Freeport-McMoRan Inc. (FCX) Earnings Call Transcript & Summary

Ladies and gentlemen, thank you for standing by, and welcome to the Freeport-McMoRan Third Quarter Conference Call. [Operator Instructions] I would now like to turn the conference over to Mr. David Joint, Vice President, Investor Relations. Please go ahead, sir.

Thank you, Regina, and good morning, everyone. Welcome to the Freeport conference call. Earlier this morning, FCX reported its third quarter operating and financial results. A copy of today's press release with supplemental schedules and slides are available on our website, fcx.com. Today's conference call is being broadcast live on the Internet. Anyone may listen to the conference call by accessing our website home page and clicking on the webcast link. In addition to analysts and investors, the financial press has been invited to listen to today's call. A replay of the webcast will be available on our website later today. Before we begin our comments, we would like to remind everyone that today's press release and certain of our comments on the call include non-GAAP measures and forward-looking statements, and actual results may differ materially. Please refer to the cautionary language included in our press release and slides and to the risk factors described in our SEC filings, all of which are available on our website. Also on the call with me today are Richard Adkerson, Chairman of the Board; Kathleen Quirk, President and Chief Executive Officer; Maree Robertson, Executive Vice President and Chief Financial Officer; and other members of our management team. Richard will make some opening remarks. Kathleen and Maree will review our slide materials and then we'll open up the call for questions. Richard?

Thanks, David. We appreciate you all for joining us today. We've been looking forward to speaking with you about our strong third quarter results and our positive outlook for the future. We are pleased and proud of our team with a steady progress throughout the year achieved on the Grasberg ramp up and with our initiatives across our business to drive value. As we look forward, the table is set for growing our volumes in the near term, medium term and longer term, supported by our portfolio of long-lived assets and by a qualified and experienced team. Leaders in Indonesia have expressed support for the extension of our operating rights beyond 2041. We continue to work with the Ministry of Energy and Mines on documentation to implement the Memorandum of Understanding we signed with the government of Indonesia. Freeport's growth plans match up exceptionally well with accelerating requirements for copper. Electrification continues to advance at a rapid pace, bigger and faster than we've seen in the past and copper is the metal of electrification. The world requires a lot more copper and supplies are challenged. Freeport is particularly well positioned to grow with the market. After working in this industry for decades, today's opportunity where structural trends point to a multiyear period of significant demand growth is unique. We have Freeport on the right assets at the right time with a strong team in the Freeport family and our strong financial position, we are well positioned to capture this opportunity for the benefit of our shareholders and all our stakeholders. Kathleen?

