Freeport-McMoRan Inc (FCX) — Q1 2018 Earnings Call Transcript

Thank you and good morning, everyone. Welcome to the Freeport-McMoRan first quarter 2018 earnings conference call. Our results were released earlier this morning and a copy of the press release and slides for today’s call are available on our website at fcx.com. Our conference call today is being broadcast live on the Internet. And anyone may listen to the call by accessing our website homepage and clicking on the webcast link for the conference call. In addition to analysts and investors, the financial press has been invited to listen to today’s call and a replay of the webcast will be available on our website later today. Before we begin our comments, we’d like to remind everyone that today’s press release and certain of our comments on the call include forward-looking statements and actual results may differ materially. We’d like to refer everyone to the cautionary language included in our press release and presentation materials and to the risk factors described in our Form 10-K and subsequent SEC filings. On the call today are Richard Adkerson, Red Conger is here, Mark Johnson is on the line, Mike Kendrick is here as well. I’ll start by briefly summarizing our financial results and then turn the call over to Richard, who will review our recent performance and outlook. As usual, after our remarks, we’ll open up the call for questions. Today, FCX reported net income attributable to common stock of 692 million for the first quarter of 2018 or $0.47 per share. That included net credits of 13 million or $0.01 per share in the first quarter. Our adjusted earnings before interest, taxes, and depreciation for the first quarter of 2018 totaled 1.93 billion. There is a reconciliation of the EBITDA in the back of our slide deck on slide 27. As summarized on page, Roman numeral 7 of the press release, our EBITDA was reduced by 135 million in the first quarter associated with the impact of the decline in copper prices during the period from $3.28 at the start of the year to $3.04 per pound at the end of the first quarter. The adjustment relates to sales that were provisionally priced at year end that were marked to actuals during the first quarter and sales that were open at the end of the first quarter and those were marked at $3.04, which was the forward price at the time of our quarter end. Our provisionally priced sales are marked to market until final settlements occur. Our copper sales during the quarter were 993 million pounds, gold sales were 610,000 ounces and we sold 24 million pounds of molybdenum. Gold sales were above the year ago quarter by a significant margin, but were about 10% below our guidance of 675,000 ounces because of maintenance on the ore flow systems in Indonesia. Our first quarter 2018 average realized copper price was $3.11 that was above the year ago quarter average of $2.67 and gold prices averaged $1,312 per ounce in the first quarter of 2018. That was also higher than the $1,229 per ounce level in the first quarter of 2017. Our unit cash cost, net of byproduct credits, for our consolidated operations, averaged $0.98 per pound in the first quarter of 2018. We generated strong cash flows above our capital expenditures. Our cash flows from operations in the first quarter totaled 1.4 billion and that exceeded our capital expenditures of 400 million. We continued to strengthen our balance sheet. During the first quarter, we repaid borrowings totaling 1.5 billion and in April, in the second quarter in April 2018, we repaid 454 million in debt associated with the early redemption of higher coupon notes. We ended the quarter with consolidated cash of 3.7 billion and our consolidated debt totaled 11.6 billion. So, our debt, net of cash, was below 8 billion at quarter end. We had no borrowings and 3.5 billion available under our revolving credit facility at the end of the quarter. We reported earlier this week that we have entered into a new $3.5 billion five year revolving credit facility to replace the existing facility, which was scheduled to mature in May of 2019. We’re pleased with the outcome of the new arrangement, which is substantially similar in structure in terms to the prior facility. Also during the quarter, our board of directors reinstated a cash dividend on our common stock, which we’ll talk more about financial policy, but the first quarterly dividend of $0.05 per share has been declared and will be paid on May 1. I’d now like to turn the call over to Richard who will be commenting on our slide presentation, which is located on our website.

