Freeport-McMoRan Inc (FCX) — Q1 2026 Earnings Call Transcript

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

Thank you, David, and welcome, everyone. We are now in the 20th year since Freeport combined with Phelps Dodge to create the modern Freeport by forming a global leader in copper. Our strategy was set after I became CEO in 2003, just as China emerged as the dominant source of copper demand. Our decision to build our company around copper was a good decision then and has only gotten better over time. We were in Chile last week for the Annual Global Copper Conference, which I first attended in 2004 and learned that the then expected supply response to China's demand would be more muted than expected. This year, there was a strong positive consensus by attendees about copper's future. We are now in a new era of growth for copper, which is broad-based and driven by the growing demand for electricity. Simply, electricity equals copper. Our assets at Freeport are long-lived and have embedded major growth options, which we are advancing for the future. We have exciting growth ahead in the Americas with significant opportunities to improve profitability using modern technology. Grasberg will continue as a major long-term contributor to our growth and profitability with high grades of copper and gold. The extension of our rights to operate beyond 2041, pursuant to our recently signed memorandum of understanding with the Government of Indonesia, is positive for continuity of these benefits from this remarkable world-class history. We just celebrated our 59th year of successfully operating in Indonesia. I personally have been engaged since 1988. Our team there is best-in-class in large-scale block cave mining. Kathleen will review with you our operating results and outlook, including our plan to restore full production at Grasberg. I personally have complete confidence in our teams addressing the current challenges. I'm personally proud of Freeport's global team, and how our company is so well positioned for the future. Kathleen?