Great. Thank you, Richard, and thank all of you for participating on today's call. We will review our third quarter performance and update you on our initiatives, projects and future outlook. Today, we will be discussing our team's work across our global business to build value. Our solid progress and momentum to safely and sustainably restore large-scale production at Grasberg, drive operational excellence and new technology initiatives in the Americas and advanced plans for value-enhancing organic growth. Starting on Slide 3, we show the highlights of our third quarter performance. Copper sales have increased in each of the last 3 quarters, and we expect fourth quarter sales to be the strongest of the year by far. Steady progress continues at Grasberg with 67% ramp-up achieved and confidence is building towards full scale. Strong operational execution, combined with the favorable metal price backdrop, provided significant margins, cash flows and earnings. The diversity of our portfolio and pricing leverage for our U.S. business comes through in the results. Operating income for our U.S. mining operations more than doubled in the third quarter compared with last year's third quarter with strong conversion to the bottom line. This contributed to an increase of over 80% in our consolidated net income compared with the year ago quarter. The progress achieved during 2026 sets us up for growing volumes and improving financial performance as we look ahead to 2027 and 2028. Additionally, we are advancing our future growth plans with a series of projects in progress. We returned nearly $1 billion to shareholders year-to-date, including $300 million in share purchases. Our financial position remains strong. And as we look ahead, growing volumes, combined with a positive market environment for our products sets us up for significant increase in cash flows to support our value-enhancing investment program and increasing returns to shareholders. Moving to the copper markets on Slide 4. As a leading global supplier of refined copper, Freeport has strategic significance and is strongly positioned to benefit from copper's essential and increasingly important role in societies around the world. Copper's superior conductivity makes it the metal of electrification and the global economy is rapidly becoming more electrified. Globally, copper demand is expected to rise in a number of applications, including the massive requirements for the power grid to support new technologies. LME copper prices averaged $6.09 per pound year-to-date through September and currently approximate $6.58 per pound on the LME, an increase of 16% since the start of the year. Our U.S. customers report robust copper demand associated with growing requirements for electricity and energy infrastructure, data center builds and in the transportation sector. Copper continues to be strategically significant to China as the world's largest consumer to support its domestic power grid, technology advancement, and manufacturing of autos and consumer goods for growing exports. The sizable movement of product to U.S. warehouses continues, resulting in tight market conditions in the major consuming regions outside of the U.S. The situation underscores the strategic role of copper in the global economy and supply chains to support future growth. The signals we see are clearly pointing to requirements for additional copper supplies to meet growing demand. And at Freeport, we have a valuable, geographically diverse portfolio of integrated copper assets with large-scale production facilities that are difficult to replicate, long-life reserves and resources and a portfolio of low-risk brownfield expansion opportunities to serve a growing market. I'm going to move to the operating highlights on Slide 5, where we summarize the highlights by geographic region. Starting with the U.S., we continue to focus on operating disciplines to improve efficiencies and productivity to grow production despite low ore grades. We were successful in improving our mining rates compared with the year ago quarter. However, in an abnormally high frequency of extreme weather events in the third quarter, which have continued in the fourth quarter disrupted some of the momentum achieved earlier in the year. We are deploying new technology tools to enhance our operating models and are investing in more efficient trucks and mining equipment to support our objective of increasing U.S. production and reducing costs. We've continued to pursue an exceptional opportunity to unlock meaningful value through application of new technologies for recovering copper in our leaching processes. Data from our work today to support of a potential breakthrough and we are looking forward to what we'll learn as we go through 2027 as high potential next-generation proprietary additives are deployed in the field. In South America, our flagship Cerro Verde operation in Peru continues to demonstrate solid operating performance and productivity consistent with the large-scale, world-class operation. At El Abra in Chile, oil rates and operating rates were impacted during the quarter by mine sequencing to address slope management. We're now commissioning new facilities at lab that will allow us to enhance metal production by increasing temperatures in our leach pads. We continue to work with the Chilean government to advance our environmental impact study to position El Abra for a major transformative expansion. In Indonesia, we are pleased to report that the team continues to achieve meaningful progress on the ramp-up at the Grasberg Block Cave. We operated at 67% of mine capacity during the third quarter and progress is advancing for meaningful growth as we go into 2027. Upgrades to the material handling system