Freeport-McMoRan Inc. (FCX) Q4 2012 Earnings Report, Transcript and Summary

Ladies and gentlemen, thank you for standing by. Welcome to the Freeport-McMoRan Copper & Gold Fourth Quarter Earnings Conference Call. At this time, all participants are in a listen-only-mode. Later, we will conduct a question-and-answer session. (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. Good morning everyone and welcome to the Freeport-McMoRan Copper & Gold fourth quarter 2012 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 the conference call. We also have several slides to supplement our comments this morning, and we’ll be referring to the slides during the call. The slides are also accessible using the webcast link on 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 will be available on our website later today. Before we begin our comments today, we’d like to remind everyone that today’s press release and certain of our comments on this call include forward-looking statements. We’d like to refer everyone to the cautionary language included in our press release and presentation materials, and to the risk factors described in our SEC filings. On the call today is Jim Bob Moffett, our Chairman of the Board; Richard Adkerson; President and Chief Executive Officer; Red Conger is here, Mark Johnson and David Thornton have also joined us this morning. I’ll start by briefly summarizing the financial results, and then turn the call over to Richard who will review our recent performance and outlook. As usual, after our prepared remarks, we’ll open up the call for questions. Today, FCX reported fourth quarter 2012 net income attributable to common stock of $743 million or $0.78 per share, compared with $640 million or $0.67 per share for the fourth quarter of 2011. Our fourth quarter 2012, net income…

Thanks Kathleen. Good morning to everyone. I am going to start initially by focusing on our global mining business and on copper. 2012 was a year that was abnormal for us, and I want to try to explain why that occurred and what our outlook will be going forward beyond 2012. Later we will cover the transactions that Kathleen referred to that we announced on December 5, and respond to questions about those. After those transactions, I want to point out that 75% of our business will be represented by our global mining business and copper will continue to be the driver of our cash flows and profitability. Looking at 2012, we executed on our efforts to grow production in North America and Africa, and I am going to come back to that, but we’re having success in executing our growth plans and we have the prospects for very significant growth in copper volumes. By 2015, our plans would result in higher volumes consolidated for our company of greater than 35% than the volumes we had in 2012. 2012 was significantly affected by unusually ore grades in Indonesia and some of that came about as a result of the strike that we had in 2011 and the effect on productivity. Looking back, these are the lowest grades that we’ve had at Grasberg in 18 years. And we are looking to having higher grades in 2013 beginning near the end of the year, and beyond that, our profitability at Grasberg should be extraordinary. We’re continuing to advance financially attractive Brownfield development projects, the Phase II project at Tenke Fungurume in the Democratic Republic of Congo is substantially complete on time and on budget, which is a significant accomplishment in relation to our initial project. At our major expansion at Cerro Verde…

Ladies and gentlemen we will now begin the question-and-answer session. (Operator Instructions) Our first question will come from the line of Sal Tharani with Goldman Sachs. Sal Tharani – Goldman Sachs: Good morning.

Hello Sal.

Hi, Sal. Sal Tharani – Goldman Sachs: Just quick question on the – couple of questions, first on the slide about the 2015 copper production. Does that include Morenci’s full production rate of 600 million pounds in there?

Yes, it does. Sal, we expect to get to full rates at Morenci in 2014. Sal Tharani – Goldman Sachs: Okay. So you expect that to be – because I think you said that the growth will come in – by – the project will finish by 2016, but do you think it will be ready by 2014 in terms of production?

Morenci will be 2014, the Cerro Verde will be… Sal Tharani – Goldman Sachs: I am sorry, I meant Cerro Verde. I am sorry.

Okay, It’s got some, Cerro Verde in 2015, but it reaches full production in 2016. Sal Tharani – Goldman Sachs: Okay. And there is modest change in your CapEx outlook in between the major mining projects and other projects, a couple of hundred million dollars, anything particular to note here? The mix is different than what it was in Q3.

