費利浦·麥克莫蘭銅金 (FCX) 2017 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.

And welcome to the Freeport-McMoRan Fourth Quarter 2017 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.

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

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

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

Before we begin our comments, we'd like to remind everyone that today's press release and certain of our comments on the call include forward-looking statements, and actual results may differ materially.

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

On the call today are Richard Adkerson, our Chief Executive Officer.

We also have Red Conger here; Mark Johnson; and Mike Kendrick.

I'll start by briefly summarizing the financial results and then turn the call over to Richard who will be reviewing our performance and the slide presentation that's included on our website.

After the prepared remarks, we'll open up the call for questions.

Today, FCX reported net income attributable to common stock for the fourth quarter of 2017 of $1 billion with $0.71 per share.

The results include net gains of $291 million or $0.20 per share, primarily related to tax benefits associated with U.S. tax reform totaling $393 million, partly offset by charges for adjustments to environmental obligations.

The benefit from tax reform principally relates to the appeal of the AMT and a refund of our AMT credit carryforward.

After adjusting for these net gains, the fourth quarter 2017 adjusted net income attributable to common stock totaled $750 million or $0.51 per share.

For the year, our net income attributable to common stock totaled $1.8 billion, or $1.25 per share compared to a net loss attributable to common stock of $4.2 billion or $3.16 per share for the year 2016.

For the fourth quarter of 2017, our adjusted earnings before interest, taxes and depreciation and amortization, or EBITDA, totaled $2.1 billion and $6 billion for the full year.

A reconciliation of our EBITDA calculation is available on our slide materials on Page 37.

For the fourth quarter, FCX sold 1 billion pounds of copper, 593,000 ounces of gold, and 24 million pounds of molybdenum.

And for the full year, we sold 3.7 billion pounds of copper, 1.6 million ounces of gold and 95 million pounds of molybdenum.

Our fourth quarter average realized copper price of $3.21 per pound was 29% above the year-ago quarter average price of $2.48 per pound.

Our average unit net cash cost for copper was $1.04 per pound for the fourth quarter of 2017, and averaged $1.20 per pound for the full year.

And that compared to $1.26 per pound for the full year of 2016.

We generated strong operating cash flows in the fourth quarter totaling $1.7 billion, which exceeded our capital expenditures of $390 million.

For the full year, our operating cash flow totaled $4.7 billion and capital expenditures were $1.4 billion.

We used our strong cash flows to improve our balance sheet.

During the fourth quarter, we repaid $1.7 billion in debt and that included the early redemption of $617 million of senior notes due 2020 and open-market repurchases of $74 million of notes due in 2018.

At the end of 2017, our consolidated cash was $4.4 billion and consolidated debt totaled $13.1 billion.

Our debt net of cash of $8.7 billion at the end of 2017 was $3.1 billion less than at the start of the year, and $11.4 billion less than the level 2 years ago.

We ended the year with no borrowings under our bank credit facility and approximately $3.5 billion available.

I would now like to turn the call over to Richard who will be providing additional details on our results and our outlook.

Good morning, everyone, and thanks for joining our call.

2017 results reflect really strong operating performance throughout our global operations, as Kathleen just described.

It also reflects the success of our ongoing cost management and capital discipline efforts, strong cash flow generation, we restored our balance sheet strength, developed attractive organic growth options for the future and we made important and positive progress for the long-term stability of our operations in Indonesia.

Most of you have been here and watched our company for some time, just think about where we were 2 years ago.

We had just lived through as the industry had significant drops in commodity prices, the price of copper was just over $2 a pound, many expected it to drop below that.

We had the issue of having $20 billion of debt following the misplaced oil and gas transaction that we did, we had restructured our board, restructured our management team and we're faced with deleveraging.

At that board call, one of you pressed us to say, "what do you expect your debt levels to be?" We weren't sure at that time.

I said, we hope to reduce our debt between $5 billion and $10 billion over the next 2 years.

We are under $9 billion as we ended the year, this year.

We were faced with the completion of our Cerro Verde project in Peru, which was a major project which often are troublesome for the industry.

We did not know what we were going to do with the oil and gas assets at that time, there were no buyers in the marketplace in the first quarter.

But we successfully exited that business.

We thought we were going to have to hold those assets for a period of time.

Many who followed our company were skeptical of our ability to sell copper assets at reasonable prices and through working with our partners Sumitomo -- with Sumitomo, with -- and Morenci, with China Moly, which turned out to be a great partner to deal with.

In the Congo, we were able to get reasonable values at the time, great investments for those companies because they recognize the long-term values and the values in the copper marketplace.

We had to sell some equity but we fought our way through that, a year ago.

In October 2016, I went back and looked at my notes from LME Week.

There was still people predicting a wall of copper supply.

Still predicting copper prices in October 2016 of $1.80 a pound.

[The price] on the upside that were above $2.50 a year ago but we were blindsided by new regulations that had come out from the government of Indonesia that affected -- raised questions about our contract there.

They came out in January.

Since that time, I've spent as much time in Jakarta as I have in Phoenix.

Kathleen's been there on my last 5 trips and we were pleased that after facing the prospects of very contentious arbitration proceeding, which we talked about publicly in the first quarter, we have reached a common grounds for moving forward with the government of Indonesia.

We now mutually want to get this thing solved.

We made a lot of progress and I'll give you a report on where we stand and answer your questions.

But through '17, price of copper came back.

So today we have a company that has a really great set of long-lived attractively cost -- operating cost profile, assets and resources.

I'm so proud of our team.

I have Red Conger here who runs our business in the Americas; Mark Johnson who runs our business in Indonesia; Mike Kendrick who runs our molybdenum business; and Rick Coleman who does our construction projects, who's traveling but these guys and their teams just had an exceptional year this year in executing our plan and being focused on doing that while we've dealt with the issue associated over the last 2 years with balance sheet management and dealing with Indonesia.

We've got a great team and this team has executed extraordinarily well.

You can go back to the early 2000s when we had to deal with a serious balance sheet issue.

The successful integration and debt repayment following the Phelps Dodge deal in 2007 where we successfully repaid all the debt of that highly leveraged transaction within 4 years after managing ourselves through the financial crisis of 2008, 2009.

By 2011, we had a company with no debt, had an integrated team that is the best copper operating team in the industry.

Metrics are shown on Page 11 -- on page -- what's the page number?

4

Page 4. So the key thing that jumps out is free cash flow generation here in 2017.

First part of 2017 was tough in Indonesia.

We were restricted on exports for a period of time.

We had significant labor problems.

By mid-year we were exporting and continue to export, expect to be able to continue to export.

Our labor relations issues have been really progressed.

New union leadership in Indonesia.

We signed a new 2-year labor contract in December without any controversy or drama associated with it.

But even with the issues at the start of the year, we generated over $3 billion of operating cash flows in excess of our capital expenditures.

You can see our cost structure, we maintained our reserves.

And as I mentioned, we have really reduced our balance sheet.

As we look forward to our plan for next year, if copper prices remain at roughly the current levels, the debt level, when I say next year, this year, 2018, we should end the year, if we use all of our cash flows to reduce debt at a debt level in the area of $5 billion so $20 billion to $5 billion is great progress.

Copper market commentary is as positive right now as we've seen.

Demand is growing throughout the world for a number of years, many years, China was the source -- sole source of growth globally.

Today, China is continuing to grow.

Their economy is better than people expected, as you've seen.

They appear to have dealt with their banking issues, that was a big concern, probably still a risk.

But growth in Europe, growth in United States, growth in Japan, just tune in to the comments at Davos that's going on right now, and you can hear the positive comments about the global economy and all that reflects in the stronger copper demand.

Supply side issues are still there.

