Freeport-McMoRan Inc. (FCX) Q3 2010 Earnings Report, Transcript and Summary

Ladies and gentlemen, thank you for standing by. Welcome to the Freeport-McMoRan Copper & Gold Third Quarter Earnings Conference Call. [Operator Instructions] I would now like to turn the conference over to Ms. Kathleen Quirk, Executive Vice President and Chief Financial Officer. Please go ahead, ma'am.

Thank you, and good morning, everyone. Welcome to the Freeport-McMoRan Copper & Gold Inc. Third Quarter 2010 Earnings Conference Call. Our results were released earlier this morning, and a copy of the press release is 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 conference call. As usual, we have several slides to supplement our comments this morning, and they are also available on our website at fcx.com. In addition to analysts and investors, the financial press has been invited to listen to today's call, and a replay of the webcast is available later today on our website. Before we begin today's comments, we'd like to remind everyone that today's press release and certain of our comments on this call will include forward-looking statements. Please refer to the cautionary language included in our press release and presentation materials and to the risk factors described in our SEC filings. On the call today are Chairman of the Board, Jim Bob Moffett; Richard Adkerson, our President and Chief Executive Officer. We also have Mark Johnson here, as well as Red Conger. I'll start by briefly summarizing our financial results and then turn the call over to Richard who'll be reviewing our presentation materials including our recent performance and outlook. After our formal remarks, we'll open up the call for questions. Today, FCX reported excellent third quarter results, reflecting strong production and cost performance. Net income attributable to common stock totaled $1.2 billion or $2.49 per share for the third quarter of 2010, compared with net income of $925 million or $2.07 per share for the year-ago third quarter. Our third quarter consolidated copper sales of 1.1 billion pounds were higher than our previous estimate of 970 million pounds and the third quarter 2009 copper sales of 1 billion pounds. The variance to our previous estimates primarily reflects favorable production performance at our Grasberg mine in Indonesia and the timing of shipments as we advanced some scheduled sales from the fourth quarter into the third quarter. The variance to the 2009 period primarily reflects higher copper ore grades and mill throughput in South America, a higher share of Grasberg volumes and a higher contribution from our Tenke Fungurume mine in Africa. This was partly offset by lower ore grades in North America. Our third quarter 2010 consolidated gold sales of 497,000 ounces were higher than the July 2010 estimates of 410,000 ounces, but as anticipated were significantly lower than third quarter 2009 sales of 706,000 ounces. The variance to our previous estimate primarily reflects favorable production performance at Grasberg. Third quarter 2010 consolidated molybdenum sales of 17 million pounds were higher than our estimate of 15 million pounds and the third quarter 2009 sales level of 16 million pounds because of improved demand in the chemicals sector for molybdenum. Our third quarter results included positive pricing of our key commodities: Copper, gold and molybdenum. Our recorded average price for copper was $3.50 per pound in the third quarter, which was $0.75 higher than last year's third quarter. For gold, our realized price was $1,266 per ounce compared with $987 per ounce in the third quarter 2009, and our realized price of molybdenum of just over $16 per pound was 15% higher than last year's third quarter. As anticipated, our consolidated unit site production costs of $1.38 per pound were higher than the third quarter of 2009, which was $1.15 per pound. Our third quarter 2010 unit net cash costs, net of by-product credits averaged $0.82 per pound in the third quarter of 2010 compared with $0.50 per pound in the year-ago period. The higher unit net cash cost in the 2010 period primarily reflects increased input costs and lower by-product gold credits. Our operating cash flows in the third quarter totaled $1.3 billion. That was net of $636 million in working capital requirements primarily related to an increase in receivables during the quarter. Our operating cash flows were significantly above our capital expenditures of $350 million. Our operating cash flows for the first nine months totaled $4.2 billion, and capital expenditures were just under $900 million. We ended the quarter in a very strong financial position. At September 30, our total debt approximated $4.8 billion and consolidated cash approximated $3.7 billion. At September 30, we had approximately 471 million shares of common stock outstanding. You've probably seen also that we had a separate release where we announced today that our Board of Directors has authorized an increase in our annual cash dividend on our common stock from the previous level of $1.20 per share per annum to $2 per share. The first quarterly dividend at the new rate of $0.50 per share per quarter is expected to be paid on February 1, 2010. And now, I'd like to turn the call over to Richard, who will be referring to the slide presentation materials.