Great. Thank you, Richard, and thank you all for participating on our call today. We will review our first quarter performance and update you all on our initiatives, projects and outlook for the future. It's an active time for our teams across our global business as we work to restore large-scale production at Grasberg safely and sustainably, drive value through operational excellence and new technology initiatives in the U.S., and prepare for a new and exciting phase of organic growth. Starting on Slide 3, we provide the highlights of our first quarter. Our sales of copper, gold and unit costs were better than our forecast and the favorable metal price backdrop allowed us to generate growth in revenues, EBITDA and cash flow compared with last year's first quarter despite our Indonesia operations operating at reduced capacity. The strength and diversity of our portfolio comes through in the results with our U.S. mining operations contributing 2.5x more operating income in the first quarter of this year compared with last year's first quarter, with strong conversion to the bottom line. We were successful in completing the required remediation at Grasberg to commence our phased ramp-up initially in production blocks 2 and 3 in the Grasberg Block Cave. This was an important milestone and involved impressive execution by our team. I'll cover in more detail the challenges encountered with material handling bottlenecks and the initial ramp-up, how we are addressing the issues and the impacts on our ramp-up forecast. As Richard mentioned, a notable highlight of the quarter was the memorandum of understanding reached in February with the Government of Indonesia to extend their operating rights for the life of the resource. This is an important long-term value driver for Freeport, the government and the many stakeholders who benefit from our long-standing operations in Indonesia. We are advancing our future growth plans and submitted an environmental impact statement in March for a major expansion project in Chile. We're progressing several initiatives to scale our innovative leach project and completing our work to be in a position to potentially greenlight our brownfield expansion project at our Bagdad mine in Arizona later this year. We returned approximately $300 million to shareholders in the first quarter including common stock dividends and the purchase of 1.7 million shares of our common stock. Our balance sheet is solid, and we're in a strong position to invest in our future growth while returning cash to shareholders. Moving to Slide 4. We summarize our priorities for 2026. These are the same priorities we set at the start of the year, and each of these represent areas of meaningful value creation. Strong execution of our plans, including achievement of a successful ramp-up at Grasberg, crystallizing the value of our leach opportunity, adopting new technologies to improve performance and investing in profitable growth will enable us to build significant value in our business. We know we will face challenges along the way, as evidenced by the current situation at Grasberg, but I'm confident our highly experienced team will address and successfully overcome any challenge with urgency and determination. Turning to the markets on Slide 5. As a leading global supplier of copper, Freeport benefits from copper's increasingly important and critical role in the global economy. As we look forward, we see rising copper demand associated with massive requirements for the power grid to support new technologies. Copper's superior conductivity makes it the metal of choice when it comes to electrification and the world is becoming much more electrified. Copper prices have averaged over $5.80 per pound year-to-date and reached an all-time high, exceeding $6 per pound in the first quarter. Demand signals remain strong. Our customers in the U.S. continue to report rising demand associated with AI data centers and related energy infrastructure, which has more than offset weakness in private construction and in the auto sector. Recent reports from China reflect a significant resurgence of demand with significant power grid spending and notable draws on Chinese exchange inventories in recent weeks. As we step back and assess the fundamentals, we expect the market will require additional copper supplies to meet growing demand. At Freeport, we have a valuable geographically diverse portfolio of copper assets and are strategically well situated for the long term with large-scale production facilities, long-life reserves and resources and a portfolio of low-risk brownfield expansion opportunities to serve a growing market. Turning to operations on Slide 6. We summarize the operating highlights by geographic region. Looking at the U.S., production was above the year-ago quarter, but a bit lower sequentially compared with the fourth quarter of 2025 and our expectations. Our operating teams continue to focus on our operating disciplines, improving unplanned downtime and achieving sustained maximum output from our existing assets. We're really encouraged by the recent improvement in our mining rate, particularly at Morenci, where we achieved a 19% increase in rates compared with last year's first quarter. Sustaining the higher mining rates will translate into improved copper production over time, and we expect copper production to grow over the course of the year. Our innovative leach initiative continues to show real promise. We are deploying our first internally developed additive and have a line of sight to a new additive which shows significant promise in lab tests. We have commenced the pilot test at Morenci to increase the temperature of our stockpiles by applying a heated leaching solution to the stockpiles. We know that higher temperatures will enhance recoveries and our work is focused on finding the most effective engineering and cost solution to achieve this. We remain encouraged with the ability to scale to 300 million to 400 million pounds per annum in the 2026, 2027 time frame, which will unlock our path to 800 million pounds per annum from this initiative. We're continuing to lean heavily into incorporating innovation into our basic mining practices and see great potential for the tools that AI and other tools will offer to enhance operating performance. In South America, the Cerro Verde team did an excellent job navigating the first quarter with severe flooding in the Arequipa region and with challenges with mill efficiencies. We continue to expect stable production levels at Cerro Verde and some growth at El Abra, a project in Chile in partnership with CODELCO over the next couple of years. There's a lot of activity going on at El Abra currently with a leach pad extension and plans to conduct testing in late '26 of heated stockpile injections to enhance leach recoveries. As I mentioned, we filed our environmental impact statement for a major expansion at El Abra in March. This project will transform El Abra from a relatively small producer to a large-scale contributor within the Freeport portfolio. We summarized the highlights on the Grasberg restart, and I'll provide more detail on our progress in the slides ahead. We reached agreement with our insurance providers during the quarter for a $700 million insurance recovery, which was the maximum limit under the policy. We expect to collect the proceeds during the second quarter. In Indonesia, we continue to operate one of our two smelters with available concentrate and the new smelter remains on standby status, with an expected restart later this year. The next several slides take you through the Grasberg update, what we've accomplished to date, and where we're moving forward as we go through 2026. There's a summary on Slide 7 of the current status of the Grasberg Block Cave. Over the last several months, we were successful in completing the activities required to restart mining and production blocks 2 and 3, and we commenced mining on a limited basis in March. As a refresher, production blocks 2 and 3 were not directly associated with the external mud rush, which occurred in production block 1C, which is located closer to the surface and beneath the low spot in the former open pit. The location and characteristics of production blocks 2 and 3 do not have the same exposure to an external mud rush as we had in production Block 1C. However, production in production blocks 2 and 3 was temporarily suspended in September 2025 to install concrete plugs to isolate production block 1C panels and ensure no connection to the surface, complete cleanup of material on the extraction and service levels, restore infrastructure on the service level and strengthen our cave management plans. This was a huge undertaking and the team did a great job executing this plan. After we completed the projects and regained access to the area, we conducted inspections and sampling of the more than 600 draw points in production blocks 2 and 3 and were able to determine that the material characteristics within the cave changed significantly over the period of inactivity with a larger proportion of wet ore within the cave compared to when we suspended operations in September 2025. This increase in wet material was associated with surface water, which percolates through the broken rock within the mine and is removed from the mine through gravity drainage. Under normal conditions, active mining assists in managing the accumulated water within the cave. We have significant experience in mining wet material; our systems to extract the ore from the draw points are fully autonomous remote loaders that are capable of safely handling that material. The challenge we are currently addressing is downstream of the extraction level and relates to the material handling systems for loading ore onto our automated trains. Historically, we had a higher ratio of dry