Yes, it’s slightly different. We had some carryover sustaining projects that we didn’t spend in 2012. Our CapEx in 2012 was slightly below what we thought we carried over some projects into 2013, but no material changes, just some slight timing variations. Sal Tharani – Goldman Sachs: Okay, thank you very much.

Thanks, Sal.

Our next question will come from the line of Tony with Dahlman Rose. Anthony Rizzuto – Dahlman Rose & Co.: Hi all.

Hi, Tony. Anthony Rizzuto – Dahlman Rose & Co.: Hi, Richard. I’ve got a couple of questions here. I was wondering if you could update us a little bit with the contract of work review and just the process there and the timing again of the presidential election?

Okay. The presidential election occurs in 2014, and the first round is midyear in 2014. this month begins the process also of electing a new governor in Papua. And so, Tony, 2013 and 2014 -- in 2013, a number of provincial elections will be held in Indonesia and the presidential and parliamentary elections will occur in 2014. We began a process in a formal way, a little over a year ago and talking with the government about getting our extension for our contract for those of you who don’t follow us that closely. We operate under contract of work in Indonesia, and we signed the most recent contract in 1991. It has a 30-year primary term, and the contract itself provides us the right to extend it for two ten-year periods through 2041, and we have to apply for that. The government cannot unreasonably withhold or delay granting that extension. Indonesia passed a new mining law and the country has undertaken review of all contract of works including ours, and what our discussions involved is a discussion around this review of contracts, obtaining the extension for our existing contract, and we are working cooperatively with the government to find ways of being responsive to certain of the aspirations of people and government and the population in Indonesia and protecting the interest of our shareholder by getting our extensions on a way that protects the values of our operations there. Confident we will be able to get that. The election and political situation in Indonesia requires time to go through the process, and that's what we are doing now, and we have made what I feel is a good progress and I am confident that we will be able to resolve this on a way that our shareholders will be happy with and that the government of Indonesia will also find acceptable.

Let me add one thing for Tony. On a normal circumstance, if we didn't have this massive underground project underway, $15 billion project, some in the government would say that we should only ask an extension two years before our contract expires which will be 2019. But with that spending, as you’ve seen from our spending charts, $15 billion over the next number of years to get to full production with the underground. We went with the idea that you have to have certainty and the government agreed, so that's just another wrinkle that caused us to have to deal with this in a business way, and we’re getting support from the government. But under normal circumstance, some in the government would say, you should wait two years before your contract expires, so that’s just a wrinkle that we need to be sure and point out. Anthony Rizzuto – Dahlman Rose & Co.: Has it changed in any way the dialog that you guys are having with the government there given the plans to acquire these energy companies?

No, no.

I’m not even sure they are aware of it Tony. Anthony Rizzuto – Dahlman Rose & Co.: Okay.

They are focused on our business. Anthony Rizzuto – Dahlman Rose & Co.: Okay.

And I’ve had discussions with number of – they read the news releases in the papers and so forth, but it was like when we acquired Phelps Dodge, they were interested in it. We made the point that that gave us a lot more global resources that we could apply to bear in running our business. Of course, Indonesia is a significant oil producer, but it’s not a factor in our discussion. Anthony Rizzuto – Dahlman Rose & Co.: Okay. And the other question I have is one on the copper market, Richard you made some comments that there is always uncertainty surrounding Chinese inventories and I was wondering if you did have any more specific thoughts on the level of bonded warehouse stocks there, and how you think this may potentially impact Chinese imports in 2013. Obviously Chinese imports have been so substantial to the market and just wondering any additional thoughts you may have there.

