費利浦·麥克莫蘭銅金 (FCX) 2018 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.

Welcome to the Freeport-McMoRan Fourth Quarter 2018 Earnings Conference Call.

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

Our conference call today is being broadcast live on the Internet, and anyone may listen to the call by accessing our website home page and clicking on the webcast link for the 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 2017 Form 10-K and subsequent SEC filings.

On the call today are Richard Adkerson, Red Conger, Mike Kendrick.

We also have Mark Johnson that has dialed in to the call from our site in Papua, Indonesia.

I'll start by briefly summarizing our financial results, and then turn the call over to Richard, who will be reviewing our performance and outlook and using the prepared slide materials that are available on our website.

Today, FCX reported net income attributable to common stock of $140 million, $0.09 per share in the fourth quarter of 2018, and $2.3 billion, or $1.55 per share for the full year 2018.

We had a number of special nonrecurring items in the quarter.

These are detailed on page -- on VII of our press release, but the charges netted to a net charge of $21 million or $0.02 a share.

They included $331 million in charges related to disputed Cerro Verde royalty claims and some charges at PT-FI.

These were largely offset by $310 million in tax credits and gains on asset sales.

Excluding these net charges, our adjusted fourth quarter net income totaled $161 million or $0.11 per share.

Our adjusted earnings before interest taxes, depreciation and amortization, or EBITDA, for fourth quarter 2018 totaled $885 million, and we've got a reconciliation on Page 33 of our slide deck providing the EBITDA calculation.

Our fourth quarter production totaled 841 million pounds of copper, and 334,000 ounces of gold.

Our production was higher than our sales, which totaled 785 million pounds of copper, and that was similar to our October guidance -- our October 2018 guidance, but our gold sales of 266,000 ounces were about 64,000 ounces below our 2018 guidance; and this is purely a timing issue relates to a delay in shipments at PT-FI late in the quarter, associated with some unscheduled maintenance at the third-party-operated Gresik smelter in Indonesia.

So these sales were deferred from the fourth quarter.

They will be shipped in the first quarter, but they had an approximate $80 million impact on our fourth quarter adjusted EBITDA.

This was just for the gold deferral.

For the year, our sales of copper totaled 3.8 billion pounds.

Sales of gold totaled 2.4 million ounces, and we sold 94 million pounds of molybdenum.

Our fourth quarter realized price for copper was $2.75 per pound, and that was 14% below the year ago quarterly average of $3.21 per pound.

Gold realized prices in the quarter was $1,255 per ounce, and that compared to $1,285 per ounce in the fourth quarter of the prior year.

Our unit costs net of by-product credits, on a consolidated basis, averaged $1.54 per pound of copper and $1.07 for the full year.

Operating cash flows for the year totaled $3.9 billion, and those exceeded our capital expenditures of approximately $2 billion.

We ended the year in a strong position from a cash liquidity position.

We ended the year with $4.2 billion of cash, and consolidated debt totaled $11.1 billion.

We have no borrowings under our $3.5 billion revolving credit facility.

I'd now like to turn the call over to Richard, who will be referring to the materials, the slide presentation materials on our website.

Good morning, everyone.

In a very complicated world today, politically and economically, we have a lot of excitement here at Freeport, in both our management team and globally across our organization.

We had a very active year in 2018, and it was culminated by the completion of our transactions with the government of Indonesia on December 21.

And this was a, frankly, heavy load lifted off of us.

We've been dealing with this for a number of years, and in this process, particularly over the past 3 years, in such a positive way, is very gratifying.

Now we're focused on 2019 and the years beyond that.

Some of our accomplishments in 2018 start with the fact that globally, we had a very safe and productive year in our operations.

You look back 3 years ago, 2015, 2016, when commodity prices were very low, the outlook was very weak.

As a company, we had a heavy debt burden that wasn't clear how we're going to deal with that.

But in the Americas, at that time, to conserve cash, we ramped down our mining operations, and this past year, we restored mining operations to establish ourselves for a long-term future of productivity in those mines.

We ramped up our mining activities by nearly 20%, and this is going to support our long-term mine plans and preserve our optionalities as we go forward.

That's like building a new mine, when you think about the 20% of an operation this size.

We advanced the construction of a new mine at Lone Star.

This is the ore resource that adjoins our Safford mine.

That mine was just getting started when Freeport acquired Phelps Dodge in 2007.

It has processing capacity that we're able to utilize productively with developing this new resource, and we continued to drill the Lone Star ore body and resources and really, are identifying a massive new resource, which will be good for the future of our company, it will be great for the future of our company.

This mine is located just across the Mountain Ridge from Morenci in Eastern Arizona.

Our mill in Cerro Verde continues to hit new records.

This is, if not the largest milling complex in the world, one of the very largest, and since we began its operations, it has just performed magnificently and continues to do so.

At our Bagdad mine in Northwest Arizona, we had a very interesting process this year where we completed an efficiency project using big data and artificial intelligence models.

It's lifted productivity with this mine in a low capital-intensive way, and now we're going to take that experience and carry it forward to our other mines.

We increased our reserves in the Americas by over 35%.

For too long, we've held onto using a $2 copper price.

To determine reserves, we increased that to $2.50, and while this increases the proved and probable reserves that we'll report to the SEC, it's also going to be very beneficial as we look to the future when we develop these assets to create additional value for our shareholders out of these operations.

In Indonesia, we made really important progress in preparing our underground mines for the future.

This is the future, because we will complete mining from the Grasberg pit this year in 2019, the first half of this year.

For over a 15-year period now, we've been developing this infrastructure, including the installation of the state-of-the-art underground rail and ore flow systems, and we developed the infrastructure necessary for large-scale underground mining.

This is -- we are addressing the seismicity issues for mining that we've encountered at the separate Deep MLZ mine and the results with that for today are encouraging, and we're gaining increasing confidence about our ramp-up plans for the Deep MLZ.

Over the next 2 years now, we've been foreshadowing these 2 years for -- ever since we developed our long-term mine plans at Grasberg in the mid-1990s, we've been foreshadowing the fact that there would be a transition period as we complete mining in the pit and ramp up production from 2 large-scale high-grade underground mines, and we expect production in the Grasberg district will double between 2019 and 2021, and this has always been our plan, but now we got -- we've derisked the infrastructure development.

The transition years are here, this is equivalent to a new start-up operation for our mine.

We've completed the open pit area and now we went to the underground area.

It's a major undertaking that our team has carefully planned over the years and is now executing and it's all going on schedule.

I personally cannot be more pleased with the outcome of our negotiations with the Indonesian government.