material, which allowed us to manage the wet material by blending to a consistency suitable for loading through chutes onto the trains. With the current conditions, we will need to install specialized equipment on the shots to regulate the flow of ore for train loading. We've been testing this equipment over the past few years in connection with our long-range planning in anticipation of potential changes in ore conditions over time. We understand the engineered solution to this issue, but it will take time to make the modifications which limits production in PB 2 and PB 3 to what our existing chute designs can handle. We expect that the majority of these bottlenecks can be addressed by mid-2027. In parallel with addressing the shot infrastructure in PB 2 and 3, we're also continuing to work to prepare for a future start-up of production block 1 south and advancing a series of derisking initiatives on surface drainage and other risk mitigation strategies, including the recent installation of new imaging technology to enhance cave monitoring. Our current forecast reflects our best estimate of the time frame to address the current bottleneck. We are still very early in our initial ramp-up and a number of factors could affect rates positively or negatively as we go through the coming months. This is a timing issue with an engineered solution, not a significant cost issue and not a change in the ultimate recovery of the resource. We're confident in the ability to restore large-scale production safely and efficiently as we go forward. On Slide 8, just for some background, we provide a summary of what we presented in January and an update of our current status. As indicated, the initial restart commenced slightly ahead of our schedule. We were previously targeting production rates in PB 2 and PB 3 to ramp up to 100,000 tonnes per day in the second half of this year. With the current material handling constraints, we now expect to be limited to approximately 60,000 tonnes per day from production blocks 2 and 3 in the second half of 2026, increasing to the 90,000 tonne per day range by mid-2027 as modifications to the ore loading infrastructure are completed over the next several months. There is additional information in the reference materials on Page 39 that provides details on the ramp-up. On Slide 9, this is an illustration of the draw point comparison of the current draw points compared to September of 2025. This is a plan view of the GBC extraction level withdrawal points in PB 2 and 3 color-coded to show the number of wet and dry draw points prior to suspending mining in September 2025 compared to what we're currently seeing today. As shown in September 2025, 30% of the total 635 active draw points were wet compared with 45% currently, a 50% increase in the wet draw points. For blending purposes, we require a minimum of 1:1 ratio of dry to wet material measured within each panel to meet the requirements of our existing shot design. Currently, there are 10 panels out of a total of 23 compared to only 1 in September, which do not meet the 1:1 dry-to-wet ratio criteria, resulting in a derating of production until the chute modifications are in service. We're continuing to monitor the draw points to determine potential changes and the possibility that conditions could become drier as mining rates continue. However, we believe proceeding with these modifications will provide more robust material handling systems and enhanced flexibility as we go forward over the long term. On Slide 10, we show a diagram to illustrate the mine layout and the planned modifications downstream of the extraction level. As illustrated, mining occurs on the extraction level, and that's not where the issue is. The issue is with the ore sent to the haulage level through ore and chute passes. The bottleneck we are addressing relates to the shots that are used to load the automated trains at the haulage level, and we show photos of the current shot design and the replacement equipment to regulate the flow of wet material into the railcars. This is a robust solution. There's additional information on Slide 37 in the reference materials to show you the design of these regulators. Summing this up, we provide on Slide 11 reports of PTFI's revised 5-year production forecast. We've incorporated adjustments to our ramp-up schedule. And over the 5 years, the revision for the Grasberg district reflects an approximate 9% reduction for copper and 7% for gold with the largest impacts in 2026 and 2027. Again, this material is not lost and is expected to be recovered over time. As I mentioned, we're in the early stages of the ramp up. There are a number of factors that would provide upside to these estimates as well as a number of risks. Again, this is not a resource recovery issue or a significant cost issue to resolve. It's a timing issue, and we will work to optimize the plans as we go forward. Our team is highly experienced, and we're confident in our ability to successfully address the current bottlenecks and restore large-scale production safely and efficiently. Moving to our growth, which is a very exciting feature of the report. As I mentioned, we're looking at the fundamental outlook for copper. It's very clear additional copper supplies are required to support energy infrastructure, new technologies and more advanced societies. At Freeport, we benefit from a portfolio of organic growth opportunities, which can be developed from our known resources in jurisdictions where we have established history and experience. Our projects in Indonesia also have the benefit of high gold content that come with copper. Because our projects are brownfield in nature, we benefit from leveraging existing infrastructure, economies of scale, experienced workforces and relationships with key stakeholders to move more quickly with less risk than a greenfield project. We're entering a period of growth in our Americas business with near- and medium-term opportunities to scale our leach initiative and double production at our Bagdad mine in Arizona. We have longer-term growth in the Safford/Lone Star District and an exciting project at El Abra in Chile. We're using innovative approaches with our projects to improve efficiencies, reduce costs and reduce capital intensity and shorten the lead times for our projects. The high potential low-cost innovative leach initiative is a great example of this, and it's likely one of the highest NPV opportunities across the industry. We have projects in the 2026 pipeline to test injection of heated solutions into our stockpiles, which together with additives have potential for significant recovery gains. This year, particularly in the second half, will be an important year as we get results from our heat trials, advance our additive deployment and work to scale next year to 400 million pounds per annum from this initiative and to define our path to 800 million pounds by as soon as 2030. The expansion opportunity at Bagdad is moving toward an investment decision. We're advancing engineering, retesting our capital cost estimates and economic evaluations and working with our vendors to secure pricing on major components. We're continuing to advance our work on tailings infrastructure there to further enhance optionality on the timing of the project. As a reminder, there are no permitting hurdles, and we've done a significant amount of work, planning and early works so that we can complete the project within a 3- to 4-year time frame. Studies are continuing in the Safford/Lone Star District to evaluate the optimal expansion and development options, and we continue to work to capitalize on the large undeveloped resource we have at Safford/Lone Star in an established U.S. mining district. At El Abra, we have a great opportunity with our partner, CODELCO, to develop a large-scale expansion. This is a significant resource with total copper reserves at El Abra approaching the size of the large position we have at Cerro Verde. As Richard mentioned, we were in Chile last week, and the project is being received very positively by our stakeholders. The Chilean government is enthusiastic about the project and is working with us to achieve a timely review of the application. We're also continuing to progress the Kucing Liar project in Indonesia, to sustain a low-cost, long-term production profile in this prolific district. On Slide 13, to wrap up my comments and then Maree will cover the financials, a significant portion of our reserves, resources and future growth are in the United States. Freeport is an important American copper producer and is by far the largest contributor to the U.S. copper market with an established and successful franchise dating back to the late 1800s. We call ourselves America's Copper Champion, and we are aggressively pursuing a series of initiatives to enhance our U.S. business through innovation, automation and investment in expanded facilities. These initiatives are designed to add production at a low incremental cost and improve profitability and resiliency of our valuable U.S. business. In an industry where development lead times can span more than a decade, our U.S. business is strongly positioned with the potential for a 60% increase in copper production over the next several years. Our team is excited about these opportunities, and they represent a significant value driver for all of Freeport. As I mentioned, we are working to improve our cost position in the U.S., and we've got our sights on targeted reductions as we go into 2027 and beyond. While we're currently facing some new challenges with rising energy costs and other consumables, the work we are doing within our control will make our U.S. business more resilient, more profitable and meaningfully more valuable. I'll turn the call over to Maree, who will review our outlook, and then we'll take your questions. Thanks.

