Freeport-McMoRan Inc. (FCX) Earnings Call Transcript

Good morning, and hello from me. For those of you just joining us, again, welcome to BofA's 41st Annual Global Metals, Mining and Steel Conference. I'm Lawson Winder, BofA's North American senior metals and mining analyst. My next guest has been at every single one of these events since its first day. Thanks to Dan, who kicked the event off 41 years ago. So our next guest has been part of Freeport-McMoRan since 1989. He is synonymous with the company, he's synonymous with copper. And it is my absolute pleasure to have with me here today from Freeport. Chair and outgoing Chief Executive Officer, Richard Adkerson. And Richard, I think you were going to say a word or two about the CEO transition. So I'll let you take it away, and I'll come sit down with you.

Thank you very much. I got to recognize Dan because he's the one who got me started on all these conferences. It was in Dublin, 21 years ago. And the price of copper just tipped above $0.70 a pound after being down in the $0.60. China was just starting to emerge. And my colleague and good buddy, Chip Goodyear, got up, all the other CEOs were there, it was my first conference. And Chip said, "He didn't want the price of copper to go too high because it would stimulate uneconomic investment," $0.70, 3 years later, it was $4, a great lesson there. People can't predict what's going to happen in this marketplace. And it's great to be back. Thanks. Bank of America, Old Merrill Lynch for organizing this, it's great to see all of you all. Man this outgoing stuff hurts. It's the time, it's the right thing to do. I just hate getting older, but it's -- what it is, it's my idea. And Kathleen Quirk, who is in the back of the room is going to become CEO in less than a month from now, when we have our annual shareholders meeting. She actually joined the company about 6 months after I did, much younger, and we work together ever since she was CFO, when I came CEO 20 years ago and became President 3 years ago. This is like, I was a good functioning iPhone 12, you're getting an iPhone 15 Pro now as CEO. She's an upgraded version, and she'll do a great job. And the good thing about it is she's been there every step of the way with everything we've done. Somebody congratulated me for developing her. Well, the fact of the matter is, she developed me in a lot of ways and supported me with all the twist and turns we've been through. Freeport is doing great right now. I mean, I think you all know that, I predict higher copper prices 20 years ago at a dinner talk I gave at the Merrill Lynch conference and has consistently said that. Now hopefully, we're seeing the realities of the fundamentals of supply and demand emerge and it always was as much of a supplies story as the demand side, demands change from China to a broader range today. And I know you all know about that and we can answer questions about it. But what led me to -- we were a copper gold company at that point. We only had Grasberg, 1/3 gold, 2/3 copper. And I went down to Cesco for the first time and that when the prices ticked up and I started asking the producers down there, where is the next wave of supply coming from, which had been the history of the industry, and you had the copper cycle. And when I probed it the first inklings that supply wasn't there like it had been historically. And so today, don't just look at demand, but look at supply, it's a tough -- mining is a tough business, copper mining is a tough business, dealing with governments is tough, grades are changing the quality of ore bodies are much lower than they ever had been. So I've never been more optimistic about the future. Our company is totally focused on copper. We've made that focus. Our predecessor got us all, of course, about a dozen years ago and almost killed us, but we survived and then come back. We've got a really good Board now when I became Chairman, I added 6 new Board members, very strong independent people, and we review strategy all the time. But we are very comfortable with our focus on copper and that's what we are.

Thank you very much. That was well said. So with continuing with that theme on copper, Richard, may want to drill down and just get your thoughts on a few issues pertinent to the copper price. So what price today do you think is necessary to incentivize that new supply that we just don't have. And obviously, on a 5- to 10-year view, there are huge deficits expected by almost any forecast. And then when you think about potential supply, how do you think about potential alternatives like scrap or aluminum substitution or novel leach, which is subject year-in-year to Freeport.

