費利浦·麥克莫蘭銅金 (FCX) 2016 Q4 法說會逐字稿

Ladies and gentlemen, thank you for standing by.

Welcome to the Freeport-McMoRan fourth-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 and good morning, everyone.

Welcome to the Freeport-McMoRan fourth-quarter 2016 earnings conference call.

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

Our call today is being broadcast live on the Internet, and anyone may listen to the conference call by accessing our website homepage and clicking on the webcast link for the 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 would like to remind everyone that today's press release and certain of our comments on this call include forward-looking statements, and actual results may differ materially.

I would like to refer everyone to the cautionary language included in our press release and presentation materials and to the risk factors described in our 2015 Form 10-K and subsequent SEC filings.

On the call today is Richard Adkerson, Chief Executive Officer; Red Conger is here; Mike Kendrick is here; as well as others from our Management Team.

I will start by briefly summarizing the financial results and then turn the call over to Richard, who will go through the slide materials located on our website.

As usual, after our prepared remarks we will open up the call for Q&A.

Today FCX reported net income attributable to common stock of $292 million, $0.21 per share for the fourth quarter of 2016.

As detailed in the press release, the fourth-quarter net income included net charges of $59 million or $0.04 a share, reflecting estimated losses on assets held for sale and oil and gas restructuring-related charges, partly offset by gain on the redeemable non-controlling interest in Plains Offshore.

After adjusting for net charges, fourth-quarter adjusted net income attributable to common stocks totaled $351 million or $0.25 per share.

Our adjusted earnings before interest, taxes, depreciation, and amortization for the fourth quarter totaled $1.7 billion.

As you will see in the press release, FCX took aggressive actions during 2016 to restore its balance sheet strength, and we had an active fourth quarter.

We completed $5.2 billion in asset sales during the fourth quarter of 2016, bringing the full-year asset sale transactions to $6.6 billion.

Importantly, our net debt was reduced by $8.4 billion during the year and currently approximates $12 billion.

Our sales for the quarter totaled 1.2 billion pounds of copper, 405,000 ounces of gold, and 22 million pounds of molybdenum, and we sold for 4.65 billion pounds of copper for the year, 1.1 million ounces of gold, and 74 million pounds of molybdenum.

During the quarter we completed the Tenke sale in November and our previous guidance had reflected Tenke volumes for the full year.

Excluding that variance, copper sales were approximately 7% below the October 2016 estimates, reflecting lower mining and milling rates at PT Freeport Indonesia.

Fourth-quarter realized copper price was $2.47 per pound.

That was 13% about the year-ago average of $2.18 per pound.

Gold prices averaged $1,174 per ounce and were about 10% above the year-ago quarter of $1,067 per ounce.

Our unit net cash cost for the quarter was $1.20 per pound.

That was lower than the year-ago period of $1.45 per pound.

That reflects the higher byproduct credits and also the improved volumes and efficiencies from the Cerro Verde project and higher volumes at PTFI.

We generated operating cash flows of $1.1 billion in the quarter, which exceeded our capital expenditures of roughly $500 million.

For the year, our operating cash flow totaled $3.7 billion, which is in excess of our CapEx for the year of $2.8 billion.

As previously reported we completed the at-the-market offering of common stock during the fourth quarter and raised a total of $1.5 billion in gross proceeds through the sale of 116 million shares of FCX common stock.

Our consolidated debt totaled $16 billion, and cash balance at the end of the year was $4.2 billion.

Net debt was below $12 billion at year end.

We ended the year with no borrowings under our $3.5 billion revolving credit facility.

At the end of December we had 1.44 billion common shares outstanding.

I will now turn the call over to Richard who will be talking about our outlook and updating you on current developments and referring to the slide materials on our website.

Good morning, everyone.

As I start thinking about my presentation today, I recall a comment that Jack Welch made several years ago.

And it was don't be giving bows for Act I when the audience is looking for Act II.

And I know everyone here is focused on Indonesia.

It is the focus of our Senior Management Team as we go into 2017, but having said that, I'm very proud of what our team did during this past year.

A year ago at this time, our share price was well below $4 a share.

Our credit default swaps were at 2,700 basis points.

We were announcing a plan to reduce debt and sell assets.

There was a lot of uncertainty about our ability to do that and the values that we would realize.

We were completing the construction of our Cerro Verde project and ramping it up, and it was a big project; $4.6 billion and big projects in our industry have been challenging in general.

We are very pleased that we successfully executed that construction project and ramped up Cerro Verde in a very effective way, and today it's a long-term cash flow generating asset for our Company and a core asset.

We've had a year really strong cost and capital management, a 19% reduction in consolidated copper units site production and delivery costs year to year; 56% reduction in CapEx year to year,17% below our year-ago estimate for CapEx as we have managed our capital spending.

At this call last year, in response to a question I indicated a goal of reducing our debt by $5 billion to $10 billion.

I didn't really set a timeframe on it at that time, but we have reduced our net debt from last year to the end of 2016 by roughly $8 billion.

We refocused our business under the direction of our restructured Board of Directors to focus on our mining business and on the copper industry.

And we were able to come out of this process of selling assets and raising capital with a high-quality copper portfolio that situates our Company for creating long-term values for shareholders.

Kathleen mentioned our asset sales.

They are detailed on page 4. In the first quarter soon after our year-end conference call last year, we announced the sale of a incremental interest in Morenci to our longtime partner Sumitomo for $1 billion.

And in the fourth quarter, it was a culmination of a lot of work that went on throughout the year with the closing of the Tenke Fungurume transaction, the resolution of uncertainties of that transaction within the Democratic Republic of Congo and our partner Gecamines there.

We closed oil and gas transactions to sell the Deepwater assets in the California production at prices well below what our Company paid for them but at prices that were very reasonable in terms of the current marketplace.

It took lot of work.

Each one of these transactions was very complicated, and beyond that, there were a lot of alternative transactions that we put a lot of effort into to give us a set of alternatives before we settled on doing these particular transactions.

Page 5 looks at the management of our cost and capital.

You can see the 19% decline in our unit costs, ending the year with a unit cost net of byproduct credits of $1.26 for last year.

Our free cash flows increased.

Our capital expenditures decreased as expected as a result of the completion of the Cerro Verde project but moreover by the, in effect, exit from the oil and gas business where we had spent roughly $3 billion of capital in 2015 and over $1 billion in 2016.

Copper markets.

In the fourth quarter, all of us have been pleasantly surprised by the recovery in copper prices.

As you know, copper lagged behind other commodities during 2016.

It was up roughly 17% for last year, but as we ended the year we improved market sentiment, supported by fundamentals in China and the US and the global marketplace.

Global economic conditions improved, supply growth continues to be constrained, and by year end we were seeing more impact of supply disruptions which had been uncharacteristically low during the first half of 2016.