Thanks, Kathleen. On Slide 14, we show our 3-year outlook for sales volumes of copper, gold and molybdenum. The outlook incorporates the adjusted ramp-up schedule for Grasberg that Kathleen reviewed earlier, which is the primary change from our prior estimates. As discussed earlier, these changes are timing in nature and will be recovered in the future. We expect growing volumes in 2027 and 2028 as we reach full recovery at Grasberg. We provide quarterly estimates on Page 27 of the reference materials. As ramp-up progresses, our second half volumes are expected to be approximately 30% higher for copper and approximately 50% higher for gold compared with the first half, driving earnings and cash flow in the balance of the year. On Slide 15, we highlight renewed cost pressures we are experiencing since the onset of the conflict with Iran in late February. The price of diesel fuel, which we use to support our haul trucks in the Americas and for a portion of our power plant in Indonesia has been volatile with the most significant impact in Indonesia. To date, it has been more of a cost issue than a sourcing issue, but we continue to monitor the situation carefully. For reference, a sharp rise in diesel prices in March equates to an approximate $500 million cost increase on an annualized basis. We are also monitoring the sulfuric acid situation where prices more than doubled on the spot market. We do not have significant exposure to the spot market, and we are further insulated to sulfuric acid market volatility through our natural hedge from our smelters. We have incorporated recent diesel prices in our updated forecast and have also incorporated updated assumptions for higher gold and molybdenum prices. With these updates and the revised production profile, our current outlook for net unit costs is expected to average $1.95 per pound of copper for the year compared with the prior estimate of $1.75 per pound. The primary driver of the change reflects the lower contribution of Grasberg volumes. Putting together our projected volumes and cost estimates, we show modeled results on Slide 16 for EBITDA and cash flow at various copper prices ranging from $5 to $7 per pound. Whilst we do not project prices, we modified the range to show sensitivities with upside and downside to the current prices. These are modeled results using the average of 2027 and 2028 with current volume and cost estimates and holding gold flat at $4,500 per ounce and molybdenum flat at $25 per pound. Annual EBITDA would range from approximately $14 billion per annum at $5 copper to $21 billion at $7 copper, with operating cash flows ranging from approximately $10 billion per year at $5 to $16 billion at $7 copper. You will note we're highly leveraged to copper prices with each $0.10 per pound change equating to approximately $400 million in annual EBITDA in the 2027-28 period. We will also benefit from improving gold prices with each $100 per ounce change in price approximating $110 million in annual EBITDA. With our long lead reserves and large-scale production, we are well positioned to generate substantial cash flow to fund future organic growth and cash returns under our performance-based payout framework. Slide 17 shows our current forecast for capital expenditures in 2026 and 2027. Capital expenditures are similar to our prior estimates and are expected to approximate $4.3 billion in 2026 and $4.5 billion in 2027. The discretionary projects are expected to approximate $1.6 billion to $1.7 billion per year in 2026 and 2027, with roughly 50% related to the Kucing Liar development and the LNG project at Grasberg. The balance includes acceleration of tailings and other infrastructure to support Bagdad expansion, the Atlantic Copper Circular Project, which is expected to be completed during 2026, and capitalized interest. The discretionary category reflects the capital investments we are making in new projects that under our financial policy are funded with 50% of available cash that is not distributed. These projects are value-enhancing initiatives and are detailed on Slide 37 in our reference materials. We continue to carefully manage capital expenditure, and we'll continue to deploy capital strategically to projects with the best return and risk-reward profiles. Finally, on Slide 18, we reiterate the financial policy priorities centered on a strong balance sheet, cash returns to shareholders and investments in value-enhancing growth projects. Our balance sheet is solid with investment-grade ratings, strong credit metrics and flexibility within our debt targets to execute on our projects. We have no significant debt maturities through 2026 and have substantial flexibility for funding the 2027 maturities. Since adopting our financial policy in 2021, we have distributed $6 billion to shareholders through dividends and share purchases and have an attractive future long-term portfolio that will enable us to continue to build long-term value for shareholders. Our global team is focused on driving value in our business, committed to strong execution of our plans, providing cash to invest in profitable growth and returning cash to shareholders. Thank you for your attention. We'll now take your questions.