All 3 parties, the government of Indonesia; our former joint venture partner, Rio Tinto; and Freeport, accomplished each of our fundamental objectives.

And for those of you who follows us, you recognize this was no easy feat in the complicated circumstances we faced.

But at the end of the day, all of us are happy.

We were successful in maintaining for Freeport the basic economics of this ore body, and the deal that we have going forward is roughly equivalent -- approximately equivalent to the economics we had under our contract to work, and it maintains, sustains our exposure to this world-class asset, world's second largest copper mine, world's largest gold mine, it's a remarkable asset, and really worth all the effort that we've poured into it over the years.

Really important in this process is we ended the tough, tough negotiations on a positive note.

We now have a new partnership structure that strongly aligns Freeport's interest with the government, where, for all these years, we've been on the opposite side of the table in really an unproductive way.

I'm convinced that this will mitigate political risk as we go forward in other major risks related to everything from security to labor relations, community relations.

We now have aligned interest.

We're partners with a state-owned company.

That state-owned company has incurred significant debt to finance this transaction.

Just like we, they will be looking to have positive cash flows coming out of this business over time to service that debt, and to provide dividends of substance to the government for years to come.

As a company, I look back 3 years ago, and think of just about how dire our situation was then, with markets and with our debt position.

Over that time, we've reduced our debt.

We're in a strong financial and liquidity position, and the steps to take and to reduce our debt by nearly 2/3, way beyond the targets we set at this call 3 years ago, position us now to manage this transition in Indonesia and deal with the market uncertainties that may -- we may face.

We'll talk more about this, but -- on the call and in answering your questions.

The fundamentals even today, with all the confusion, economically, in the world, with all the risk that we hear about every day, the fundamentals of copper market point to a very positive future.

And our company and our management team are managing our company's assets to enable our shareholders to benefit significantly from what I'm confident will be strong copper markets ultimately in the future.

With today's uncertainties in the global marketplace, neither we nor anyone else can predict short-term movements in copper prices, but our management team is confident we have the right portfolio of assets, the right structure.

We've derisked so much of our business over the past 3 years, particularly in 2018, that we can deliver significant values over the long term to our shareholders.

So we're going to now answer your questions about the past, if you have any.

I'm sure you will.

But we are going to focus on what's ahead of us in the future.

It's all about execution now.

Our team recognizes that, we're focused on it, we have a great track record of executing in project development and operations, and now we're going to use those capabilities to build success.

When I step back and look at it, today's world is confused in many respects and dysfunctional.

We're not confused at Freeport, and we're going to be functional.

We know what we need to do, and we're going to set out to do it.

So turning to the slides now, Kathleen has reviewed the 2018 highlights.

Just a couple of comments.

We had this problem with the smelter in Gresik being down.

We had 130,000 tons of concentrate that we had produced at Grasberg that was in inventory in our concentrate barns at Grasberg.

Normally, it's 20,000.

So 100,000 tons of concentrate that was produced, otherwise would have been sold if Gresik had been up, that 60 million pounds of copper and 100,000 ounces of gold, that's not in our numbers this year.

Copper prices dropped $0.12 in December.

Much of our production for the year is priced at December prices.

We put out a guidance note for analysts who published earnings guidance in December.

I would encourage you to read that note and apply it.

Several analysts didn't do it this year and that resulted in the expectations about earnings being higher than they otherwise would have been.

So anyway, past is past.

We're focusing on the future.

Slide 4 summarizes the transaction with the government of Indonesia.

Importantly, for our financial reporting purposes, because of the structure of our shareholders agreement with INALUM the state-owned company, Freeport will continue to consolidate PT-FI.

And PT-FI is now larger, because previously, we separated the interest in the joint venture between Freeport and Rio Tinto.

Now all of that is part of PT-FI.

All of that will be in our consolidated results, and our consolidated reserves will be higher as a result of that.

Freeport FCX's equity interest in the reserves will be equivalent -- will be the same.

But those are the details and if you have questions, we'll answer about it.

Now turning to priorities.

Here's what we're going to do.

We're going to ramp up production from our large-scale underground mines at Grasberg.

2 basic mines, although the Grasberg Block Cave has 2 headings, and in some ways could be viewed as 2 mines within the Grasberg ore body.

And the Deep MLZ mine.

We're going to focus on productivity and cost management globally in the Americas as well as in Indonesia.

We're going to advance this Lone Star development and continue to look at the very exciting long-term expansion opportunities for that ore body.

And then we're going to look at other future growth opportunities from a large portfolio of reserves and resources.

We have a great opportunity in Chile with our El Abra mine, and then we have a number of opportunities in the U.S. mines.

We're going to be evaluating them and ranking them and be prepared to go forward when markets give us the comfort to go forward.

We're not going to be spending capital on those in near term.

So copper markets.

The -- in the face of all the investor uncertainties that come about for obvious reasons that still pertain there, the concerns about the ultimate risk to the economy in China and the global economy from a number of items, including the unfortunate trade policy issues that are being considered now.

The fundamentals in the marketplace remain very strong.

China set records for copper imports.

They're continuing to invest in smelting capacities.

They're reducing scrap going into China.

There's just a lot of things about China.

China, as a country, has enormous financial resources.

They're looking at stimulating their economy, investing in One Road initiatives.

China had lots of alternatives with dealing with issues it faces in the current marketplace.

Time will tell whether this will develop into a serious problem, and we'll be prepared for that.

But today, the outlook going forward is good.

In the U.S., it's really amazing.

We supply maybe 1/3 of the copper to downstream market.

We're stretched.

We're not being able to commit -- to meet all the commitments of our U.S. customers.

We're actually having to go out and buy some copper.

Can you imagine that?

It's Freeport.

The world's largest operator of copper mines is having to buy some copper to fulfill customer demands in the U.S.

All of this is really contrary to investor sentiment.

Investor sentiment is what it is.

We live with it.

But the market is fundamentally, it continues to be strong, and then when we look forward, when we look at the declines in base production, experts are analyzing that to be over 5% over the next 10 years.

If you look at modest demand growth, and we've used 1.5% over the next 10 years, you end up needing almost 5 billion pounds of new copper per year -- 5 billion tons of new copper per year.

And today, it takes prices well over $3 a pound to justify new investments.

So there's coming times when copper prices will simply have to rise.

And then you look at where is today's copper coming from.

And on Slide 7, a slide you've seen from us before, you see the reserves and production from the top 10 copper mines in the world today.

We have 3 of the 5 largest producing mines in the world.

In aggregate, those mines only produce 5.4 million tons a year in 2018, so you're talking about having to replace all of these mines 10 years out.