The price required to develop new supplies is $3 a pound or better.

The incentive price that Wood Mack points to is $3.30 in real terms.

So even at these prices the industry is still not undertaking new supply development projects.

When those projects are undertaken it takes years to get them to the point of developing supplies, so we are in inevitable move of reduced supply.

The question mark is demand.

Demand has been better, and that points to a bright future.

For copper today, we have relatively low inventories.

Clearly deficits in the marketplace are in our future.

The question is when will the timing and extent of those deficits be, and that depends on the global economy and particularly events in China.

But we remain, throughout all this, we remain very optimistic about the outlook for copper and the position of our Company to take advantage of it.

The world leading copper producers are on page 7. You can see that we rank in terms of net interest of production behind Codelco.

This is excluding Tenke and adjusting our ownership interest in Morenci.

If you looked at the operations that we manage, we are roughly equivalent to Codelco, taking into account minority interest in the operations that we manage.

In our assets include, seven copper mines in North America where we supply roughly 40% of the downstream copper to the US economy; two copper mines in South America with the Cerro Verde project in Peru; El Abra with our partner Codelco in Chile, which has a potential for a massive expansion in the future; and then of course the Grasberg operations in Papua and Indonesia.

You can see in terms of reserves they are basically equally distributed among those regions, so we've got good diversity in terms of copper resources.

Our molybdenum-only mines are in the US.

We have byproducts in the US and in South America, as well, and then our gold sales are associated with the very large gold byproduct in our ore at Grasberg.

Cerro Verde commenced operations in September 2015 and achieved operating capacity in the first quarter of 2016.

A large-scale long-live reserves net unit cost decline 19% year on year.

This is a great project, and its operating very well, and we're very proud of our team for accomplishing it.

Our reserves are shown on page 10.

I mentioned earlier when you look at our proved and probable reserves, they are equally distributed by region.

And beyond that, we have substantial mineralized material that we've identified in conjunction with our existing mines of substantial amounts: 100 billion pounds of contained copper.

And then beyond that, there is potential that we are qualifying now of very large amounts.

What this shows you is that our Company is situated with reserves that provide for a very long-term future in the copper business.

We will have a steady stream of growth projects that will only be initiated when the market indicates a need for it.

And we can be very disciplined about where we spend capital looking for attractive rate-of-return projects and looking for projects with relatively low execution risk; other brownfield expansions.

So our Company is well situated.

We don't have to make -- enter into the M&A market, but with our balance sheet improving and with copper price outlook improving, we will be positioned to participate in that marketplace either as buyers or as sellers.

Now, we have our large development projects listed on page 11.

They are in alphabetical order.

This is not in order that we might pursue them.

But it includes six projects with major sulfide opportunities which would be each major expansion opportunities for concentrated projects.

Interestingly, five of the six are in the United States.

And as we look at the relative economics of investing in the United States or outside the United States, in recent years investments in the United States have become increasingly attractive.

The energy situation here with the abundance of energy and the cost of energy because of the shale oil and gas developments in the United States has provided us low cost of energy.

We have a workforce in the United States that is much more flexible.

We have a non-union workforce.

We have communities that support our employees, whereas outside the United States often we have to provide all the community support.

So it's an interesting situation.

What a change over the last 15 years when this industry was thought to be dead here, and now it is a place for great investment opportunities.

Also El Abra is on this list and it has a very large resource that we are doing advanced planning on with our partners, looking at potential consolidation of interest in the area.

It would be a very large project, but potentially an attractive one.

And I believe it will be one that ultimately the industry will need to meet the world's needs of copper.

So we've had a great Act I. Now, turning to Act II.

At Grasberg from an operations standpoint, we have had continuing issuance with, I'm going to say an element of our workforce.

And that is the workers in Grasberg pit itself.

The Grasberg pit has a known depletion point.

It's been moved out to now where it will be -- that we expect it to be completed in 2018.

Upon completion, we will continue mining the Grasberg ore body as a very large block cave -- it's located -- the ore body extends below the limits of the pit.

We are currently operating underground in a significant way in our DOZ mine, in our Deep MLZ mine.

We have been operating large-scale block-cave operations since the early 1980s at Papua and operations of PT Freeport Indonesia.

We are very comfortable about technically being able to do that.

But as we've approached the completion of the pit, workers have been raising complaints, grievances, and have simply not been meeting productivity standards.

We are taking steps to respond to that.

The effect of this is not a loss of resource.

This resource will be realized through mining activities.

But what's happening is we're having lower production now, which is extending the life of the pit, and we are working with the union, with the workers, with our Management Team to take steps to rectify this.

And in our outlook we give you the best estimate that we have going forward.

Now, I want to spend some time going over matters that many of you are familiar with.

Some of you may not be, but I think it's appropriate to do it now because the Indonesian government has just issued new regulations for mining operators broadly.

It has implications for us, but it's for the industry as a whole.

So I want to take a few minutes and set the stage for putting this in perspective with what our situation is given our current contract with the Indonesian government.

Freeport signed its first contract in 1967 and then after the discovery of the Grasberg, signed a new contract of work in 1991.

And this contract provided legal and fiscal certainty through 2041.

And it was on the basis of this contract that Freeport has made multi-billion dollars of investments, and we began that on signing of the contract.

In the mid-1990s we formed a strategic partnership with Rio Tinto to advance the development of the new Grasberg resource.

We had a major mill expansion.

We undertook underground mine development and expanded the mine capabilities for outputs significantly.

And Rio Tinto remains our partner and we have a great relationship with them.

In connection with that original contract we had a commitment to build a smelter in Indonesia, provided that was economic.

And we fulfilled that commitment.

We aggressively went out to find a partner.

We found a partner in Mitsubishi, which had new smelter technology at the time.

And we've constructed a smelter in eastern Java at Gresik, and we have an equity interest in it.

The majority owners are Japanese and Mitsubishi has operated.

It's operated very effectively and safely over almost 20 years of operations.

Been one of the world's best smelters.

Has not made any money because of the economics of the smelter industry.

In 2009 the government of Indonesia passed a new mining law and implemented new regulations over -- the law was passed in 2009, and it took time to put regulations in place, and really the governing regulations were not completed until 2012.

The law provides specifically that existing CoWs remain in effect until they expire.

It also instructed the government to seek amendments to the CoW to make contracts of work more consistent with the new mining law within one year.

We actually began discussions with the designated Senior Representatives of government in 2011.

And in 2012 the government established an evaluation team early that year to review CoWs.

We've been in discussions with the government since 2011 and 2012, but have never been able to reach a mutually acceptable agreement on reconciling the contract of work with the new mining law.

The law says that the contract remains in effect.