for our automated rail system are progressing on schedule, and we continue to advance work for a restart of production Block 1 South in 2027. We continue to target overall rates reaching 80% by mid-'27 and approach full capacity by the end of next year. We were successful in restarting the smelter and now have both smelters in Indonesia in operation to support our mine ramp up. The team is executing the phase ramp up safely and efficiently, and we continue to derisk the plans and increase confidence in our long-term outlook. In Indonesia, we continue to experience abnormally dry weather conditions and are closely monitoring forecast, which predict conditions to return to more normal levels as we move into 2027. The dry conditions are generally favorable for mining, but low water availability presents challenges in increasing mill rates. We're accurately managing the situation with limited impact to date. As Richard mentioned, we're continuing to work cooperatively with the Indonesian government to secure our long-term operating extension in accordance with the MoU reached earlier in the year. We submitted our application in June, and we're continuing to work to complete the formal process. The government continues to express support for extension to provide long-term continuity of large-scale operations and mutual benefits. Big picture, the third quarter, the team executed well but experienced challenging operating conditions. You'll note, we continue to expect the fourth quarter will be the strongest of the year, but have adjusted our 2026 copper sales by approximately 2% to incorporate the impact of short files in the U.S. and in Chile. Our team is committed to execution, dedicated to overcoming challenges and driven for excellence in all that we do. I'm going to move to Slide 6, where we have some real excitement around Freeport about the growth catalysts. We're driven to increase copper supply to a growing market and we're strongly positioned as we look forward with significant near-term, medium-term and long-term growth. The progress we've made throughout 2026 positions us for significant growth in volumes, margins and cash flows in 2027 and 2028 as Maree will cover shortly. In the short term, we're positioned to grow from 3 billion pounds this year to 3.7 billion pounds in 2027 and over 4 billion pounds in 2028. Continued strong execution of the Grasberg recovery is the major driver with improved U.S. production, adding incrementally. This growth notably does not require new capital. With our U.S. growth initiative as America's Copper Champion, we see a path for Freeport to be a 4.5 billion to 5 billion-pound a year copper producer in the 2030 time frame with success in our innovative Leach initiative and our expansion of our Bagdad mine in Arizona. We continue to see the innovative Leach initiative as one of the most attractive opportunities in our company because it leverages our existing infrastructure is scalable, is not capital intensive and has low incremental operating costs. We've been on this journey and advancing this initiative for the last 3 to 4 years, and our excitement continues to build, supported by progress in developing a proprietary next-generation additive that would unlock recoveries of low-grade ores previously thought to be unrecoverable. As you'll see in the chart, lab testing of the new Freeport additive is showing incremental recoveries of more than 4x those achieved with our initial additive. The next-generation additive is now being manufactured on a fast-track schedule, and we'll start receiving commercial quantities for field deployment as we go into 2027. While we need to be cautious until it's proven in the field, this could represent the major breakthrough technology that we've been working to achieve. We expect to make an investment decision on the Bagdad down expansion in the fourth quarter. Very excited about this. We see it as an attractive opportunity to transform Bagdad into the second largest copper mine in the U.S., benefiting from economies of scale and the use of modern technology to set the operation up for improved multi-decade performance. We're also advancing further growth options which could be developed by the mid-2030s with a large-scale expansion of the El Abra mine in Chile and exciting possibilities for development of our large resource position in the Safford Lone Star District in Arizona. We see our pipeline of organic growth being particularly attractive in the context of an industry where greenfield projects carry significant risk and development time frames can span 15 to 20 years. We have a differentiated advantageous position since our projects are brownfield in nature, resulting in benefits from leveraging existing infrastructure, lower capital intensity, experienced workforces and relationships with key stakeholders to move more quickly with less risk than a greenfield project. We're increasingly mindful of escalating inflationary pressures affecting capital costs for major projects and the need to be disciplined on qualifying projects delivering investment returns and carefully controlling budgets and schedules. We're going to continue to be focused, selective and deliberate as we go forward and on balancing investments in growth with shareholder returns. At Freeport, we benefit from an experienced and highly respected project development team with proven experience in successfully managing major projects around the world. Putting this all together, the setup for Freeport is exceptionally strong and Team Freeport is intensely focused on execution and delivery to capture the value and the special opportunities that lie ahead. Now I'm going to turn the call to Maree who will review our outlook and then we'll take your questions.