Good morning, everyone. Today, we're mailing out our annual report for 2017, which showcases our leadership position in the copper industry. We are the largest operator of copper mines globally and manage all the mines in which we have an interest. Our high-quality assets are challenging to replicate, and our experienced team of mine developers and operators has seen great success. Our focused strategy going forward includes a balanced financial policy. Over the past two years, we've reduced our debt from unsustainable levels to below our target levels. Looking ahead, we'll generate substantial cash flows exceeding our capital spending, which we will use to further reduce debt. We are evaluating future investments with several alternatives and will move forward in a disciplined manner. We've started paying dividends and are dedicated to returning cash to shareholders over time. We will continue to reduce our debt and invest sensibly while exploring the possibility of increasing dividends in the future. In the first quarter, we prioritized productivity, cost management, and cash discipline, resulting in operating cash flows surpassing our capital expenditures by about $1 billion. Our unit net cash costs were significantly lower than the same quarter last year, and we repaid $2 billion in debt, lowering our net debt to below $8 billion as we advance our development activities. Regarding copper markets, I receive regular updates from our marketing team, and copper demand has remained steady. Currently, we’re purchasing cathodes to meet customer demands, as we supply about 40% of the copper used in the U.S. market. The long-term fundamentals for copper remain strong, particularly with the rise of electric vehicles and alternative energy sources. In Indonesia, we reached a framework for a long-term resolution in 2017 that will provide stability through 2041, allowing us to proceed with negotiations to finalize this agreement and ensure we maintain control over our business management and financial policy. Recently, we've faced environmental claims that were unexpected and disappointing, but I want to emphasize that these claims do not affect the value of our asset. We are also seeing positive developments as we resolved a dispute over a surface water tax with the province, reaffirming our support for local communities. The Supreme Court's ruling reaffirmed that our contract was binding and has set a positive precedent for investment in Indonesia. In terms of our projects, Grasberg Block Cave saw significant progress with the commissioning of major infrastructure, and we expect to ramp up production by 2019. We are also working on the Lone Star Oxide development project with a reserve of 4.4 billion pounds of copper, which will be profitable and support future mining in that area. Our outlook for 2018 is consistent with prior guidance, and we expect substantial cash flows, which will help us progress financially. We anticipate challenges with our Deep MLZ mine due to mining-induced seismic activities but believe it won't affect our long-term plans or recovery rates. Overall, we are proud of our achievements over the past few years, having reduced our debt significantly, and we plan to keep disciplined in our capital expenditures while generating strong cash flows. Now, I'll turn it over for questions.

So you've taken down, looking at your slide deck, you’ve taken out 2019 expectations pretty substantially, making it even more of a transition year. With the DMLZ the main factor it appears, are there any other changes or reductions across the regions embedded in that 2019 number? And then is there any flex available across the other assets that could make up any of that production to the upside?

The answer to your first question is no. Every quarter, we update our plans rather than having an annual planning exercise. If you had seen Red's team last week, you would understand this is just the normal ups and downs of our operations. Outside of Grasberg and PT-FI, there’s really no quick solution we can implement in the short term. We prioritize safe production and will continue to do so. We are making progress at the Grasberg Block Cave mine, focusing on maximizing our efforts as we move forward. The remainder of 2019 will be an interesting time in the pit as we complete our mining operations and strive to extract as much as possible. This situation is impacted by unexpected seismic events that were not part of our original plans, which is a challenge we face in mining.

Got it. Now let me ask more in the immediate than. Could you tell us a little bit more about what prompted – what looked like to be the unexpected maintenance activities here at Grasberg, what the status is there and then when you're thinking about today, looking through the rest of the year, what are the main risks you think the output reaching your expectations there at that mine.