In early 2014, concentrate exports were halted for more than six months following a troubling January regulation on exports.

We didn't export for more than six months.

It cost the government roughly $1 billion in lost taxes and royalties.

It cost us slightly less than that but a very substantial amount.

In that year we resolved the ban on exports by entering into an MOU with the government in July that covered six main points.

Exports, smelter development, divestiture; all of this was subject to negotiation of legal and fiscal certainty in an extension of our operations from 2021 to 2041.

It was contemplated that MOU would be the result in amendments to the CoW in six months.

The government changed in late 2014, the MOU was extended in 2015, and we continued discussions with the government.

That led to the government providing our Company a letter of assurance regarding extension of the CoW, regarding legal and fiscal certainty beyond 2021.

And it was that assurance in that letter and in the MOU and in the CoW, and the government has and Freeport have honored this CoW since the first one was signed in 1960s, and the new one was signed in 1991.

That has given us the confidence to make the ongoing level of investments that we've been making in developing our underground resources.

Now just in January of this year the government has introduced new regulations, and these new regulations require CoW holders to convert to licenses called IUPK in order to export.

With a license, in and of itself, there is no assurance of legal and fiscal certainty, and we have been unwilling to give up our CoW to go to strictly a license.

And so what I want to do now is, and this is in our slides, and so you can review this and follow up with questions, but I want to point out what our contract of work actually says.

It says that we shall have an initial term of 30 years from 1991 going to 2021.

And that we shall be entitled to apply for two successive 10-year extensions of this term subject to government approval, and that government approval cannot unreasonably be withheld or delayed.

So we have the rights to extend the CoW on its existing terms for another 20 years beyond 2021.

We've made application for this extension and have not yet received approval.

With regard to export, there is a specific provision in our contract that says without in any way limiting the Company's basic right to export that we should be subject to an administrative reporting and non-monetary provisions.

With respect to taxes, the CoW says specifically that we shall not be subject to any other taxes, duties, levies contributions, et cetera, except for those expressly provided in this CoW which provides for a income tax rate of 35%, which is higher than the standard rate in Indonesia, and provides for royalties.

With respect to divestment, there is a specific provision that says if after signing this agreement the effective laws and regulations of the government policies impose less burdensome divestiture requirements than those that were in the CoW, those less burdensome requirements apply to the parties of the CoW.

What happened after the CoW was signed in 1991, Indonesia in general adopted new laws and regulations that eliminated requirements for foreign ownership that triggered this provision, and we have a letter from the government through its Investment Board called BKPM in 1997 saying that we have no future divestiture obligations.

Then there is general provisions that says the government will take no action inconsistent with the CoW, adversely conduct the enterprise, including without taking any action or condemnation or nationalization of the enterprise or any part thereunder.

Failure to honor this CoW is an act of expropriation and nationalization.

So that's a matter that is specifically covered in the contract.

The CoW also said the agreement shall have the full force and effect of law, and the law that governance is the law that was in effect at the time of the contract in 1991.

So that is what our position is, is that this contract establishes the rights and obligations of each party, Freeport and the government, and that the government cannot change its obligations by adopting new laws and regulations.

And this is part of just the general rule of law.

You can't do that in the United States or other countries around the world.

If laws or regulations are changed, and any government has the right to adopt laws and regulations, you can't avoid obligations under contracts by the government by doing that.

And if they do do that, then the government would be responsible for financial losses or damages from the breaches of these contracts.

And so as we enter into discussions with the government, that's the basis for our position.

And the government points to the 2009 mining law and that is the element of disagreements that we've had.

I mentioned this October 7, 2015 assurance letter.

It's very important because in that letter, which was issued by the Ministry of Energy and Mineral Resources, it talks that the government warrants, now this letter is in Bahasa, Indonesia, and warrants is a term that we've translated to -- I've been advised by our people that the law itself we could use the word guarantee or warrants or assures to reflect this.

But it says that we would be able to submit proposal of contract extension immediately on implementation of the regulatory amendment and the government will not unreasonably withhold or delay it.

It is further understood that the approval would ensure, and this is really important, the same rights and the same levels of legal and fiscal certainty as contained in the contract of work.

So where are we today?

The government issued these new mining regulations on January 12, 2017, which under previous regulations was the date that prohibited exports beyond that date.

The regulations allow continuation of exports subject to conditions including converging of the CoW to the special operating license called an IUPK.

We are working with the government to deal with the reconciliation of these regulations with our contract.

And what we've agreed to do is convert our contract to an IUPK subject to obtaining an underlying investment stability agreement similar to what we have in other countries, which provides us this legal assurance of fiscal terms and other rights.

The CoW remains in effect until it's replaced by a mutually satisfied alternative.

And we have requested the government to allow us to export while we immediately begin to discuss with the government this new license and stability agreement.

Our recent discussions -- we have not yet been given an export right -- our very recent discussions with the ministry indicates that we will be given that right, and we will target dealing with the conversion to the license and the stability agreement within a three-month period.

So we are committed to start working immediately on that.

We've been given indications that we will be allowed to export, but I want to note specifically we have not yet been approved for that.

If in fact we are not allowed to export (inaudible) a significant impact on our Company.

Each day at 70 million pounds of copper and 100,000 (technical difficulty) each month -- 70 million pounds of copper and 100,000 ounces of gold for each month.

The nature of copper concentrate is that it's bulk material, and we don't have the ability to inventory this to any great extent.

We would be allowed to ship domestically to the smelter at Gresik.

And we would have to restructure our business to allow us to do that, but it would be a major curtailment of our business.

Unlike 2014 at this point, our Company is not in a position to maintain the existing operations without being able to export.

So we would have to take steps to curtail operations, curtail costs.

That means very large layoffs and the cutbacks in capital spending.

And we have developed plans to do that.

I will say we don't expect to have to do that based on very recent discussions with the ministry, but it still remains for us to get this export approval and we've been given assurances that we will.

I just want to close this discussion of Indonesia to make just some very general comments.

We are one of the oldest and largest foreign investors in Indonesia.

And over the history we have had a very positive relationship with the government, and together we have done great things in Papua.

This is, I would suggest, the most technically challenging mine to operate in the world because of its physical setting and the nature of its ore body and how we have to deal with environmental issues and disposals of tailings and waste material and the development of underground resources.

We take great pride in what we've accomplished there, and we take pride in the positive relationship we've had with the government.

And our goal is to remain a positive partner with the government, but while we firmly represent the interest of Freeport shareholders.

We take pride in the benefits that our operations have provided to the government and local communities over our long histories.

We've produced over $50 billion of economic benefits to the Republic of Indonesia, and our future impacts would be even greater.

Under our current fiscal terms, Indonesia receives more in taxes and royalties than any other country would receive if we were to take this mine and put it in the US, Canada, Chile, Peru.