Thanks, Kathleen. Good morning, everyone. We're having an unusual rainy morning here in Phoenix, but we've got a room full of sunny faces here at our company. We're just real pleased to report these excellent financial results that Kathleen just reviewed with you, the strong production and cost performance, and despite the negative news we hear everyday about the economy in the U.S. and Europe, we're seeing such positive pricing for our key commodities led of course by China, but we're seeing stronger markets in the U.S. and Europe than you might be led to believe based on the general economic conditions. As a result of that, we are taking steps that we have begun earlier in the year to increase our near-term copper production, and we're announcing today, including today's announcement of resuming mining activities at our Chino mine in New Mexico, which we had suspended in 2008. We're placing our highest priority on the use of our cash that we're generating from operations in investing in growth projects and expansion plans, and we're aggressively going after those and looking for new ones. And even with that, considering our strong cash flows, it allowed our board to increase our dividend back to the $2 a share level that we had set midway in 2008, and so we're back to those levels and have the ability to generate substantial cash to return to shareholders even as we're investing in growth. The financial results speak for themselves in many ways, but we again had a very strong operating performances by our team around the world. With Grasberg, who we have the great ability to optimize mine plants on a current basis, we're able to advance some volumes from that were designed to be produced in future periods, and that's an effort we try to do every quarter, and we're in the highest grade section of that mine, a little bit of volumes of ore can add significant volumes of copper and gold. But our teams in the Americas, and Red Conger is here, did it another great job in operating our mines there. In Morenci North America, we benefited last year by the fact that we had such high mine rates in previous years, and we're seeing some of those effects, but we're increasing our mine rates and that will point to higher volumes as we go forward in the future. A very significant increase in gold volumes and of course, with the high price of gold, that's a big, significant benefit in terms of generating value for our credits. But we had over $4 billion of operating cash flows for the nine months of this year and capital expenditures at $877 billion. That's a great performance from our business. On Page 5, we have our unit costs results. We were able to do a little better than what we had anticipated. We knew going into this we had some volume effects in North America and some input cost increases that go along with the current economic conditions, but we're very pleased with our cost position, and obviously having our company producing roughly 4 billion pounds of copper a year and our average cost for the quarter was $0.82 a pound, these copper price levels we're doing very well. You can see how our sales are distributed by region in North America, South American and Indonesia. And again, this points out to a very significant performance. For gold in Indonesia this year, even though it was something that was significantly less than last year when we had more high-grade ore available to us at the bottom of the pit. Markets are strong. I would say in the U.S., they're unusually strong. And the spot market for refined copper, material is scarce, premiums are strong. We're seeing strong business in Europe even in the face of weak economic data and low consumer confidence and weak commercial and residential sectors of the economy. In certain segments, the automobile, the export business, electronics in the U.S. is causing us to have benefit from a tight market. China imports continue to remain strong. Import set records in 2009 and there was a lot of expectation going into this year that we would see a drop-off in imports of copper into China this year. That has not occurred, the strength of the internal Chinese economy is being evident, and the country continues to invest in infrastructure, and we're very encouraged by the Chinese story. Exchange stocks continue to drop as evidenced of the tight markets. Exchange stocks are off 30% from their highs that they reached in February. Everyday, we read about record gold prices and that benefits us. Molybdenum markets have remained in recent weeks relatively stable, with prices remaining at the $15 a pound range, and that's a strong benefit to us at those price levels. Looking at our individual operations, I mentioned Morenci. We have restarted the mill there, which we have suspended in 2008. We averaged over 30,000 tons per day in the third quarter, and we're ramping up to 50,000 tons a day, and that gives us the chance to mine some sulfide ore, process some sulfide ore that we otherwise would not be able to with our leaching operations. We've increased our mine rate from the reduced rate of 500,000 short tons, we were over 1 million short tons before we cut back in 2008, we're now at 700,000 short tons and we're looking at the opportunities to increase it further. This involves some additional stripping to expose ore. Most of that ore goes on leach pads and the copper comes out over time as opposed to have an immediate impact, and that results in us having an impact on costs and that's in the range of 8% to 10%, but we are looking at increasing volumes, and at Morenci, it's a great ore body and it has very significant expansion opportunities for the future. In the Miami historical mining district, we began stripping activities in the first quarter of '10, and we were going to do this earlier but we suspended it in 2008. We were mining at a rate of 150,000 tons per day in the third quarter. We're ramping up to 100 million pounds of copper a year by the second half of 2011 at relatively little capital cost requirements. We are in construction with our sulfur burner at Safford. Safford's an orebody that requires significant acid to reach its potential. Of course, we have acid requirements at our other operations, most notably in Morenci, and the sulfur burner will allow us to manage our sulfur purchases and our position in the sulfur markets much more efficiently, and that construction is going very well. I mentioned in New Mexico that we are restarting the Chino mine, which was suspended. We did produce some small amounts of copper from leach pads, even though we had stopped mining. Now we're beginning to mine and are undertaking milling operations. It's about $150 million in restart cost. We're looking at incremental copper of 100 million pounds a year in 2012, 2013 and rising to 200 million pounds in 2014, and the economics for this are very attractive