Well, I wanted to comment on it because it is a factor. And I didn’t – well we see these emerging more positive views about the markets, and certainly today as I talk to people -- to our commercial people, to others involved in China, the view about China is more positive than it was say at LME week last fall. But well the copper market, Tony, as you know more better than anybody is a really pretty visible global market place, the one aspect that has less visibility is this issue about off-exchange inventories in China, and there are currently different views about the level of those inventories. Our people tend to believe that those inventories are not liquid like exchange inventories, but we have seen instances in the past of where the Chinese have adjusted buying patterns, and that’s the factor that could occur. When that happens, I’ve always looked underneath that to see what’s going on in the fundamental economy, because actions on buying patterns tend to be temporary and the underlying economy is really what’s going to drive the copper price long run, but I felt that I needed to mention that because those inventories are significant, and the question is, the degree of liquidity and how they come into play in affecting imports. Anthony Rizzuto – Dahlman Rose & Co.: That’s great; I appreciate it Richard and Jim Bob too for your insight as well.

Tonly, on the double edge sort of copper prices that Rich was talking about, I think it’s important to bring up at this point, the extensive list of projects that are either being delayed or canceled in all of the mine basins, and of course this is because the commodity prices have gone up so rapidly, but unfortunately as these mines are developed, the cost of development whether you are talking about mining equipment, trucks, all the metal that is used to, the greenfield projects actually, all of you are aware that some of these costs have gone up double and triple, and people are just walking away from the projects, delaying them (indiscernible). Extensive list, 30 to 40 of these, what does that mean? That means that those projects have been put into people’s long-term projections of supply demand for copper. those projects are not going to happen and that’s exactly why our Greenfield projects have been, it’s harder than the Brownfield. And the Brownfield, as Richard said, we already have the existing infrastructure. so we have a whole way to look at cost, and have an idea of what it’s going to cost to make the expansions, but going into the Greenfield area, new country, new infrastructure maybe of lack of infrastructure. So those projects are not going to get finished that people were counting on for supply demand are going to have a huge impact on the price of Copper. So that’s why we on a long-term view, the copper has been very positive because of lack of new projects coming on will drive the price of copper higher, which benefits our very active program over the last six years since the -- six, seven years since the acquisition of Phelps Dodge. Anthony Rizzuto – Dahlman Rose & Co.: Thanks, Jim Bob.

Our next question will come from the line of Brian MacArthur with UBS Securities. Brian T. MacArthur – UBS Securities Canada, Inc.: Good morning. I have two questions, just on Grasberg, you’ve talked about getting back to full rates at DOZ later in the year. should we think of operating rate there sort of 200,000 tons per day versus 165,000, is that kind of a ballpark way to think about it or are we going to get all the way back the open-pit to call it 150,000 tons and then get sort of 70,000 tons out of the underground over the year?

Brian, I’ll let Mark Johnson who is our Chief Operating Officer for Grasberg talk to you about that.

Brian, I think you’re referring to total mill rates and… Brian T. MacArthur – UBS Securities Canada, Inc.: Yes.

And what we will be doing is what’s been discussed is that DOZ will get back up to 80,000 tons a day by the fourth quarter. We’re going through, as Rich described, a process of repairing some panels that were damaged. Those repairs will be done by the end of the third quarter and DOZ will be back at that 80,000 tons a day. The total mill rate is variable. It’s very much driven by the material types that we get out of the Grasberg. Some of the material that we would be mining in 2013 is a bit harder. Total mill throughput drops as a result of that. But the mill is running at full production, we’re not cutting back on mill rates. We are essentially milling every ton we can. And we’ll average about 210,000 tons a day in 2013. Towards the end of the year, we will be into the very high-grade stock worth of Grasberg, that material is typically very good milling material also. We’ll get higher throughput, higher recovery, I think can’t grade. So this year things will just continue to get better from the first quarter all the way through the fourth quarter. Brian T. MacArthur – UBS Securities Canada, Inc.: All right. Thank you, that’s very, very helpful. The other question, I just wanted to check, just for your guidance for cost on Tenke for the year, I mean I see they are coming down, but the copper production is going up. Are those costs before the OMG deal i.e. crediting at the 60% of the cobalt price, or is it post the OMG deal, where I assume you’ll ultimately credit default cobalt price that you realize?