The deal for Indonesia is very fair by international standards.

In summary it is in the best interest of both Freeport and the government to reach a mutually accepted resolution.

And I believe both sides recognize this, and I have confidence that we will reach this resolution that is fair to all parties, and we are going to commit all of our time and resources to achieve that goal.

We will answer questions, but I want to just point out our 2017 outlook is for over 4 billion pounds of copper, 2.2 million ounces of gold, 92 million pounds of molybdenum.

But copper and gold presumed will continue to export in Indonesia.

Our site production and delivery costs, before byproduct credits would be about in the range of $1.50.

After credits this is a $1,200 goal and $7 molybdenum would be $1.06 for the year -- this upcoming year, the year we are in and about a $1.15 for the first quarter.

At $2.50 copper we have $4.3 billion of operating cash flow.

Each $0.10 change in copper, plus or minus from $2.50, is $385 million.

Capital expenditures of $1.8 billion, which $1.1 billion is for major projects.

The vast bulk of that is for the underground development in Indonesia, and then our sustaining capital is at $700 million.

Our sales profile for the next three years is shown on slide 19.

Net of Tenke and Morenci transactions we were at 4.17 last year.

This year would be 4.1 and roughly 4 in 2018.

You can see our gold increases as we complete the mining of the Grasberg [over] pit in 2017 and 2018.

And our molybdenum sales, which we managed to a certain degree in response to the marketplace and we've done a great job by the way of processing our molybdenum and downstream operations to reach a chemical grade where realizations are substantially higher than from metallic molybdenum.

Our models for EBITDA and cash flows are shown on page 20.

EBITDA between $2.50 and $3 is $5.5 billion to $7.5 billion.

Operating cash flows are roughly $3.5 billion to $5 billion between $2.50 and $3 with limited amounts of free cash flow.

This gives us a clear path for making our debt targets.

The sensitivities to price changes for our business is shown on slide 21, and capital expenditures on page 22 where without oil and gas now we will significantly reduce capital this year and next and continue to constrain capital until market warrants moving forward with new project.

This balance sheet slide is something that looks great to me.

We went from $20 billion to $12 million net debt from last year -- from year before last to the end of last year.

And then if we look forward, next year with the range of $2.50 to $3, you can see our debt dropping below $10 billion.

And that is a big positive change for us.

And we are committed to a strong balance sheet now.

A strong balance sheet in this industry allows you to be protective of your Company's shareholder values.

It allows you to make investments when they are warranted.

It allows you to take into account operating risk and risk such as the one we're facing in Indonesia.

We are much, much, much better prepared to deal with those risks today than we were a year ago, and it's a major accomplishment for our Company to have met the challenges of having a massively overleveraged balance sheet and getting down to where we have a strong balance sheet.

I'm really excited about our future.

We are industry-leading copper, and copper in my view is going to be a great commodity to be in.

We've got a great team of operators and developers.

We've done all these different projects spanning the globe.

There's not a project in our industry that we cannot do effectively.

We've got this long-lived geographically-diverse attractive cost structure set of resources, and now we are financially strong to be able to run our business in an effective way.

So with Act I, we are working every day on Act II as we work to keep our business safe and produce volumes and control our costs.

So thank you for your attention and I know I've taken some time on the call.

We will answer your questions, but I felt in the circumstances reviewing some background was needed.

Operator we will take questions now.

(Operator Instructions)

Chris Terry, Deutsche Bank.

Hello Richard and team.

Couple of questions from me.

Just trying to cut out a few of the more details on Grasberg.

Maybe just start on the underground development you're going through with the Deep MLZ zone also the Grasberg block cave.

At this point has it been any slowdown on that?

I'm just looking further out to some of your guidance and comparing it to past periods.

I think the 2019 guidance for example was changed a little bit.

Have you changed anything there or are you still waiting for resolution on the new term before you make any decisions?

That's a good question, Chris.

There's two factors here.

First of all, with the fact that the pit has been extended because of the labor productivity issues that we faced, then that pushes back the ramp-up of the Grasberg block cave.

We are proceeding with the development of the block cave, and that has gone very well.

These labor issues and so forth have not carried over to our underground operations or our mill operations.

And so we are on schedule.

Now we slowed things down a bit to conserve capital and to make this fit in with the start up following the completion of the mining of the pit.

With respect to the Grasberg block cave development, we will not get to the point of initiating cave activities until we get the contract issue settled.

But that is scheduled to occur in the future in any event, between now and 2018, because once you start caving, you've got to stay with it or you lose resource.

So we are progressing with the underground development, we are timing it to coincide with the completion of the pit, and to a certain extent we're looking at the contract situation before we go forward with it to get to the point of actually beginning caving operations leading in production.

The Deep MLZ mine -- development is complete.

We have one cave that is in operation with a number of drop points on that cave.

We have had an issue related to underground stresses associated with the advancement of the cave.

And that has caused us to have to put in more extensive ground support than we had originally contemplated, and that has resulted in a delay in some of the production that we originally projected for 2017 and 2018 and 2019.

So we've had a bit of a slowdown in the development of the mine itself to make sure that we are comfortable with the safety factors for the underground support, and that's taking some time and pushing out some projection.

No lost resources.

It does involve some incremental cost, but it is something that once we identified this and this occurred during the fourth quarter, then we are taking the steps to ensure safety and the ability to produce this thing over the long term.

Okay.

Thanks, Richard.

And then just in terms of the now, so you are continuing to produce.

Can you give us some guidance maybe on how much storage capacity you actually have, and when you would have to make a decision on that?

Is that early February that you can keep operating until before you need to get the license?

Coming into this January 12 date we scheduled shipments to take into account the potential for a delay in granting of the export license.

So by mid-January we had shipped our exports out under our previous license authority and shipments for the upcoming weeks are scheduled for the Gresik smelter.

Now, Gresik smelter is undergoing a strike and is currently having to deal with that.

So that has an impact.

We have limited amount of storage space, as I indicated, and we would need to take steps no later than mid-February if in fact we are not granted the license.

So it is something that looms in a very short time horizon.

Okay.

Thanks.

And then just the last one for me on the CapEx.

Just noticed into 2018 the part that's not the growth capital.

I assume that is the sustaining capital, the 0.9.

Is that representative of the business now that you've divested most of the oil and gas or is that still work in progress?

Are you under-spending there or can we look at that as a steady-state number?

We are aggressively constraining spending.

And our team was just here last week with all of our mine managers.

Necessity is the mother of invention, but it's -- we are sharing inventory, sharing equipment, sharing people, and doing every step we can do.

This is not going to be sustainable at that level forever, but we are not having to increase it in the near term horizon.

This is an aggressively constrained level of maintenance capital spending.