Thanks, Kathleen. Just moving to Slide 7, we show our 3-year outlook for sales volumes of copper, gold and molybdenum. As Kathleen referenced, we expect significant production and sales growth in the coming years. We have [indiscernible] our 2026 copper sales by about 2%, taking into account slightly lower production in the U.S. and Chile and by approximately 2.5% in 2027 reflect current mine plan updates. Copper sales in 2028 are consistent with previous estimates and gold and moly sales are unchanged for the 3-year period. We expect our fourth quarter of 2026 sales volumes to be the highest of the year, with copper sales increasing 17% and gold sales nearly tripling from third quarter levels. For the year 2027, we expect annual growth in copper sales of over 20% compared with 2026 and more than a 50% increase in gold volumes with additional growth in 2028 of 10% for copper and 20% for gold. Our team remains focused on delivering our plan safely and efficiently, which will translate into strong financial performance and meaningful future cash flow growth. Moving to Slide 8. We continue to carefully manage all costs and capital whilst driving efficiency and productivity programs particularly in light of inflationary pressures affecting our business and the industry. As discussed on prior calls, we continue to experience cost pressures and volatility in global energy and commodity markets including oil, sulfur and acids, largely associated with the conflicts in the Middle East. Rising energy costs during 2026, particularly diesel prices have impacted costs by approximately $500 million compared with 2025. Sulfuric acid, a key input into various copper processing technologies across the industry, has more than doubled this year. Notably, Freeport is comparatively well positioned given our integrated business model and is generally [indiscernible] from [ price moves ] as a significant producer of sulfuric acid through our smelting operations and consumer of asset in our leaching processes. In addition to operating costs, capital costs across the mining industry have been trending at a greater pace than overall headline inflation rates in recent years. These pressures affect both sustaining capital and expansion project costs, reinforcing the importance of remaining highly focused on carefully assessing our priorities, pursuing continuous optimization programs. and maintaining rigorous and strict project and cost control. On net unit cash costs, we are maintaining our full year guidance for 2026 of $1.90 per pound with by-products, particularly molybdenum, providing an offset to the impact of higher input costs. In putting together our projected volumes and cost estimates, we show model results on Slide 9 for EBITDA and cash flow at various copper prices ranging from $5 to $7 copper. These are modeled results using the average of 2027 and 2028 with current volume and cost estimates and holding gold flat at $4,000 per ounce and molybdenum flat at $32 per pound. Annual EBITDA would range from over $12 billion per annum at $5 copper to $19.5 billion at $7 copper. With operating cash flows ranging from over $9 billion per year at $5 or approximately $15 billion at $7 copper. We show sensitivities to various commodities on the right. [indiscernible], we are highly leveraged to copper prices with each $0.10 per pound change equating to approximately $390 million in annual EBITDA in the 2027-2028 period. We also have exposure to gold prices with each $100 per ounce change in price, approximating $105 million in annual EBITDA. And molybdenum, which has shown significant price strength in recent months, each dollar per pound change in moly approximates $85 million in EBITDA per annum. With our long-life reserves and large-scale production, we are well positioned to generate substantial cash flows to fund future organic growth and cash returns under our performance-based payout framework. Slide 10 shows our current forecast for capital expenditure in 2026 and 2027. Our 2026 capital expenditure is currently estimated to approximately $4.4 billion, a 2% increase from the prior estimate and $5.2 billion for 2027, an increase of approximately $400 million above the [indiscernible] estimate, primarily reflecting additional mining equipment investments to support and enhanced productivity improvements in the U.S. and cost inflation. The discretionary projects are expected to approximate $1.6 billion in 2026 and $2 billion in 2027, with roughly 50% related to the Kucing Liar development and the LNG project at Grasberg. The balance includes acceleration of tailings and other infrastructure to support the Bagdad expansion upgraded mining equipment and capitalized interest. The discretionary category reflects the capital investments we are making in new projects that under our financial policy are funded with the 50% of available cash that is not distributed. These projects are value-enhancing initiatives and are detailed on Slide 28 in our reference materials. The capital estimates exclude projects to remain subject to completion of final studies and Board approval, including the potential [ Bagdad ] expansion project. And as I mentioned on the previous slide, we'll continue to carefully manage our spending and deploy capital strategically to projects with the best return and risk reward profiles. Finally, on Slide 11, we reiterate the financial policy priorities centered on a strong balance sheet, cash returns to shareholders and investments in value-enhancing growth projects. Our balance sheet is solid with investment-grade ratings, robust credit metrics and flexibility within our debt targets to execute on our projects. We have a strong liquidity position and have substantial flexibility for funding upcoming 2027 maturities. Our strong balance sheet and significant cash flow generation supports disciplined investment in growth -- ind future growth whilst returning cash to shareholders. And since adopting our financial policy in 2021, we have distributed $6.6 billion to shareholders through dividends and share purchases, including approximately $1 billion year-to-date in 2026 and have an attractive future long-term portfolio that will enable us to continue to build long-term value for shareholders. Our global team is focused on disciplined execution, profitable growth and long-term value creation. Thanks for your attention, and we'll now turn to questions.