The Grasberg development has been in operation for 20 years, having begun production of the expanded facilities in January 1998 with the construction of the SAG mill and ball mill systems. We established an overflow system that facilitates ore passageways and developed a method for delivering ore from these passageways to the mill. These systems have been operational for quite some time and have undergone regular maintenance. However, our recent review indicated that the current problems are somewhat tied to the disruptions we've faced in recent years due to export bans and labor issues. Now that we're operating normally, with improved milling, mining rates, and labor conditions, we are addressing the ore delivery system maintenance concerns that arose during our ramp-up. We realigned resources in Indonesia and also deployed our global team to help resolve these issues. Ensuring effective operation of the ore delivery systems is critical as we transition to high-grade ore in the latter part of 2018 and begin ramping up underground operations early in 2019. Additionally, we've encountered some challenges with the ore being fed into the mill; while we're not mining waste, some of the ore mined has been placed at the bottom of a very wet pit, resulting in a sticky, clay-like consistency that complicates ore delivery and milling. We're actively addressing these operational challenges and maintenance issues to ensure effective operations for the remainder of the year and prepare for the upcoming ramp-up from the Grasberg block cave.

I wanted to follow up a little bit on the situation in Indonesia. Richard, last quarter, you were pretty outspoken in terms of the likelihood of a resolution. How do you see things, where do you see things standing today? How quickly do you think you can look towards a resolution at this time? Thank you.

I've maintained my optimism. The government, late in 2017, recognized the need for a due diligence process. I mentioned previously that they engaged a well-known investment bank, a major accounting firm, international legal experts, and a mining due diligence firm from Australia to aid in this process. It took longer than I anticipated due to the complexity of working with a government entity that has many experienced stakeholders. This isn't surprising, but it did take time. These parties will communicate on their own, as we are facilitating but not directly involved in the negotiations between our current partner and future partner. This is a sensitive issue for us, and negotiations have begun. There is a willing seller and a motivated buyer, with the President of Indonesia committed to seeing this deal through, as affirmed by government officials. Although the due diligence has extended the timeline, the process is still on track. I have concerns regarding the environmental decree, which appears to be motivated by political rather than technical reasons. The standards in the decree do not currently apply to us but establish a six-month timeline that is unfeasible. We had an agreement with the government to keep 50% of the tailings on land throughout the mine's operation, but they now propose 95%, which is not achievable. Additionally, the suspended solid standards they've set are lower than natural sediment levels found in the river system. The discrepancy is striking—200 versus our long-standing agreement of 18,000. While this news is not positive, it is so unreasonable that I am confident we can overcome it. It requires effort, but this is more about reassessing the entire system rather than a technical issue. We cannot revisit a system that has been agreed upon for 20 years and has functioned effectively without unforeseen environmental impacts. The benign tailings are placed where they can be reclaimed; we cultivate agricultural projects there, the system complies with drinking water standards, and there are no effects on marine life. The local mud crab industry is thriving, and people fish offshore in the vicinity. While this situation is a distraction, we understand that we will have to navigate political challenges over time, and this is one of them.

Thank you very much for that and I noticed there's a Presidential election about 12 months from now. Do you think there's a risk that negotiations will continue to drag on and potentially reach a point where it just makes more sense to conclude them after a new President is elected?

The presidential elections will take place in 2019, and there are regional elections happening in the second half of this year, which will lead to intensified campaigning. This represents a potential risk. It seems that the President would prefer to resolve this matter before the elections. His approval ratings are quite high, around two-thirds, and he has effectively managed Indonesia's large and diverse population and economy amid complex global challenges. However, it is realistic to acknowledge this as a risk. We don’t foresee anything disrupting our operations, as the government is eager to ensure our continued activity and to collect taxes. Our long-term position remains clear. It is crucial for us to continue operations this year while we have favorable ore to process, which benefits both us and the government. This is a reality and a potential factor we must consider. We aim to move forward swiftly, and I know there are officials in the government who share this urgency.

Thank you very much, Richard and maybe one last one to squeeze in and to change the topic. You’ve always been very focused on the Indonesia situation, but more recently, thinking a little bit more about growth and then restarting the dividend, from here on out, where do you think would you, outside of Indonesia kind of spend your focus, what is most important to you and to what extent does M&A also factor into those considerations? Thank you.