But it is what -- we can meet our production targets with this level of spending.

Okay.

Thanks for the color.

Andreas Bokkenheuser, UBS.

Thank you very much and congratulations on the fantastic job on deleveraging last year.

That was certainly quite impressive, and I don't think it was a small thing at all.

At the risk of being slightly predictable I also have a question on Grasberg.

You've obviously highlighted your willingness to potentially convert to an IUPK assuming you get the fiscal and legal certainty attached to a CoW.

If we assume for a second that you get this fiscal certainty but the government digs their heels in and says, look, you still have to divest 51% ownership, would I be right in assuming that you will not commit the vast amount of CapEx to Grasberg if you can't have majority control of the mine?

Is that the right assumption?

The government currently owns 9.36%.

And that goes back prior to the 1991 CoW.

In terms of negotiating with them over the past five years -- and it was an element in the 2014 MOU -- we agreed to divest up to 30%, which was another 20% roughly over the current government's ownership -- with a proviso that the divestment be at fair market value.

And a year ago in January we supplied to the government a valuation of PTFI based on valuation parameters at that time consistent with the negotiations we were having with Morenci and ultimately with China molybdenum on the Tenke sale, which valued PTFI at that time at $16 billion.

We have not had any interaction with the government to review that valuation.

And clearly to date copper markets are more positive than they were a year ago.

The government has expressed over time an interest in having Indonesian ownership over 51%, but they have indicated they would want to see Freeport continue as operator and to be in control of operations.

And so the thought process, as I understand it, with the government is to have Indonesian nationals in some form owning 51% but not to be in control of the business.

Now, we believe we have gone a very long way to meeting their aspiration with agreeing to this 30%.

And at the current time we've just noted our opposition to the regulation that requires 51% for all companies.

But in our case our contract requires no divestiture.

And we have documentation from the government supporting that.

There is no question that if we had a requirement to divest 51% from the start of this contract we would not have invested in the way that we did.

While there has been indications that certain government officials accept the fair market value concept, my point is you just don't develop an asset to sell it to somebody else at a fair market value at a certain point in time.

So that remains a matter of disagreement between us and the government, and clearly if that were a requirement it would affect negatively our future investments for this business.

That's very clear.

Thank you very much.

Let me just say while I expect that we will get approval to export and some time to deal with developing this IUPK investment stability agreement, we will still have to deal with this regulation for 51% divestiture and the government's intention to impose export duties.

The level of those duties has not yet been published.

So we have work to do.

I appreciate that.

Thank you very much.

That was good.

Thank you.

Thank you.

Tony Rizzuto, Cowen and Company

Thanks very much.

Hello Richard and Kathleen.

I also want to congratulate you on Act I as well.

And Richard, when I listen to you detailing the articles in the contract of work in the specific areas, I couldn't help but think that I was hearing increased frustration as to be expected in your voice.

And, my goodness, you look at all the details in the articles and how it's been violated over time, and just your response to the last question about this 51% divestment stake and so on and so forth and the questions about operating control of these types of things.

And I clearly heard you say earlier about this kind of very critical date as you come up upon mid-February which is not that far away -- if these issues in Indonesia persist would you consider in addition to reining in investment there, could we see Freeport look seriously at perhaps restarting some of your currently idle capacity elsewhere in the world?

Well, I really think that those are independent decisions.

I don't think we would start idle capacity just because something was happening in Indonesia.

We are going to look at the idle capacity, investment of developing new resources based on market conditions.

And Tony, one of the advantages of having a stronger balance sheet, which a year ago we were really dealing with this situation in Indonesia and other potential risk in places we operate outside of Indonesia from a position of weakness.

Now our cannons are loaded, and we can represent our shareholders much more strongly than we could have then.

And that is really important.

We have the rights to pursue claims against the government in the form of international arbitration.

And our legal team advises us that our case is very strong in doing that.

We have consistently represented to the government that we don't want to do that.

I don't believe that would be advantageous for us but I also think it would be very negative for the government of Indonesia.

So we have and as long as we have the opportunity to try to resolve these matters in good faith we will continue to do it through trying to reach an amicable, mutually agreeable situation.

But if we get to that point where we can't -- and that point would include not being able to export -- then we would be left no choice.

And we are prepared to do that.

Richard, just on the labor situation you mentioned, I was unaware that the Gresik smelter was dealing with a strike situation.

Your own situation there as it relates to the mining operations, is there a labor contract which expires there this year?

It seems like the two year -- I know it's every two years --

It's every two years and we have to begin this summer -- beginning the negotiation of a new CLA agreement with our labor union at Grasberg.

And that -- under Indonesian law that's required every two years, as you point out.

The expiration on that, Richard, is which date?

September.

End of September.

And that is to all of the workers at the mine, mill, and everything?

Well, our total workforce is 32,000, 34,000 people.

Half of those roughly -- a little less than half -- are employees.

And a majority of the employees are members of one union.

And that is the contract we are talking about.

The others are contractors, and certain of those contract companies have separate unions and separate negotiations.

But for the major employee union that is the contract that we've just been talking about.

Got it.

That's very helpful.

Thank you.

Okay thanks, Tony.

Orest Wowkodaw, Scotiabank.

Hello, good morning.

More questions on Grasberg, specifically your guidance for 2017.

Just curious what throughput rate that assumes at Grasberg, because obviously it's been tracking kind of below expectations given the productivity rates that you talked about.

Orest, this is Kathleen.

The big driver of our metal in 2017 comes from the Grasberg open pit, and we are using an estimate -- an average of 140,000 tons a day of mining rate.

And during the third quarter of 2016 we averaged 170,000 roughly.

We had forecast 160,000 going into the fourth quarter, and we had some work stoppages and some productivity issues that we dealt with in the fourth quarter, so we averaged 122,000.

The 140,000 that we are estimating for 2017 is very doable.

But it is at risk for issues related to productivity and work stoppages.

But we think it's very much achievable and potentially we could do better than that.

And is your guidance reduction for 2017 -- is that driven purely off of the productivity issues?

Or is there any impact from the ban in the current -- the export ban in the current change?

It's principally related to the lower mining rate and to the delayed ramp up at Deep MLZ.

That is affecting 2017.

We do have some allowance for the concentrate delays, but we are expecting under this plan to be exporting in February.

I see.

And just finally on Grasberg, Richard talked earlier about your relationship with Rio Tinto.

Can you just please outline, I think to everybody, how the 40% interest is going to work with Rio Tinto starting in 2021 and how that pertains to -- whether that pertains to their stake in PTFI at the asset level, and how we should think about that?

Okay.

They do not have any stake in PTFI.

The operation, even though we call it all Freeport, is actually a joint venture between PTFI and Rio Tinto's Indonesian subsidiary.