[Operator Instructions] Our first question will come from the line of Richard Garchitorena with Barclays.

And congrats on the strong quarter. First, my question on Grasberg. Given the progress that you're seeing with ramp-up on track production from Block 1S expected for mid-2027 and then full run rates by the end of the year. How should we think about the cadence of production for copper and gold in the first half of next year versus second half? And then how should we think about the mine plan heading into '28 as you ramp up even further?

Thank you, Richard. And we're very pleased with the progress that we're making at Grasberg. The installation of the material handling system upgrades is going well. And we expect that those will be ramping up towards the end of this year and early next year. So I think as you look at where we are for 2027, you should see first half starting to ramp up. The second half will likely be higher than the first half. But we expect with the start-up of these panels that are currently down, that will add a lot. PB1 South is not a huge contributor in 2027, but you'll see pretty significant ramp-up throughout the year, but second half will be higher than the first half and the first quarter will probably be the lowest of the year.

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

So first, I want to say congratulations on the progress you're making at Grasberg. It's been an impressive recovery there in the last couple of quarters. But I wanted to ask about the idle facility cost, the recovery and restoration costs that you book each quarter. I think it's $240-some-odd million in the third quarter, more than $900 million year-to-date. And a question about that, first of all, how much of that is -- relates to costs that are going to go away when Grasberg fully ramps [indiscernible] costs that you're spending to repair the operation versus what portion of those costs are actually kind of fixed costs that you'll continue to carry going forward? That's my first question is around the idle cost at Grasberg.

Okay. Thanks, Chris. Thanks for your comments. The idle costs are essentially fixed costs. The accounting rules require us to charge costs that are not attributable to production directly to production costs rather than going through cost of sales. But those costs won't go away, but they will be in our unit cost going forward. We expect the fourth quarter because rates are consistent between third quarter and fourth quarter. We expect the fourth quarter to be similar to the third quarter. But beginning in 2027, we don't expect to have those costs treated separately and they'll be in our all-in unit costs. But of course, with the rising volumes, we've got a very significant increase in volumes going from 700 million pounds of copper this year to 1.2 billion next year, you'll see very low unit costs continuing at Grasberg. So it's really an accounting classification as opposed to a change in cost.

Got it. And just one question on the U.S. operations. So you're doing a lot of good work there in terms of getting mining rates up. Obviously, grades there are low, but I've noticed that recovery rates have been trending lower. And wondering if that will continue and why that might be happening, is the nature of the ore changing? Is this something that's temporary? What's going on there?

I'm going to let Cory -- Cory Stevens cover that one. But it is -- you're right, your last comment about nature of the different types of ore that does affect recovery. But Cory, why don't you give some color on that?

Yes. So Kathleen and [indiscernible] -- the really, the recovery rates are driven by the -- how the ore body presents itself. And we've really been mining lower volumes in past years. To be honest, we're missing expectations of where we really wanted to be, and there's a bit of catch up at this point in time as we increase volumes and the ore presents itself to get to the better locations for better grade. And so that's where a lot of our focus is really placed on increasing mine performance and really adjusting to the employed various technologies as we go forward, we launched our -- officially launched our remote operating center here in Phoenix. They really coupled a high operating standard with state-of-the-art technology and analytics to be able to deploy and work with the teams at sites to help them be successful as they work through the higher volumes. We're implementing new tooling with new -- higher pay load [indiscernible] trucks, better mine plans and road designs. But really, we see the solution going forward at this point with higher volumes to really set these processing plants up and then coupling that with the new technologies that we're developing on the leach enhancements and the additives on that front.

So do you expect the recovery rates to rise from where they are today? Or should they stabilize where they are?

