Freeport-McMoRan Inc (FCX) — Q4 2015 Earnings Call Transcript

Thank you and good morning. Welcome to the Freeport-McMoRan fourth quarter 2015 earnings conference call. Our results 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 call today is being broadcast live on the Internet, and anyone may listen to the call by accessing our website homepage and clicking on the webcast link for the call. In addition to analysts and investors, the financial press has been invited to listen to today's call and a replay of the webcast will be available on our website later today. Before we begin our comments, we'd like to remind everyone that our press release today and certain of our comments on the call include forward-looking statements and actual results may differ materially. We'd like to refer everyone to the cautionary language included in our press release and presentation materials and to the risk factors described in our Form 10-K and subsequent SEC filings. On the call today are Richard Adkerson, Jim Flores, Red Conger's here, Mark Johnson's here, as well as several other senior members of our team. I'll start by briefly summarizing the financial results and then turn the call over to Richard, who will be focusing today's discussion on how we are positioned in our operations and addressing our balance sheet in the current market environment. As usual, after our remarks, we'll open up the call for questions. Today, FCX reported a net loss attributable to common stock of $4.1 billion, or $3.47 per share for the fourth quarter of 2015. As indicated in the press release, the net loss included charges totaling $4.1 billion or $3.45 per share, primarily for the reduction of the carrying values of our oil and gas properties. After adjusting for these net charges, the fourth quarter 2015 adjusted net loss attributable to common stock totaled $21 million or $0.02 per share. Our adjusted earnings before interest, taxes, depreciation and amortization, or EBITDA, for the fourth quarter totaled $919 million. We have a reconciliation of that in our slide materials for your reference. The consolidated copper sales totaled 1.15 billion pounds in the fourth quarter. Our gold sales totaled 338,000 ounces. We sold 20 million pounds of molybdenum and 13.2 million barrels of oil equivalents during the quarter. Our average realized copper price was $2.18 per pound, below 2014's fourth quarter average of $2.95 per pound. Gold prices averaged $1,067 per ounce in the fourth quarter of 2015. Our realized price for crude oil was $48.88 per barrel, which included $11 per barrel of realized cash gains on derivative contracts. We generated operating cash flows during the fourth quarter of $612 million and funded capital expenditures totaling $1.3 billion during the quarter. We ended the year with $20.4 billion in debt and consolidated cash was $224 million. As indicated in the release, since August of 2015, a total of $2 billion of gross proceeds have been raised under FCX's at-the-market equity program, including approximately $1 billion during the fourth quarter of 2015. We ended the year with approximately 1.25 billion common shares outstanding and had no amounts drawn under our $4 billion bank credit facility. I'll turn the call over to Richard, who will be using the slide materials that are on our website.