And so they own no shares of PTFI.

The numbers we present are proportionately consolidated, so it excludes Rio Tinto's interest in current operations, which is very small.

But it also -- when we report reserves and resources, that's net of Rio Tinto's interest.

And they have an assignment of our CoW, and so it is really a joint venture.

And they had a varying level of participation from the time it began in -- the production began in the joint venture in 1998 until 2021.

Now, there's been some extensions of that date for force majeure items, and after that date they have a 40% interest.

And if -- last year when you previously talked about selling down 20% to the government, did that -- so would that have included pro rata share from Rio Tinto or was that strictly Freeport share?

That's strictly Freeport share.

We only negotiate with the government with respect to Freeport's interest.

And for example, when I referred to this $16 billion of valuation, that is exclusive of the valuation attributed to Rio Tinto.

There is only one CoW.

They have an assigned interest in that CoW.

We cannot make any amendments to that CoW that's adverse to Rio Tinto's interest.

And we been great partners since the start of this operation and we are in very close communication with them on all aspects of our business: technical, safety issues, government relations issues, and so forth.

It's that partnership, I want to be clear -- we represent PTFI.

We have a joint venture partner, Rio Tinto, that represents their interest.

I see.

And is Rio funding its proportionate share then of the underground CapEx and the future smelter?

With respect to the CapEx at Grasberg and the underground development, several years ago we reached an agreement on how those capital expenditures would be shared.

Certain of those costs are deemed to be replacement capital, and they are shared on the same basis as operating costs.

Some of the costs are considered to be expansion capital and they are shared 60/40, like the Deep MLZ project, for example.

Certain projects, for example, the access -- there is a common access to Deep MLZ and to Grasberg, and we have an agreed-upon sharing.

So the capital that we report, and all these numbers in our presentation we report, are Freeport only.

They don't include costs shared by Rio Tinto.

Those costs are relatively small right now but will grow to 40% once the conversion to the 40% interest comes into play.

Okay.

Thank you very much.

Sure.

Andrew Quail, Goldman Sachs.

Good morning, Richard and Kathleen.

Thank you very much for the updates.

Just got a couple of questions.

I don't want to beat a dead horse but talking about Grasberg again.

Obviously talking about mine rates in Q4 -- and it probably had something to do with labor as well as mine sequencing -- can you just give us some context?

How much does the workforce flex down as you guys transition to the block cave?

It is more of a transition than a flex down because actually underground mining is labor-intensive.

And over time as the open pit moves towards completion, the mine rate drops.

We're moving much less waste material now than we did in the past, so there's less equipment, less people, and we've sought transition workers from the open pit to the underground through training where we could.

We also will have ongoing, after the pit is completed, material moving activities associated with the management of the waste material that's been taken out of the pit and placed around the pit.

And we have to manage that for long-term environmental reasons.

We have activities in the lowlands where we have a tailings disposal area that's cordoned off with dikes.

And there is a constant effort ongoing to build and maintain those dikes to execute our tailing management plan.

So I would say, Andrew, that it's more of a transition than what was the word you used -- flex down.

Okay.

Cool.

Second question was about, you guys are obviously talking about a surface water tax, which was about $470 million.

Can you give us some color on that, and if that was to be paid would that come this year?

I realize you guys haven't made any provisions for it, but what is the background of that?

Is that the government sort of playing games?

This is a clear-cut example of why we have to protect our CoW.

Our contract says we are only subject to taxes that are specified in the CoW.

What happened here is the provincial government, not the central government, has sought to impose a water tax on us that we resisted paying because it's not part of the CoW.

And we didn't pay it, and the provincial governors sued us.

It's gone through the tax court now, and there was a very recent ruling in the tax court that was in favor of the provincial government.

And it's one of these kinds of things that we face in other countries, whereas the amount of the tax I think was less than $200 million.

But there are penalty provisions in the law that are very aggressive.

And so that's where it has grown up to the $350 million, $400 million level.

We have taken steps to appeal this tax court decision.

We believe it's wrong.

We are considering submitting this matter to arbitration.

But that's what would happen to us if we went to a license without having an investment stability agreement.

Under a license you are subject to prevailing laws and regulations.

And any government can't come in and impose taxes, fees, import duties, export duties, et cetera -- water taxes, surface taxes, vehicle taxes.

Obviously governments around the world need funds these days, and an operation like ours is an attractive target, so we have to have some protection against this.

We have made very significant voluntary contributions to the Papuan community beyond what we're required to pay under the CoW.

We began in 1996 to voluntarily contribute, along with Rio Tinto, 1% of our revenues to a Papuan development fund.

That's accumulated -- the last number I saw was $650 million.

It's one of the largest community development funding activities in the globe.

Freeport was just recognized in Forbes by being among the top 50 civic mining companies.

And that's part of it.

The fact that we voluntarily make this contribution each year for Papuan community development.

So it's not like we're trying to ignore our neighbors in the province, but we have to resist opening the door to having taxes imposed on us that is not part of our contract.

There's a real danger of that being a never-ending stream.

Richard, thanks very much.

I've got one more and it's not Indonesia.

How about that?

Switching to North America, obviously copper prices have rebounded.

Is there a price in your head that you guys will start looking now that the balance sheet is pretty much fixed?

You guys have done a great job there in the last 12 months.

How much capacity do you think is in North America that you guys can maybe flex and bring back on in time?

You know, we had an interesting situation with our scale back operations.

We went through and evaluated each project.

And Red Conger's here and led this effort with Kathleen looking over his shoulder.

But we reviewed every operation, every segment of every operation when copper prices dropped so low to see what would be cash flow positive.

And when we talk about cash flow positive, it includes maintenance capital as well as operating costs.

And really we did this in 2008, 2009, adjusted some operations.

This time when we reviewed them, like operations in New Mexico, they withstood that.

We shut down production that was really reclamation activities in the Miami-Globe area, the Miami mine.

That's not going to come back on.

That's done, and we've adjusted it to make it purely a reclamation management effort.

At our Sierrita mine in Arizona, it is a very, very low-grade copper deposit but a significant molybdenum component to it.

Because most prices dropped, we started a plan to curtail production significantly.

We're targeting 50% or more.

Well, as we got into it, the team there started finding ways of reducing costs to such an extent that we never cut it back as much as we initially intended.

And so now we're just monitoring that.

We're not making plans to take steps to invest right now to increase it.

It does have future investment opportunities.

But we're just managing production to meet cash flow objectives.

We did in South America -- I know you asked about North America, but we did cut the mining rate in half at El Abra, and that remains curtailed.

We are looking at the future development opportunity there, but we don't see stepping that up at the copper prices expected for 2017.