Analysts, consultants who follow this business are expecting 2018 to be the first year of lower copper production after providing for disruptions than the prior year, first time that's happened since 2011.

The industry is -- supply is reflecting a very long period of underinvestments.

And even as we speak today, with higher prices, we don't see a wave of new investments being started immediately.

So there's a real absence of major new projects on the horizon, declining productions from existing mines, exchange stocks are low.

So Wood Mackenzie is talking about having a need to balance the market of 5 million tonnes of new projects over the next decade with a long lead times, the few world-class opportunities with a new uses for copper in transportation and power generation and so forth.

The outlook for copper is positive going into 2018 and very positive for the long-term.

Now Slide 6 shows where we stand in the industry.

Clearly, a leader.

We operate all the mines that we are invested in.

And if you were to look at the production of our partners in mines that we operate, we operate the leading amount of copper production in the world.

Large-scale technical capabilities in all forms of copper mining, whether it's SXEW open pit sulfide projects, underground mining, particularly block caving where -- we've been experience in block caving since early 1980s.

We have this strong technical team that's a huge, huge benefit for our company.

And so that's a really strong competitive advantage.

The supply situation, I think is reflected on Page 7 where we have a listing of the largest copper mines in the world in terms of reserves and production.

Notably, there are no mines on here that have been discovered in the last 10 years.

In the last 20 years, the only 2 mines are Oyu Tolgoi and Las Bambas.

Everything else is old ore bodies.

Now because we don't have new greenfield projects of size and the imminent outlook for copper demand, copper supply, it makes it more significant, these brownfield opportunities that we have with our ore bodies.

And we'll talk more about those.

We have -- besides our technical capabilities, I think the real strength of our company lies in our current resource base.

Our 2P reserves -- so we're a big producer at about 4 million tonnes -- 4 billion pounds a year.

But you look, we have proved and probable reserves of 87 billion pounds, mineralized material of another almost 100 billion pounds and potential of 150 billion pounds.

Altogether, that's 335 billion pounds.

Now what does that mean?

And by the way, of the total, half of that's in North America.

And today, in North America, with the power cost advantage that we have here in the United States, that's come about because of the shale revolution in natural gas and crude oil, with the improved regulatory situation that we now have and with a very flexible workforce, which allows us to deal with changes in our business whether we're expanding or having to reallocate resources, the support we get from states, from local communities, it's a big advantage of investing in the United States, which is still, from a political risk standpoint, the best country in the world.

And now with this new tax bill, that's another advantage.

Now we're not like most transnational companies in the United States.

We were already paying higher tax rates outside the United States than inside the United States.

We also had a very large, and we continue to have a very large loss carry-forward for the oil and gas business.

So we don't have the issue of repatriation of taxes or much lower current tax rate.

But we do benefit from the fact that the AMT provisions were repealed.

That's going to allow us to file for refunds over the next 4 years or so of $400 million to $500 million, that's additional cash.

The tax law retained percentage depletion for mineral resources, so even looking out beyond the time that we have this, and it's a long period of time with these loss carry-forwards, the new tax law is a benefit to us long-term.

So what we've got, these -- beyond our proved and probable reserves is really a great deal of optionality for the future.

The strongest assets in the mining industry are long-lived assets.

Long-lived assets, you don't face the investment risk.

You don't have to have success with greenfield explorations.

You don't have to make acquisitions when you have a resource base like the one that we have.

And it's not limited to any single mine.

We have a very large footprint with 5 operations in the United States that have very large sulfide resources that we have identified.

And over time, I'm convinced that the world is going to need the copper out of those.

South America.

We have a really attractive project in Chile with our El Abra project where we are partners with CODELCO to develop a very large sulfide resource.

Lots of capital, lots of studying to be done.

We're doing studies now.

We haven't committed to spending capital on it, but we're preparing ourselves to.

We have a couple of attractive exploration projects.

We had a exploration project in Serbia where we entered into partnership with Nevsun who is continuing to do drilling and they're looking to develop an upper zone.

The lower zone is of size and we have a significant position in it.

And while we sold our Tenke Fungurume project in the Congo, we still own an undeveloped resource that's in the area called Kisanfu.

It's -- we believe the largest undeveloped cobalt deposit in the world.

It's permitted, and we're looking at opportunities of developing it or entering into partnerships with other operators there in the Congo.

We have a lot of interested people wanting to buy it outright, but it gives us a lot of options to consider with this big resource.

And then in the Grasberg district, while we have a clear-cut plan of developing and operating through 2041, there's significant resources beyond that and in time, they will come into play.

Looking at the Americas, it was really strong performance.

Congratulations, Red and your team.

In the fourth quarter, we sold 666 million pounds of copper in that quarter alone.

I mentioned earlier the Cerro Verde expansion, that concentrator averaged 374,000 tonnes per day in the fourth quarter.

And that's on a 360,000 tonnes nameplate.

I believe it's the largest concentrator in the industry, and is operating very effectively.

We continue our focus on cost and CapEx management.

Some factors are coming in to increase cost at the margin.

With the higher copper prices, our margins are growing.

But we continue to be disciplined in the way we spend money.

We are advancing these studies for looking for future growth.

But you can just see what a great business this Americas business is.

In the fourth quarter, we had $450 million, $500 million of cash flow after CapEx.

And for the year, over $2.5 billion.

Still, in our memory is a time when it was said that Southwest copper district in U.S. was dead.

Now it's profitable with major opportunities to invest capital, employ people.

Our company supplies more than 40% of the copper to the U.S. district, and we're going to continue to take advantage of that.

The sulfide projects in the Americas include 5 projects in the U.S. and the El Abra project in Chile.

These reserve numbers we're using are still based on a $2 copper mine plan, so there's significant upside at higher prices both in our reserves and resources.

But this is -- we're monitoring market conditions.

We're going to be very disciplined in deciding when to go forward with it, but it's a strength of our company.

One project we are moving forward with is the Lone Star oxide project.

This has been a resource that's been known for decades in the industry.

It's located 7 miles from our Safford mine, which is just across the mountain from Morenci in Eastern Arizona.

We are going to start, or we are starting with a project to mine an oxide cap through this big sulfide project.

The current project has reserves of 4.4 billion pounds of copper.

The capital would be $850 million spent over several years.

We are commencing prestripping activities in the first quarter of this year.

While this will serve to strip cover over the big sulfide resources, it's going to be done in a very profitable way because we're going to take that oxide material, transport it to the Safford processing facilities.

Safford is a mine, which is declining.

It had a limited life.

It has a big sulfide resource at depth but now we're going to be able to use the facilities at Safford to mine this oxide ore and have production of 200 million pounds a year for 20 years, unit cost of $1.75 with over $1 billion of NPV at $3.50 copper, so it is a good project.

But what it does, it gives us exposure to a sulfide deposit lying underneath the oxide deposit, it has 60 billion pounds of contained copper.

Now this would involve ultimately, the development of the big concentrator mill and so forth.

But it's an attractive way to get exposure to that big resource.

And we're showing the drilling that we've done to date, that defines the resource, and our 2017 drilling, which we spent a bit more money on than we had originally budgeted.

But showed the extension of this sulfide resource, it was very positive.

And as you will note, you've got some attractive grades that are in the current outline for the resource.

But these deeper holes continue to encounter attractive grades going forward.

So this is a great current and future opportunity for us.

In Chile, the El Abra sulfide project is a good project.

I mean, this is really a good project.

It's a big project.

It is in our inventory.

We're working with our partners.

We're working with other land owners in the region to see if we can cooperate with them.

It's at an altitude if we [acquire] saltwater...

Desalinization.

Desalinization project and transportation of that water up high, so it would be a big investment, but it's 2 billion pounds of 0.45% copper.