Good morning, everyone. This is going to be a different call than we have done in the past for obvious reasons. We face serious challenges because of what's going on in the marketplace and because of the situation with our balance sheet, and we want to convey that we're addressing this seriously and with a degree of urgency, and we're very focused on it. So let's think about what's changed for us since our last earnings call. On slide 3, we show the obvious, the drop in copper prices and the drop in oil prices. As we talked about at the end of the third quarter, we were looking at various scenarios ranging from a further decline in prices at that time to other more positive scenarios. We're experiencing the worst of those scenarios right now, with copper dropping to $2 and oil dropping to $30. We are also facing a market where market sentiment continues to be negative, particularly negative about China, and we have to prepare for that. So the issue is what are we doing? What's Freeport going to do about this right now? And I want to convey to you what we are doing. Turning to slide 4, we are aggressively managing cost, capital expenditures, production, cash flow and working for capital raising transactions to address our balance sheet. At the third quarter earnings release, we talked about how we had restructured our board of directors. We went from 16 previous members to seven. We added two representatives of Carl Icahn, a significant shareholder of ours now. I can tell you, we have a board that's fully engaged and fully supportive of what we need to do and very active. We're listening to the input of our board members and reviewing our plans as we go forward. At that time, we had also revised our management structure from the previous Office of the Chairman to a different structure, which was further changed in December with Jim Bob stepping down as Executive Chairman of our company. Gerry Ford, our Lead Director, has been elected as a Non-Executive Chairman. I now have, effective January 1, executive responsibility for our Global Business, including our Oil & Gas business and our business in Indonesia. Jim Bob continues to work as an advisor and he's working very helpfully in dealing with our ongoing discussions with the government in Indonesia. But we have a clear strategic direction of our company now, which is to create shareholder value out of our copper and minerals business as we go forward. We're looking at our oil and gas assets as a way to generate value to help support that strategy, and we are going to focus immediately on addressing our balance sheet issues. One thing I believe that's been lost in the noise of the turmoil in the commodities market, the issues relating to our over-leverage as a result of the Oil & Gas transaction in 2013, the concerns about credit generally for natural resource companies, is the fact that we have a very profitable mining business underlying all this that's going to give us the way forward for the future. We had over $900 million of EBITDA in the fourth quarter of 2015. We've made significant reductions in our capital spending and we're continuing to review that. We've adjusted mine plans to improve cash flows. We've deferred our Oil & Gas drilling activities to conserve cash. We're engaged in a strategic review about those assets, and we're looking at all alternatives including sales of the business, sales of assets, and how we might manage it going forward because of the market condition we're in. You'll see that we have reduced our copper and oil unit cost of production significantly. I want to comment on the success we've had with the Cerro Verde project; a project we wouldn't start today in these market conditions, but that's the nature of mining assets. We began working on the expansion with Cerro Verde in 2010, a $4.6 billion project that we brought in without having a significant cost overrun, the world's largest concentrator facilities at a mine anywhere in the world, and it's come up without cost overrun at all in a very efficient and effective way and it will be a great long-term asset for our company going forward. We've taken steps to protect our balance sheet by suspending our dividend. We raised equity proceeds through two at-the-market initiatives that have generated $2 billion of equity for us. Now we're going to talk about further steps. As we look at restoring our balance sheet to reflect current market conditions, we're going to focus and manage our cost and capital and continue to generate cash flow in a safe way. We're going to take immediate steps to reduce debt to enhance shareholder value. We are in active discussions with a number of parties on alternatives for asset sales. Besides the review of the oil and gas business, we are looking at transactions involving a wide range of our copper assets. We have interested parties. We have great assets that could lead to sales or joint venture arrangements that will be important steps for dealing with our balance sheet. I mentioned in the oil and gas business, we're engaged in a review for that. Our board has hired Lazard as the board's financial advisor on that. Working together with our traditional banker, JPMorgan, we are canvassing the market to understand what the current market value is in an obviously tough market. We are engaged with interested parties now who are being provided recent access to our year-end updates of our oil and gas reserve information in our various plants. We expect all of these to achieve progress that we'll be reporting to you as it occurs during the first half of 2016. On slide six, we show what we've done with capital. The capital we spent in 2015, which reflected the Cerro Verde project's completion of a project, as I said, that started a number of years ago, but that is now completed. The oil and gas capital spending reflected plans and commitments for our drilling rig equipment and other support facilities that were structured during the time when we were planning on investing for growth in that business. We are making adjustments that reduce capital spending for 2016 to $3.4 billion, and our plans for 2017 show capital dropping to $2.3 billion. The $1.5 billion for oil and gas reflects a couple of factors that we'll be carrying over in the early part of the year. We had some cash cost to pay for costs that were actually incurred last year. We are restructuring our drilling rig contracts. We are undertaking a plan to idle all three of the deepwater rigs. So we will be seeing that spending dropping off markedly after midyear of this year. By 2017, the CapEx will be down to $600 million. That excludes idle rig costs that we will be incurring for the commitments we have under these contracts, which we are negotiating how to arrange with the drilling rig contractors. Major reductions and a continued focus on how to continue to restrain capital as we've adjusted our mine plans. We look at each one of our mines; we talked about this earlier, but we evaluate each of our mines with a $2 copper price and considering sustaining capital. We have made adjustments that aggregate roughly 350 million pounds, about 9% of our 2015 sales by adjusting production at four of our mines. We have stress-tested our current operating plans for our copper prices below $2 and developed contingency actions to take if the market weakens further. We will be monitoring that on a day-by-day basis. The facts are we have such an attractive cost structure that we will generate free cash flows out of our mining business even at much lower prices than $2. We've taken these actions to preserve our very valuable, significant long-term resources while reducing near-term supply and generating cash flow. To show the results of these actions as it reflects in our unit cost, we look at slide eight; you can see on the chart that in 2015 our consolidated site production and delivery cost before by-product credits was $1.78. With our new plans, we are reducing our outlook for next year by 25% to $1.34. When you take into account by-product credits for gold at Grasberg, molybdenum in several of our mines, cobalt in Africa, you get down to a unit net cash cost even at these low commodity prices levels for by-products of $1.10 consolidated for our company going forward. We're doing this through aggressive cost and equipment fleet management in addition to curtailing high-cost production. We benefit from scale at Cerro Verde. We have Grasberg's ore grades improving beginning in the second half of this year, as we execute our plan to complete mining in the open pit by the end of 2017, managing working capital and taking advantage of low input cost. Our oil and gas cash production cost are being reduced by nearly 20%, reflecting the fact that we're having increasing volumes from our gas drilling work in the Gulf of Mexico where our unit costs are lower than in California, and also work that our oil and gas team is doing to take advantage of lower costs from contractors and being more efficient in general. More on our mining unit net cost is presented on page nine, you can see this by region where in the Americas our before capital expenditure cost level is about $1.50 per pound. In Indonesia, where costs are lower reflecting the higher grade volumes that we have coming through our mine plan, the average is $1.10. After showing capital expenditures for sustaining