Yes. So really, that kind of goes back to this additive development work, which is really giving us a lot of confidence that our Gen1 additives, we've deployed in 2025 and 2026. That's really giving us expected results from our lab protocols, and that gives us confidence that our Gen2 additives are really going to really launch us into this next phase of development that really could change quite everything in terms of how we're going to be leveraging the copper that's in the existing stockpile, but also harness the resource that's in the ground still. So we're really pretty excited about where that's headed. And we've got limited demonstrations that are in the portfolio right now that's really going to set the stage for how we really want to leverage that going forward. But we're quite optimistic on how that's going to play out. And yes, there's going to be learnings with those commercial developed -- deployments that we have planned in 2027, but the team stands ready to adapt and adjust as we pursue America's Copper Champion.

And Chris, I think you're referring to -- Cory was talking about the leach recoveries, but I think you're also referring to the mill recoveries and those are impacted by the types of ore and what those recoveries are. So those will vary depending on the types of ores that are being milled. But as Cory was saying, we're really very excited about the opportunities in the U.S. We're thinking bigger and bolder. These resources are very large. They're low grade. But the more that we can drive productivity and we're leveraging technology, we see that as a major value unlock for us. The more that we can drive productivity, Cory talked about a different kind of trucks that we're using. We've had great success with those in Peru at Cerro Verde. And those are going to be -- allow us to be more efficient, more productive as we go forward. And so we're really focused on increasing our mining rates in the U.S., particularly at Morenci, where we pretty much process everything that we mine there. And the more progress we make on building those mining rates up, the better we're going to be in terms of increasing production in the U.S., not just from the leach but also through our mill. So we're very excited about the opportunity to enhance our operating models within our U.S. mines.

Our next question will come from the line of Katja Jancic with BMO Capital Markets.

Maybe staying on the U.S. side, specifically on the leach thing. I think you mentioned that the new additives are performing as expected, but it does seem that leaching ramp-up is a bit slower than previously expected. Can you talk about what is driving that?

So as Cory was talking about, the current additive that we're using is showing what we expected in the lab. It's consistent, maybe a bit better than what it was predicted to be in the lab. We have always been, as I mentioned over the last couple of years, we've always been testing multiple additives. And so we have not yet tested in the field this next-generation additive that is -- that has the potential to put us on the path for scale. That, combined with the work that we're doing to increased temperature of our stockpiles has the potential to really help us with scale. We've got 300 million pounds targeted in 2027 compared to just over 200 million in 2026. But those new additives, which I said are being manufactured now, really show the potential that we were looking for to supercharge these recoveries. So we'll have to wait a little bit longer, but the optimism is an excitement around this initiative is building because we have -- as we've talked about before, over 40 billion pounds of copper that's already been mined, it's in aboveground stockpiles and prior technologies didn't allow us to recover copper from it. And so now with the promise of potential next-generation additives, we see a real opportunity to build scale. So to date, we've been using principally operating tactics to get more solution to areas within the stockpile that were dry. But now we're able to enhance that with additives. We've started to -- with the initial additive, but we expect that, that will be replaced with these new additives we've got coming in, in 2027. So this is going to evolve. It will be a dynamic period for us in 2027, but we really see it having the potential to unlock a lot of copper throughout not just in North America but South America, a lot of copper as we go forward. And again, this is something proprietary to Freeport, very proud of the teams that we have that have been working on this to unlock this value. It's unlike anything we have in the mining industry because it doesn't require significant new capital. So stay tuned, but we're very, very excited about what lies ahead.

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

I'm wondering if you can give us some more color on the increase to the CapEx guidance for '27? It looks like it would up $400 million from the Q2 guidance. Is there -- is that just inflation on the existing plan projects? Or have you added, I guess, have you added projects to the list?