You're right about our focus. In 2016, we concentrated on de-leveraging, while 2017 was primarily about Indonesia. Recently, I've been working closely with Red and his team, who have been managing our operations and planning for the future during this time. During my visit to Santiago, I engaged in discussions with other companies about their plans, project timelines, and how they are assessing opportunities. Currently, we are evaluating two significant projects, with several more lined up afterward. One of these projects is the El Abra opportunity in Chile, which resembles a major Cerro Verde project but requires a saltwater desalination plant and pipeline for water access. We own 51% in partnership with Codelco. We've had positive talks with Codelco, even as they navigate changes under the new government. The second project, our Bagdad mine in northwestern Arizona, is more straightforward as it involves a mill expansion; however, we need to address the tailings area and water management, a matter we've been working on for years. We're preparing to announce these new projects, and I was previously looking forward to increasing the dividend. The board took action on that right after our last call, and it's encouraging to see a future where we can enhance shareholder value with these resources that aren't currently generating value. We recognize the necessity to transform these resources into cash flows, and I'm confident about the future of the copper business. This confidence is shared by my industry peers. We're in a good position and don't need to rush into anything, especially with ongoing trade issues. It's essential to see how those will be resolved, but as a company, we aren't directly impacted. Copper correlation with economic activity means these trade matters do influence the broader economy, which is a consideration. Overall, I feel very optimistic about our company's position, our assets, our team, and our strategic direction. We'll continue to face challenges, much like other major mines worldwide have dealt with over time. The good news is that our long-term resources will create value for our shareholders.

The first question is regarding the costs in North America and South America. It appears that these costs have increased slightly compared to last year, and some of this increase seems temporary due to factors like lower grades or higher maintenance and repair expenses. The main question is to what extent you are experiencing general mining inflation, how much of this is temporary, and to what extent is this related to catching up on maintenance capital that has not been spent in the past. If that is the case, how long do you anticipate needing to continue this catch-up process?

Okay. So you start with the fact that a significant portion of our input costs are correlated with copper prices. That does make sense. You know you think about things that drive energy cost and steel cost and contractor cost and all those sorts of things, so our job is to find ways of mitigating these inherent increases by being more efficient. Red made a presentation about that at the Cisco conference in Santiago, go to that website and you can see what we're doing. We haven't bought, I mean, Caterpillar had great results today and it's always a key indicator for us. They are kind of an index on infrastructure spending around the world. But we haven't built a new truck. We haven’t bought a new truck at Freeport since the financial crisis. We are rebuilding trucks. We're taking frames and component parts. We’re extending the life of our tires. We're using all these sensors on all of our equipment that’s feeding all this data into systems that make us better able to control what operators are doing and how we do this. So you have this dynamic of input cost increasing, efficiencies have an impact on mitigating that and then the issues you pointed out about grades and so forth and that's going to go up and down within a relatively narrow range over time.

In the short term, we're also increasing the mining and the production rate, those are kind of front end-loaded cost wise before we really start to see the pounds coming out later in the year. So that's part of it.

That’s right. El Abra was constrained when prices were down. Sierrita was. Those mines are making money now and so we’re having to spend some money to take advantage of that.

We are not anticipating significant changes in our cash cost trajectory moving forward. In 2015 and 2016, we implemented various strategies to optimize cash flows, and while we do have some catch-up to do, we are currently operating in a more standard environment. Therefore, we are not expecting substantial cost increases or decreases in the near term, apart from factors mentioned by Richard that relate to energy prices, currency fluctuations, or other variables linked to the copper price.

And our current outlook for sustaining capital I think is a good longer term outlook. It’s not something that's going to be increasing that, but we can't keep it at 500 million for an operation like this. It’s going to be more in order of $1 billion a year.