capital, you can see that it averages $1.32. The Grasberg number includes the capital we're spending on underground development so that we have the underground mines available to continue Grasberg as a high-volume, low-cost, long-term operation after the completion of the mining of the open pit in 2017. There is much talk about copper market commentary, but I'm just going to make a couple of comments about it. Unquestionably, the uncertainty about the global economy is negatively impacting financial market sentiment. China's demand growth is slowing. Our Western demand is not as good as we and others had hoped it would be, but it's still expanding gradually. I'm not going to debate anyone about the market. The market is what the market is. The facts are that in the copper business differs from other commodities in that there is not an enormous excess supply in inventories. Here we show the exchange stocks developed from the end of 2014 to the current date, a similar story when you look at total global inventories. But here we have exchange stocks not rising significantly, remaining low by historical standards at a time when the copper price has gone from $2.88 to $2 from the end of 2014 to the current date. Even looking at the decline in prices so dramatically since the third quarter, inventories are not building. The business we're seeing is not as negative as the financial markets are reacting to it. We do not have particular insight as to what's going to happen in China in the future. We have to prepare ourselves for what the market is, and that market is we've got $2 per copper and we've got to react to it. To date, industry-wide, there have been reductions in high-cost mines. Wood Mackenzie says 730,000 tons a year, there will be cuts if prices stay at this level. The supply from new mines like Cerro Verde and Morenci that began construction years ago are coming to an end now. The current level of balance in the marketplace is not yielding a surplus as high as people had predicted. All the time, lower-grade ores are coming from existing mines. Mines are depleting. All these factors will lead to an ultimate price recovery, in my view, absent just a collapse in the world's economy because today's price is not high enough to incentivize any future development. We have enormous resources. We're not going to be spending money on developing those resources until the market improves. We remain confident about the long-term copper markets while dealing with the reality of today's low prices. Now, looking at just how good our copper business is, we talked about 2015 being a bridge year. Well, we crossed the bridge and now we're looking at a big uphill climb because of the current price. But even at current prices, our mining business at $2 yields $4.2 billion of EBITDA. Our CapEx and mining business is $1.9 billion, so we have a business that earns profits at low prices. We've cut back on capital and we have that providing support for what we're doing. We have a great set of assets and we have five mines with the potential of producing 1 billion pounds of copper per year. Three of them are already doing that: Morenci, Cerro Verde, and Grasberg mines. Tenke Fungurume has great growth opportunities as does our El Abra mine in Chile. So we have a very attractive long-term set of assets. Quality assets, which gives us the opportunities to deal with the financing issues we face with our balance sheet. We have 100 billion pounds of copper at $2 mine plans, adding in another like amount of mineralized material that's already been identified. We are not going to be developing new projects until the market improves. Grasberg is a great asset with high-grade ore and copper and gold combined. We have been working with the government of Indonesia in a challenging political environment. We have a commitment from the government that was reflected in communication we received on October 7 from the Minister of Energy and Mines about our proposal to extend the primary term of our contract, which goes to 2021. It gives us the rights to two 10-year extensions to 2041. We've been working with the government and we received a positive letter from the minister saying the government will grant approval for the contract and will preserve our rights at the same level of legal and fiscal certainty in the existing contract. We have a recent reaffirmation of that commitment from senior government officials. The process going forward has been complicated by recent political developments in the country, including the investigations related to the taped conversation with the former Speaker of the Indonesian parliament and the reviews by parliament of that. But we remain confident and have support from senior government officials that their policy about extending our contract remains in place. The issue is when that happens and how the government deals with the existing regulations for extending contracts. And consistent with our agreement with the government, we are advancing plans for the development of new smelting capacity with the government and with the vested interest in our ownership of PTFI. We submitted recently a valuation in response to the government asking for that of our valuation of PTFI, which reflected a valuation of approximately $16 billion, reflecting standard market ways of looking at the values of mining assets. We've agreed to offer, over time, 20.64% interest of PTFI to Indonesian ownership, whether that's the government state-owned companies, listing on the stock exchange, or sales to other Indonesian interests at fair market value. We've had ongoing discussions with the government on renewing our export license. Certain officials within the Ministry of Energy and Mines have suggested we should continue to pay an export duty that we should make a sizable escrow deposit to support the smelter development. These points are inconsistent with the arrangements we had worked with the government on from mid-2014. Our discussions with the government continue. I'm here today to tell you that we have full confidence that the government will come up with a favorable decision and issue the export license to ensure the continuity of our mining operations. Now, turning to our oil and gas business, I want to reiterate things we've talked about in the past. These are very good assets that have valuable infrastructure and associated resources. We've had successful drilling activities since their acquisition by Freeport in mid-2013. This successful drilling has de-risked the opportunities around the underutilized production facilities acquired in the transaction. We drilled 14 wells with positive results, and four wells have been brought on production. Even though we are deferring drilling for the foreseeable future because of market conditions, the success we've had in past drilling would allow us to connect certain of these discoveries, increasing our near-term production volumes because of the past drilling successes. The major property that we have an interest in, Heidelberg, operated by Anadarko, produced its first oil this month, and it will be ramping up as we go into 2016. We also expect to place six additional wells on production from our own drilling in 2016. This will result in a reduction in our cash production cost to approximately $15 per barrel, reflecting $10 per barrel in the Gulf of Mexico. We are deferring for the foreseeable future our exploration and development activities. As I said, all three of our deepwater drilling rigs are being idled. Two are already idled and one is completing imminent activity that it is currently working on. The business has very long-term production and development potential that will be there for the ultimate recovery in oil prices. There's a big inventory of drilling locations that will be available to create incremental value over the long period of time and that comes about because of our focus area in the deepwater, where we have three major underutilized platforms: Marlin, Holstein, and Horn Mountain, where our recent tieback drilling has been done and where we've identified significant incremental drilling opportunities. We have an interest in the Lucius and Heidelberg fields on a non-operated basis and an interest in the Vito area that has significant long-term development potential. On slide 18, we show what the EBITDA for this business would be generating and what the CapEx would be, excluding the idle rig cost. You can see that this business is very highly leveraged to the price of oil and can generate substantial free cash flows in the environment depending on the price of oil. We are planning our business not with an expectation that price increases will occur, but preserving values for an eventual recovery in prices. We're taking a very hard look at G&A costs as we go forward with this oil and gas review process. I've been working with Jim and his team in Houston. We're targeting a near-term 30% reduction in G&A costs. Then, as we complete the oil and gas review process, we will assess the structure of our business at that time if, in fact, we don’t sell the entire business. Throughout our organization and with our team in Houston, I'm encouraged by the very positive and cooperative approach that all of our team is dealing with to adapt to this price environment. Jim, do you have anything you would like to comment on?