I wanted to explore the level of confidence you have in the new guidance for Grasberg. The revisions were obviously a surprise. As you move forward, are there specific points or areas where you think there might be a higher risk of reductions to production or to ramp-up that we should be aware of, which may or may not materialize? Kathleen, could you highlight what those would be?

Yes. Thank you, Carlos. The main thing that we are doing to resolve the issue is to install these regulators into the chute systems. Right now, we have the capacity to mine the material, but we're limited because of the need to have a certain type of consistency to go through the chutes. And so when we think about what the risks to the ramp-up are at this point, it is really a construction schedule and a delivery schedule from our vendor, who we were already working with. We've got some of the equipment already on site. It will be installed on a phased basis, and we have over the coming months additional equipment that will be coming to us so that we can install these—we call them spilmenators—onto the shots. So really, it's a situation where the bottlenecks will be addressed by the installation of this equipment. And we have equipment on site now. We've got equipment on order, and it's a matter of meeting that execution timetable. I want to go back to this team and what this team accomplishes in terms of the ability to construct things at Grasberg. This is not a lot different than a lot of the things that the team has done in the past. The work that they did to prepare for restart was a really busy schedule, a lot of moving pieces, and the team did an excellent job with the support from our centralized team to execute the plan, and we'll approach this in the very same way. It's got one of the highest net present values in the business right now to get this up and running. And our team is all over it. We have confidence in the ability to meet the plan. Now the risks are that there could be delays in getting the materials. There could be construction delays, but that has been—we've managed that through this plan that we put forward, and we'll stay on top of it until it's done. Mark Johnson is on the call as well. Mark, if you want to add any color to what we're doing there, please go ahead.

Yes, Kathleen. We've had one of these spilmenators—what we called a prototype—about a year ago that we call Version 1. What we're installing now is a reengineered version, Version 1.5. We've got the first one installed last week, independent of some of the recent realization on the shift in material types. So we're testing that starting this weekend. As you mentioned, we've got a number more on site. Our fabrication is taking place in Indonesia. And the group that's doing it has been very responsive to our needs. We're looking at wrapping up the capacity of that plant in Indonesia. And then also the team is looking at other ways to shorten the construction cycle on the chutes. So what we've taken and what we put into the plan is what we know we can do from the past. And then, like you mentioned, we'll be continuing to look for things to do that we could optimize and make that installation just that much more simple and quick.

Carlos, one other thing, and Mark can add to this, but we want to reiterate that we are in the very early stages of the ramp-up. The sampling that we did of all of the draw points is, as of the present time, we have a process where we sample and inspect the draw points on a regular basis. As we continue to mine, it could be that some of this bottleneck gets resolved and our traditional blending systems can accommodate the material. We have not counted on that in this forecast. We've counted on using this more robust system of regulating the flow in the chute, but we could have a situation where the material becomes drier as material is mined. Mark, you can add to that if you'd like.

Yes. It was kind of the unfortunate timing of ramping up just as we were doing the forecast process, really at the beginning of March. I think our forecast based on the knowledge at that time would have been very similar to the previous estimate. So what we've done, as Kathleen has mentioned, as we started mucking, we had a higher incidence of spills occurring. Some of the material that we began mucking shifted to wetter material. So what we've done is implemented what we know today and used that as our basis. What we do know is, as we mark the porosity of the material above, that will improve. And that's the sort of upside we might have: as we get a broader footprint, as we begin mining more draw points and more panels, some of these could convert back to where they were. It's a process where we—as we're mucking—we do a very frequent assessment. So it's a very dynamic process. We already mine each panel, as Kathleen mentioned, remotely. It only takes one draw point within a panel to be wet for us to do the remote mining. So we were set up to do that from the onset. And now it's just a matter of that ratio within each panel. There's also implications from panels adjacent to a wet panel. The team has also been very innovative in being able to remotely manage other aspects within the panel like rock breakage and hung-up panels. And so it's more than just the remote mucking. There's a number of other initiatives that we're pursuing that will increase the availability of the draw points.

Maybe a very, very quick follow-up. Can the regulators handle drier material if the ratio improves over time?

Yes. Yes. It's really about being able to shut off the flow if it gets very sloppy, and it's a very innovative design, where the gate and the hydraulic grams actually, as the material starts to flow it assists in us being able to shut off the flow if we need to. So it's a matter of preventing spills from happening on our haulage level onto the trains. But it will also handle the dry material.

It's a very flexible, robust system. And as we mentioned, we had planned over the long term to install it, and now we're accelerating that to make the system more flexible and robust to handle any type of material.

Not to Monday morning quarterback, but you've got a very experienced team there at Grasberg. How is this issue missed in the initial assessment that water would start to build up as mining was halted? And then maybe in layman's terms, why not add more drainage to the mine?

Mark, why don't you take the second part of that and explain what we're doing. In terms of the first part, Alex, we have monitoring of the water coming in and out of the cave. And so there was nothing that was detected of any significance or any significant concern. It's just a matter of getting access to each of these draw points and to be able to inspect them, and we couldn't do that until we got access in this March time frame. It doesn't take a lot for something to move from dry to wet, and it's just a small amount of moisture. So this isn't like a lot of water or some big overwhelming situation, it's just the nature of what's slightly moist versus what's completely dry. But we do have a number of initiatives, and that's what I wanted Mark to cover—there are a number of initiatives that we started after the incident last September to address a more robust drainage system. The one we have now within the Block Cave in terms of the gravity drainage is very good. The one that we are pursuing is additional drainage from the surface. Mark, please cover that and the supplemental information we have.