As Richard said, at the end of 2018, we expect to see some mining in the open pit. We will have some stockpiles that will mine, but those aren’t anything of great significance for the long term. So really all of our production will start to come from the underground mines for operating the DOZ mine currently and the forecasts include roughly 40,000 tonnes a day from DOZ. Our Deep MLZ ramp-up, we expect to ultimately get to 80,000 tonnes a day from that mine and right now our projection is we’ll get there in the 2021, 2022 timeframe. And in the Grasberg block cave, we will be ramping that up and we expect to get to roughly 100,000 tonnes a day from that mine in 2022 and the ultimate production from that mine we expect to be in the 130,000 to 160,000 tonnes per day range. But in terms of the Deep MLZ and the Grasberg block cave combined by 2020, from those two mines, we would expect to average about 70,000 to 75,000 pounds a day combined in 2020 on average versus in capacity, which will be 80 plus 130. So something on the order of 200. We do have and Mark Johnson is on the line and he can comment about this. We do have, in the Grasberg block cave, access to higher grade material in the earlier years. So even though we're in a ramp-up period, we still will have the benefit of accessing some higher grade material from that orebody. As Richard said, it’s the same orebody as our Grasberg open pit, just a different mining method. But Mark, I don’t know if you want to add anything to the comments about the ramp-up?

Fortunately, the highest grade ore in these ore bodies is also the most accessible. It makes sense to start there from both an economic and mining method perspective. In the early years of Grasberg, grades are well above the ore body average, exceeding 1.1% copper and around 1.2 grams for much of the ramp-up period. The same applies to the Deep MLZ, where we have exceptional grades starting at 1.6% copper and approximately 1.6 grams per tonne gold. Both high grades will help offset the lower tonnages during the ramp-up period, which we expect to reach a steady state in production over about 5 to 6 years at Grasberg, with similar expectations for the Deep MLZ once we resolve the seismic situation. These ramp-up rates mirror what we achieved in the DOZ a decade ago. A significant factor in the ramp-up speed is how quickly we can advance the undercut while simultaneously developing the extraction level, taking into account the drop bells and sequencing for long-term mining. We have successfully implemented these practices in the past with the DOZ and are applying them now with improved construction techniques. Regarding overflow systems, as Richard mentioned, much of our current infrastructure is outdated due to the pit shutdown; therefore, most of the older system is mothballed. We will be relying on brand new systems built for both Deep MLZ and GBC, ensuring a fresh start with high-standard infrastructure. We are very optimistic about the ramp-up of both mines, as well as Big Gossan, which, though smaller, has very high grades at about 2.5% copper equivalent. We are also ramping it up, with potential production of around 100 million pounds a year and about 60,000 ounces. While it's not a large mine for PT-FI, it will still make a significant contribution to our future underground operations.

In 2020, due to the higher grades, you only need to process 70,000 tonnes per day from the DMLZ and the Grasberg block cave combined. As you increase the throughput from underground in 2021 and 2022, the grades will decline. This will allow for an increase in throughput, and by 2023, you should see an even larger increase. The question remains whether production will keep increasing in 2023 and beyond, or if the grades will continue to decline as they have been fairly steady.

It's fairly steady. We get up to that 200 plus 200,000 tonne plus range that Kathleen mentioned. And then the grades in the Grasberg steady for quite a while. We end up with a little bit higher grade towards the end again. So it’s somewhat variable, but we've got a long-term outlook that shows, as you know, very much over 1 billion tonnes a year and gold very. We've got slides I know that we’ve shown in the past that show the underground era and it's in that 1.5 million ounce range longer term.

Yeah. And that’s 100%. So we would have 50% of that.

Our reference slides include information about an underground operation that processes between 200,000 and 240,000 tonnes of ore per day at a mill. Many in the industry are genuinely impressed by the infrastructure, which is remarkable. This is the first time we've achieved this, and we are very confident in its success.

I'm just going to start with your development projects. I must admit that until you started focusing on Lone Star and realize that the resource grade was 0.61%. So as you're looking at the future of the company, with El Abra and Lone Star, could you comment on what do you think is, you look at the projects and what's more favorable to you? Is it all of the advantages that they have in the US or is it, if it's really now with requirements for this on that, so like taken on the list.