at today's copper prices, and it allows us to add volumes quickly in the near term. We're also completing our $50 million project at Cerro Verde in Peru, where we're able to raise our mill rate to 120,000 tons per day and add 30 million pounds of copper at a low cash cost. And the Cerro Verde project that we have mentioned in the past is one where we have a tremendous opportunity for large-scale expansions, and we will have a feasible study for the next expansion in the first half of next year. At El Abra, we did resume construction on the development of the large sulfide mineral deposits that underlies the existing depleting oxide resource. This project, we call Sulfolix will extend its life by 10 years and produce 300 million pounds of copper a year. It involves developing a new leach pad and modifying our crushing plant. The project is over half complete at this point. It involves capital of $725 million through 2015 with $565 million for the initial phase. As we continue to do our exploration analysis at El Abra, the sulfide resource continues to grow, and that gives us opportunity to look at a major mill expansion there that would be incremental to the Sulfolix project. Grasberg, we continually look how to maximize the ore body. That's an ongoing process for us. Today, we're announcing that we have made some mine changes to again add to the present value of the ore body. This means we're going to be mining more material out of the south section of the pit than the north section, changing our ramp system access to the higher-grade ore in the west wall. We end up mining roughly the same amount of material, and our current plan still calls for mining from the pit through mid-2016, but it does result in significant increases in metal production based on moving the same amount of material, and this is an ongoing process at Grasberg as we have these opportunities to add incremental value because of the very significant grades of copper and gold that we have there. Beyond the pit, we have very large undeveloped underground reserves, over 40 billion pounds of copper and 35 million ounces of proved and probable gold reserves. The DOZ now is operating at this 80,000 tons per day level, and that's a very, very large underground operation. We've been mining using blockading techniques at Grasberg now since the early 1980s. The Big Gossan mine, which is not a blockade mine, is but higher-grade a relatively small tonnage, but we're completing the development of it, and it will be off to operations in 2012. And when we look beyond the life of the Grasberg pit to the significant reserves that extend underneath where we'll be mining by the pit, we are making great progress in developing the infrastructure and beginning the mine development there so that we will have an effective transition from the pit to the underground. With the DOZ orebody, we have significant reserves at depth and adjacent to it, we call the Deep MLZ and we've completed our feasibility study there, and that will go right into production as the DOC depletes. It's a continuation of this long-term process we had in mining this mineralization and go deeper. After the pit depletes and after ramp-up, we'll be back to similar mill throughput levels that we have now using the pit in the DOZ. In Africa, we began production last year. We are meeting design volumes for copper and cobalt. We had 73 million pounds of copper and 6 million pounds of cobalt in the third quarter. The initial project was designed to produce annual metal rates of 250 million pounds of copper and over 18 million pounds of cobalt. The mill itself that was part of this initial development was designed to operate at 8,000 tons per day, and we actually had it going to 12,000 tons per day in the third quarter. And what this allows us to do is to optimize the existing system by buying some new mining equipment, and we've developed plans that's based on a 10,000 ton per day throughput through the mill, and that would increase our copper production to 290 million pounds on an annual basis. We've got the mining equipment on site and we're constructing the trucks now. Our exploration activities continue and point towards a series of future expansion opportunities for Tenke. We believe that this will give us the opportunity to develop this as a world-class mine, which will require significant investment in infrastructure improvements, but the resources there that gives us this great opportunity. We have made significant progress in our discussions with the government on our contract review. I was in the DRC a week before last, had good meetings with the President and other government officials. We expect a successful conclusion to these discussions on terms that are mutually satisfactory, and we expect that to be announced imminently. In our molybdenum business, our Climax project gives us one of the world's most attractive primary molybdenum development opportunities, a large-scale production capacity, attractive cash costs and the opportunity to expand. The project that we are pursuing involves 30 million pounds initially of molybdenum on an annual basis, as I said, it has the opportunity to expand. This is a total project of $700 million. We've spent a couple of hundred million dollars to date, so we have $500 million remaining. We continue to advance the project. We're spending roughly $60 million this year. We have in our plans, our capital budgets to date $225 million for next year. This will give us the opportunity to make the decision about when to hire people and set a start date for this project and we're assessing that now. But in the meantime, because of the strength of the markets, we made the decision to spend more on work that we've advanced this year and next year to give us the flexibility of starting when we conclude that the markets warrant restart. Slide 15 summarizes steps that we have taken and are taking now and shows that in aggregate, all of these projects, which are near-term, low costs in relation to new mine development, but they will provide for us annual copper production of 500 million pounds above what it otherwise would have been. And this just evidences our response, again earlier this year, to the more positive markets. Looking longer term, on Slide 16, we show our proved and probable copper reserves based on $1.60 mine plans at the end of 2009 where we had 104 million pounds of recoverable copper in those reserves. And then in addition to that, at a $2 copper price, we have more than 1 billion pounds of incremental copper in our mineralized material, and that's what gives us this tremendous opportunity to grow without having to buy or find new projects but to have the chance to have significant growth from our existing operations in brownfield development. And those are really around the world. Significant amounts in North