Right. Yes. The slide that you're referring to is 41. But Alex, what we have right now and what we've had in place for years is that we have a pretty comprehensive drainage plan from the surface in the open pit where the pit has not been impacted. You're aware that as we block cave, there's a subsiding zone where the rock breaks. And where we have the wet muck coming from is the rainfall that falls onto that broken material. Our drainage system, both for groundwater and for the surface area that's been unimpacted, is very robust. It's been in place and functioning. But the wet muck generation comes from the daily rainfall: it falls onto that broken rock, it works its way down through the cave, and as it gets to a draw point, that draw point turns into somewhat of a funnel where it concentrates some of that flow within that broken rock. And as Kathleen mentioned, it's only a couple of percent difference in moisture content that can convert material from a dry material that we can handle easily to a wetter material that we need to manage much more significantly. So it's not a matter really of drainage deficiency, but what we are doing as a result of the external mud rush and the other incident is that we're looking to be able to drain the water away that collects within the cave, essentially in that shape of the old pit. We're drilling into some of that broken rock above PB 1 and we're seeing some initial indications even with the smaller diameter drill holes that we've been able to access some of that water, which is encouraging. We're getting other drills that will drill those holes much quicker and at a bigger diameter. Those are on schedule and should be drilling by the end of June. Then we have some other initiatives that are more focused on PB 1, reopening and taking away that surface water that ponds or pools and any mud-like material that might gather in the pit bottom.

Just a couple of follow-up questions on Grasberg and kind of following up on what Alex just asked. So if we look at the portion of wet draw points before the mud rush, I think you said it was 30% and it's 45% now. So my first question is, what sort of variability is there around that number? In other words, was it at 30% but sometimes 35%, sometimes 25%? What level of confidence do you have in the ratio of dry to wet today? And that's the first question. Second question is on—when did you identify that there were too many wet draw points? I think there was a media report a couple of weeks ago that indicated that Freeport was actually ahead of schedule on the block cave ramp. And maybe that was an incorrect media report, but I'm wondering if this is something that you just learned very recently and was not an obvious problem just a few weeks ago.

Chris, on the diagram we show on Slide 9 the number of draw points dry-to-wet comparison. The important thing to look at here is also the panel. So in September, we had only one panel within PB 2 and 3 that didn't meet the ratio and we were dealing with that with blending, so that was only one we were addressing. Now, you've got 10 out of 23 panels that don't meet the one-to-one. So what ends up happening is derating the production of the whole panel because you can only produce at the level of the 1:1 until we get these enhanced material handling systems installed. That's an important factor in what's going on within each panel. In terms of variability, Mark can comment further on this. But we do have ongoing monitoring that looks to see and our processes monitor these draw points for planning and management systems. Since we started mining, we have had some draw points that were wet initially in March go to dry and vice versa. So it is a little bit of a dynamic situation right now in the very early days of the ramp-up. As Mark talked about earlier, the timing of all this is we had just really commenced the ramp-up, and so there was new information that we were getting along the way in April as we were going through the forecasting process. At Freeport, we did not modify any of our guidance; the actual progress we were making on the ramp-up in terms of the restart was going very well. Some of the media reports that you may be referencing relate to discussions in Indonesia, where there could be government people or media asking about the plan. Those would have been based on our original plan because we had not formalized our forecast until recently. Again, the recovery and the preparedness to get to the ramp-up was going very well, and it's only this new information that has been unfolding in recent weeks where we had to address the forecast. It's very early days and things can move from here, but we do have a solution. We're going to execute against that solution, and it's a positive long-term solution to give us flexibility to deal with these sorts of things as we go forward over the long term.

I might just add, since the start of the Grasberg program, we've had a model that predicts the future wet-to-dry ratio. All the way through the life of PB 2 and 3, that ratio is generally 2:1—two dry draw points to one wet. There'd be some panels that vary—the variability is more across the footprint. But broadly, we had a much better ratio that we've been forecasting and using that as part of our mine plans; that's a big part of the reason that we built GBC to be able to be remotely mined from the onset. So we've been working on this for quite some time. It's a bit of a complex model. It's both material characteristics from size and then managing how the water makes its way through the broken rock mass. Our indications over the longer term were much different and did not indicate the immediate need for the stilminators at this point of the mine. As Kathleen mentioned, we were working on that and saw certain panels that would require it. But what we've looked at now is taking what we have today and just applying that to make sure that the chutes themselves are not the bottleneck. So the current plan is that we will replace all the chutes and have that additional flexibility.

Just wanted to switch gears a little bit here. You mentioned deploying the first internally developed additive and working on a second additive in North America. How established are the supply chains for each of these? And how quickly can you scale those additives, and how much of the 800 million pound target incremental for leaching is a result from these new additives? And then lastly, given the increased diesel cost and global supply chain pressures, is there any risk for the $2.50 unit cost targets for North America in '27?