It's a good outlook.

So here's what our reserves are.

We have -- I've been talking with our team for some time now about why do we continue to use $2 copper.

So we've changed to $2.50 copper in the Americas, and that resulted in about 1/4 increase in our reserves just by using that price.

And it's not just an accounting exercise.

That's helping us as we look to see where we rank these investment opportunities going forward.

That's proved and probable reserves under SEC industry standards.

Beyond that, we have an equivalent mine of mineralized material associated with our existing mines that, with additional drilling, analysis, engineering, planning and so forth, could well come into reserves.

Half of these resources, roughly, are in the U.S. So we're positioned as a company to benefit from these coming positive copper markets, and have the ability to deal with it if, in fact, we have to deal with economic weakness.

More information on our reserves are shown on Page 9.

Most of the additions that came about are in the Americas.

We doubled our reserves at Bagdad, which is a really attractive future investment opportunity mine for us.

We've added significant reserves to Morenci.

We've added reserves at Cerro Verde.

Our reserves will also grow because of the consolidation, the inclusion of the former Rio Tinto interest in the PT-FI and the continued consolidation of PT-FI.

Big reserves, big resources.

Cerro Verde, the operations are really going well.

This is really a great mine.

So glad we buckled up and made the decision to do the major expansion that we completed and started ramping up 3 years ago.

And the concentrator facilities, leading -- industry leading in size, they're performing well, exceeding nameplate capacity.

And so this is a great mine, really pleased it's part of our portfolio.

Lone Star, I mentioned, there's a picture here.

We -- we're mining leachable oxide ore now, doing stripping.

That's going to be a very profitable project for us.

5.6 billion pounds of copper, it's strictly leeching, using the facilities that are already in place at the adjoining Safford mine.

So that's going to be a good project, but what's really exciting is beyond those 5.6 billion pounds of reserves now, we have 50 billion to 70 billion pounds of resources, enormous opportunity, driven by the sulfide resources, underneath these oxide resources that we're producing.

We also have a sizable sulfide opportunity at Safford, which has been, to date, strictly a leaching operation.

And so this has the opportunity of being a Morenci class mine as we go forward, right in the heart of our operations in a community where they are welcoming of mine activities.

Part of a brownfield expansion, really exciting.

Grasberg underground.

This is just really going to be amazing.

In the future, as we look out beyond ramp up, the primary asset's going to be the Grasberg Block Cave.

Now this is the same ore body that we've been mining from the surface since early 1990s.

Not a different ore body.

It's just physically, it's more economically to access it underground now from the surface.

We'll be ramping this single underground mine.

It will have 2 headings, and Mark Johnson is on the call with us.

So late at night, he's in -- he's in -- been back and forth.

But it's really, in effect, like 2 mines, because there's 2 headings, ramping up to 130,000 tons a day from this ore body by 2023.

We had our first drawbell blast December 15.

I was in Jakarta, and it was exciting to be late at night at the Fairmont Hotel and watch that first blast go off on the screen.

And that's just one evidence of the progress we've made in developing the infrastructure.

Now it's important to note that this is an ore body we know.

The Deep MLZ, where we've had mining and do seismic activities in a separate mineralization area, an area where we began block cave mining in the early 1980s and have extended at a depth.

It's 1,500 meters below the surface.

We're 300 meters below the surface with the Grasberg Block Cave mine.

Different rock environment.

We know the rock.

We're comfortable that we won't have to deal with these conditioning exercises we're having to do with the Deep MLZ with the fracking operations.

The Deep MLZ, we're ramping up, we feel confident to 80,000 tons a day by 2022.

We began the fracking operations in 2018 to manage the seismic events, precondition the cave.

This is not the first time that's has been done in the industry.

The first time we've done it, and results to date are very encouraging, and have given us increasing confidence about our ramp-up schedule.

We have an inventory of a 70 drawbells, so we are prepared to have this ramp-up going, and we're giving you our estimate as to how we'll achieve, which is shown here on Page 13.

First half of 2019, we're basically finished at the bottom of the pit.

We're looking out for opportunities in the pit to get some incremental high-grade ore as we finish mining in the pit.

One way we're doing that, the primary way, is we're mining out the truck ramp roads that have led down there.

It's very high-grade, and that will be the bulk of the source of our ore production during the first half of 2019.

And then you can see in these schedules how the other mines will ramp up.

So we're into this transition period, 2019, 2020, where we have an increasing confidence about our ability to meet our targets, and we'll end up with the Grasberg mine operating with totally underground feed, with a mill of over 200,000 tons per day of very high-grade copper and gold ore.

And now the decks are clear with all these issues that we've had with the government for us to proceed to do that in a business-like fashion.

And it will be our primary focus.

So we've got a global footprint, of course.

Key positive about our company is that we operate all of the assets that we have ownership interest in.

We're not minority owners.

We're not joint venture participants, but we have the ability to benefit from having a common operating group managing all these operations, and that gives us a lot of synergies to deal with, both in supply chains and people and mine planning and so forth.

The large parts of our resource and reserves are in the Americas, 70%.

We've got a great team.

Really high morale here.

Everybody is excited.

We are ramping up the operations today.

We're planning for future development, and all of us are happy about it.

Leading position in the United States.

Looking back a number of years ago, the mining in the Southwest copper district was dead.

Now it's really exciting.

We've got favorable tax situation.

We have a huge operating loss carryforward from our oil and gas investments, so taxes will be minimal in the U.S. going forward.

And improved regulatory environment, we have really good relationships with the states where we operate, and so we -- and the energy situation in the U.S. with shale oil, shale gas, the flexibility of labor, we don't have labor unions here.

We have communities that support the families that work at our business.

So anyway, it's -- we're really excited about our business in the U.S. Great opportunity in Chile, with El Abra, world-class mine in Peru and, of course, Indonesia being a historically tremendous asset.

We showed this, I think, last quarter, but I want to come back to it about just how difficult it would be to replicate what we have here at Freeport.

If we look at the copper equivalent capacity of our company, 4.5 billion pounds of annual production extending for as far as you can see.

The cost to develop greenfield capacity is $8 to $10 a pound.

That indicates that to replace what we already have now would be on the order of $35 billion to $45 billion.

Time will justify this and we're focused on giving the market the basis to do it.

So we got our 2019 outlook.

It's very consistent with what we had before.

Unit cost will be higher the next 2 years than they have been or will be because of the ore volumes with the transition at Grasberg, and that will affect our cash flows for a 2-year period, but this is just like someone starting up a new mine, whether that mine's in Mongolia or Africa or Panama or whatever.

It's a ramp-up period and that's what we have.