Well, we've added in our -- the category that we call Other, Sustaining and Other, we've added more mining equipment. As I mentioned, the success we've had with ultra-class trucks in Peru at Cerro Verde has been very strong. And so we've added some additional trucks to allow us to continue to increase mining rates to unlock more production, more copper production as we go forward. So that was about half or so of the increase. We do have some inflation that's part of it, and we have some additional costs as we complete the project at Atlantic Copper, the circular project that we expect to complete during 2027. So those are the key categories. But as Maree mentioned, we are seeing capital cost inflation. You see [indiscernible] up and it's trended higher than CPI in recent years. So we are continuing to work to control costs, to prioritize what makes sense. But from a big picture standpoint, this industry, historically, in recent years, I mean, arguably has been underinvested. And as we look forward at making sure that we've got the ability to grow our business in line with where we see demand for copper growing, we've got to be thinking bigger and bolder. That doesn't mean we're not going to control spend. We're going to control spend, it's in our DNA. But bigger and bolder in terms of how can we get more out of our existing assets and incremental capital spend can make us more efficient, more productive, help us address the labor challenges that we have. So we're thinking differently about the future than maybe we have in the past in terms of making sure that all these operations are producing at their max rates to be able to meet the requirements of the future. And as we've been saying, what we see in front of us is very significant growth in demand, and we've got to be prepared to step up to that demand and do it in a profitable and economic way. But that's part of what you're seeing, Orest.

Appreciate the color. Is it fair to sort of read into this that, that approach likely continues into '28 in terms of more of an elevated spend?

Well, as we see the markets today, we see a need a signal to produce more. And so we're going to be looking within our portfolio of what is the cheapest way, the most economic and productive way to build new capacity and get more out of what we already have, the resources that we already have. So if we can add incremental capital and get benefits and quick payouts, those are things that we're going to be inclined to do. Now we've got also the major project and our Board will be considering the investment in Bagdad, we're very enthusiastic about moving forward with that project. So -- but as we look at this, it all fits into our balance of investing in our business, growing our copper production to match what we see is strong demand going forward. The absence of supply growth across the industry, the absence of real significant supply growth. So what we're doing is trying to figure out on a brownfield basis how can we get more to be able to meet these demands. So that's -- and we'll monitor it. We'll monitor market conditions as well. At Freeport, we've had a long history of adjusting to market conditions. If we need to conserve capital, we can. But as we see it right now, these are going to be very strong economic capital decisions that we're making that help us set us up for the future growth that we're pursuing.

Our next question will come from the line of Lawson Winder with Bank of America Securities.

And congratulations on the nice quarter. If I could I'd like to ask about Bagdad and the investment decision that's expected in Q4 '26. I mean I think this is a really exciting moment for Freeport USA. When thinking about the CapEx that you've now put out, the $4.5 billion, you've had now another quarter to refine the engineering work, do you see any potential change in that $4.5 billion estimate? And then could you just walk us through time lines, are there any permits outstanding that still need to be concluded post an FID decision later this quarter? And then when would be a reasonable time for us to assume commissioning would start for this asset and then ultimately run rate capacity?