Thank you, Nick. In terms of the additive that we're deploying now—we started with one stockpile at Morenci and are now deploying it more broadly across the stockpiles at Morenci—that additive is readily available. We have a supply chain for it and it's being applied; the results will continue to evolve as we go through the year, and that's the data that we want to see. In the lab, the next-generation additives we've been developing—we have two additional additives that we're focused on and maybe more after that. They show a multiplier effect versus the one we're using now. We've been working with potential suppliers on those; they are not as easy to source and we may have to have some made specifically. We've been conducting meetings in recent months anticipating commercialization of one or more of those additives, and that's showing potential. To answer your question about scaling, it's the combination of additives and heat that is going to get us to the 800 million pounds. At current levels, all of the operational initiatives on precision leaching put us in the 250-300 million pound range. The remainder really comes from additives and heat. It's not just one by itself because the combination of additive and heat could give you a 1 plus 1 equals 2.5 or 3 result. That's why the heat work is very important to get to our ramp-up rates. We've just started at Morenci with a pilot to heat the raffinate and to try to raise temperatures within the stockpile; we've literally just started this test. We have an idea to put in some modular units of heat that could be applied to our stockpiles. Initially, we're using natural gas to heat, but we're very excited about the potential to have geothermal heat at Morenci; we've got promise there and are doing some drilling to define a geothermal resource that would be a low-cost way to heat the stockpiles. So we know that heat works—raising the temperature of the stockpile will add volumes of significance—and that, combined with the additive, we have a path to getting to 800 million. We've got to solve what's the right additive for different material types and solve the engineering of how to best get the temperatures raised in the stockpile. Cory Stevens is on and his team are leading this effort, and I'll ask Cory to add color. On your final question about the $2.50 unit cost target for North America in '27, with the changes in consumable costs and energy costs, we're reviewing what all that means, and it's been volatile. If you look at recent input cost changes, together with the addition of these low-cost incremental pounds to get to our 400 million pound target next year, we had a path to get to $2.50. We now need to look at what the right environment is for inputs we don't control, like the cost of diesel and other inputs. That will cause us to re-evaluate the $2.50 target, but the fundamentals are intact. With the things we can control, we're working hard and have confidence that our unit cost will trend lower, all else equal. The sulfuric acid situation—while Maree said we don't have a lot of spot exposure this year—we'll have to see how that unfolds into 2027. While we're hedged naturally because we have smelters, the cost of acid we buy will be shown in the operating cost for the U.S., and we'll have offsets elsewhere with the smelters where we produce and sell acid. I hope that gives you some color.

Yes. Thanks, Kathleen. We're running a pilot and using that to calibrate heat models and what we would expect at Morenci. In parallel, we've got a bigger project going where we're going to be tripling the size of that for our El Abra operation that's going to add some volumes there. Additionally, we have a number of other targets where we're looking at a modularized version that can be deployed more readily across the portfolio, particularly in North America. We're pretty excited about where we're headed on that front. Additionally, there's options with chemical heat using pyrite and air. In the second quarter, we're going to be starting what we call our perfect pile in New Mexico, and that will have a next-generation design on being able to leverage heat from the natural pyrite that comes with the process there.

Nick, on the $2.50 question with changes in consumable and energy costs, we are monitoring and reviewing impacts. It's been volatile, but the path to materially lower U.S. unit costs is intact through incremental low-cost pounds from leach and operational improvements. We will continue to monitor the external input costs and update guidance as appropriate.

Staying on the leaching theme. You all have been on a tear in terms of getting patents. I think you've had more patents in the last 3 years than you had in the previous 10, many related to leaching. What's the philosophy of those patents? Are they sort of defensive to make sure you can execute on your inventory and resource, or could they potentially be offensive where you could partner and get access to additional resources with your technology?

I'll let Cory add to this, but it's really both. Our focus is on the 40-plus billion pounds of copper in our existing stockpiles that historically have been treated as waste. There is a huge value opportunity for us and that's our immediate priority—to recover copper sitting in stockpiles, which needs a catalyst to produce it. That is our first priority. Second, yes, we could leverage technologies that we develop to potentially partner with others and potentially realize synergies in commercial partnerships or M&A. But our first priority is to maximize the value of our own inventory. The team we have working on this is very strong; we have a technology center in Tucson and recently added chemists and other disciplines. It's a multi-disciplinary team working not only on the best additive, but also on commercialization. Our corporate development team has been involved. It's a very high NPV project that could transform our U.S. business and we're making a lot of advances to crack the code as we go forward.

Yes, Kathleen nailed it. We're moving forward with a powerful group of innovators and filling the pipeline. The approximately 42 billion pounds within our existing stockpiles don't count other options we have for below cut-off grade material that we're considering ways to monetize. It's a competitive market, and so we're being careful to protect our interests as we develop these innovations.

If I could, I'd like to follow up on the theme of industry cost pressures and just get a sense for what you provided on the slides. Maybe this is best addressed by Maree, just in terms of the sensitivity of diesel. It looks like diesel sensitivity has actually increased versus the Q4 slides. Can you walk through why that would happen and why there'd be a larger impact on EBITDA now than there was 3 months ago?

I think Maree reviewed our sensitivities to copper and all of our input costs. What we do to calculate the sensitivities is use what's in that forecast for diesel price assumptions and then measure a plus or minus 10% change to that. So we have now incorporated a higher cost of diesel in our assumptions than what we had previously, and that's why a 10% change has a larger impact than before. Maree, do you want to add anything?

Yes. That makes sense. It seems a bit nonlinear, but you're just assuming much higher diesel as a base case at this point?

Right, yes. We use the prices in effect around the time of the forecast. The business has been volatile, but the prices we used for 2027 and 2028 have higher diesel costs than they would have three months ago, and we'll continue to monitor that.

Okay. That makes perfect sense. And then thinking about industry cost pressures, you've mentioned explosives costs being higher, grinding media—are there other key cost items where you feel there's some level of insulation, and where are the other items where you might not have insulation and there could be more exposure?

It's been very regional. As Maree mentioned, we've seen a significant rise in diesel costs, with the most significant impact in Indonesia and other Asian regions. We haven't yet seen broad adjustments in contractually purchased items flow through; those typically lag. Some things that trade on the spot market have reacted quickly, but a lot of our consumables are contractually negotiated and we have some natural hedges. We'll continue to monitor the situation as it evolves and assess implications for 2027.