Capital expenditures are consistent with what we've guided to before.

A large portion of these will relate to projects that will be adding significant future production.

You can see our sales profile, which will be increasing as we go through the ramp-up years, and then gold sales is particularly evident because that's Grasberg, and that's where we're having the transition.

18 -- Slide 17, shows the volumes and costs by region.

Our cost in the Americas are -- has been fairly consistent.

Each mine will be affected by some volume differences, but the fundamental cost situation is under control and remaining the same.

Consolidated cost we're showing at current commodity prices for 2019 being $1.73, but that's with Grasberg being at $1.55 a pound.

We think Grasberg, after the transition will be no more than $0.30, maybe lower, depending on commodity prices.

And if we pro forma to that, our costs will be $1.30 versus $1.73.

We just keep wanting to drive home the fact that we're in transition years.

This is Page 18, and it shows what our average EBITDA and operating cash flows will be on average for '19 and '20.

And then after the ramp up, how much it'll grow, so I'll let you look at those numbers, and then I think they're evidence of what we're dealing with.

No significant changes to our capital expenditures.

Bulk of our major mining projects are Grasberg underground development.

And our financial policy, we're going to be studying and ranking future investment opportunities.

We're not planning to commit major amounts of new capital to those projects.

We're going to continue with Grasberg and with Lone Star, but we're going to be looking at attractive projects for the future.

We're going to continue to be focused on improving our balance sheet to the extent we get to a period where we're generating excess cash, maintaining our current dividend, and what we're really looking forward to is having production ramp-up, a more positive copper pricing environment, and that will allow us the ability to pay cash dividends as has been our tradition at Freeport.

So that is where we are.

As I said, in a complicated, dysfunctional world in many respects, we're very excited about where we are, and we are focused on moving forward to make our company really successful for our shareholders.

So Regina, we will open up for questions.

(Operator Instructions) The first question comes from the line of Chris Terry with Deutsche Bank.

Two questions for me.

The first one, in your slide deck, Slide 27, where you've got the quarterly sales forecast to 2019, just looking for a little bit more color on the ramp-up of the 2 headers at the Grasberg underground.

Presumably the first quarter of '19 guidance, the 825 million pounds includes a little bit of the sales that didn't come through from 4Q '18.

I think 2Q '19, from what you've said, includes some of the open pit material at the slightly higher grade.

Is it really the second half of the year where we then more rely completely on the underground?

Just trying to step through the profile there.

That's the first question.

And just on your projects beyond Lone Star, can you rank at this stage what the order of preference would be for any new projects, including El Abra or North American options?

Okay.

So Chris, you're exactly right in your reading the slides.

First half of the year, the bulk of production at Grasberg's going to come from the open pit ramp mining.

And then by the end of the year, the Grasberg Block Cave will be commencing production.

We also, over time, have developed stockpiles of material that we will use to maintain as much throughput to our mill as we can, but that's been a long-term plan to stockpile some lower-than-average grade material, and that will be available for us as well.

And for the year, Deep MLZ represents about 12% of our production, so relatively small percentage in 2019.

And Grasberg Block Cave is under 10% for 2019.

The rest of it will come from the open pit.

The DOZ mine, which has been operated for several years now, is the other piece of this in addition to stockpiles and a small amount from Big Gossan as well.

Mark, do you have anything to add to that?

Or were you okay with what we said?

No, that's perfect.

We've also ramped up the Big Gossan and it will be at full production of 7,000 tons per day by the third quarter.

And it will consistently supply about just over 10% of the copper and about 4% to 5% of the gold.

So Chris, with regard to ranking, I have to be careful.

Because we can get to some fairly heated discussions internally about that.

We start out with the base, I think, with El Abra.

It's -- for a mine that we thought by this time would be depleted, when we acquired Phelps Dodge almost 12 years ago now, our subsequent core drilling and exploration analysis, it gives us a really exciting opportunity.

We own 51% of that mine.

CODELCO is our partner, and CODELCO is very positive about expansion.

On the other hand, the U.S. has the benefits of the -- that I mentioned, energy cost, labor flexibility, which Chile is recognizing as an impediment to that country's future and the mining industry now.

And we own 100% of the mines.

We own the land and fee here.

We don't -- and our workers drive their pickup trucks to work and carry lunch pails and send their kids to community and state schools and have hospitals.

So there's a lot of advantages in the U.S. Leading the pack right now in terms of timing would be Bagdad.

We've invested in water resources, which is a constraint there.

We've done some work on land lights for tailings disposal, and it's less capital-intensive, smaller, easy, executional project.

And in long range, we've got some very large projects to consider, the Lone Star and at Morenci.

And even in New Mexico, where our mines are very old, but as we continue to keep drilling these old ore bodies, we get excited about what we're seeing there.

So it will be a horse race to decide what to do.

Not a decision we'll reach -- we'll continue our work throughout the year and report to you how that analysis is going.

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

I just -- I had a quick question, first of all, in the capital spending for the Indonesia smelter.

The slides, obviously, are before CapEx for the smelter, and I know it's early days.

When do you expect to start spending?

All right.

So we have been spending some planning money to date.

We'll continue with that.

Significant capital spending won't come into play until 2020.

And we are now engaged in conversations about potential partners, about financing structure and how that will be dealt with.

So we've deferred that until we got our deal done.

The deal's done.

We're now actively pursuing that project, and you can expect updates through 2019 as we go forward, but not much in the way of capital during 2019.

And Dave, just to point out on Slide 19, where we show capital expenditures, those are consolidated.

And now we're bringing in all the aggregate capital from Indonesia, whereas the previous structure with Rio Tinto, their contribution was not included in our capital.

So our capital spending, really, from our previous guidance has not changed.

We'll get -- under the economic arrangement we have with our new shareholder, we'll have -- they'll make a contribution, similar to what Rio Tinto would have otherwise done, but that won't be netted in our capital like it had been before.

And when -- with respect to the smelter, as Richard said, we are focused on -- we're doing the front-end engineering right now, and while we're in those planning stages, we are going to work to try to find partners that may be interested in offtake or other participation in the smelter.

Ideally, we'd like to structure the smelter similar to what we did with the original smelter we built in Indonesia, where PT-FI provided a contract to a smelter project company that used that contract to finance the smelter.

But we don't know yet.

This is all new in terms of getting the deal done in Indonesia.

So as we go forward, we're going to look to minimize equity contributions from FCX, and look to try to find financing for the smelter as long term as possible to reflect the long-term nature of the assets and the amortization of the smelter we'll have over time.

And Dave, let me make a couple of side comments on all this.