Thanks. In terms of permits, we don't -- we have what we need to go forward with this expansion. We've been working on it for some time. We've been spending money to ready the operation for this investment. We have been advancing work on our tailings down there to be -- that we would have needed to do any way down the road, but to be ready for new production. We have converted the haulage fleet there to fully autonomous to prepare for the ability to scale. One of the things that has been a factor for us and thinking about growing in the U.S. has been the tight labor market, particularly for the types of skills that we need. And so we have been leaning on technology to help us scale. And at Bagdad, that was the first mine we selected to deploy the autonomous trucks. And so as we move forward with an expansion that will allow us to scale and add autonomy -- continue to add autonomous trucks to scale that without needing to as many people as we would have otherwise needed. But in terms of your question on the capital cost, our estimate now on a go-forward basis is still at that $4.5 billion level. We've done a lot of work on it this year. We've been working with our contractors. We've been working to make it as efficient as possible. It's a competitive market in Arizona with all of the not just copper projects, but all the other activity really is driving demand for skills in Arizona, in the semiconductor sector with all the build going on and in electricity build-out and data centers, it's a very active time in Arizona. And so we have been planning this working to derisk the capital as much as possible, working on a model that would allow us to prefab certain of the material so we didn't have to -- we don't have to do everything or limit what's done on site. So we've been doing a lot of things to try to derisk the capital, but it is an environment where, as we mentioned, escalation, labor costs, cost of steel, other things, tariffs, other things that are affecting cost energy markets have a degree of an impact. So all those things are things that we're taking into account and we don't know what the future inflation will be. But in current dollars, we're drawing a circle around $4.5 billion, and we're going to work very hard to manage both the capital spend and the time schedule. We expect the project would come in within the next from the final decision coming around 3.5 years. And so our team is well organized. One of the things about Freeport is we have a project development execution team that is best-in-class. And the project controls are excellent, our work with contractors is very strong. We have an approach where we don't just turn over a project to a contractor to execute. We're right in there executing all the costs and everything are on our system so that we can manage and control those. Having said that, it's a challenging environment. But if any team was ready, this team is ready. This -- a lot of the people on this team that we're forming have -- were integral in getting that smelter done in Indonesia during a very challenging time during the pandemic and really worked hard to bring that project in. So we've got resource capacity within the company that are -- dedicated to this. We've got contractors that we've been working with for some time, both on the EPC side and on our labor side. And so we feel we're ready. We're going to talk with the board about it, but this is a real opportunity for us as America's Copper Champion to leverage what we have there, the facilities are currently under sized for the size of the resource. And so we're really looking at this for the long term and to set this operation up to be more efficient, more modernized. This was done in the 1940s and more modernized and this will be a mine of the future and one that we're very excited about moving forward. So we'll make a decision with our Board here soon and hopefully be on our way. In terms of the incremental production, the Bagdad we're looking at doubling, it would be something [indiscernible] 200 million, 250 million pounds a year. The concentrator size will be more than doubled. We're also -- we benefited Bagdad from a large amount of molybdenum production, so we'll be adding 10 million to 12 million pounds a year of molybdenum. So big feature of the project is using economies of scale to bring down our costs, and that's what we're focused on across the U.S. is finding ways to reduce our costs as we go forward.

Our next question will come from the line of Timna Tanners with Wells Fargo.

I wanted to ask, if I could, 2 quick follow-ups. One is regarding the leaching discussion, really helpful detail on the potential benefits from the new additives. But I wanted to just clarify, is it possible that this additive is not in your numbers right now and could result in upside to your numbers? Or do you think that the success of the additive would be beyond 2027? Just a little more color on that. And then -- yes, I'll ask the one next, sure.

We got -- we have 300 million pounds in our numbers for '27 and '28. That is lower than potentially could be expected if the additive is as successful in the field as it is in the lab. And then with that data, that would give us the plan to decide where to go. This is a test. It's a commercial test. We've got enough quantities that we've got manufactured to be able to fully test it. But if it's successful, this could be really what we've been looking for. And you could have a situation where leach recoveries start to compete with a mill recovery, and that could have implications to how we think about the future, like the Safford opportunity we're pursuing -- we're pursuing a mill, but that could change the flow sheet as well. So -- but remember, our target or our potential or our aspiration is to scale the leach opportunity from just over 200 million this year to 300 million next year. And then ultimately, by 2030 to get to this 800 million level. And that would be done with a combination of a successful leach additive and the increased temperatures that we're currently testing now. We're testing -- we're just starting a project at El Abra now to heat the solution that's going into the stockpiles there. We're doing some at Cerro Verde, where we have smaller stock smaller leaching operations, and we have plans to do it in Morenci as well. But we'll have to see the testing work that we're doing is showing really strong recoveries and is a possibility that we may not even need heat in the U.S. if the recoveries are as good as what the lab is showing. So it's dynamic, and we'll have a lot more information as we go through '27. But it's not in our forecast. We feel confident we can get to 300 million, but the 800 million is going to depend on the results in the field. And so we're not at a point where we can give guidance. We see it as a potential value driver that we're pursuing aggressively. But we're not in a point to put it into our forecast.

Okay. I appreciate that. And if I could, I know you've been talking, of course, about organic growth opportunities, but to the extent that this high copper price yields a pretty attractive free cash flow going forward. Do you consider M&A? Do you consider other ways to grow outside of your organic opportunities?