Absolutely. And this is a conversation I have with new directors, a couple of them. Bob Dudley was from BP and Ryan Lance is from Conoco and oil and gas background. Oil and gas was my background, my first part of my career. And everybody wants to know an incentive price. In fact, there is an article that just came out incentive prices $12,000 a ton. When you're running a company, there is no single incentive price. Every project, and we have relatively few projects that we invest in has to stand on its own. And what we do at Freeport is we look at a scenario of future prices and think what much money could we make by investing. And then we say, what if we have this asset in our portfolio, how do we manage the portfolio if prices weaken. So it's not like there's some magic price and there's this big dam of projects that's going to break forward when that price gets hit because a lot of the barriers to building new projects are far beyond just price. You have the government you've got to work with, you've got workforce issues, you've got community issues, whether you can get support from the local communities for your project. So -- and I understand what you have to do in terms of looking at the overall markets, you have to think about a price. But really, if this price today is sustainable, there'll be new projects. We will have some, we're very anxious to start new projects and to go forward. But there's a limited number of them. And beyond price, there's real barriers to how they'll come in. Now what does that mean? I think we've got a higher copper price today than we've had recently. I think it's going to go higher, I think just the fundamentals will drive it higher. As the price goes higher, it's going to trigger a lot of things beyond just new project development. By the way, stating the obvious, there's a big difference in the brownfield expansion and greenfield expansion, wherever you are around the world, but that's a huge difference between those two. But when prices go higher, it's going to trigger a lot of things. It's going to trigger conservation, thrifting, scrap, substitution, although copper because of its physical qualities, has a big advantage over any substitutes. And that has been the case for a long time. And I keep looking for shale oil and copper, and I can't find one. And so there's going to be a lot of dynamics that's going to occur that will happen all together that will try to deal with a higher price, and all of that will be happening. I may have not mentioned them all, but you know what I'm saying. But it will be in the context of a higher price. And so for a company like ours that have a substantial amount of current production being resource base for brownfield expansions, I just feel great about where we are, and we will be growing the company over time through organic investments. And you'll ask me about M&A. We weren't planning M&A when we did the Phelps Dodge deal in 2007. I mean, the stars and moon lined up, and we acquired a company 2.5x our size and created the modern Freeport. We're prepared. We -- you can be sure bankers are knocking on our door every day. We have a small internal team that's looking at all the opportunities around the world, and if the right opportunity comes along, we'll be prepared. We have a strong balance sheet. We'll be prepared to jump on it, but our strategy is based on organic growth. And so we -- if you look back in history and I made this brief reference to our disasters oil and gas deal, but almost every major company in our industry has made a bad deal, a real bad deal. And generally just from where I sit now in my career, and I observed it, it was when a management team or our Board decided to force the deal for a strategic purpose. They just said, "We're going to go into this business and go do it." And then they force a deal and how many times of those deals have been bad deals. So the good deals are when the circumstances come about and you're prepared to act on it, you act on it. And that's when you can create value, in my view.

So on that organic growth theme, novel leach at Freeport is a really exciting opportunity. So you guys are now generating about 200 million pounds annually from that you've targeted 800 million pounds. What are the steps to get to that 800 million pounds and....

I'd say this is really something that's emerged in recent years, so exciting for Freeport. One of my early mining mentors said -- told me that great mines make great miners and high-grade mines, better than a low-grade mine. And what we have in the Americas, in North America, particularly, is low-grade mines. And you work hard to create enthusiasm about it because when you're working with a Grasberg if somebody comes up with a good idea, they put it in place and they can see these big numbers jump up. It's tougher in a low-grade mine. So leaching, which Phelps Dodge was a leader on I still think we're the biggest leaching company in the world, and I don't want to have statistics to back that up right now. But when this emergence came through of new technology applied to leaching, man, it is so exciting. And our team out in the field are really excited about it. What it means is, and you've seen the numbers that you just referred to, is that we have a plan to get to -- we're talking pounds, [ 800,000 pounds ]. That's as big as a big concentrator expansion. Very low capital, no permitting, low operating cost no carbon emissions. I mean it's so good that we're putting everything we can into it, Kathleen and our guy that runs our tech business now, Cory, is taking the lead on it and you go in and talk to our people in research and putting them out in the field. First step, there's a lot of focus on the additives in the leaching process, and that's a great opportunity. But the first step is operational. We're using heat, we're using probers, we're heating, we're understanding now that the chemistry within these massive leach piles are different from one place to another. And operationally, you'll do different things in different parts before you just put water and acid and what came out, came out. And that's where the first two steps of this is coming from, it's coming from operational changes, we're using artificial intelligence and pros and seeing what happens and reacting to it faster. And then we're doing R&D with a number of different -- and number of different avenues to look to see what's the next step of improving the reagents to go into triggering the leachings, and that's where we believe within 5 years, we'll be up to this [ 800,000 pounds ] of incremental production, not in our reserves, never would have been produced had we not done this. And then beyond that, for us, we have all these historical lease stacks, this is only our active lead stacks. We're looking at applying it to new project development, potentially comparing it to building a concentrator if you can do the leach, you might avoid the capital of a concentrator. And so it's right at the top of our priority list and so important to our company, and everybody is excited about it from the guys that are working on the ground, except for the ones that are having to put those big covers over these massive leach stacks. That's hard work. But it's just great to feel it. I feel that this is a new opportunity for a company like ours in the Americas.