We had -- and I think we commented on this in previous reports -- but we have ongoing work that Red and his team are doing looking at each site to see if we can change pit designs to reduce cost and to get more production.

That's not an easy exercise but that's the kind of thing we're looking at is things that don't require significant investment that maybe we can do on the margin.

But we are doing those kinds of things right now which would have a very high return.

Thanks very much guys.

Good luck for 2017.

Thank you very much.

Evan Kurtz, Morgan Stanley.

Hello, good morning, guys.

Hello, Evan.

I just had a question on divestment valuation.

I've heard all sorts of different conflicting reports out there.

And I know at one point you were hoping to get some sort of clarity on whether you could use an IPO on the Indonesia Stock Exchange, and it seemed like maybe that wasn't going to work out.

And today there was a report out that suggested that maybe that could be an option.

I've also seen some other reports about government only having to pay for replacement costs and not [institute] ore and that sort of thing.

Just wanted to get your views there.

Is that something we could see -- how likely could you get most of the required divestment done through an IPO do you think?

Well, Evan, we believe an IPO would be an attractive step in achieving a divestment plan because it results in a market-based valuation of the Business.

And the Indonesian Stock Exchange has grown to be a fair market.

And I know from discussions with investors there would be people interested in investing in an asset like Grasberg.

We and others in Indonesia are supportive of that.

It would not be the sort of thing that we could do a 20% divestment in one step on the exchange.

Simply be too large.

And so we think an IPO would be maybe 5% or slightly more than that, and we would work with the bankers and all that would be dependent on market conditions at the time we launched it.

So we think that with respect to these comments about replacement costs -- there were some articles earlier this week about somebody saying we wouldn't get any credit for underground reserves, which is a pretty wild statement.

All of those things are just press comments.

As I said, we have not been approached by the government to sit down and review our valuation with the government officials or financial advisors.

And we are prepared to do that at any time.

But we are -- there was a prior regulation that they had that talked about replacing costs, but our agreements with the government in the MOU and other discussions have always included a requirement on our part that it be at a fair market value, and we wouldn't be prepared to enter into any kind of divestment without achieving that.

Thanks for that color.

And maybe one more follow-up, if I may.

With respect to Rio Tinto and them taking their 40% stake as you look out past 2021.

How has that -- how have discussions evolved between you and Rio as far as if you were to pursue a path with the IUPK?

And maybe one of those paths includes having to divest up to 51% of the company in exchange for some of the other protections you are looking for, how would Rio Tinto fit into that picture?

Assuming they take 40%, would that come out of their stake?

I know it's 51% of the asset and not of PTFI that they are looking for, so how do they fit into the picture and have you had any discussions with them on that front?

Well, the way they fit into the picture is there is one CoW.

They have an assignment in it, and for any changes to that CoW we basically have to reach an agreement with Rio Tinto on it.

And we talked with them constantly.

We've had good positive discussions with them, so any decisions we reach would be with them.

I want to go back and repeat what I said earlier about divestiture.

We only can talk about divestiture with respect -- we at Freeport can only talk about divestiture with respect to PTFI and our interest apart from Rio Tinto.

We can't represent their ownership.

And that is their business in dealing with the Indonesian government on it.

So divestiture discussions that we've had to date and the $16 billion number and all the other things strictly relates to PTFI which is an entity that Rio Tinto has no interest in.

They are a joint venture partner, just like Sumitomo is our joint venture partner at Morenci and Codelco is our joint venture partner at El Abra.

Rio Tinto is our joint venture partner at Grasberg, and even though it's commonly referred to as the total operations being PTFI because we manage them we have -- they have certain rights with respect to operations which we work with them on and reach a meeting of minds on plans and investments and things of that nature, too.

So it is a true joint venture.

And would they have say in the conversion from a CoW to an IUPK since most of their rights are with the CoW?

So you'd have to get their sign-off as well?

Absolutely.

Okay.

Great.

Thanks.

I'll hand it over.

John Tumazos, John Tumazos Very Independent Research

Thank you very much for taking my question.

Richard, can you clarify the production rate at Sierrita?

Is it more like half the capacity, 75%, or 100%?

It's about 75%.

It's about 75%, John.

Can you tell us among the six possible sulfide mill projects, which one or two are more likely to go forward first whether we are talking about (inaudible).

I think the first one, John, that we would pursue would be the Lone Star project, which is adjacent to Safford.

This is an enormous sulfide resource with an oxide cap, and the Safford operation itself is facing the end of its resource life, although there is a deeper sulfide project there.

But what we can do as an initial step at Lone Star is mine the oxide cap using the Safford oxide production facilities, and that would serve as a stripping of the material for a long-term sulfide project, which conceivably could include the sulfides at Safford as well as the sulfides at Lone Star.

But that would be a major mill investment.

So I think the first thing you would see us do is move to start mining the Lone Star oxide, which would not require the kind of major capital expenditures that a sulfide concentrator mill would require.

Essentially a stripping project and would use the infrastructure that was currently in place at Safford.

Then beyond that, you start getting into these trade-offs between Bagdad, El Abra -- would be, I think, the two right now that would be competing for that first step.

Thank you very much.

Chris Mancini, Gabelli & Company.

Hello everybody.

Just a quick question on North America.

How would a change in corporate tax rates in the US potentially affect your cash taxes pay out of your North American operations?

And then also would a change in the Republican administration -- but would a new Republican administration change your decision process regarding any of these potential expansion projects going forward?

Would it make it easier or would it make it more likely that you would go ahead with any of them?

All right Chris, that is a very complicated question.

It's got really broader implications than Freeport, but let me just talk about a couple of things that's happened at Freeport.

You start out by saying -- because of losses that were triggered by this oil and gas activities we had, we are not paying cash taxes in the United States.

And we have a very large carryforward that would shelter cash taxes for a significant amount of time in the future.

So one thing we are watching is in this tax reform, are they going to do anything with carryforwards?

There is just a lot of questions about it.

But I don't want to get into this because we could talk forever, and we had a conversation at the business roundtable on it.

But this border adjustment provision that they're talking about could really have some interesting implications.

Right now we supply 40% of the copper to the US market.

And we pay -- results in taxable income which right now is being sheltered.

Under the way this thing is structured, as I understand it, if we export that copper we pay no taxes on it.

But right now if we buy a Caterpillar haul truck and would use it at Bagdad, Caterpillar would have to pay taxes on that.

If we bought a Caterpillar haul truck and use it at El Abra, since it's exported, Caterpillar would have to pay no taxes on it.

If we bought all of the big -- Kathleen is telling me to stop.

(Laughter)

If we were to buy all of the big grinding equipment is made in Germany, under this cross-border thing if we bought it for Bagdad, we'd get no tax deduction for it.

If we bought it for El Abra, we could deduct it in determining taxes in Chile.