Our current expectation is that it would involve a building of a 240,000 tonnes per day [concentrate], similar to Cerro Verde, to produce 750 million pounds a year.

It's a 6 to 8 lead time, and we're engaged in prefeasibility study and permitting planning now.

So it's something that will develop over time.

We're in no rush on this, but it's going to be a great project for Freeport in the future.

And you can see the results of drilling that have been done to date, you can see the reserve pit that has been identified, the mineralized material [shale] and the continuation of mineralization with our deeper drill holes as we go forward.

Now, in Indonesia.

So Mark I want to again, congratulate your team for meeting the challenges that we faced at job site, while we've been dealing with this attention on the negotiations with the government.

I mentioned earlier, we had exports disrupted, we had labor problems and the labor situation is so much better now than it's been since -- going back to 2010 time frame.

We've had some security issues so -- and that's Papua is always going to be a complicated place to operate.

But in the last couple of months, we've had some security issues.

The thing that's encouraging now versus previous times is we're getting great cooperation from the Indonesian authorities so -- the Head of the Police who had previously served in Papua is totally engaged.

I got to know General Tito a number of years ago, he's very well regarded in the government, he understands it and he's committed to help us, there's a new Head of the Military and they are working together with the police.

So you can see the results of that.

And I know there's continued concern about the uncertainty about our contract and so forth.

But the balancing deal we've been working with is to progress the discussions with the government and take advantage of this high-grade ore that we've had available to us as we mine the pit.

My first trip there was 1988 when the second drill hole we drilled in Grasberg.

I took a little picture of the exploration [chat].

Where I took that picture to date there is a pit that's 1 kilometer deep and 2.5 kilometers across that since that drilling has been developed.

We're at the very final stages of mining the pit, very little waste material to move, very high grades at the core of this ore body and we'll be mining that for the next year or so.

And so what that has generated for us this year, including negative impacts that we suffered at the first of the year is over $1.5 billion of free cash flow, that's important to our company.

Now what is really important to our company is getting the rights to operate through 2041.

And I'm pleased to report those negotiations are advancing in a mutually amicable way.

We have very good working relationships with the ministers that have been assigned to represent the government on this.

The negotiations are, at times, challenging as all negotiations are, but we have mutual respect, positive views about each other and a mutual objective of getting to this stability.

Now what we are pushing for is having fiscal and legal certainty for our long-term mining operations, and that's through 2041.

And that certainty means that we end up with a agreement that gives us those rights [preserves] so that they can't be changed by future laws and regulations.

And the government has accepted that.

We have agreed to provide mutual financial -- provide financial benefits to the government that are in excess of those under our current contract.

And that's principally by paying higher royalties, we've agreed to pay higher royalties.

We've agreed to 2 things that the Indonesians have really described as being nonnegotiable from their perspective.

One has to do with building new smelter capacity.

And we are looking -- we're approaching this with a commitment to do it.

We told the government that we would do it in conjunction with getting this extension.

We're working now and looking at a partnership with a company called Aman -- PT.

Aman which acquired Newmont's mine in Sumbawa, the Batu Hijau mine and it would make sense for us to do something together.

So we're talking about that.

But with any event, we have committed that within 5 years of signing a definitive agreement, we will build this new smelter capacity and do it in as cost-efficient way as we can.

We've also agreed, and again, this was a nonnegotiable point with the government of Indonesia that we would work to give the government a 51% interest in the project in what is actually a joint venture operations for the Grasberg operations between us and our joint venture partner.

And we said we would do that so long as we got fair market value for any divestment and that fair market value would be based on valuations used internationally for resource assets.

And the government has agreed to that.

We also said we would do it so long as Freeport would continue to have control over operations and the governance of the business.

Very complicated business, we've invested billions of dollars to date.

We're going to be managing other multibillion dollars investments as we go forward.

I'm not stretching to say it's the most complicated mine in the world because of its physical location it will be the largest underground mine ever developed.

Environmental issues are very challenging, community issues are challenging.

We will work together as partners with the Indonesians and provide them a meaningful participation in it.

But we need to make sure that it's run in the right way.

As I said, we're the best copper miner in the world.

The government's state-owned business has some mining experience, but it's not anywhere near the scale of ours or with the complexity of ours and none within the copper business.

So we have this mutual objective of completing the negotiations and going forward.

Our temporary IUPK has been extended to June.

Our contract award stays in place, the government has agreed to that.

We're exporting.

We expect to be able to continue to export and we're going forward.

The government -- we are aware that the government is engaged in discussions with our joint venture partner about the potential of acquiring their interest.

In preparing for that, they're going through a process of doing due diligence to build a record to show that they have -- understand what they're doing.

And we're cooperating with that, providing them information, meeting with them.

And so we're helping to facilitate that -- a transaction.

That transaction would be the best outcome for all parties, I believe, provided they can reach agreement on valuation.

The valuation negotiations are between the government and our joint venture partner.

That's a separate interest from ours.

So we're facilitating the process but that's part of the negotiations that we don't have control over.

But all of that's moving forward, as I said, a whole new attitude about getting there, allowing -- the government recognizes we need to continue operating.

They need the revenues in terms of their taxes and royalties.

They need to have employment in Papua and all that translates into our continuing to generate cash flows.

So where we are with Grasberg, today is -- we are completing mining the open pit, development started in the early 90s, been one of the great mining operations.

Most years, we're moving 700,000 to 1 million tonnes a day and now it's coming to an end.

But it's the same ore body that extends down to depths where it's more economical to mine underground.

And so that's what we've been focused on is the development of the Grasberg Block Cave.

Now we're currently producing from an adjacent mineral system that we began mining in the early 1980s, and we've continued to mine at deeper horizons and expanding it.

And this mine currently that we're mining from is the DOZ, the new mine is the Deep MLZ, which we began production in '15 or '16 -- '16, and we continue to have the opportunity to expand this resource as we go forward.

So add this all together, we will -- our plans call for us to process through our mill from the underground ore at rates of about 240,000 tonnes per day for the long-term continuing to 2041.

And while -- if you look at the next Slide 18, while all of this has been going on with the government and the labor and everything else, our team has just been plugging away at developing this Grasberg Block Cave infrastructure, and we are virtually completed.

We've got access to the underground.

We can't start developing the block caves until we complete mining from the pit.

We are now completing the ore delivery system.

There's actually a train involved with this.

And that will be done this year, so that by the end of the year we'll be ready to turn the switch on, stop mining from the pit, start mining from the overground -- underground.

Now this has been a challenging high-risk project, and Mark and his team has done just a great job in focusing on that and getting that done.

And I will say that the risk of doing that are now behind us.

Once we start managing the underground, we're going to be ramping up to where this mine will produce 1 billion pounds of copper a year, very significant.

1 million ounces of gold a year on average, and that will give it a really attractive cost structure.

I don't do this very often, but just to put this in perspective of what we have here in the Grasberg underground, it's just under 1 billion tonnes of ore.

With a copper equivalent approaching 1.5% when you add the gold into it.

Las Bambas has just over 1 billion tonnes of ore.

They have 0.8% copper equivalency.

We would produce 31 -- over 30 billion pounds of copper equivalence.

They have about 20.

Cobre Panama, which is a great resource has over 3 million tonnes of ore, but a grade of -- 3 billion tonnes of ore, but a 0.45% copper equivalence.

So compared with other great ore bodies around the world, this is certainly going to be one of them and one which we'll make a lot of money off of.

So the key milestones that we've completed to date are shown on Slide 19.

220 kilometers of development, mine access, shaft, ventilation, rail connection, crushers, batch plant.

And so we've got work to do this year but as I said, my view is the risk of development has been met.

Now what does Indonesia get out of this?