We are currently evaluating that. It reminds me of our experience eleven years ago when we acquired Phelps Dodge and assessed El Abra. At that time, we only recognized the oxide and sulfide projects, but after drilling core holes, we discovered a significant resource and are now working to leverage it. Lone Star has been on the radar since the 1960s, and as we begin drilling, we are becoming increasingly optimistic about its potential size, possibly comparable to the Morenci deposit over the years. However, this will require careful evaluation. We also have a more straightforward expansion opportunity at Bagdad, which is relevant in our discussions. The tradeoffs you mentioned highlight the advantages of lower energy costs in the US, the absence of labor unions, and the flexibility to adapt our workforce. Additionally, communities here provide essential services like education, healthcare, and housing for their residents, relieving us of those responsibilities. All these factors contribute to making investments in the US more appealing than ever. Our focus on the Lone Star asset represents a long-term strategy, but we believe it will ultimately deliver significant value to Freeport shareholders.

Thanks, Richard. Before I ask my next question, I think it would be helpful to start with an overview of the Lone Star sulfite for context. Lastly, could you clarify your comments regarding the discussions with the Indonesia Ministry of Environment? Are they anticipating changes in six months? Is that part of the conversation? I find that hard to believe, as it seems unrealistic and possibly politically motivated. Could you provide more context about those discussions?

I share your confusion, and we're actively engaging in discussions, not only with the environmental and forestry ministry but also with the ministers involved in our contract matters. We did not anticipate these decrees, and I needed to inform you that they cannot be implemented. It's not just Freeport; no one can operate under these two decrees. It's physically impossible. This is just some occasional noise, and we intend to address this through constructive dialog to clarify the situation and discuss what can realistically be accomplished. We're essentially tackling a non-existent issue; there is no problem here.

Sorry to keep harping on Indonesia, but a couple of questions if I may. You talked about the Ministry there trying to impose new environmental standards, but there's also been reports in the local press about them making a very substantial claim for damages. I think it's been reported around $13 billion, something like that. Are those press reports accurate? And is that an official claim from that ministry, legal claim or is this just?

No. This came about because of a governmental audit group that’s in some ways not totally like our GAO. It was a centralized audit group that came in and that claim is based on degradation to the tailings deposition area. Their take is a large area of land and they say that area was degraded by environmental impact. Of course, it was. I mean we had over 2.5 billion tonnes of ore to process, take the concentrate out, deposit tailings somewhere and that's where we did it. Now to come back and say, okay, you've got to pay some financial form for doing something that the government approved, it is outrageous.

They haven’t made any claims. It’s just a number in their report to the government ministries regarding potential environmental damage, but it’s not a significant issue.

An academic group did a theoretical study to say what happened with this tailings deposition and they used some approaches to measure environmental damage that’s huge around the world, but it's not something that is outside of what was approved. It’s strictly in this designated deposition area, where we built dikes to cordon it off and agreed that’s what we're going to put, these millions of tonnes of tailings and that's what we're doing.

Okay. Thanks. That’s very clear and very helpful. And then just a follow up on the deep MLZ, are you considering any impact there of the slowdown beyond 2019 and I noticed when you look at the guidance, you expect to make up for the slowdown beyond 2019, but I guess at a practical level, how is that going to happen, because it's –

Deep MLZ, some of the makeup is from what Mark was talking to you about with the Grasberg block cave. So you're looking at the total production, which includes Deep MLZ and the Grasberg block cave and to a smaller degree the Big Gossan. Now, the unfortunate thing about this unexpected occurrence was the Deep MLZ, because of what Mark said having this 1.6% copper grades available to us, when we look back a couple of years ago and saw this coming, we said will this previously expected fall off in 2019, it was earlier years then, which is going to be offset by this ore from Deep MLZ. Now, we've had the seismic events and that's been pushed back. So we have to be candid. We're dealing with this, there's some uncertainty as to how long it's going to take to get this block cave operating in a way of where the seismic events are not of the nature that they create risk to our people. We have a plan, we're going to report to you how that plan goes over time, but it's all dependent on the timing for that and you can appreciate, we're being very conservative with it.