We're just one example of this, so this debate over tax reform, in particular this cross-border situation, is really going to be an interesting one to follow.

But the bottom line on a change in the corporate tax rate in the US, right now given our situation with NOLs, just a simple change in the corporate tax rate would not impact us.

Okay.

And the border is just so complex, it is tough to really say what the net effect will be.

And we are also not one of the companies that is affected by having cash offshore that hasn't been taxed.

Repatriation issues and the unified tax structure because we pay more taxes outside the US than we do in the US.

The typical case is a reverse of that.

So we don't have that issue facing Freeport.

Okay great.

I guess that a new administration -- in Arizona it is very favorable to mining and to expansion of mines and this kind of thing.

So the new Republican administration wouldn't necessarily change your minds relative to expansion projects, but I guess it wouldn't hurt.

There is the potential to stop them going forward might be a little bit lower, or does it really matter?

Well, I will say we've been here in Arizona for 10 years, and 10 years ago we acquired Phelps Dodge.

And Arizona is an excellent, excellent state for us to operate in.

We've had a Democratic governor when we first moved here, we've had two Republican governors now, and they through both administrations have been very supportive our business.

We do things the right way for communities and the way we run our mines, and so they appreciate that.

So we've got tremendous support by the state.

The area that we are watching that could have a big influence on us is EPA regulations because we inherited legacy environmental obligations all over this country from historical operations that go back into the 19th century.

And we just entered into a settlement that you may have seen with the EPA and the Navajo Indian tribe in the Four Corners area where significant historical uranium cleanup sites.

We were very pleased with that.

The government is going to pay a significant part of that and we're going to deal with some of those obligations on behalf of our company.

So these EPA regulations, which is a big focus of the new administration, is important to us.

Okay great.

Thanks a lot.

David Gagliano, BMO Capital Markets.

Thank you for taking my questions.

First of all, I'd actually would like to start out by saying I agree with some of the comments earlier.

It's unreal to me how the Indonesian government is constantly changing agreements and rules over the years.

But nevertheless I guess it is what it is, so unfortunately I have two Indonesia follow-ups.

Both are probably more clarifications.

First of all, does the investment stability agreement that Freeport would propose to the Indonesian government -- which my understanding it would be the core to converting from the contract of work to this IUPK -- would that investment stability agreement include basically the same six articles that are included in your slide deck, that are included in the contract of work now, or if not, how would those differ?

That is my first question.

Okay.

We go back to this October 7 letter.

That is in the slide deck as well.

And in that letter the government gave us assurances, warranted or guaranteed, that under the new regulations we would get the same level of assurances on legal and fiscal matters that we had in the CoW.

So that is the starting point and the endpoint in our view of where we go with that.

So the answer is yes, it would contain all the important provisions related to fiscal and legal certainty that are in the CoW.

They would now be in the stability agreement, and our analysis shows that the government has authority under the law through its investment laws to enter into this sort of agreement.

Thanks for clarifying.

Back to the Rio Tinto discussion just for a second, another clarification question.

I just want to make sure I'm thinking about this the right way.

If Freeport was required for whatever reason to divest down to that 49% ownership, after Rio Tinto comes in beginning in 2022, does that essentially mean the net result for Freeport would basically be that the company goes from having the rights essentially 91% of Grasberg volumes today down to about 9% by the beginning of 2022, or am I thinking about that the wrong way?

If you would look through it as to what is the net Freeport interest in this, as we sit here today PTFI has, let's just say, virtually all the interest through 2021.

Rio Tinto has a small piece of that.

After 2021, Rio Tinto has 40%; PTFI has 60%.

FCX owns 90% of PTFI.

So it would be, 90% of 60% would be 54%.

If we divest -- if we divest 30% let's say --

Another 20%.

If we divest 20% Indonesian interest, we'd own 30%, FCX would own 70%.

So FCX would own 70% of 60%, or 42% net interest.

If we divested half, FCX would own 50% of 70%, or 35%.

Okay.

That's helpful.

David, I know your question is more from a big-picture standpoint, but because of metal strip adjustments, the 60/40 split will probably be more like a 2023 event.

Yes, because that has been adjusted -- for example, when we had the almost seven months inability to export.

And we've had some other interruptions in operations over the years that triggered an adjustment to the effective date of Rio Tinto's 40% interest.

All right.

I appreciate it.

Thank you for clarifying.

Okay.

Thanks, David.

Lucas Pipes, FBR & Company.

Yes.

Thank you very much for taking my question.

Sorry to belabor the point, but it's about Indonesia.

Richard, I think you mentioned that you are prepared to go to arbitration.

I think you also mentioned that it's a function of whether you obtain the export license.

Could you clarify as to what is the timing -- let's say a month from now, mid-February, you don't have an export license -- would that be the time that you go to arbitration?

And then secondly, you also mentioned that arbitration would have negative consequences or a number of downsides for Indonesia.

Could you tell us what those are?

Thank you.

Okay.

To coin a phrase, I don't want to draw a red line here.

If we got to the point of where the government is just arbitrarily saying they're not going to grant us export license unless we convert to an IUPK without conditions, then we would have no recourse other than going to arbitration.

But we believe -- I want to tell you what I believe.

I believe we will be granted export, and we will have a period of time to negotiate these things.

That is what I will believe is going to happen.

But the point that would trigger it, Lucas, is if the government just said, no, we are not to talk with you anymore, we're not going to negotiate, you either have a choice of going to the IUPK and not exporting.

Then we are not left with any room on it.

So that is the key.

And then from the government of Indonesia's standpoint, you see advertisements here of the government encouraging foreign investment.

They had a section in the USA Today.

You can see their ads on Charlie Rose most nights.

The country needs international investments to achieve its economic goals.

And I've listened very carefully to President Joko Widodo on his trips to the US and at APEC, and I feel very positive about his philosophy about investments and so forth.

Here Freeport is among the oldest and largest investors in the history of the company -- the history of the country.

It's almost the history of the company, too, but I meant to say country.

And so for us to have a very public dispute over things like this would be negative for both of us.

Okay.

Thank you very much for that clarification.

I appreciate that.

Good luck.

Thank you very much.

Listen everyone, long call for those of you still on.

Thank you for your interest, and I appreciate that you have a lot of questions about this Act II.

You can tell how focused we are on it.

It's good to be in a position with our company where -- it was a priority all during the year, and I made five or six trips there last year in the midst of all this other stuff.

I was just there, and we're going to stay with it and work to resolve this problem.

And then next year I think we are looking at Act III, and hopefully that will be looking to invest in all these great resources that we have from a very positive copper market.

So good luck to all of us, and thank you for your interest.

Ladies and gentlemen, that concludes our call for today.

Thank you for your participation and you may now disconnect.