Well, it's a very attractive deal for the government on the existing cap.

To date, they've gotten almost 60% of the financial benefits of the total operations.

We've been there 50 years, the Grasberg was discovered in the late '80s.

Since 1992, when our most recent contract came into place, we've contributed $60 billion to their national GDP, the largest employer in Papua.

One of the largest taxpayers in Indonesia.

We've contributed over $700 million since 1996 voluntarily through a community development fund.

And as we look forward, for the government, future taxes, royalties and dividends through 2041 would exceed $40 billion.

Good deal for the government, good deal for our shareholders.

2018, our guidance continues the same at about 4 billion pounds of copper, 2.4 million ounces of gold, 90 -- over 90 million pounds of molybdenum, which, by the way, is having a more positive price environment right now than we've had in recent years.

Attractive site production, delivery cost of $1.60 after by-product credits, about 90 -- less than $1 a pound.

And operating cash flow is at $3.15, copper would exceed $5.8 billion, highly leveraged to copper prices.

Each $0.10 is $360 million just over roughly $2 billion of CapEx, including $1 billion on the underground development in Indonesia and the development of the Lone Star project.

And about $1 billion for other mining sustaining capital, some of which has been deferred in recent years.

But clearly great cash margins over CapEx.

Our unit cost by area, North America, South America, and Indonesia are shown on Page 22 as well as our sales by region.

I'll just make reference to that since I've already talked about it.

Our sales profile as we look forward for the next 2 years, 2019 will be a transition year.

We expect a moving from the open pit at Grasberg to the underground.

There's going to be -- while we're developing stockpiles and so forth, there will be a interim drop in production, which we'll build back up to a average over the next 2 years of approaching 4 billion pounds.

And you can see that with our outlook for gold productions.

Quarterly sales are shown on Page 24 for the upcoming -- for this year, 2018.

And then Page 25 shows the model that we show each year for the next 2 years, giving EBITDA and cash flow numbers.

At $3.25 copper, we would have average $7.3 billion EBITDA, $5 billion of operating cash flows.

2018 will be higher than this average because of the transition year in 2019.

And the sensitivities for our -- the metals that we produce and the currencies presented on Page 26, capital expenditure outlook, which I referred to earlier is on Page 27.

I'll just note that this does not include spending on the new smelter in Indonesia, and we're looking at financing alternatives to finance that aggressively with project type financing for the smelter.

So just going back to what we've done with our balance sheet improvement over the last 2 years, ending the year at $8.7 billion.

And if we use all excess cash flow, execute on our plan, realize these copper prices, you can see that our debt would drop significantly during this upcoming year because of strong commodity prices.

So in closing, we're really optimistic here about our company, about the outlook for copper in this long-term fundamentals.

We like being the industry leader.

We have a lot of Freeport people that listen to this call and for all of you on the call in front of our investors and analysts, I just want to tell you how much I and our board -- me and the board, and senior management team appreciate what everyone has done this past year.

It's been a challenge.

We've had to support each other, build our morale up, come back -- 2 years ago, our -- the market was telling us through the CDS trading that there was well over a 90% outlook that this company would default on its debt, that's 2 years ago.

Now our credit default swap has gone from a high of 2,700 basis points to below 150 basis points.

We're going to get better.

Our credit -- I expect our credit rating to increase over time.

But what I'm really proud of is what this team has done.

We've shown our mettle.

We continue to do that.

I couldn't be more proud to be part of it and look forward to 2018 to be a year of ongoing and major progress and accomplishment.

Operator, we can take questions now.

(Operator Instructions) The first question comes from the line of Alex Hacking with Citi.

Regarding Grasberg and the potential that the government might buy the 40% stake from your JV partner, Rio Tinto, how likely do you think that outcome is?

Is that now the most likely outcome in your view?

You know it's at a stage of negotiation.

So you don't want to get ahead of those negotiations.

It appears to be the desire of parties to do that.

So I would characterize as a most likely outcome.

Okay.

And can you remind us of what Rio Tinto's CapEx commitment is to developing the underground?

And would you expect that in this scenario where the Indonesian government buys Rio Tinto's stake that they would also assume that share of CapEx commitment?

Yes, we have an understanding with the Indonesian government that in the event that they do a deal with Rio Tinto, Freeport's economics under the existing joint venture agreement would be preserved.

Alex, do you understand when I say -- am I saying that clearly and...

Yes, I understand that clearly.

Could you just remind us what Rio's commitments are?

All right.

Well, it's complicated in that -- this joint venture agreement is relatively complicated because under the agreement, which was signed in the mid-1990s, certain projects are designated as expansion projects and certain projects are designated as replacement capital.

Rio Tinto placed 40% of the expansion projects and small amounts of the replacement capital projects.

We've agreed to share other projects 50-50.

So it's -- there's not really an easy answer for that.

But if you look from right now through 2022 when the conversion would be under the joint venture agreement to a straight 40% after that it's a 40-60 joint venture sharing straight up, their projected cash flows of...

Pretty much offset the CapEx.

Pretty much offset the CapEx, and those are going to be based on whatever copper prices there are.

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

Just stepping back for a minute.

Obviously, the balance sheet is significantly better than it was, stabilization in Indonesia at least seems to be heading in the right direction.

And it's like quite a bit of free cash flow generation potential.

Way back when the management team, the board did pay out this free cash, form of dividends, special dividends, pretty big ones at points.

And obviously, on this call, your opening remarks were really more focused on highlighting the projects.

So I have a high-class problem type of question.

As we go through '18 and '19, is the preference to spend that cash on developing projects?

Or is there also thoughts towards giving some of that back to the shareholders?

You know these projects are very long dated, Dave, I think, as you know.

So we're not likely to be spending significant amounts of capital on these projects in '18 and '19.

We're now building into our CapEx numbers, this Lone Star project, which is a good project but not huge.

So with positive cash flows, my expectation was -- is and we're -- this is a board decision and we're talking with the board and this has emerged pretty quickly with the copper price coming back so quickly and so forth.

But my expectations are that we would be looking at our long-term tradition of returning cash to shareholders.

And we're going to be very disciplined about all these projects.

They're big, they're low risk, but we're -- there is still risk to the global economy as we all know.

And we're going to keep our finger on it, see how it's progressing, how China is doing, how the rest of the world is doing.

And -- but my expectation is we're going to be generating cash and I believe our board will be predisposed to return it to shareholders when we can.

Your next question comes from the line of Matthew Korn with Goldman Sachs.

At Grasberg -- a operational question.

Given all the challenges in the last several quarters in the production side, maybe you can remind us, if nothing were to change from the current situation with the government, when would Rio's 40% stake kick in, would that be '22, '23 now?

And then once the whole block cave is ramping and you're deep into maybe the next decade, everything as it should be, what kind of production delivery cost would you expect once we're there and solidly underground?

Okay.

So the answer to your first question is 2022.

And sort of when in 2022 is at the margin -- could vary.

But it's going to be expected to be then.

And our net cash cost at $1,300 gold and current levels of production is going to be in the neighborhood of...

Below $0.50 a pound.

Okay.

All right, got it.

And then another thing that's come up as we've talked to a lot of companies is that the -- now that there's no tailwind from currency from oil, other kinds of improvement, other kinds of help on the price side or the cost side, people worry about wages, they worry labor, they worry capital goods.

I'm curious if -- as you outlined your capital spending over the next couple of years, how much of that is on yellow goods?

And how much of that will be exposed to say price that's not completely locked up or PPI linked?

Or you still don't have [all] complete visibility there?

Well, we do have in our capital plans this maintenance and replacement of trucks.

We tend to do a lot of truck rebuilds ourselves with our dealers on parts.