Recently, we saw a change to Section 232 tariffs impacting derivative products. Do you see any impact from that, or do you expect any impact?

Not associated with what we sell. The coding changes did not change anything with respect to refined copper cathodes at this point. As you know, the government said they were going to be reviewing this potentially by the middle of the year.

And then maybe just quickly—I know you mentioned sulfuric acid hedging—can you let us know how much of it you actually purchase in the U.S. for your U.S. operations?

It varies, but we do purchase some acid in the U.S. We also have a sulfur burner where we buy sulfur and convert that to acid at our Safford operation. So it varies in terms of what we buy and what we internally generate. We internally generate a significant portion of what's needed in the U.S. And then, of course, in Spain where we have a smelter that's sold externally, and in Indonesia we sell acid as Grasberg ramps up; we will begin selling more acid as we operate both smelters in Indonesia. So overall, we're net long and we don't have a lot of exposure to the spot market at this point. If the situation continues, we'll reassess implications for 2027.

Two questions from me. I wanted to follow up on the Grasberg forecast. I know you talked about it being a timing issue, but I noticed there are small revisions that extend out to 2029. Could you provide color there? And then pivoting to Peru, I'd be interested in your thoughts on the upcoming political election given your presence at Cerro Verde.

On Grasberg, the real impacts are in 2026 and 2027. We have a small impact in 2028 and 2029, but those are marginal. We're not projecting any long-term issue related to the material handling issue as we move into those years. It's primarily a timing effect from the ramp-up adjustments. Regarding Peru, we work with any administration. There have been many presidents in Peru in recent years, and we're prepared to work with whoever is elected. We have a very good relationship with local communities, which is important in Peru. We know we have to earn that relationship every day. Our partnership on water supply to Arequipa has been very positive for Cerro Verde. We expect to continue to be a good corporate citizen and maintain strong local relationships regardless of political changes.

Let me just add that what Kathleen mentioned about our relationship with Arequipa is really special and our team down there deserves a lot of credit for the way they've built relationships with the community. Many other mining operations face community challenges, but our team has operated well. Politics are complicated, but you can look at our operating record and see how we've operated at Cerro Verde throughout changing administrations, and I'm confident we'll continue to do so.

A couple for me, please. I noticed the idle cost recovery costs at Grasberg went up to $1.3 billion from $900 million previously in terms of costs that are being excluded from your reported cash costs. Is that incremental dollars going out, or is that you're just shielding more of that from being included in cash costs?

That's basically because we're not at full capacity in the second half; a portion of our costs are expensed and don't go through inventory and cost of sales. So it's not an increase in absolute cost in that sense. It's a characterization of whether it's included in our unit costs or how it's treated for accounting purposes. We're following accounting guidance, and as we modified the ramp-up schedule and since we're not at capacity yet, a portion of our costs are treated as idle and are expensed right away. So that's what that change reflects; it's consistent with the methodology.

Okay. Perfect. And then just coming back to the operating recovery at Grasberg. You've identified the chutes as being a bottleneck here for the more substantial level of wet ore. Are there any other potential bottlenecks ahead as this gets solved that could play into the recovery rates?

This is the main one. Our plan in terms of mining has been to have the mining capacity and the loading capacity at the extraction level to handle wet material. This is really a logistical issue of how to get it loaded onto the trains. Solving this issue will enable the large-scale ramp-up.

Okay. But the wet versus dry doesn't impact the capacity of the trains. Is that correct?

Right.

Two quick follow-ups. Firstly, looking at Slide 9 again, it doesn't look like there's been any significant change in the ratio of wet to dry in PB 1S or other sections. Is that the right read? And then—are you also installing similar modifications to the systems in PB 1S to ensure you can achieve nameplate capacity even if the ratio is higher in that zone as well?

This chart really deals with the wet-to-dry comparison in PB 2 and PB 3. PB 1 is still being worked on to be in a position to restart PB 1 South by the middle of next year. So this chart deals with PB 2 and 3. In terms of the overall contribution of PB 1 and ultimately PB 1C, it's relatively small in these forecasts. Our initial focus is to get scale from PB 2 and PB 3, then optimize PB 1S. As Mark said, as we get more derisking done with surface drainage work, we can consider reopening PB 1C. But the plan through the 2026-28 time frame is largely reliant on the PB 2 and PB 3 ramp-up.

I would add that the chutes in PB 1 were damaged by the external mud rush. So the plan was to replace them with the newer technology as part of the restart sequence.

Okay. And then just a final one: what is the CapEx associated with these modifications? And there's been no change to group CapEx guidance? If you've deferred CapEx, is there any implication on the mine plan beyond 2030?

These are not terribly expensive pieces of equipment. We've added on the order of $60 million to $70 million in CapEx associated with the chute modifications and related works, and there were some timing variances within the plan that offset that. So it wasn't a major cost driver, particularly considering how much copper and gold production you get from having this fixed. There is no change to our long-term mine plan beyond timing impacts in the near term; this is a timing and engineering fix, not a change to ultimate recovery.

Well, thank you, everyone, and thanks for taking so much time with us. We'll continue to report our progress as we go forward and we're available if anybody has any follow-ups. Thank you very much.

Thanks a lot, everyone. I can assure you we're going to be transparent in all things that go on with this ramp up. Thanks a lot.