America, where we have the chance to further increase current mine rates in Morenci and Safford, major mill projects for significant sulfide resources that we're continuing to drill and evaluate. That's significant at Morenci. It's also potentially significant at Sierrita with our new Twin Buttes property there. And we mentioned the Climax restart. In South America, I mentioned earlier the potential for major expansion at Cerro Verde. That's a doubling or more of our existing size there. We'll have the feasibility study completed in the first half of next year and that will allow us to file for the necessary permits. But we have the footprint, the resource, plans for the development of power and water that will allow us to do that. The question is just the size. And then, at El Abra where we thought the Sulfolix project would be the end game for us there, the new sulfide resources are giving us a chance to look at a major mill opportunity there. And then at Candelaria, where three years ago, we thought resources were limited, recent success in our exploration provide opportunities for us to look at underground expansion operations at Candelaria. Tenke, besides the de-bottlenecking, we're looking at our next step in our oxide expansion opportunity, which we think would provide ultimately for a doubling of production. And then beyond that, the sulfide resource gives us the chance of moving that up to world-class category. At Grasberg, we'll continue to advance to transition to underground and optimize our DOZ, MLZ resource as we go forward. And in summary, on Slide 18, you can see what these projects mean to us. The Grasberg and El Abra Sulfolix replace resources in a sense of the depleting oxide resource at El Abra and the completion of the pit in Grasberg. But incremental copper production opportunities for us are really significant in South America, North America and in Tenke, and so we have the opportunity to grow. And then beyond those longer term, there's further opportunities with Tenke sulfides and North American sulfides and then the Lone Star orebody that lies adjacent to our Safford mine. We've increased our exploration spending in 2010. We're likely to double that next year, and a lot of that will be focused on our brownfield operations and the continued expansion of identifying new resources, moving resources to reserves and then taking the steps to get reserves into development projects. For 2010, we've slightly increased our annual copper sales outlook to 3.85 billion pounds, with 1.9 million ounces of gold and 65 million pounds of molybdenum, both reflecting slight increases. Our unit cash costs are in line with what our previous guidance. We expect that today's input price levels at $0.83 a pound, but with our operating cash flows, if we have $3.75 copper in the fourth quarter, we'll have operating cash flows of $6 billion, each $0.10 to $60 million in 2010. Our capital expenditures are now projected to be $1.6 billion. Near-term sales profiles are summarized on Page 21. You can see we have added, for the first time, disclosure about 2013. You can see our growth as we execute the projects that I mentioned earlier. Gold coming from Grasberg is based on where we are in terms of mine sequencing. 2013 will be another great year for us there. And molybdenum sales is dependent on market and we've stepped that up 5 million pounds for the out year. For the quarter, we see on Page 22 that in terms of copper, the third quarter, this quarter is our strongest quarter. We took some metal out of the fourth quarter into this quarter. As we go in the fourth quarter, we'll be looking at opportunities to maximize that. But this is our current estimate based in our mine plans, and the difference is primarily because of mine sequencing at Grasberg. But at Grasberg, the fourth quarter will be our strongest gold quarter of the year, and our molybdenum operations are performing well. Slide 23 summarizes where our sales are coming from by region and shows some information on our cost structure. In our second quarter release, we had talked about having consolidated costs for the year at $0.86 a pound in there. $0.83 is roughly the same for that. Some cost elements are going up, of course, but we're taking advantage of opportunities to save costs, and volumes will have an impact on that. Page 24 shows our EBITDA models based on $1,000 gold, $10 molybdenum and our average operating plans for 2011, 2012 at $3.50 copper and today's five-year forward copper prices is at $3.50, stronger than it was early in 2008. We'd have $6 billion of operating cash flows excluding working capital changes, but that's after cash taxes and cash interest payments. Sensitivities are on Page 25. Capital expenditures are on Page 26. We're increasing our 2011 level of expectation for capital by roughly $600 million. Our goal is to find additional opportunities to invest capital over time. That's what our expansion projects are designed to do. We have the financial strength to do that. You can see that on Page 27, our debt is at $4.8 billion. We had $3.7 billion in cash. That would be $2.9 billion after we adjust for withholding and minority interest if we were to transfer that to the parent. We were pleased to see that Moody’s finally increased our rating to investment grade so that now, our company is investment grade rated by all of the credit rating agencies. During the quarter, we also entered into a transaction where we agreed to invest $500 million in McMoRan Exploration, and McMoRan is a company that is a related party, that is involved in some very exciting oil and gas exploration opportunities in the shallow waters of Gulf of Mexico, drilling to new areas which have not previously been explored. This investment provides for an attractive yield near term but with a chance for very significant capital appreciation, our board felt that given our cash position and given our orientation towards exploration, that this was a very attractive thing for us to do and to invest in the early stage of a project that has the potential to become a world-class resource. The process of this is that if there's shareholder votes, some regulatory approvals, we expect the transaction to close by the end of this year. Our board, with its announcement of the increase in the dividend, in the case, a commitment having a strong balance sheet and with strong liquidity that allows us to pursue attractive growth opportunities, we've taken opportunities to pay debt back when it makes sense to do so. And the board will continue to review this policy on an ongoing basis. So it's a great quarter, great situation. We've got a great outlook for our business, both in terms of the markets and where our company is placed within those markets, and we couldn't be more pleased with where we are today and look forward to your questions and comments.