So there isn't -- in our sustaining capital, significant portion of that includes maintaining our equipment and replacing our equipment.

We are seeing some cost inflation.

You can just watch the oil price and are seeing some cost inflation from oil-related prices.

But our team is very focused on being very disciplined about spending money both operating and capital and timing it in a way that we're not in a rush to get the equipment.

We'll do it in a smart way and be disciplined about, again, just trying to use what we have on hand and the new stuff that comes in, just being disciplined about the timing of purchases of that equipment.

But there is some cost inflation that's coming through both on operating and capital.

Yes, there's definitely some correlation between some of our input cost and copper price.

I mean, we've got trucks from Indonesia, in New Mexico right now, and more on the way.

Red, when's the last time we bought a haul trunk?

2008 was the last new haul.

New haul truck -- last new haul truck we bought was 2008.

So we're having great experience with this rebuild program, we're working on extending tires lives.

I mean, it's a constant deal.

We meet as a senior management team with our mine operators the week before our earnings call and this relentless effort these people have to try to find ways of offsetting cost increases with efficiency gains is really remarkable.

I mean, we use a lot of diesel, the power for many of our operations comes from not from petroleum.

And so anyway, we're going to offset a good bit of that.

But it's going to be a factor for the industry.

We -- lots of years, we've been Caterpillar's biggest customer, I had a chance to glance over their earnings release early this morning.

So I mean you can just see what's going on.

And labor issues will be an issue.

And one of the things in terms of the industry is next year, there is a lot of labor contracts coming up in this year.

I keep saying next year.

2018, thanks, Red.

This year, there are a lot of labor contracts in Chile and Peru coming up, and you can expect those negotiations to be challenging, it could be supportive from a supply standpoint.

And CODELCO has a real challenge in maintaining production, all these things are challenges for the industry.

But they're supportive of supply.

Your next question comes from the line of Andreas Bokkenheuser with UBS.

Just a question on Grasberg there as well.

You mentioned that the Indonesian government has agreed to pay fair market value or it would consider the divestment at fair market value.

It always seemed that they did agree to fair market value but their fair market value estimate was always much lower than yours.

Would you say that effectively you have now agreed on a fair market value for the divestment or are you still somewhat apart on that issue?

That's the first question.

Let me answer that.

Let's go ahead and answer as you raised them.

So one thing -- and those of you who are veterans at this, know this.

You know there are lots of things that come out in the Indonesian press that are comments by people either in government or in business who are not directly involved in the process.

So be cautious in overreacting to things that you might see that are said.

Now we have not had a negotiation involving an exchange of values and so forth with the government of Indonesia on divestment values.

What we have agreed to is a recognition that the standard for those negotiations would be, as they are in all of the negotiations that we have, standards related to the way sources are valued in global market.

So this idea of limiting the valuation to 2021, when our primary term of our contract ends, are saying, you don't take into account reserves and so forth.

All of those things are not part of the discussion any longer.

The government has appointed internationally known financial advisers to work with them in this process.

And they are being engaged, and it's being additive to the process.

So while we have not negotiated value now, this issue with our joint venture partner really changes what the divestment obligation from Freeport would otherwise be.

And so that negotiation is of much less significance to us than it would be if we were having to divest 51% of PT-FI.

So all of that is in play.

All of us had hoped that this would progress more by the end of 2017 but the government concluded they needed to go through a due diligence process and we're working very cooperatively with the government and its advisers on that process right now.

So while we can't say that there's been this give and take or specifics on values, I do feel comfortable that the values that will be negotiated will be reasonable.

That's very clear.

And just a second question and I'll just talk about something other than just Grasberg.

In your Americas operations, we did see a bit of a drop in [mill grades] and recovery rates as well, which is something you've guided for before.

Can you give us a sense of, is this mostly just one-off or is there some sustainability to it on the operational side?

Yes, Andreas, this is Red.

We did have lower recovery primarily at Cerro Verde in the last quarter.

We took ore out of stockpiles in an area in the mine where the material had been oxidized somewhat and didn't recover as well, we don't see that as an ongoing thing in the future.

We've also got some changes in mining rates and those kinds of things right now that are making the numbers jump around a little bit quarter-to-quarter.

That's all going to even out as we go forward.

But as we look at the guidance going out for the Americas business, our numbers are relatively flat in terms of copper production.

And that's sustainable over several years.

Over several years.

We are -- it's not big numbers but we're bringing up Sierrita mine and with higher moly prices, its cost structure is attractive.

And then I've pointed it out, in El Abra we are -- we curtailed production at both those operations when prices drop lower, we're building those back up and then coming into play.

Over time will be this Lone Star project, which has cost structure that's right in the neighborhood of our current level cost structure so...

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

Just a first quick question is just relative to this potential framework that you're talking about with Rio Tinto, and the Indonesian interest having that 40% stake post 2022.

Just to be clear, so even if something were to be agreed to, say, in the next few months, Freeport would still have -- would have 90 -- would have the right to 90% or 90.5% of the economics of Grasberg until 2022 or whenever Rio's stake would kick in, right?

Yes.

Now that is not a certain percent.

That varies because of this metal strip concept that was part of the original contract, but what I'm saying is that we have an understanding that we will maintain the economics for Freeport that's embedded in the current joint venture structure.

And there are structures that might change how that's done, but we review that, we had very good discussions with the Indonesian, explained it to them, explained it how important it is to us because we worked all this time to benefit from this period, and so they understand it.

And we have an understanding that our participation will not be diminished in the event of their acquisition of the Rio Tinto interest.

Okay, great.

And just a quick question about Lone Star.

So you've made the decision to proceed with the project, $850 million.

And it's around 200 million pounds of copper a year.

Could you just maybe describe your thought process relative to like how you think about approving certain projects relative to their -- the IRR or the NPV of the project?

And what copper prices you use?

And just generally speaking, how you evaluated the decision to invest the capital on that project?

And maybe how that might apply to, say, your next project like El Abra or something like that?

Well, it was a much easier decision, let me just say, with Lone Star than the next decisions will be.

And that's because we had this unused, underutilized processing facilities at the Safford mine that was nearby.

So we didn't have to invest in a new SXEW facility and so forth.

So it was a pretty straightforward deal.

You had -- this is near-surface oxide material.

You just need to determine how you mine it, how you transport it to the facilities, the rates of return are very attractive.

And it had the added benefit, as I said, of then exposing the sulfide ore, which would give us an option for future development of that.

Around the world today, a lot of the newer deposits tend -- most of the significant oxide projects have been developed, and so you're looking at sulfide deposits and frequently you're faced with a very large expense of stripping those to have that opportunity.

Here, our stripping is going to generate positive return for us.

It's going to add volumes, attractive cost and serve for the stripping thing.

So it was an easier decision.

In looking at projects in general, we don't focus on any particular price.

Now reserves are based on a $2 price.

We talk about changing it but that's kind of a regulatory disclosure issue, and there's no sense in going through a huge internal exercise of raise the copper price to $2.25 or $2.50.

I mean, but when we come down to really thinking about investing in El Abra or in Lone Star sulfide or Bagdad sulfide or the next step at Morenci, we look at an array of prices and not just how that fits in with that project but how it fits in with our overall portfolio.

So that we think how would we manage this if things got tougher after we've spent the capital.

Can we deal with it?

And then we have a positive long-term view of copper, so we want to take advantage of this.

And so we have the optionality of having these big projects to participate in the long run.

So I'm kind of like that ad for the insurance company, the Farmers Insurance company, I know a thing or two because I've seen a thing or two.

And the -- my experience has been when companies get too formula driven about hurdle rates and prices and things like that, there's another saying I have around here is, "figures don't lie but liars figure." And so if you get too structured like that, people are going to play the games with you, sometimes not intentionally, to come up with something that meets those formulas.