The guidance that we’ve given Brian does not include the benefits of the higher cobalt price that we will receive. The partnership that is acquiring the assets are the same partners that are in Tenke Fungurume, but Tenke Fungurume is not acquiring, Tenke Fungurume will continue to sell cobalt hydroxide at market, and then this joint venture will actually own the refinery. But in terms of the numbers that you’ve seen that includes continuing to sell cobalt the same way we have been in the past. Brian T. MacArthur – UBS Securities Canada, Inc.: So will have like a new subsection in the financials showing that whole thing like you do for downstream copper, is that the way it is going to come out or is it going to be all embedded in the Tenke subfinancials, if I look at it that way?

It will probably be separate in terms of because of -- actually the Tenke operation doesn’t own a refinery. But we’ll make it, so that you understand the values that we are getting from the refinery. Brian T. MacArthur – UBS Securities Canada, Inc.: Great. Thank you very much.

Our next question will come from the line of Paretosh Misra with Morgan Stanley. Paretosh Misra – Morgan Stanley: Hi, guys, two questions on Grasberg. First, I thought the total mill rate in fourth quarter was sequentially down, it’s down also because of the harder or is that Mark just described?

Yes.

That’ right. Paretosh Misra – Morgan Stanley: Okay. And the second, your labor contract actually both Grasberg and Tenke expire this year, have you had any conversations yet with the labor unions?

We have ongoing conversations with the unions, and it’s different situations in kind of all the places that we operate. In Africa, we’ve had very positive relationships and have not had any controversy over union situations. We had a very difficult situation, which was really our first time to encounter this in 2011 with the labor union and PTFI. We’ve made progress in working with the workforce, with the union workers, and non-union workers, staff, which was major problems for us at the beginning of the year and affected our operations and worker productivity. We still have the issues to deal with, and we are working to achieve that. In our discussions with the union today, both sides have expressed a view of working to avoid a strike, but that is something that we'll have to deal with. In Indonesia, by law, contacts only last for two years. And so that's something that we'll have to deal with the labor issues or have become a issue throughout Indonesia today. And the government is concerned about it and we're working our way through that, but that's something that we’re just going to have to report to you as we go along. And I'm glad that you asked the question, because as Mark was responding to Brian, I think this is important to keep in mind, that these opportunities are what the ore body gives us, and we're going to have to work to achieve relationship with our unions to be able to take advantage of them in the way that the ore body provides us. Paretosh Misra – Morgan Stanley: These are being incremental color. Thanks.

Okay.

Our next question will come from the line of Oscar Cabrera with Bank of America Merrill Lynch. Oscar Cabrera – Bank of America Merrill Lynch: Hi, good morning, everyone.

Good morning, Oscar. Oscar Cabrera – Bank of America Merrill Lynch: Good morning, Richard. So, focusing on Grasberg points one more time, interested in the capital expenditures that you have over the next five years and beyond. On a 100% basis, you’re spending $5.5 billion about half of that for the next five years. When do you spend the balance and which was that? Is that part of the underground development towards 2020 or those at all?

Actually it is – that’s the nature of underground development is that, you have a continuing expenditure of capital as you advance the block caving operation. So unlike a big open pit in mill facilities, you have a one-time finance flow to capital and then you just have maintenance capital as you go forward. With underground development, there is ongoing expenditures to advance the block cave and that’s going to be part of our capital as we go forward. And I think, Kathleen, you have a comment, she is looking at…

No, I think that’s right. And we’ve given what we expect to average, some years will be higher than the average, some years lower than the average. But as Richard said, it’s a long-term development plan, so it’s not any one-year where you’ve got all the expenditures. It occurs over the course of a long-term development of the asset. Oscar Cabrera – Bank of America Merrill Lynch: I’m sorry that sustaining capital of about $500 million would be ongoing, that is what I’m trying to get at?