All of the issues related to capital allocations in the smelter were settled with INALUM during our negotiations.

Rio Tinto was a great partner of ours since the mid-1990s, but there were some issues related to the smelter and cost allocations in the final years before they went up to 40% that were unresolved.

We resolved those now and those are settled with INALUM in a fair way.

And in a way that was consistent with the Rio Tinto deal.

And when you think about the smelter, Indonesia, really, is exposed to roughly 50% of the economics of the smelter through taxes and royalties.

Now they have a 50% equity interest, so 70% to 75% of the economics of the smelter will be borne by the government of Indonesia.

And Freeport's exposure to the smelter, which in today's world and foreseeable world, will have an economic hit back is limited to 25% to 30%.

I think it's obvious, but I think it's something I just wanted to point out.

No, I appreciate the extra details and color.

That's always helpful.

Just one other quick question.

If you could just take a step back, obviously commodity price is down, all the big producers are out saying, there's really not any good projects out there.

And so I just wanted to ask if you can give us an update on your thoughts regarding M&A activity in the sector in general, and where Freeport shakes out?

So Dave, you and others read what other companies say, and there's a consensus across the industry among the diversified companies that puts copper as a top priority of every company, I mean, every company talks about that.

And yet, as you point out, the opportunities for investments are very limited, just because of geology and politics and the nature of the ore bodies that are available to the industry right now.

So over time, I think there will be a strong desire for companies to try to expand their copper business, and they're going to be limited by their ability to do that through exploration and development activities.

And I think that will add to the value of Freeport's assets.

We don't have any strategy about M&A that's been formally adopted.

We're going to be in the marketplace looking for ways to increase shareholder value, and that is the total focus of our company as we go forward.

During my long career in this industry, my observation is, M&A opportunities emerge, people get in trouble when they try to force M&A ideas into a company strategy, but they tend to be more -- the good ones tend to be more opportunistic, like our acquisition of Phelps Dodge wasn't a strategy that we planned.

It was an opportunity that emerged because of the circumstances of Phelps Dodge, the circumstances of Freeport, the circumstances in the financial marketplace at the time.

And I think that will drive what we do in the future, opportunities.

Okay.

Just to clarify, is Freeport, would you say more of a buyer or a seller?

Last question.

The acquisition strategy work could be either way.

Well, having said that, to be buyer would be -- faces an uphill challenge with us, because we have all these resources where we're not getting any credit for in our current valuation.

And if we create values in those undeveloped resources, all of that goes to benefit of our shareholders.

If you buy anything, you have to pay the other company shareholders something.

So it would be a real uphill battle for us to find an acquisition opportunity that makes sense for us.

Your next question will come from the line of Chris LaFemina with Jefferies.

Just first a couple of quick questions on the transition to Grasberg, and then one on cost for the entire company.

So it looks like you actually slightly increased your production guidance from the Deep MLZ for 2020 and 2021.

Is that just a function of being more confident in the results of the hydraulic fracturing?

Or was there something else going on there?

And I guess, kind of along those lines, what milestones should we be looking for?

Are you looking for at the block cave and that of Deep MLZ through 2019 and 2020 that would give you even further confidence in the kind of successful transition to the ramp-up in production from those assets?

Okay.

So the changes at Deep MLZ are just part of the natural updates of outlooks.

And here at Freeport, we don't have an annual planning process.

We update our mine plans every quarter.

At the end of every quarter, we have a meeting, where all our mine managers globally come in, analyze what's happened in the past quarter, how their plans are changed, and so it's a dynamic, real-time updating.

And when you see adjustments like that, that just reflects the information that came in, in the quarter.

You won't see us having these big adjustments based on the annual planning processes.

Anyway, my experience has shown me it's best to stay on top of these things real-time, and that's what we do.

Mark, do want to comment on, it's roughly 2,000 tons a day more in 2020 and 2021.

Do you want to comment on some of the progress we're making at Deep MLZ?

Yes, really the only difference on that is that with the hydrofracking success that we've had, we've began to pull the ore body now.

We have been for the last 3 months.

And what's happening is as we frac the ore body, we watch very closely the air gap between the mud pile in the cave back, where that's very small, in a lot of cases, it's less than 5 meters.

We pull the material to continue to open up the space for the ore body to continue to propagate.

And so that came on quicker than what we had previously forecasted, so we're continuing to do that today.

We have days now in the Deep MLZ with the development material that is an ore grade also and the pulling of the cave, we're up over 10,000 tons, which is marginally above what we forecast last quarter.

So we're very optimistic on that.

We continue to frac in that area.

That's going to be one of our key milestones.

We just recently commissioned our second hydrofracking pump.

We've got 6 drill rigs supplying the holes for the 2 hydrofracking pumps.

So for me, the Deep MLZ, it will be continue to -- the milestones will be continued success on the hydrofracking, and we will begin undercutting -- we're forecasting to begin undercutting again in the Deep MLZ in April, so that will be driven by this continued success on the drill holes and the fracking that goes along with them.

In the Grasberg, it's -- there's really -- it's just a matter now of undercutting and blasting drawbells, and we've gotten off to a good start there.

We're slightly ahead, and we don't see any issues there.

We've got a lot of development already in place in the undercut that we'll be developing over the next 3 years, really.

So it's just a continued ramp-up of that.

The [trains] in a ongoing state of commissioning, but we see good progress on that.

The ore flow was commissioned back in 2018, and really nothing that we need to do at the ore flow system in the next couple of years to meet the increasing production.

So aside from the seismic -- the mining and the seismic activity in the DMLZ, you haven't really had any significant operational surprises at the block cave or at DMLZ?

It seems like things are going pretty well recently.

Is that fair to say?

Yes, that is.

The fracking, we've seen a much better response than we first had anticipated.

The cave is propagating better than we anticipated vertically, and we're establishing this fracking along the perimeter of the cave to where we'll be able to successfully and safely advance the undercut.

So it has gone slightly better than what we anticipated in the last forecast.

And sorry, Richard, there's one last question for me on the pro forma cost guidance of $1.30 per pound.

Obviously, the reduction for 2019 to that is due to Grasberg, but what should we -- how should we think about unit cost in North America and at Cerro Verde?

I mean, you had, I guess, over the last 5 years, there's been some pretty significant cost inflation in both of those regions, and is any of that reversible?

Or are we kind of looking at new -- the current kind of cost rates are going to be the normalized run rates of those assets?

How is that going to change over time?

So part of what you've seen in recent years was this ramp-up of mining activity that we were restoring these curtailments that we put in place back in 2015 and 2016 for financial reasons.