So we go away from formulas.

We work together.

What I love about our team is, we're not negotiating between operators and corporate.

And Kathleen works with her team hand in hand with these people -- with our team as we're working at looking at this.

And then we think about, okay, if we expose this capital, what risk are we taking for the company going forward?

How does it fit in with the rest of our assets?

That's why we felt good about the Tenke project.

You know it was high-risk, high-return deal when nobody else was going into the Congo.

We didn't give any value to it when we bought Phelps Dodge, I wish we still own it, but we did get almost $3 billion of value created.

During it -- we started this in early 2008.

So given the financial crisis and what's happened with commodity prices it was a good deal.

But we recognized it was very high risk because of the political situation, the nature of the ore body and the mineralization, which was different than others.

So that's -- it's much more of interactive process we have than something that's formula driven.

And the [Lone Star] project fits right into our strength in terms of the geographic footprint where we're already operating.

There are a lot of synergies of the Safford team with the Lone Star team.

And one of the big things we look at in qualifying projects is the size of the resource and the life of the project.

And just because something has a high NPV, but if it has a short life, it's not something that we are excited about exposing dollars to.

It's more of multiples of NPV that you can get over a long period of time.

So that's really something that excites us.

And looking at a range of copper prices, like with Lone Star, just for the oxide it has a breakeven of $2.40 with an 8% return with a lot of exposure to higher prices, but also exposure to the big resource that Richard talked about earlier.

Sure.

So Lone Star really is just a low risk from a jurisdictional perspective, from a technical perspective, and it just provides you with lots of optionality to the upside, and so it just made sense to spend that capital.

And then as these other projects kind of become available, you just have to weigh all of those different things in terms of the risk to completing it, the risk to operating it, the optionality and whatnot.

Exactly.

You got it.

Your next question comes from the line of Michael Gambardella with JPMorgan.

A couple of questions on Grasberg.

But first, just congratulations on derisking of the balance sheet and all (inaudible) work in the last couple of years, that's been significant.

I was looking back to the Grasberg.

I just wanted to clarify I think what I heard you say before.

So in terms of your agreement with the government right now, has the government formally agreed that if your stake were to go under 50% that you would still maintain operating control?

Yes.

Well Mike, I want to be clear about this.

In some ways, I'd like to just say, we're working on this and defer comments.

But I know we're just not in the position to do that.

We're not in a position to it with people who follow us and our shareholders, and the Indonesian government has to respond to the -- they have to respond to their parliament.

So we all have constituencies that we have to talk about these things when things aren't finally complete.

I've tried to use the word understandings because while we did agree on a framework, we don't have formal agreements with the government yet.

And there are still issues under discussion.

And we've been very clear on our position.

We believe we have gained a degree of understanding from the government.

But there are different views within the government's team, the government itself.

So this issue of control is one that's very important to us.

Just because of the factors that I mentioned earlier, the nature of the project.

The importance of having a disciplined investment in this underground.

If -- without having a disciplined approach to the underground investment, the value of this asset dissipates.

I mean, because this -- as you know well, Mike, when you're dealing with these big projects, and particularly, Block Cave projects, you have to follow a plan and stick to it and deal with the long term.

So that's one thing that -- the main thing that we're saying is, we have to be able to sustain that approach to investing and running this business.

It is unusual but not -- but there are other limited cases of where investors own more than 50% of an asset economically and control is transferred to a minority owner.

So that's complicated, and all of that hasn't been worked out yet.

But that -- so I don't want to say that we have a formal agreement with the government on that.

And again, you'll see comments on that in the press, that talk about that.

We are committed to have a very successful partnership with the government, with their state-owned company.

We pointed to them what good partners Freeport has been in all of our operations, whether it's our multi-project partnership with Sumitomo, with our partnership with Lundin that we had in the Congo, with various partners we have in Cerro Verde, with the partnership with CODELCO in Chile.

I mean, we do a lot of work with Rio Tinto.

We've had an excellent partnership with Rio Tinto.

And the government really recognizes our operating capabilities and the need to have us to continue.

So there's no question about that.

It's this issue of how we work together in developing corporate policies and capital allocation, financial policy, purchasing policies, environment, all those things that are so important to success in the operations.

So Mike, that will be part of the final agreement, and that's where we stand right now, and that's what our position is.

From an economic standpoint, say, let's just assume, Rio Tinto signs the deal with the government.

Is it your understanding that from an economic perspective, aside from (inaudible) smelter, aside from that, (inaudible) your understanding the economics of your agreement (inaudible) as they are today and there's no change (inaudible) or is there anything else that would (inaudible)

Yes, that's -- we have had good discussions.

We spent time explaining this and so forth, so that -- the acquisition of the Rio Tinto interest would not change our economics.

Now in the framework for reaching the long-term agreement, we have said that we would agree that the government's financial benefits from the project will increase.

These things may be reshuffled and reorganized in certain ways.

But at the end of day there would be -- the government will be able to say to the people of Indonesia, they've negotiated a larger participation.

And that larger participation would come through the fact that we are paying higher -- we would be paying royalties than under [the cow].

And in fact, we've already been paying these higher royalties since mid-2014.

But the royalties would be -- they used the term more than we do, but the royalties would be nailed down.

In other words, we'll agree on the royalties today, and that would be the royalties for the remainder of the project.

We agree on tax elements now and we made a lot of progress in defining them.

We agree on local taxes and fees.

All that would be nailed down.

(inaudible) the final question, Grasberg but (inaudible) board (inaudible) someone give us a feel for after tax situation.

(inaudible) I thought you (inaudible) through a (inaudible) entity.

No.

Well -- so Mike, you were fading out so if I don't cover your question, come back and ask me to fill in.

So the way that our tax situation has been structured.

I mean, we are -- FCX is a U.S. company.

Then we operate in these countries where we have mines through entities in those countries.

And those entities are subject to taxes and royalties in those countries.

Then under the previous tax law, you would consolidate all of that into a U.S. company and you'd have a consolidated tax calculation, but you'd get foreign tax credits for taxes that you pay internationally.

And then -- and there was limitations on that.

There was this alternative minimum tax calculation that would come into play.

But then you would calculate the U.S. tax on the basis of that consolidated results.

Now under the new tax laws, they've gone to a territorial system.

And so now in large part, the U.S. taxes will be based on the taxes for the income you generate within the U.S. [to the U.S.] And within the U.S., we have a very large loss carryforward.

We also have the benefit of percentage depletion, which was left in the law and the AMT was repealed.

So we will have no taxes for as far as you can see in the U.S. We will continue to pay the taxes in these individual countries based on their own tax laws and our stabilization agreements and so forth.

Did it cover it, Mike?

Yes, that covers it.

Okay.

Your next question comes from the line of Lucas Pipes with B. Riley FBR.

Congrats on the progress in Indonesia.

I was unfortunately on another call earlier, and this may have been addressed, but I wanted to touch on it and that's -- I remember that there were export royalties in place while you were negotiating the new structure in Indonesia.

And I wondered, to what extent is that currently being covered in the negotiations?

And Kathleen, when you gave the $0.50 per pound cost guidance for, I think, 2022, would that include all of those royalty costs in case they're even applicable?

Well, we are paying duties currently, export duties currently.

And those will phase out once the smelter gets to a certain percentage.

So post 2022, and we have the smelter, the new smelter completed in that time frame, all of the concentrates will be treated domestically, and there won't be a need to export concentrates and there'll be no duty.

But we do have duties in our current guidance for 2018 and 2019.

And could you remind me about approximately what amount per pound those duties are?

You can see it -- well, we're paying roughly just on the export volumes, we're paying roughly 5% currently.