Well, Richard, more just a continuation of the direction you're going with the call because with the Board of Directors and Richard's guidance and help working through the process of the 70% drop in crude oil, we brought CapEx down by 70% from 2014 through 2017, as you see pro forma. We’re going to right-size to reflect the lease operating expenses relative to the new environment, lease operating expenses as well as G&A, as you mentioned. On top of that, as per the Board of Directors' instruction, we’re also fully manned to support the strategic review process for third parties to evaluate the assets and to give the board a view of the current evaluation of the oil and gas business.

Thanks a lot, Jim. Let's go to slide 19 and update our outlook for 2016. Copper sales are projected at 5.1 billion pounds. For gold, molybdenum, and oil at 57.6 million barrels equivalent, 74% of which is oil. Unit cost, we talked about earlier, at $2 copper would generate $3.4 billion of operating cash flows including the impact of idle rig cost. We have significant leverage to copper, of course, and we've reviewed capital expenditures. Looking at our sales profile going into 2016 and 2017, you can see the level of copper sales reflects Cerro Verde, Grasberg's positive results and continued operations at our existing mines, net of our curtailed production. In 2017, as we complete mining the Grasberg open pit, significant volumes of gold will be produced. Looking at the bottom of the slide, with oil and gas sales, even with the suspension of drilling activities, because of our past drilling successes and completing the tieback wells, we are not seeing a falloff in our oil and gas sales profile. On slide 21, we show EBITDA cash flow numbers at various prices. At $2, this reflects the average of 2016-2017. $5 billion of EBITDA at $2 and $3 billion of operating cash flow. You can see our leverage to higher prices. We are also stress testing our business to respond to a scenario where prices may go lower. Looking at our debt levels, this is the focus of what we have to deal with in today's marketplace. We have total debt at the end of December just over $20 billion. We have adequate liquidity moving forward. We have very limited amounts, $200 million of debt maturing in 2016. We have no funds drawn under our $4 billion bank credit facility. I’m sure you all have followed the rating actions taken on our company and have also followed the rating agency's public comments about their broadly based reviews of credits in the metals and mining and energy sector. We have worked with agencies over the year to demonstrate our commitment to protecting our balance sheet, and we’ll continue to do so. In light of recent rating actions and sentiments from rating agencies, we have prepared contingency plans to address our financial assurance obligations for our mining properties under a scenario where we're not investment-grade rated. We would develop plans that would allow us to address these in a fashion that would minimize the need to use letters of credit under our bank credit facilities and we have a number of alternatives for doing that. So we are working to come up with plans to reduce debt, to get our balance sheet stronger, and improve our financial flexibility and protect our liquidity. We are serious and focused to take advantage of our large-scale current production base of resources. We’ve established these long-lived reserves that will be there for the future of our company, and we have significant underdeveloped resources that will be available for the future. We are very proud and pleased to represent a global organization with highly-qualified management, workers, and people that we work with; they are first class in every respect. Our mining business generates free cash flows at very low prices, and we’re taking prudent management steps and will continue to do so in response to these market conditions. We are going to address our asset and balance sheet debt levels through asset sales and other initiatives to raise capital. We have the assets to do that and throughout all of this, we maintain a positive outlook for our company based on the long-term global demand and supply fundamentals for the commodities we produced and given our high-quality asset base. I know you have a lot of questions and I look forward to responding to them.