Had we not done that, Chris, we would have seen volumes fall off, because we weren't mining at optimal rates to maintain production.

So we've incurred some additional cost.

I mean, 20% ramp up involves a lot of people and equipment.

And so now we believe we got it at rough -- Red's here, Red, right?

We've got it at really stable operating rates, and then we'll just be subject to the normal factors that affect cost structures.

And to-date, we're not seeing anything like that, that's a major concern for us.

We've done this great job with truck rebuilds.

Red, when was the last time we bought a haul truck?

2008.

A brand new.

A brand new one.

We bought 150 of them.

We've added 150 of them and so we're doing things like that.

Our tire age is going of age.

So when you look past all the issues at Freeport that have been related to the Indonesian contract and the transition underground, we've had a big part of our business.

It's just been focused on nuts and bolts and doing a great job of that.

So in that $1.30, we've got relatively stable cost in the Americas forecast.

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

So a question, when you think about your potential growth portfolio beyond that of Lone Star and the prospects you outlined for Cerro Verde, Bagdad, Safford, et cetera.

You laid out this at the center price at $3.30.

I know it's probably the most challenging question for a mining company when you have a long lead time between cash investments and incremental revenues.

But what does the market look like when you make that decision, saying, yes, it's time to put in this capital.

Price is $3.30, it stays there a quarter, 2 quarters, practically, is that enough?

And if not, what is?

So I don't think you can simplify.

It's not just like the price -- the current price or whether it lasts a couple of quarters or not.

We don't allow ourselves to focus on a price.

That's what history has taught me.

We look at scenario prices.

We don't think that you're going to get to a price.

Analysts used to get upset with me, because that's -- when they say, what's your long-term price, and I'll just say we don't have one.

What we do, as we look at these projects, is look at the market, see what the opportunity would create for us if we did the project and got those volumes and had the benefit of the prices that were available.

And then we would risk it.

We would say, okay, if you make that investment, prices drop.

Not on that project alone, but how would that fit in to your total portfolio of assets?

What would that do to the company?

Is the company financially strong enough, and we're so much better now than we have been.

And how we'd fit in?

We've benefited back -- we undertook 3 projects at once coming out of the 2008, '09 downturn.

We did expansion at Tenke, expansion at Morenci, the major expansion at Cerro Verde.

And we look at all of those, and strategically, we come back to the fact that you've got Grasberg there, with its high volumes and significant gold component, you need this long life, low-cost reserve.

That was the whole basis for the Phelps Dodge deal.

So if we look at future opportunities, we've got this base for the company of Grasberg there, which is now derisked in a major, major way to support our company, and that allows to be more aggressive in terms of looking at those investments.

It's not looking at them on a standalone basis.

So I can't give you a formula, but we hopefully get past these trade issues and Brexit and the government shutdown and get some clarity on what the Fed's interest rate policies are going to be and what the global economy is going to be, how China deals, all of these things will come together and that will give us a view as to what's the time to start these.

You correctly pointed out they're very long-term investments.

The price of copper jumped to $5 today, we wouldn't have significant incremental production for 6, 7 years.

And so there's going to be a coming time, unless there's some really disaster economically in China and the world, you're likely to see really, really high copper prices.

I mean, just read the tea leaves.

Look at these basic numbers and say, how are you going to replace the top 10 mines in the world in 10 years?

That's not going to come from what's on the schedule right now.

So prices got to go way up.

People going to be scrambling to produce copper, we got the resources to do it in a productive way and that's what our future is going to be.

The other thing we're doing in or for North American projects is we're going through some work right now, some technical work to try to bring down the capital intensity of investments.

And we're working on some concentrator designs that may allow us to bring in projects from a lower capital intensity standpoint than what just the conventional technology would bring.

So we want to get the results of that -- those studies done, and in the meantime, we're doing some value engineering on the El Abra prefeasibility study so that we can be in a position to make decisions and rank these projects and sequence them in a way that drives the most value for our company.

So we've got the inventory, but we want to do them in the most economic way that we can.

That's why we're going through some time during this market uncertainty to study ways to bring down the capital intensity of the projects.

And this is a team that was world leader in SXEW and SAG mill development, high-pressure grinding roll development.

The development of Tenke was technically industry-leading, and now with this new mill design that we did at Morenci, all of that's coming together to allow us to look at the next stage of how do you do these things with less capital, less energy, less carbon emissions, all the things that...

Better recoveries.

Better recoveries, and now using this big data analysis project that we've done at Bagdad.

That's what the guts of this company is going to be about and I really look forward to having earnings calls talking about these things rather than negotiations with governments.

That brings to my next question, I wanted to ask a little bit on the CapEx side.

Slide 19, we see the other mining creep up a bit, $800 million to $1 billion by 2020.

The major project holding at $1.5 billion over '19 and '20, although Grasberg holds at $900 million, Lone Star declines by $200 million.

So given what you just said, could you break down what regions, which mines are driving a little bit of the pop in the other mining, whether we should be thinking about $1 billion consolidated, is this sustainable capital going forward?

And then as you get into 2020, what else is popping into that major projects bucket?

Well, so with the sustaining capital, some of that affects this ramp-up effect that we talked about, not only will constraining operations, which we choked by necessity, maintenance capital.

And I mean, these quarterly meetings we had, it was back and forth between the teams and our -- Kathleen with the management staff, and so now we're having to go back and do some things that we had deferred, and that's all that, that is.

And so I think the sustaining capital that you see in those years should be...

More normal.

More normal, and we'll find ways to try to reduce it.

There won't be any unexpected increases, right, Red?

Correct.

Write that down.

They won't be coming, won't be coming in then.

And then by 2020, we may well have clarity on where we're going next with El Abra, Bagdad and other things that we'll be dealing with.

So we'll just update -- the milestones will be apparent to all of you, we have to have those every quarter when we're talking about it.

Yes.

And that's the way this will unfold.

There's not anything major besides the underground and Safford or Lone Star.

We do have some capital at El Abra that we're doing in the next phase of the new leach pad at -- to extend the life of our Sulfolix project there.

So the bulk of it's coming from Safford -- I mean, Lone Star and Grasberg underground.

Your next question comes from the line of Alex Hacking with Citi.

I guess, just following up on Indonesia.

My first question, I noticed that the mining rates have been extended through 2031 at 10-year period, not 2041.

Was that always expected to be the case?

And then secondly, the extension there is contingent on building the smelter, and I guess paying taxes and royalties.

Any other contingencies on that extension?

Okay.

No, we always knew that because of Indonesian mining law and regulations, that we have to do 10 by 10, 2 10-year.

And part of the negotiations were -- and that was the case with old contract.