I appreciate you proactively addressing many of my questions on M&A, but there's one that was actually addressed in an earlier presentation, I wouldn't mind getting your thoughts on. And that is, is Freeport itself a target, given its incredible portfolio of copper assets.

So I will tell you -- this is built into me from the early stages of my career. I was there when the major oil companies were defending their companies as institutions and I was working with the guy name, Boone Pickens. And I'm just totally committed to this idea that our -- I'm a shareholder, and our job is to run this business for shareholders and not an institution. Phelps Dodge was an institution. They didn't own me any shares, they just want to protect that as an institution. I remember, when I worked in a major oil company, one time, we was talking about a concept that I developed call royalty trust. And the guy looked at me and he said, "I understand what this does for the shareholders, but what does it do for my company." Think about that. Our total deal is to create value for our company. And if someone comes in and proposes something for us that creates value for our shareholders in relation to that we would view as incremental to what we can do, for executing our own strategy, for sure, we'd consider it. But we've grown to a size now that we're a pretty good-sized company for anybody else. And we've got some unique aspects with the uniqueness of Grasberg, which is -- the company has been there 60 years, I've been going there for 35 years. It's not just something -- it's not a coal mine, you can't walk away from it and somebody else picks it up and goes forward. So I mean, it's -- but to answer your question is yes. We will listen.

Thanks for that, Richard. On capital return. So Freeport has not been active in the buyback since July 2022. There's good reasons for that. We're now in a very strong copper price environment. There's obviously the capital return policy of 50% of available cash. I mean can investors obviously expect that, but can investors expect anything beyond the current policy given...

Well. Looking back to history of Freeport, we returned cash to shareholders over the years many ways. In fact, that's what I was arguing for 12 years ago when they did the oil and gas deal because we had a company with a $60 billion market cap and 0 debt and a positive outlook and the board said us go do something new. I said let's return cash to shareholders. I lost. So we have this policy now because people were asking us what our policy was. And we said, we had a debt target of $3 billion. We're now below $1 billion versus that target. So our balance sheet is real strong. And we said we return -- we're not going to borrow money, not going to borrow money to -- for shareholder returns, do a leverage buyout type deal. But we were going to allocate available cash flows in rough terms, 50% to shareholders, 50% for projects. The truth is, particularly as copper price goes higher, cash comes in faster than you can spend on projects. And so we've executed on that policy. It's been a combination of dividends and share buybacks. The policy will remain the same. We talk about it every quarter with the Board. And with copper prices, we're very levered to copper prices, with copper prices come up, more cash comes in, we're going to invest in projects. That's going to take time. There will be more cash available for the Board to consider what to do with it. And today, when we have one on ones, I always ask people, you like dividends or share buybacks. I don't know if it's a 50-50 split, but there's a big division among our shareholders as to which they prefer. And we see buybacks. It's not an investment decision, but it's an efficient way of returning cash to shareholders.

So on Indonesia, leading up to this year's election earlier this year. I mean, there was certainly a lot of concern and things seem to have gone extremely well. With the new president in place, I mean does that change in any way the way which Freeport approaches in Indonesia? Or do you expect any strategic or regulatory changes coming from the other side for better or for worse?