Richard, before we start questions, let me just make a couple of comments about our reserve growth. As we've said in your presentation, we have this brownfield exploration potential that we've talked about for several years. But you might be interested to know that in the last four years, with the increased expenditure to further delineate the sulfide reserves principally under all of our properties, that we have added about 41 billion pounds of proved reserves. And we produced 16 billion pounds in that same four years of copper. So it's still a net addition of 25 billion pounds. So if you look at these realities, we found the equivalent of a substantial greenfield-type of ore quality. And none of it has been done with anything but our brownfield expansion. So it clearly indicates to you this idea that we can continue. We probably, for the next four years, just delineating our sulfide ore and our deposits, you can look forward to 20 billion to 25 billion additional pounds just from our brownfield. So I just wanted to put that on the table, Richard, because that's quite a success story of what's happened just since the merger of the Freeport and Phelps Dodge our company.

Thanks, Jim Bob. That is a great story and from the vary start, as we got -- when we first were talking about the merger and the more we got into it, the more we got excited about this opportunity and that just continues to grow today. Okay, operator, I see we got a series of questions.

[Operator Instructions] Our first question comes from the line of Michael Gambardella with JP Morgan. Michael Gambardella - JP Morgan Chase & Co: I've got a question just looking out in terms of uses of cash. In our model, we're estimating that you're going to go into a negative net debt position, given you have more cash than debt in the first quarter next year, and we're forecasting about $5.8 billion in free cash flow. So even with the sizable increase that you announced on the dividend today, the $2 per share per year, that's still only about 16% of your free cash flow that we're estimating for next year. Do you see more increases in the dividend share buybacks? What's the use of cash going forward?

Well, the first thing we want to do is look for investment opportunities. So we would expect during next year to be reporting to you some very significant opportunities to put that cash to work, to take advantage of what Jim Bob was just talking about of looking at these new reserves and having significant capital projects. Cerro Verde will be a significant project and with the completion of the feasibility study, that will be moving into our capital projects. We'll be looking at with the completion of the contract review and getting the kinks out of our existing operations at Tenke, we're going to have some opportunity to spend some productive capital there. And we are looking at other opportunities here in North America to do things like that. So one thing to think about is that we'll have growth investments. But the great thing I see about our company is the point you're making. Even with the growth opportunities we have and we're going to be looking more broadly for new opportunities, but even with those, our company is situated so you can have growth with very positive shareholder returns and the step with the dividend today is the continuation of restoring our dividend after the financial crisis and with these strong markets, we're going to be able to invest in growth and pay returns to our shareholders at the same time and that's a great place to be. Michael Gambardella - JP Morgan Chase & Co: Can you give us any flavor for the capital costs per, say, pound or per ton on some of these brownfield expansions?

Mike, we're really studying a whole number of opportunities right now. And literally, like at Cerro Verde, it ranges from a doubling to maybe a tripling of the existing projects, which will have a big impact on those numbers. So I'm just ask you to give us some time to proceed with these studies. We're going to report to you currently as we get a better fix on exactly how we're going to spend money. But our focus is spending money on very high-return, profitable investments. Michael Gambardella - JP Morgan Chase & Co: Which I assume you're looking at more organic as opposed to acquisitions?

Well clearly, with the resources and reserves and opportunities we have, that really is much more advantageous than acquisitions. Today, we're not getting significant value out of some of these, and if we're successful in getting projects, we're going to capture all of that value for our shareholders whereas in acquisition, you got to pay for the current value to the acquiree's shareholders. So there may be some opportunities, they'd have to be very exceptional for us, and we're really focused on our internal organic growth opportunities.

Your next question comes from the line of David Gagliano with Credit Suisse. David Gagliano - Crédit Suisse AG: I wanted to ask just a quick question on the project pipeline. Obviously, you are advancing on a number of projects, you've increased 2011 CapEx. But just a quick side-by-side versus the Q2 presentation for 2011 and 2012 on the expected copper and gold sales lines. It's just basically no change in 2011 expected volumes and basically, a slight increase to 2012. So my question is are the 2011, 2012 volume targets increasingly conservative or are the expansion plans increasingly aimed at replacing production elsewhere?