So touching on kind of what you were just stating, the deep MLZ, you guys took down your mining profile out to like 2022 if we look at kind of what you guys had last quarter. Is that just the mining, the seismic activity, bringing down all the out years as well or what's the driver of that?

Well if you look at the slide for the five years of slide 23, the actual total production over that period net to PT-FI’s interest is 5.4 billion pounds of copper, which is similar to what we had. I think we had 5.3 in our last plan over that period of time. And gold is similar to what we had in the last quarterly update. But what we're seeing is a shift out of 2019 and the outer years are higher than what our plan was because Deep MLZ is shifted out, as Mark said, the beginning of the year, beginning production ramp up of Deep MLZ has higher grade. So that shift would just continue to shift it out and then also with the progress that we've made on the Grasberg Block Cave and the position we’re in in terms of the commencement of the cave in early 2019, those two factors combined bring us to where we've got better, over the long term, it's essentially the same as where we were before, but we do have this impact in 2019 that at this point, our mine plans don't show being able to make up and we're going to continue to work on that.

Got it. That makes sense. And then looking at your CapEx, it looks like you reduced your spend for the long term PT-FI investments plans to 0.8 billion from 0.9. However, net to PT-FI remained at 0.7 billion. Would you mind us running through why the net to PT-FI number doesn't change despite the CapEx number decreasing? Thanks.

Some of this is rounding. In other words, we give numbers that are rounded.

We did reduce Grasberg CapEx by about 300 million over the five years, related to the timing of power requirements. As Richard mentioned, the sharing mechanisms will largely involve rounding, but some projects are shared differently than others. We can discuss this in more detail offline if you're interested.

We have an ongoing process where our entire team is examining this question. I’m suggesting that there are ways to accomplish it in a cheaper and better manner. We need to determine if we should do it now or if we can delay it. This is all part of maximizing the economics of the operation, and that process is continuous. Fundamentally, nothing has changed.

Maybe one last one on Indonesia hopefully, but just going back to that Ministry of Environment and Forestry issue. So just to clarify, so obviously, you’re mentioning it could very well be political, you're saying that technologically it may not be feasible. Within that, are we basically saying here that even if, I mean, that the statement was saying that it has to be a six month transitional period, even if the government came out and said, you know what, we’ll give you 24 months of 30 months or whatever. Your space is still saying that it could be done. Does that mean that theoretically worst-case scenario that production line to a halt or does it mean that production potentially is going to come down 50% of what, what is the kind of the operational outcome in the worst case scenario here?

I want to clarify something you just mentioned. You indicated that it may not be achievable; I want to be clear that it is not achievable. There's no uncertainty about it. It cannot be accomplished within six months, 24 months, or even five years. This situation is far beyond what is feasible. Additionally, it addresses a problem that doesn't exist. The reason I refer to it as a political issue is that it revisits a decision made in the 1990s about whether to develop this mine. We examine options such as pipelines and sea disposal; we cannot store these tailings in the mountains. Stopping operations is not an option. Indonesia needs the financial benefits generated by this mine to address budgetary issues. The taxes and royalties that they receive amount to approximately $40 billion over the mine’s lifespan, and the province requires this economic boost. This province lacks job opportunities and economic growth. We represent 95% of the economy in the Regency of Mimika, so our operations will not cease. It is a matter of education. I'm proud of how we manage environmental concerns. I conveyed that to the ministers in Washington last week. We have no reason to be defensive about this. We are handling these environmental issues admirably. We can demonstrate that reclamation is possible, that we meet drinking water standards, and that land treated with appropriate fertilizers can ultimately be used for crops. Therefore, there is no cause for concern that this will disrupt our operations.