Operator, we'll take questions now.

Okay. I just have a couple of quick questions. First of all, on a near-term basis, there's been some chatter lately in the press about the pending export license situation in Indonesia. There's some indication that Indonesia is requiring a deposit towards the smelter construction in order to renew the license for the next six months, and I was wondering if that is correct. And if so, where does that stand?

The press is accurate in reporting that the Director General in Mining has raised that as a potential condition for getting our export license that there'd be a substantial deposit. We have responded that it's inconsistent with the understanding we had with the government that we had made a commitment to progress the smelter project and we've fulfilled that commitment. We’ve developed sites for it and we're working with our current partner in the Gresik smelter that we developed in the mid-1990s, working with the contractor to do it. Our position is that we've met our obligations to the government. We developed an engineering procurement contract with Chiyoda, the Japanese engineering firm. So we're engaged with the government about that. We have, as Freeport's management, full confidence that we'll be able to get our export permit extended on mutually agreeable terms.

Okay. I'll leave it at that for now. Just a clarification question on some of the numbers this quarter versus the last quarter. Specifically, the idled rig costs, were the $600 million of expected idle rig costs in 2016 and $400 million in 2017 included in the previous oil and gas CapEx, or are those new expected cash outflows?

No. The costs of the rigs under the plans that we had in place at the third quarter were included in capital expenditures. We are engaged in discussions with the owners of those rigs, the other parties to our contracts, in terms of restructuring the terms of the contracts in view of our plan to idle all three of those rig costs. What we've included in our estimate of idled rig costs is our expectation as to how these negotiations will be completed. They're not yet completed, but this is our expectation. It involves a transfer of the amounts we pay to the drilling contractor under what we believe will be revised terms out of CapEx into idled rig costs. And then, we are taking also out of CapEx the cost of operating those rigs because our plans previously included a continuation of drilling activity. So, we're seeing not new costs, but restructured lower costs as a result of our plan to idle all three of the deepwater rigs.