Well, part of it is as we spend money, it takes time to ramp up. So for example, it's not until 2013 that you see the full effect of Chino in there. Another factor is, Dave, this issue and we talked about this in 2008, 2009, at SX/EW operations and just obviously is Morenci, as we scaled back, we got some benefits over time from crushed material that was put on in earlier years. So there was a ramp down from the historical high operating rates. And as we ramp up rates, it's going to be a time effect for building those in. So when you look at 2010, 2011 and to some extent, 2012, you're seeing this timing effect that comes in. Now, that's an important feature in our business. It's one of the reasons that the real story about markets is supply-oriented because with the time lag for operations, whether you're adjusting existing operations or you're building new projects, there's just a significant time before you make the decision for investments, you make investments and see the volume impacts for that. So you're just seeing the combination of a timing effects on the near term.

Dave, this is Kathleen. The only change when you look at our second quarter sales outlook to the current outlook in terms of looking at 2011, 2012, 2013, the only real change is the addition of Chino. The other projects like Morenci and Miami and Cerro Verde and Tenke were all already included in our numbers. But this doesn't include all of the studies and projects that we've been talking about. It just includes some near-term things that we're doing to restart mines and optimize current operations. David Gagliano - Crédit Suisse AG: Just as a follow-up on -- my follow-up question on Tenke. I was just wondering if you could expand on the positive comments about the progress in the DRC. What issues have been resolved? What are the ones that are still outstanding? And when do you think "imminent" is?

But we have engaged now in over two years with discussions about this contract review, the government has raised issues. We've worked to be responsive to their issues and do it in a way that will be acceptable in terms of preserving the economics of our project and I think we're doing that. We don't want to gun jump the government's, what we believe, their imminent announcement of what will be a resolution to this. But sitting here today, we're very pleased with where we are with that. We've had very positive discussions with the Mines Minister Kabwelulu and his staff and we've had some very supportive comments from President Kabila. And so as I said, we're pleased with that but we need to just wait for the government to make its announcement about where we are with it.

Your next question comes from the line of Sal Tharani from Goldman Sachs.

Richard, the El Abra project though, once you get your feasibility study done, what do you think it takes for permitting and full production?

Well, this again would be a project that will be an expansion of our existing mine, possibly a joint venture with our partner CODELCO and its nearby operations. So we've got some work to do before we get to feasibility studies, and this would be a mill project. So then you're in sort of a standard period of time, costs for mills are pretty well established. So we're at the start of pre-feasibility. Feasibility permitting, you're talking couple of years.

Now assuming that Tenke gets results, so it's between Cerro Verde, Tenke, Morenci sulfide and El Abra project, how much capacity, do you have to do these fees or you think this will be parallel to each other, some of these?

We have been preparing ourselves for a number of projects in terms of organizing our staff internally. We've been adding some resources to our staff, particularly the deal with milling capabilities. We've been developing relationships with a number of external engineering firms and suppliers. So it's going to be a challenge for the industry in terms of competition for resources and equipment for expansions, but we're positioned to undertake a series of expansions concurrently.

And very lastly, you mentioned you have no issue with the water problem, which we are hearing more and more about in Chile and Peru?

Yes, and I didn't say no issue. I said we believe we've made progress with it, and we can see opportunities to deal with it. But that is the constraint that could ultimately decide how big we can make this. We're better positioned because of where we are physically with the Rio Chile river and some of the operations to the south of us. So we have some opportunities for our operations that aren't available to others and that's what we're working on to see how we can take advantage of it.

Your next question comes from the line of Jorge Beristain with Deutsche Bank.

I just wanted to follow up on Dave's earlier question. You are raising your near-term guidance to bring Chino online. Specifically, you said for 2011 that, that could lead to an incremental 100 million pounds of copper production. And then you will also be bumping up Tenke by about 30 million pounds or 40 million pounds. So just wanted to understand if you're still holding your basic year-on-year forecast constant at around 3.9 billion pounds of copper, should we expect to take the difference out of Indonesia basically in the near term?

Jorge, we have in the supplemental slides that are on our website, we give a five-year outlook for copper and gold for Indonesia. And we've done that traditionally. But it's also because it is so important because of the impacts of this mine's sequencing. So you can go back to those slides and see what Indonesia is. Slide 32, which gives you the five-year outlook. And then, the other difference would basically being North America and that's principally Morenci.

But the Chino impact doesn't start really until 2012. We've got 100 million pounds in 2012, 100 million pounds in 2013, and then we get to 200 million pounds in 2014. So the 2011 numbers are unchanged.

And then just in terms of use of cash, obviously, you're kind of seeing that you prefer to grow internally but you also have several operations where you do have minority interests with partners. Is there any change of thinking there in terms of perhaps a wish to close out the capital of some of these operations and own more of your already highly profitable businesses?