There was a primary term to 2021, and we have the rights to 2041 in 2 10-year increments, past 2021.

So we always knew we had to deal with that.

A focus area of the negotiations were, what was going to be the contingencies for that 2031 through 2041, and we ended up agreeing that there will be very specific criteria, and we said that with those criteria met, it would be automatic.

And those criteria are simply this: we pay our taxes and royalties, tell you what to do, we build a smelter.

Other than that, there's no environmental review or other administrative -- no, we thought -- we felt comfortable with our rights under the COW, but the COW said, the Indonesian government had to grant those extensions...

Without unreasonable results.

Without unreasonable -- without any unreasonable delay.

There's no unreasonableness on this.

It's measurable, specific criteria.

It's totally expected by the government and by us that we will extend, and now our partner, INALUM, will set to be extended.

So we are in a much better position than we were under our COW in many respects, and this is one of them.

That's very clear.

And then once Grasberg is through the transition, it's going to be a big cash cow.

Do you have any kind of guarantees on your ability to get that cash out of Indonesia?

We do, and one of the things that was again a focus point of negotiations was that, within the shareholders agreement, is an agreement on the financial policy.

Dividends will not be set by the Board of Commissioners or Board of Directors.

There's an agreement, that to the extent that cash is generated from the operation beyond in excess of its capital expenditures and other cash requirements, that's going to be distributed as dividends, and there's no restrictions on that.

So we have a set financial policy that goes to 2041.

And the entity can't incur debt without mutual agreement, so...

And then just one final one, if I may.

On the Cerro Verde royalty dispute, do you anticipate any cash inflow impacts from that?

And does it affect your 2019 cost guidance in any way?

We've got some payments worked into our plan, where we are paying some amounts and installments under protest.

We're going to continue to pursue a legal strategy to get those payments back, but we do have some amounts going through our cash flows, over time with -- to pay on those obligations or those claims.

Your next question comes from the line of Matthew Murphy with Barclays.

I had a question and another one on Grasberg Block Cave ramp up.

And I'm just wondering how major this first draw point blast is?

Is this being followed up with like mucking and this cave is propagating?

Or is it still very early days?

I'm just wondering how you look at the derisking of the project over the course of the year?

At what stage do you think you feel more comfortable kind of with the proof of concept here?

Okay.

Mark?

Yes.

It's the first step, so it's significant in that.

The blast went well, a good fragmentation.

We are not -- right now, what we do until we hit a hydraulic radius in this area of the Grasberg Block Cave is we continue to do the same thing.

We continue to undercut blast and follow it up with a drawbell blast.

We are about 50% of the hydraulic radius, and that's the span with which the cave we'd expected to start caving on its own.

We expect to be at hydraulic radius late second quarter, early third quarter this year.

And at that point, you can start to mark the draw points that you've already blasted, while you continue to add new draw points.

As Richard stated, the Grasberg Block Cave is -- we've got multiple work areas there.

It's essentially -- it's one mineralization, but the geometry is essentially, we have 2 mines that we're developing concurrently that share the same infrastructure.

We have 2 fronts right now that we already established with the undercut sequencing on the very southern portion of the ore body.

And within this quarter we started to develop the northern limb of the ore body, and that will continue on in a similar fashion.

We don't see any surprises.

Like Richard said, we know this ore body very well.

We're not deep, there's the geology and mapping has indicated the same fracture frequency and consistency of the rock that we had initially modeled.

So I really don't see any issues there.

In fact, we think that there is a potential for upside.

We've got a lot of -- the construction ahead in the Grasberg Block Cave, a lot of the drawbells have been constructed and are ready to be blasted.

So we've got a good inventory of development ahead of us.

The infrastructure is in place.

We continue to add ventilation and pumping systems as we need to do, but we're in very good shape in the Grasberg Block Cave.

And I mean, not to get too bogged down on details, but I'm just trying to picture, I mean, you've got a big open pit and a lot of rainfall above this area.

Just wondering at what point do you start seeing some of that water flow?

And how do you deal with it?

Yes.

We've got extensive drainage within the Grasberg Block Cave development.

We end up -- fortunately, for an underground mine, our failsafe is that the gravity drains out to the rich camp area.

We've got the outlets that are at a lower elevation, if the pumping systems were to go off, the failsafe would be is that the access drifts are built to handle the peak flows that we modeled.

We put a lot of effort into dewatering along the periphery of the Grasberg Block Cave to keep the groundwater away from the cave, and that's going well.

We've got surface drainage systems at the Grasberg around the pit that we'll continue to maintain to minimize the amount of surface water that gets into the cave.

We've done a lot of work on this.

We've looked at a lot of contingencies, and we feel very good about the system that we have.

And essentially, the pumping system that we put in is purely to more economically provide the mill with water.

If it wasn't for the mill needing water, we could essentially let gravity do its thing at the GBC with all the drainage systems that we're putting and as part of the block cave development.

So Mark, when do we put in the Amole at it?

That was 1990s.

Yes.

It was in the -- yes, it was 1990, actually, it was probably around '95 because we found the -- Kucing Liar with that.

So the only point of that is this water management issue is not a new issue associated with the current development.

It's been something that's been part of this operation from the very start, and what we've done in the past will allow us to deal with these issues that you raised.

Okay.

One thing, as big as the pit is right now, and if you look at what we're doing, we've been very good at being able to manage the pit bottom.

We're only pumping about 2,000 gallons a minute from the pit bottom, and we have access to this Amole drift that Richard mentioned.

We still use that for our pit dewatering.

So we've been able to keep the pit dewatered with a very minor amount of pumping infrastructure, because we can use the access that we have underground.

And we'll continue to look at those sorts of approaches with the GBC.

All right.

Thanks, Mark.

Let's move along.

Our next question will come from the line of Orest Wowkodaw with Scotiabank.

I was wondering if we could get a bit more color on the cost outlook.

And I appreciate the long-term pro forma cost guidance you've given us here of $1.30 a pound.

Does that imply that we should anticipate costs in North America and South America close to the $2 a pound range before thinking about Grasberg?

I think it's $1.70 range, not $2.

It's $1.70?

It's $1.70, $1.75, that's sort of where we are now and that's what our current outlook is, unless there's some major changes in input cost.

But what drives that down from -- I think, you're guiding this year North America cost of $1.86.

So what -- in the future, I would think grades decline.

What would be driving the long-term cost per pound down?

Richard was talking about a blend within North America and South America.

I was talking about the Americas combination.

So if you look at South America, North America combined, which we look at is kind of one business unit, that's where the combined rate was.