Okay. Great. Thank you.

Yeah. Thanks. Hey, Richard, in the beginning of the call you mentioned how you had cut back on your copper output last year in response to market conditions, and I'm just wondering, on the oil and gas side, with California and the cost laid out, it seems from someone on the outside that it's EBITDA and cash flow negative. Can you talk about those operations specifically and maybe there are other factors that we're not really taking into consideration for why you're continuing to run it?

We're continuing to run it because even with the level of operating cost by constraining capital it is cash flow positive for us and it preserves the asset. Jim, why don't you comment on our strategy and plans for California?

Yeah, Brian. That's a correct assessment. When you look at a historical cost basis and look at a cost-forward basis of what we're doing on the LOE cost and fuel going down, we see a 20%, 25% reduction on LOE costs. Granted, we're not making a lot of money at $30 a barrel, but we are not losing money in California on an LOE as-produced basis as we go forward through the year. There'll be a quarter where there will be a negative, and there'll be a quarter where it will be positive. So, we'll continue to maintain production out there if oil stays around $30, just to maintain the price upside option as long it doesn't cost FCX any money. If oil goes to $20, obviously sustaining would be a different ball game. We'll revisit that issue.

And Brian, also I want to mention, we have shut in the offshore production in Point Arguello, which we had the ability to do that. And that was high cost. It's not a huge part of our production but it was a high-cost segment of our production.

All right. Okay. Apologies, I'm not, as you know, with the oil and gas business, but in the presentation slide it says operating costs in California are $33 per barrel. What's the difference between that and LOE? Are there some non-cash items in there?

Yeah. LOE and operating costs are basically the same thing. Operating costs also capture development activity like workovers and things of that nature which are production-sustaining operations which help build LOE. If you stop working over every well, then you just get down to the base LOE, which is all your cost to run the oil fields without any capital investment. So, you drop those development activity costs and that's before any CapEx. On a strict LOE basis, you continue to manage your chemicals, your trucking, your employee levels, and compensation to ensure the oil field continues to produce at least break-even. You don't want to lose money producing oil at this point in time. We see a reduction in LOE costs down to the low $20s; about $22 to $22.50 a barrel in California going forward. At $30 a barrel, it will justify continuing to produce. At $20 a barrel, it would be another story. So, we hope they don't get to that point, but you never know.

Essentially, what we have, Brian, is an operation out there at current levels of oil prices that's close to breakeven, but in terms of the value of that asset, it is highly, highly leveraged to oil prices and relatively small increases in the price of oil result in generating substantial values in that asset. So, it’s a great asset for people who have an optimistic view about oil price recoveries, and we're reading more about that in today's marketplace. It’s an asset that we can manage without losing money but preserving that value opportunity either for ourselves or for the buyer of the company.

Got it. And then just a question on the potential copper sales. Are there assets that you would consider kind of core and important to FCX's DNA, or is it a situation more like, perhaps, for the right price, you would consider any operation?

We would consider any operation and are considering any operation. Every one of our assets is under consideration. Our objective is to respond to this market condition, respond to our balance sheet situation, and find the place where we can generate the most value to achieve that objective while preserving a business that's going to be valuable for our shareholders as we move forward. So we are considering potential sales of our assets in their entirety if necessary. It’s not something we do lightly – we don't like selling equity at these prices or selling assets that we know are going to be valuable in the long run. But we have a big portfolio of assets and reserves that provide us the chance to deal with this current situation and come out of it as a profitable company with long-term value for our shareholders. So, we’re going to be measuring how to deal with the balance sheet issues and how to create long-term value.

All right. Thanks, and good luck.

Hi, everyone.

Hi, Tony.

I've got a couple of questions here. Richard, my first question is, obviously, you mentioned a big uphill climb and very serious challenges that the company is facing. Is the intention to return FCX to a pure play in copper and gold, ultimately, if you can get out from underneath all of what you're dealing with right now?