And you can see in our -- and I'll get David to follow up on the exact numbers, but in our operating summary, we paid $0.34 and that included royalties and export duties, but we'll get you the breakout.

You may understand this, but just to be clear for everybody.

Roughly 40% of our production at Grasberg is processed at the PT Smelting facility at Gresik that we built in the mid-90s in partnership with Mitsubishi and other Japanese investors.

There's no export duty on that.

It's only on exports.

And in your question, you were talking about royalties and export fees.

I mean, we do have a royalty that is assessed on all the production.

It's unrelated to exports, and then there's -- we called it an export duty, which has been the item of controversy that we've had over the last 3.5 years.

But the export duty -- I'm just looking at the numbers, the export duty that's in our numbers for PT-FI is just under $200 million for 2018.

It's very helpful.

And then maybe just to tie up some loose ends.

I recall there was a $350 million Cerro Verde royalty dispute.

Has that been settled?

Could you give us an update on that?

There's really no update from our fourth quarter release, I mean, from our third quarter release.

We are continuing to work with the government officials to -- on a settlement that would waive penalties and interest associated with that dispute.

And those discussions are ongoing but there's no update at this time.

And Lucas, that $200 million would reduce our taxable income.

So that's a pretax number.

Your next question comes from the line of Michael Dudas with Vertical Research.

Richard, just wanted to follow up on your thoughts on the transition from the pit to underground.

You seemed much more confident about that and derisking.

What are some of the [absolutes] that you achieved and what are some that we may look for as we look into the fourth quarter of '18, into the first half of '19 on the progress and the flow?

All right.

So that's why we added this slide.

I think it's the first time we've used it.

What was the slide number?

On the milestone?

Yes, on the milestone.

Slide 19.

Look at Slide 19.

Mark, do you want to?

Yes, a lot of the challenge in the Grasberg Block Cave, the Ore Flow system, as Richard indicated, the rail system is ready to be commissioned.

The conveyers (inaudible), the crusher is already in place.

The conveyers will be complete all the way up to the mill in May.

So we'll have 6 months there where we'll be able to just convey development muck, which is significant, we're mining about 6,000 to 7,000 tonnes a day right now just in developing drifts.

The access to the ore body is extensive in the undercut, the extraction level.

We've got the service level, the ventilation is in place.

So there's -- all the pieces are there.

What we're going to start doing in the late fourth quarter is that we'll start blasting in the undercut, and then in the beginning of 2019 we'll start taking drawbells and actually start pulling the material.

The cave should develop very quickly.

The area in which we're initially developing the ore body is in a very caveable portion of the deposit.

And at that point when we start that, then the pit will be essentially done.

There's a little bit of an overlap right now that we've reviewed with our consultants, we feel that there can be like a 3-month overlap of ongoing pit operations.

While Block Cave, some of this blasting, some of this very -- the initial starting of the Block Cave can go on without any impacts.

We've got a very good plan for managing the water from the pit.

We've been able to demonstrate that we can get the water out of the pit before the cave starts up.

So there's a whole network or there's a whole list of things that we've been checking off over the last year and a lot of it's been really just getting these meters of development.

We did over 30 kilometers of development last year.

That drops down a little bit this year as we get the ore body developed, so we'll be doing about 2,200 meters a month.

And all of that just is moving along very well.

And the big deal in 2018 will be the installation of the Ore Flow and the rail.

That's right.

The shaft is commissioned.

We're using that for people.

And so all these projects are all just starting to come together.

The big one will be the Ore Flow system getting that.

And we're doing that a little earlier than what we originally planned and it's just to get the congestion out of the underground.

It will be a much more efficient way of getting development muck out and getting men and materials in.

Great, that's very encouraging.

And my follow-up, Richard is, I think we all on the call are hoping someday these conference calls will be little less detailed on the negotiations with Indonesia, et cetera.

If something comes together or however it comes together, how is it you think it's going to be announced?

And what's the time frame from, say, there was a -- if it was announced tomorrow, how long it would take to get everything cleaned up?

And where there's certain deadlines, et cetera?

How long of a process and how clean of a process you think it will be if you can speculate towards that -- towards a conclusion of this derisking?

Sure.

And Michael, you're talking about milestones, I have 2 personal milestones I'll share with you.

One is when we start paying dividend -- when Freeport starts paying a dividend again.

And two, it's when I can take a group of analysts and shareholders back out to Grasberg to see the place.

This underground mine, Mike Gambardella, you remember our trip we had a number of years ago out there, but this underground mine is really spectacular.

I mean, it is not like anything you would think of as an underground mine, but it's like a major manufacturing facility to see.

And so anyway, I just -- Michael, it's just what I'm saying, but okay...

Those are great milestones.

Yes.

Actually given the authority that the President has given to these ministers, reaching an agreement is the key and documenting of things we've already worked on.

I mean, we've gotten the form of the IUPK we're working on, there's an attachment.

There is a -- coming up with a structure to assure us that it can't be changed by future laws and regulations.

So there's not going to be -- this is something that the government is authorized to do under current laws.

So it will not require changes to their laws or the involvement in the parliament in changing laws.

The parliament will be informed, you know, and involved from that standpoint.

Once the agreement is reached, the process of getting it documented, it will be straightforward and not time consuming.

Your next question comes from the line of Novid Rassouli with Cowen and Company.

Just 2 for you first on Indonesia.

The ongoing due diligence related to Indonesia potentially purchasing your JV partner's share.

Does that have the ability to potentially delay Freeport's goal of having an agreement here on the longer-term contract in the first half of '18?

No, the time frame of the first half, which is -- it has really been set more by the government is to allow for that due diligence.

So we had all hoped to have more formal agreements reached by the end of the year but there was a decision that having the needs for this due diligence and that's why the target of mid-year has been put in place to allow for that due diligence.

Got it.

Makes sense.

And then my second question.

I don't think anybody has really talked or asked about the broader copper market, so I'm going to go ahead and do that now.

So based on the lack of investments over the past few years as you highlighted in the past few calls, what year do you expect the copper market to reach kind of peak tightness or deficit in the coming years before maybe reaching an inflection point?

As you said, we're kind of getting close to that $3.25 that you said is necessary for people to having incentive to start investing.

Haven't really seen anything incredibly material yet.

So just want to get a sense of how you're seeing the next few years?

And when we reach that inflection point?

All right, well, thank you, Novid.

The -- you tell me what global growth is going to be.

You tell me what China is going to be.

Because my view is the supply side of this subject to the uncertainty about disruptions, which could only be supportive of supply, they're not going to add supply, but they could take it away, is pretty clear-cut at this point.

Surprises will be on the negative side.

You're not going to see somebody say, in the near term, we've got significant amounts of new production that nobody knew about.

People will work to -- at the margin increase production, but it's just going to be at the margin.

And you look at the long-term projects that are out there, whether they're -- it's resolution Olympic Dam, our big projects that we're talking about, El Abra and others, there'll be more copper coming out of Africa, I believe, based on our experience there but that's going to unfold over a number of years because of the nature of the mineralization and how it has to be mined.

You look at the experience of Oyu Tolgoi, it's a great resource, great ore body, but the number of years that it's taken to ramp up and the continuing issues they face with border crossings and power and the government, I mean, that's just fundamental to all these big projects.

So I think you can get your arms around supply outlook relatively easy, and then you plug in your own view about what you think the global economy is going to do.

I just went back to Houston this week to give a Luncheon Address, not to a mining group, but to a general business group.

And of course, it took me back after living in Houston for so long and back in my earlier career, one of my first clients was Mitchell Energy, which kind of kicked off the shale industry in the mid-1980s.

And oil and gas people were asking me, is there anything like shale for the copper business?

