.

I believe it will, absent some further changes in our free cash flow generation, it's -- cash flow coming in in 2016, this appears to be sufficient to provide the kind of buffer that we need.

Okay.

And just a quick question.

I know other people asked this.

But on the oil and gas business, there are $2.5 billion of oil and gas senior notes.

Would it be reasonable to assume that that would be the only amount of debt that the oil and gas business would be able to sustain, if it were to be spun off?

Or could it potentially take on more debt?

That's a valuation we're doing.

It's not related to the source of the debt at all.

That's just a legacy issue that came to our consolidated Company when the acquisition was made.

So we're evaluating it more broadly, from a financial perspective, as to what would be sustainable for the entity that was separated, if in fact we go a separation route.

But it's not tied to any specific issue.

And Chris, just as a reminder, the FCX parent guarantees that debt.

Okay.

So that guarantee doesn't go away.

Okay.

Okay.

So it's just a big picture valuation determination, as to how much debt the oil and gas business will be able to take on?

Exactly.

Right, okay.

I understand.

Okay.

Great.

Thanks very much.

Our final question comes from the line of Brian MacArthur with UBS.

Please go ahead.

Good morning.

I just want to go back to Dave's question on the longer-term situation at Grasberg, because you talked about deferring the pyrite ore and stuff.

But when I look at the 2018 through 2022 stuff, it all looks like the same guidance.

Are you just pushing stuff post-2022 back by deferring this capital, i.e.

the KL gets pushed back from 2025?

Or what exactly is happening there?

Because you've obviously been able to save some money up front, but without any change to production in the next five years.

Yes, and that's why it's attractive.

That's why it's attractive, Brian.

KL is scheduled to come on later.

It is much later than that.

So the real issue about production is, with the Grasberg block cave, and near-term production isn't really affected in any significant way by this deferral of capital, and that would come into play, basically, post-2020.

But it's the Grasberg block cave production, as opposed to the KL production.

What we're doing is, as we come out of the pit and start mining the block cave, we ramp up to get back to a mill operation of 250,000 tons a day after the ramp-up, which will require several years.

And then we have -- the great thing about this operation is that we have the ore to feed a 250,000 ton per day mill through 2041.

Right.

So are there any secondary benefits by pushing this pyrite ore?

Like when you build the new smelter or whatever, does it allow you to put you throughput better there?

So you get another benefit there, as well?

Yes, and it also potentially gives us the opportunity to stage the smelter investment at a smaller level to begin with, which saves some capital, and this is desirable, and then deal with it later on, as we ramp back into the pyrite.

So there's benefit on CapEx standpoint, both at the mine and mill operations in Papua, as well as capital required for the smelter.

But Brian, all of this is still being looked at and optimized as we go through it.

So what you're looking at is our most recent thinking, but we're continuing to look at it, and continue to look at how we smooth out and concentrate production, so we don't have big spikes, and have enough smelter capacity to be able to deal with it.

So it's a work in progress, but what you're seeing is what our current thinking is.

Great.

Thanks.

And maybe just one question on the oil and gas.

You talked about the 25% increase in oil from, I assume, Gulf of Mexico.

But what's happening at the California index?

It looks like it's coming down in the third quarter.

Capital there is pretty small.

Is it actually on a decline the next three years?

Or should we think it bottoms out and flats?

Or how should I think about the reinvestment on that part of the equation?

We've cut reinvestment from $300 million two years ago to $70 million this current year.

Probably need to get closer to $125 million, $150 million, to keep production completely flat at this point in time, Brian.

So what happens with the thermal reservoirs out there, as you've been heating them for years and years, you can cut capital for about 24 months before they start cooling.

And as they start cooling, the oil gets more viscous, and the production rate slows.

We're all talking about small, small increments here.

So we'll need to start reinvesting there, probably in late 2016, early 2017, and then it flattens out.

The one production adjustment that you're seeing is in our offshore business, where we have our [point of sales] platform, which is our highest cost production.

It's shut in, and it's shut in indefinitely, due to the Plains All American Pipeline situation, where the pipeline ruptured, and they're shut in due to repair work.

And that forecast is in years, so we're not sure that production will be restored.

So I think the new production level that you see currently is pretty good for 2016, and going forward.

Great.

And I should just use about $100 million in capital in California, for the next two years, then?

Yes, I would -- that's probably a good average, at this point.

Great.

Thank you very much.

Thanks, Brian.

Now we'll turn the call over to Management for any closing remarks.

All I'll say is, thank you again for being on the call and your interest.

We'll look forward to reporting progress as we go forward.

And if you have any follow-up questions, as you study the material, or for any reason, you feel free to contact David Joint.

And we'll make sure the right person answers your questions.

Thanks a lot, everybody.

Ladies and gentlemen, that concludes our call for today.

Thank you for your participation.

You may now disconnect.