But in general, the maintenance cost that Richard referred to that we've been incurring, catching up, those all level out, get back in the sequence and we get back to those historical rates roughly.

And Red, this is not a -- the nature of these ore bodies, they're low grade, but they don't have significant declines in grade over time.

We -- they will change year-to-year, but as you know, it's not a question like a big open pit bore-free, where you mine the highest grades first.

I mean the highest grades were mined 100 years ago.

So it's more consistent grade than you might see at other mines, and you would see at other mines.

Okay.

And in terms of the reserve increase, how much -- can you give us a rough idea of what percent of that increase has to do with the copper price change versus additional drilling?

A big portion of it is related to the copper price change.

We did do some drilling at Lone Star, and actually have done more drilling that isn't reflected yet in 2018 reserves.

That will be incorporated into the models in 2019.

But most of that is really dealing with the price assumptions, and what we'll do is look at how to develop those reserves over time at the lowest possible cost, and really just expanded the footprint, brought in pounds that would meet the reserve criteria at $2.50 or less.

Yes.

So what we do is we look at our current operations that we've got planned and we're just removing this artificial constraint on the footprint of the cone -- of the reserves that we previously limited to $2.

And now it's extended to show what would be economic at $2.50.

And we'll be likely mining in our $2 reserve plan for a long time.

So we try to keep mining in a plan that keeps the cash cost as low as possible, but this gives us more optionality to look at expansions or bringing metal forward over time.

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

Your reserve in mineralized materials is very interesting, with the Americas reserve going up 23.7% and the mineralized material going up 42 billion pounds in addition to that, the 66 billion pounds is like 2 times Grasberg, but smaller than Escondida.

Could you give us a little more explanation with how much of the mineralized material was new drilling at El Abra and new drilling at Lone Star versus the $3 resource price?

Was that the same $3 price as a year ago?

Maybe it would be good if you just post it, the reserve and resource pages of your 10-K on your website today, it might be more interesting than the rest of it.

Well, let me just say, I was reading that last comment.

It deserves more -- it's an antiseptic legal summary that your SEC attorneys write.

Right.

But John, with the exception of Lone Star, it's mostly price change.

There's not a lot of new drilling that drives that change.

But having said that, John, over the past 12 years, we've done an enormous amount of drilling.

I mean, previously, when we walked in here on Phelps Dodge, you're not -- I mean, it had really by management decision had limited drilling.

They just hadn't done it.

So we came in, we drilled out El Abra and added significant.

We drilled Lone Star.

We drilled more at Morenci, Bagdad.

So it's not just what happened this past year, but the cumulative effect.

And then by releasing this artificial constraint at $2, we were able to take into account previous drilling results and expand the cones of these reserves to some that was more realistic at $2.50.

But we're going to continue to drill and understand what the resources are, and that will go into our ranking of future investment opportunities.

Did the higher copper price permit moly resources to come into reserves from the properties that are copper with a moly credit.

Is that how the moly went up 1 billion pounds?

Yes.

Yes, exactly, because of our expanding the cones for Bagdad, Sierrita, Cerro Verde, all of those by-product moly operations.

It took into material that once outside the reserves, and now it's in reserves.

I just hope you explain this 66 new billion pounds are wonderful.

Yes.

That's what we're going to be focused now, John.

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

Just a quick question on the North American operations.

Are you experiencing any labor inflation due to the low unemployment rates just generally in the U.S.?

Are you having any trouble, say, finding skilled workers to drive the trucks and things like that?

And did that kind of play into your analysis relative to building these new big projects?

We've been hearing, just broadly speaking, even truck -- difficulty finding line haul truck drivers in the U.S. and things like that.

Just wondering what you guys are experiencing from that perspective.

Yes, Chris, in North America, we brought on 2,500 new employees last year in a very tight market, truck drivers, equipment operators, we've been very successful with.

We're still a bit short on skilled craft people, mechanics, electricians, those kinds of things are in tight demand, but we're very pleased with how our team has approached that and attracted great new employees to come work with us for the future.

And we don't see that as a deterrent to expanding going forward.

Having said that, we're working with states and local communities on craft training and trying to encourage people.

We've invested a lot in facilities for our employees particularly at Morenci.

It's a challenge to get people who live in these remote rural communities.

And we're working with universities, we're looking beyond just truck drivers, but we're working with universities now to find future leaders in engineering, metallurgy, geology and technical skills.

So it's a real problem.

It's a coming problem, and we're giving it a lot of thought, investment and community activity work to try to deal with it.

Yes, that's great.

You've been in Arizona for such a long time, and you're in an advantageous position, I guess, relative to others.

Your final question will come from the line of Michael Dudas with Vertical Research.

I would characterize, since the 2006 through 2009 -- '18 time frame, you've had to play a lot of defense, especially with the balance sheet and such with prices being low and maybe in negotiations with the Indonesians to resolve the issues.

Are you set up to play more offense here?

Is your balance sheet structured you think to do that given what you've done?

And in that context, if we were to see much more lower copper prices, are plans in '19 and '20 pretty much set on stone, and conversely, if prices were to spike and get more generation of cash flow, is that poised towards balance sheet?

Is that towards CapEx or other issues?

Okay.

So you're exactly right, I mean, I really like the analysis of switching from defense to offense.

And I mean, 3 years ago, defense for survival.

I mean, $20 billion of debt and not a clear-cut path as to how we're going to get out of it.

So we took some bitter pills.

We sold some asset, raised some capital, we got that dealt with.

Then we had the struggle with Indonesia, and 3 years ago, we were at the point of filing an arbitration claim, and I stood in the press release in Jakarta and basically drew a line in the sand.

And now we work cooperatively to where -- the last press conference I had in Indonesia, we were shaking hands and smiling and everybody was pleased with where we ended up with.

So you're exactly right.

Now if you look at our debt repayment schedule, we don't have any near-term debt requirements.

And so as we look at the next 2 years, if we do have to face a severe downturn in commodity prices, we can weather that.

We can weather that without having to alter our long-term mine plans.

We'll tighten again where we have to tighten and we'll respond to it, but it's not the critical situation we were in 3 years ago.

And so we can manage through that.

If prices get higher during that period of time, in that time frame, we're not likely to change our capital spending.

And to the extent we generate -- if they do allow us to generate excess cash, we'll use that to further reduce debt for the time being, and that will accelerate our plans for future spending.

Now I'll turn the call over to management for any closing remarks.

All I'm saying is I'm not watching the Super Bowl.

Thanks, everyone.

We're available for any follow-ups.

Ladies and gentlemen, that concludes our call for today.

Thank you for your participation.

You may now disconnect.