Because nobody expected the U.S. to bypass Saudi Arabia and Russia and to produce 12 million barrels of oil a day.

I mean, back in the 80s, we were thinking of importing 75% of the oil and production dropping to 4 million barrels.

But the great thing about copper, and you take it with a grain of salt because you know my feelings on this, which have been the same basically since I became CEO in 2003, is its uses are just built into the economy in such a way that it's really hard to replace for its basic uses.

You can do it for plumbing and things like that but when you look at the way the world's going with electrical -- electronics, everybody talks about electric vehicles and that could be a big deal, alternative energy development could be a big deal.

But just how much electronics are increasingly built into our lives whether it's communications or control systems, power delivery systems, the development of the world for basic things like refrigerators and air conditioners, maybe I shouldn't say washing machines, but in any event, it's just a commodity I think that is so well situated for how it's used in the economy.

And -- but so you're subject to the risk of the economy, of China and the global economy.

But supply side, there's no shale copper coming on stream.

People are talking about mining in the ocean, on asteroids and things like that.

But we're just seeing in terms of basic production, the new projects are a major less quality than the old projects were.

They have much lower grades, you have to do a lot more stripping, building infrastructure, getting water, getting power.

All of these things make the supply side of copper, I think extraordinarily well supported.

I tell people today, we can increase price of copper to $6 a pound overnight, and we have, what I just showed, 300 billion pounds of undeveloped copper resources.

We could not bring them on stream to 5 to 10 years from now, even with $6 copper.

So it's a great commodity, and that's why I like where our company is so well.

Operator, are there any more questions?

We can't seem to get to the operator, so I don't know if everyone else is still on the line but...

Our next question will come from the line of Piyush Sood with Morgan Stanley.

First one.

At Grasberg, seems total CapEx to be spent over the next 5 years may have declined to about $900 million from $1 billion.

I just wanted to understand if that's a rounding error, or is there something else over there?

No, there really wasn't anything.

It was just the time period of the 5 years that we will -- including last quarter versus this quarter and the way the rounding fell.

So no material differences in our plans.

All right, and staying with Grasberg.

Labor relations at Grasberg seem to have improved.

Could you comment on maybe worker productivity, how you are taking care of expectations around employment as you move underground and when we could expect a new labor contract?

Okay.

So we signed a new labor contract in December, that's for 2 years.

Under Indonesian law, we have to do a new one every 2 years.

So we have signed it.

Mark, make some comment.

I'll let you make some comments because you lived with this thing.

Yes, well, 2017 was a very dramatic year on the labor.

In February, we had 32,000 employees and that's a combination of employees and contractors.

With the export ban, we had some cost reductions that was kicked off with a 10% employee furlough program.

After we started that program, we had a number of employees that went on an informal strike, it was not a legal strike.

They started missing work and with the labor laws in Indonesia, they essentially resigned their positions.

That resulted in about 5,000 employees leaving.

We since have added back about 4,000 contractors.

So we went from 32,000 to 24,000 and now we're back up to around 28,000.

The PT-FI component of that is under 8,000 employees, now -- it was 12,000.

The contractors that we've hired in have been very cooperative and been very energetic.

We've had a very good response, as kind of a by-product, with the new guys coming in our PT-FI workforce has also picked up the efficiencies, and we're seeing a much improved morale.

Our safety -- with all of that transition we have the lowest incident rate for our reportable accidents that we've ever had since the beginning of the project.

So we feel good about the status of our labor force, the composition of contractors and internal employees and really the effectiveness of our supervisors with under a new -- kind of a new composition of labor.

As Richard said, there's a lot of transition within the labor unions that we've dealt with their leader had been removed, he had some legal issues, he's out of the picture.

The new team that's come in has worked very closely with us.

There's a second union that we're dealing with.

That was kind of a new component of our negotiations this year.

But all of that worked out.

It went on a little bit longer, but we didn't have any threats of strikes, we didn't have any concerns that the workforce is going to -- have any sort of a walkout.

So during that whole period of negotiation, we didn't see an interruption in our production and it allowed us to focus on safety and bringing these guys on and focusing on the project.

So we saw some benefits in there, for instance, in the Grasberg pit.

Our unit rates went down by about 30% in the fourth quarter to what they've been in the first part of the year.

So we've seen some efficiencies.

We're getting more out of each worker.

And that's also gone into -- on the development side and then into the capital projects.

So we feel well positioned in 2018 with the group that we have.

And for years, we've been planning for this transition because it is new skills, new work requirements and so forth in the underground from the open pit without the drivers for the haul trucks and the big electric shovels and so forth.

But we've been doing that, and it's much more mechanized, so anyway, that's all progressed very well.

And Kathleen, you did comment on the long-term cost structure for Grasberg at about $0.50.

So just want to understand, as we go into a transition year in 2019, is there kind of a step-down coming in your total cost over there?

Or would cost kind of lag as in -- the decline in total cost lag while maybe production also as in -- should we kind of expect cost to go up drastically on a per pound basis?

Or do you have some control around that?

In terms of absolute cost, we're not anticipating any significant changes.

On a unit basis, on a metal basis, it will depend on the volumes and the grades that we're mining.

So in 2019, as we get into lower year, we will have higher cost than what we had in 2018.

But it is still a very, very attractive and on a unit basis, our lowest cost mine in the company.

So as we go forward, we start to improve on the volumes after 2019 and the cost position goes down as a result on a metal basis per unit.

But in terms of absolute cost, we're not expecting to have major changes in the absolute total cost of the operation.

Generally, our costs are fixed.

There are some things that vary.

So when Kathleen is talking about cost going up, it's unit cost going up.

Absolute cost, we'll continue to manage, keep it low as we have.

But for most part, that's fixed.

So let's have our last question and I appreciate -- I think it was Michael who was saying, he looks forward to when we don't have to talk so much and nobody looks more forward to that than me.

Our final question will come from the line of Karl Blunden with Goldman Sachs.

I think you'd alluded to this a bit earlier in the call, question back on Grasberg.

So it sounds like potentially, if the government is looking to get a 51% stake in the asset that Rio stake would count towards that.

Is it fair that you'd be able to, I guess, get away with a much smaller divestiture than initially thought about?

Well, I would not use the term get away with.

But if Rio Tinto wants to sell, they reach agreement and they buy, it means that there'll be a much lower level of the divestment that would come to PT-FI.

So the government currently owns 9.36% of -- and in fact a long term 60% interest.

So that's 5-plus percent.

Rio Tinto has 40%.

And so our remaining divestment obligation would be roughly 10% of PT-FI, which would be another net 5-plus percent.

So that's the way the math would work.

And it's all contingent on everybody on reaching an agreement on that transaction.

That's the best outcome considering -- it's up to Rio Tinto, they've been great partners.

So anyway.

And their negotiations are with the government.

We're facilitating them, but their direct negotiation is with the government.

So it (inaudible) to be an elegant outcome.

You mentioned earlier credit ratings momentum certainly has been positive.

What are the next steps we should look at or what are the gating factors on further upward momentum for you guys when you discuss this with the agencies?

Well, I think, you just look at our credit statistics and our balance sheet and cash flow generation.

And really the portfolio of the assets that we have in the company, I think our credit metrics signal higher ratings but we'll continue to review these with the agencies as we go forward.

But we're focused on getting this Indonesian thing resolved and recognized.

And until we do, that's going to be a factor for credit ratings, stock valuation, share valuation and everything.

So we know what we need to do and we're all -- we're focused on getting it done.

So let's see.

Thanks to all of you who stuck around to the end of this.

And we appreciate your interest.

If you have follow-up questions, contact David Joint, thank you.

Thanks, everyone.

Ladies and gentlemen, that concludes our call for today.

Thank you for joining.

You may now disconnect.