There's no change, Jorge. We wish we can do it. I mean, we would love to own greater interest in all of our operations. Unfortunately, our minority partners feel the same way. In today's world, in LME week this week, copper was the belle of the ball. And so, people that own copper assets are looking to expand rather than to sell. And so while we would like to do it, practically our partners are very happy with their interest in our properties, and we have great relationships with all of our partners. But we look for opportunities, and if one's there, we're prepared to take advantage of it, but we can't expect it in today's world with such a positive outlook for copper, perhaps forward.

Your next question comes from the line of Brian Yu with Citi.

Richard, my question now with regard to PT-FI. I know in there, you showed 2015 numbers and the significant ramp up. I was wondering if you can give us a sense of where those numbers were at PT-FI for 2015 before you made this sequencing change?

Let us get some information. Mark Johnson is here who's our operating President of PT-FI.

On 2015, on an aggregate basis, this is PT-FI base that we show here, we added about 250 million pounds and about 1 million ounces to the 2015 numbers. I would assume that that should bring that back to the PT-FI study, it would be about 80% of those numbers will get you close.

Obviously, what Mark is talking about is Rio Tinto's our joint venture partner and that's not in our consolidated results. And so when Mark talks about aggregate, that's for the total operation and then Rio Tinto's share comes out of that to see the numbers that we report as part of our consolidated results.

My second question, it's a follow-up to your response to Mike's question earlier about free cash deployment. And you mentioned that now, you're looking a little bit more broadly, partly evidenced by the investment in McMoRan. Does this mean that your capital strategy going forward is now expanded to other resources? Perhaps, like Freeport might become a bit more diversified down the road?

What we're really looking for is opportunities. And if those opportunities are within our skill sets, we're prepared to act on them. The opportunities would have to be consistent with our world-class set of assets, and an opportunity would have to be something that was significant or potentially significant, And that's what McMoRan represents. The practical reality is there's huge competition for those resources today by across-the-board and the industry in copper but with other resources as well. So while we're alert to them, we've got people reviewing what's going on in the business, bankers line up our doors everyday. At the end of the day, they have to compete with our own internal investment opportunities and that's a real challenge for external opportunities.

Your next question comes from the line of Peter Faulkner with Blenheim Capital.

You've said in the past that the balance sheet could support over $7 billion of debt, and you've got a little less than $5 billion right now on a net basis, obviously a lot of buzz in that. I mean, is it your intention to reduce that debt figure further going forward, not on a net basis, on an absolute basis. And why not do the opposite? I mean, given the cost of funding environment out there today, one could argue that the balance sheet could support a lot more than $7 billion. So it kinds of expands the question of use of cash. You're having a challenge spending the current cash flows. So when you look into 2011 and beyond in terms of capital planning, what are the real constraints in terms of pushing harder on internal developments? And then again, given the low bar for funding right now, what kind of return metrics are you using to evaluate external opportunities?

The constraints are the practical constraints of expansion in this business. And at the end of the day, that's the strength of the markets. We would like to start building these projects and getting them in production immediately. But you just can't do that. You have to have plans for the specifics of the expansion. You have to get permits, you have to get water, power, and those things take time and that takes time across-the-board to the industry, and that's one of the main reasons the copper price is at the level that it is today. So the constraint for us is having the opportunity to spend. We're looking aggressively for it. I said it was the top priority that we have. We do have capacity to borrow in the marketplace and borrowing costs are very attractive these days. So if we find the opportunities, we're going to go after them as aggressively as anyone possibly can.

I guess just to follow up on that, I mean are you internally constrained or is it more external -- I mean, I'm talking about headcount. Or is it more dealing with third party engineers, permitting authorities, et cetera? And how did you evaluate the sort of the attractiveness of share repurchase and making a change on that versus increasing the dividend?

We're not internally constrained by people. And while sometimes it's a challenge, it's not a real constraint in terms of contractors. It's the practicalities of which you have to go through to get to the point of spending the money. And so it's not a question that we don't have the people to do it or where we don't have the contractors to do it. So it's just, as I said, the realities of the way this business works in terms of putting production on. And the board will be looking at issues related to dividend, special dividends and share buybacks. We've done all of them in the past, by the way, as you know. We have a long history of doing that. At this point, we looked at the dividend paid by other companies in our industry. We looked at the S&P 500 dividend rate. We felt it was good to get our company at a strong position in relation for that, and then we'll have the opportunity to look at other things and going forward.

Your next question comes from the line of Paul Massad (sic) [Paul Forward] from Stifel Nicolaus. Paul Forward - Stifel, Nicolaus & Co., Inc.: I was hoping you guys could expound a little bit more on the global molybdenum market? And in particular, what kind of supplier response, as if any, you're seeing at these levels?