Well, as I said, our strategic focus is around our mining business, so that's going to be the focus. We are looking to see what market opportunities we have available to us with our oil and gas asset to generate value, and we're going to assess how to do that either near-term or over time. I mean, we are not going to make irrational decisions based on current market conditions. But we have a number of interested parties who are anxious to talk with us about how we might move forward with it. Our strategic focus for the company is clear, that was established back in our October timeframe. We talked about restructuring our board. The strategic focus of our company is on our copper and related minerals businesses.

Okay. And some follow-up questions here. It sounds like you're not averse to selling certain mining assets in their entirety. Is that a fair assessment?

We are going to find the best opportunity to achieve our goals. If that involves selling assets entirely, we will do that. We don’t want to sell equity at these prices. We don’t want to sell assets that we know are going to be valuable in the long run. But we have a significant portfolio that will allow us to address balance sheet issues and create long-term value for shareholders. We have the assets to do it.

Just a question on the offshore rigs; I think you guys had contracts with Rowan and Noble, and those contracts have been costing about $1.3 billion to $1.5 billion a year, I believe that's been the case. That was going into what I think the middle of 2017 if I recall correctly. But you are now telling us that you are assuming you'll have a successful outcome with those two companies regarding those contracts. Is that correct?

Yes, we still have the contracts and we're going to live up to our contractual obligations. What we're doing is, when you operate these deepwater rigs, you have to pay the drilling contractor and those have been in the range of $500,000 to $600,000 a day, and then you incur, in past times, a similar amount in operating them. Our plan now is to eliminate the cost of operating them as the rigs will be idled, and we're negotiating with the drilling rig companies to reduce our near-term financial obligations in a mutually accepted way that recognizes the value the contractors have in the contract, and they're working with us to be responsive to our desires to reduce near-term cash requirements.

This is Kathleen. The numbers you were using included the spread and that's what's being removed. Even though we’re having to pay and satisfy contractual obligations, we are reducing overall costs by idling the rigs and not incurring additional costs. The objective here is to conserve cash. As we've talked about, we benefit from having an inventory of wells already drilled, so we don’t have to continue drilling and incur additional costs.

These are tough decisions. These are the best drilling rigs in the world. We have attractive prospects to drill and because of market conditions and our company's financial position, we're having to take these difficult decisions to idle these just like we're having to make hard decisions about selling interests in our mining properties. We are where we are. We can't wish the market away or our debt away; we have to deal with it.

Understood. I want to go back to Indonesia; it’s critical for your overall success in getting those costs down to the $1.10 level. I’m wondering – it’s hard for us to ascertain, based on all of the statements that come out of the press and what may or may not be factual. That uncertainty is immense as you expressed. I’m wondering if there is any risk to these numbers which are back-end loaded in 2016 as that’s a critical part of the business going forward. You’re spending about $800 million or $900 million a year there right now?

Right.

Yes. It's important to us. Indonesia has been an interesting, complicated country to work with over 40 years. We've experienced many changes, and we've managed to navigate through those. It's crucial for us, but also important to Indonesia. We operate in Papua, which is economically significant for the country, employing over 30,000 workers. We represent over 90% of their economy in the province where we work. We generate taxes, employment, and exports essential to the country. Like all developing countries in Asia, Indonesia faces challenges due to the downturn in China and the global economy. We have mutual needs, and that's what's going to lead to a resolution that's mutually acceptable to both sides. We are optimistic.

(Assuming you're able to resolve that issue), can you give us comfort that looking out beyond 2017 – I know you have not really discussed that a whole lot, but you've presented it in your slide deck. The production does come off as you are involved in the transition to underground. Can you give us further comfort about that transition? Might it be a less steep drop-off post-2017?

Well, Tony, you've worked with us for many years. You will recall that, you go back years, and that drop-off was much steeper then than it is now. We had great success in expanding our ore bodies. We began producing from the deep MLZ mine in the third quarter, which is an extension of our underground block-caving operations that started in the early 1980s. This is the most recent significant extension to it. It has very high grades of copper and gold, and it has a long life. This mine has come up to speed very efficiently. We are progressing with our underground development for the Grasberg underground ore whose mine plans are set to execute in 2018. We are stockpiling ore to produce beyond 2017. Our goal is to mitigate the impact of that transition. We can do this. We’ve a great team working on it and we are very technically capable to handle it.

Thanks, Richard.

Thank you. I appreciate your questions and your interest. We look forward to providing updates in 2016. Thanks, everyone.