A lot of mine have already been answered, but one different question I had. Year-end 2018, kind of I guess a nitpicky question, net debt targets for year-end 2018 increased, it was 4.8 billion previously, now, it’s 5.5 billion. If I look at the differences, I think dividend working capital changes account for about 200 million of that increase, lower CapEx is about 100 million swing in the other direction. So I’m just trying to reconcile what caused the other increase of about 600 million to the targeted net debt figure for 2018.

Which case you're looking at Dave.

I'm comparing the 4Q slide on net debt target by year end 2018.

But which price sale.

To the page 17 on this slide deck year end –

So part of it is we haven't reached $325 for the entire year, and we're already partway through the year, showing less than that. Also, the previous slide was presented before we issued our dividend, so now it reflects the net amount after the dividend. The other differences relate to the changes in operating cash flow mentioned on a previous slide. We can definitely discuss this further, but the key point of difference from the case you're examining is that we haven't achieved $325. This figure includes actual results from the first quarter along with estimates for the remainder of the year based on current prices, and there wasn't a dividend in the last scenario.

So Dave, David Joint will call you and walk you through analysis on that, but there is nothing there other than what we just talked about for the rest of the group.

I'll try to make it brief. Good morning. Just two quick questions first. Now that the environmental issues that you discussed during the call are out in the open, what can we look for as a milestone or timing to figure out how things are working out just on that issue specifically and how it’s related to the overall discussion regarding the potential transactions?

So I've expressed a concern that these environmental issues represent a distraction from going forward with a plan we’re working on. And so we have to deal with that. And at this point, the milestone will be making sure that the ministers we're doing with on the broader issue understand what this is and what this isn’t and so we're engaged in that education process right now. I mean we’ve presented written, had meetings and I'm reaching out to meet with the environmental minister to deal with this. I just have to tell you, this just came up. I mean, when was it, it was last week. Yeah. Mid-April. So you're getting this as we've got and we've got to respond to it. So I just want to keep coming back, it's addressing a problem that doesn't exist.

That's very helpful. And just my final call Richard. When you think about the planned Freeport 2.0 once Indonesia gets resolved, is there going to be acceleration on the plans you're talking about in Latin America and North America from a capital growth standpoint or you do need to wait to resolve Indonesia to really get yourselves set to track those plans or is it better just to harvest things before if you get some clarity on the other hand. Thank you.

I believe that due to the improvements in our balance sheet and our position with Indonesia, this is not a major constraint in our future decisions. We definitely possess the financial capability to proceed. Honestly, we're not actively seeking new partners, as we already have one with Codelco and El Abra. There is no urgent pressure to act. However, we need more clarity on the global economic situation and the ongoing trade issues, which have caught everyone off guard. This situation is a topic of daily discussion concerning whether it will serve as a negotiating tactic for addressing notable issues in China or lead to retaliatory agreements with widespread global consequences. In my view, this is the critical issue. Setting that aside and examining the fundamental numbers reveals that China grew by 6.8%, business in the US is strong, and our customers are confident, while Europe and Japan are also experiencing growth. This is unprecedented, and I’ve been in this industry for a long time as CEO for 15 years, and I've never seen such a positive outlook for the upcoming year as we had for 2018, only to be met with a trade deal that has left many in confusion. The trade issues have undoubtedly influenced investor behavior and affected prices, but the fundamental economies remain unchanged. The supply situation has not shifted either, as the ongoing projects are long-term commitments that will be necessary. We are looking at a demand for 4.5 million tonnes of copper capacity over the next decade, equating to the output of the top ten copper mines globally. The need for copper is immense, especially with the rising push for electric vehicles and alternative energy, which require significantly more copper compared to conventional power generation. Moreover, Codelco is facing challenges in sustaining production, which creates a favorable outlook for copper demand amidst supply constraints. I am optimistic, and I believe there is now a general consensus on this. Thank you all of you. We appreciate it and we look forward to reporting on our progress and milestones as we go forward. Appreciate your interest in our company.