Well, the market went up to the price, went to the $18 level. It dropped back and now it's been rocking around $15. Overall, elements of the marketplace are strong. We had cut back our Henderson primary mine by 40%. Now we've ramped it back up in response to that marketplace. At the margin today, China is important as to how they manage their molybdenum resources internally and what they're buying on the outside. But as a market, it's different than copper. It's not as supply constrained on copper. So obviously a much smaller market. And a lot of molybdenum is byproducts, which the production is not necessarily driven by molybdenum market conditions, but about expansion opportunities and so forth related to copper project. Where we are in this market is we're the world's leader. We're the lowest cost producer and we're in a position to continue to take steps to protect our market share and that's what we're doing.

We'll move on to Aleem Ladak with Desjardins Securities.

Could you provide more color on the average realized copper price during the quarter, which I believe was $3.50, which I believe is higher than the average LME price during the quarter of $3.30?

Alain, that's just strictly done by the way we sell our products in the marketplace. Copper concentrate throughout the industry is sold on the basis of provisional pricing at the time of sale, which is when the concentrate is loaded on vessels out of mines. And then there's a finalization of that price, typically three months although that can vary over time. And so for our copper concentrate and for some of our copper cathode production, the sales price is determined by the price at the end of the quarter or later. And it's discussed on Page 10 of the press release, so you can read that for details. But what you'll find with us is in a rising copper price environment, our average realization is going to be higher than average LME prices and in periods of time, as the price is dropping, our realizations will be lower.

And your final question comes from the line of Sanil Daptardar with Sentinel Investments.

One of the question was on moly (sic) [molybdenum] production basically, I think you partly said there the part. Given that outer years outlook for moly, which is about 70 million pounds, it seems that either you're not optimistic on the moly market going forward based on what China might be doing? Or you do have the capacity but could you just give a color on what you're thinking in the outer years on the moly market?

When you look at that marketplace, it's a relatively small market, and we have ramped up our production at Henderson. We're producing moly on our circuit at Cerro Verde, which we have suspended for periods of time. In any given year, we're affected by grades in Bagdad and Sierrita. So all of those things come into play, and our real decision is how to flex Henderson, which is an operation that can be flexed, and then when to start Climax, which would add 30 million pounds to a small marketplace. And I think you'd have to say, we're taking some optimistic steps in the sense that we are spending capital at Climax so that we can be in a position to start quicker than we otherwise would. So we made decisions to do work this summer. We're working inside our mill structure this winter. And so that we're going to be prepared to act when the time is right.

On Morenci, you mentioned in the prior call that there was an increase in the grades. And these grades are likely sustainable or you think that these grades might fall maybe after a year or a couple of years or so?

I'm going to let Red Conger who runs our Americas operations talk about grades at Morenci.

Sanil, in general, the ore grade at Morenci is gradually declining over time. So what we do is process and leach more to maintain that level and going forward, with higher mining rates, we're going to be able to increase it. It just takes time to ramp that up and increase those volumes. If the ore grade itself will decline, we can increase the PLS grade by putting more material out there to leach.

Now that's with our existing operations and the grades at Morenci are low grades. I mean, the nature of the existing operations have low grades. Now, with the drilling that we're doing and the opportunity for further expansion in relation to Grasberg or Tenke, it's still going to be low grade but it's grades that with strong copper prices can generate very substantial returns on invested capital, and that's what we're going to be looking at.

And at Grasberg, I think a year from now on, probably you be out watching the high-grade sections of the orebody. That's the major reason for you getting a higher production beyond 2012 until 2015?

With Grasberg, our model, our exploration model is based on drilling thousands of holes and it's really been accurate over time. And so, when you see volumes change in Grasberg, it's driven strictly by where we are physically in terms of our mining sequencing. And that's why we do give this five-year outlook so that you can see those impacts in advance of actually getting to the years. Now, you guys have done a great job over time of maximizing that, and as you can see in this quarter and other quarters, when we do have the chance to get to a little material, often it has such high grades, it has pretty significant impact on volumes in any particular quarter.

But as we look forward, we're seeing more production coming from the U.S. We mentioned that we started the mill at Morenci and are increasing the mining rate, and that's going to give us more production for Morenci in 2011. We're also ramping up our Miami mine and restarting Chino. So our production from North America is going from 1.1 billion pounds this year to 1.4 billion pounds in the 2012, 2013 range. So that's really where we see volume improvement in the near term.

And logical extension, that we should expect the cost to fall in that case, since the volume is going up in North America? Because right now, I think the site milling costs are about $1.62 a pound? That should fall $1.40, in that level. Is that the right way to look at it?

Well, in North America, these are volumes that we had taken off like in the downturn. So these are generally higher cost volumes than the cost that we have been experiencing in 2009. So these are higher costs volumes but they're highly profitable. And what we're doing is doing these ramp-ups in a very organized fashion to try to make them a decision as possible and make the mines lower costs than they were at the time they were shut down in 2008.

At this time, I would like to turn the call back to management.

All right, everyone, thanks for participating, and we look forward to finishing out 2010 in a safe and strong way.

Ladies and gentlemen, this does conclude today's conference call. You may now disconnect.