Yeah, that’s right. And what you call a sustaining capital or investing capital is, that’s the nature of underground investment. Jim Bob referred this earlier, this is a big number for Indonesia and particularly for Papua. I mean you’re talking maybe $15 billion investment in a country that’s looking to get investments. We have a workforce of 23,000 people there including employees and contractors. We are more than 90% of the economy of the Mimika region where we are located two and a half and two-thirds of the economy of Papua which is really important to the government of Indonesia. We support businesses and infrastructure development and so forth. So as you think about this labor issues and these contract issues, that’s the context of where we’re operating. It’s important for our shareholders to support for Indonesia. Oscar Cabrera – Bank of America Merrill Lynch: Yeah. Absolutely.

This is Jim Bob. Let me add a couple of things. There is a standoff here when you go underground. You have to continue to spend these big dollars to advance the underground or you have to remember is, remember the follows that we’ve worked with (inaudible) on those transactions (inaudible) referenced that. When you are in the open pitch of your mining ore, which you’re mining waste transition this year we’re up at the very top of the pit where we actually stream – platform of the open pit when you go in the underground, because of the Block Caving messages that you don’t deal with the waste. Your ore basically – it’s been altered by dry gases when the ore body is put in place. The reason why Block Caving (inaudible) when you are Block Caving, it doesn’t cave or drop. So you go from a huge open pit operation where you expose to the elements for current pit charge operating 24 hours a day. When you go underground or your mining is the ore itself, because that’s why Block Caving weren’t (inaudible) important for people to understand. That’s why your operating cost don’t go up. When you go underground some people have the feeling, Oil Company more especially go underground but you don’t spend on waste. And remember, when you hold this waste you have to separate the waste, and you have to keep repeating it back, because you can’t get the angle of the pit to how you have the pit falls sale on you. So all that waste that we’ve been dealing with since we started the open pit disappears, because you’re underground and your very law changing over. I hope that’s understandable. Oscar Cabrera – Bank of America Merrill Lynch: Thank you, Jim Bob. That leads to me nice into second part of my question. So you are expecting cost at Grasberg to decline to about a $1.15 a pound. I was wondering if you can put into context what you expect for 2014, 2015 and as you replete the open pit, because without any stripping and in the higher gold production, because those can’t really low, but then more importantly how did you expect it…?

Let me just make sure, I’d say something, that $1.15 was consolidated, not at Grasberg. Oscar Cabrera – Bank of America Merrill Lynch: Yeah.

The $1.15 going from a $1.48, $1.35 to I’d say, $1.15, $1.20 is consolidated. In that context, Grasberg goes back to being as I said, a situation of where – let’s say beginning in the fourth quarter of next year and through the life of the open pit, where the gold revenues were totally fund and perhaps more than fund the operating costs. So Grasberg costs will go to zero or below, which is what we’ve had in some years in the past. But for years, we’ve been talking about the situation as we get to the end of the open pit, where you’re stripping drops off dramatically. You’re down in the lower elevations of the pit where the higher grades are. We’ll be retiring equipment and reducing workforce and cost will go down and volumes will go up, and that's a good direction to go in. Oscar Cabrera – Bank of America Merrill Lynch: And that’s…

And that's important to use as the reference slides. If you look at the reference slides that shows where we're going to getting the oil in the year 2013, you see we start up at the very top of the pit, at the extreme limits of the push-backs. By the time we hit to the bottom of the pit, (inaudible) and that's a good indication, because that's basically once you’re going to be mining when you get underground. So if you can take what you have at the end of 2013, and imagine as you go and stay in that ring of gold at the bottom of the pit, which is really – which are going to be block-cave and once you learn, as averages says it's just a precursor of what's going to come in terms of the gold grades and the copper grades and that's what make the Grasberg, the King of the Mines. Oscar Cabrera – Bank of America Merrill Lynch: Absolutely, I'm sorry Richard, I misspoke, but I’m just interested in hearing you what the cost in Grasberg you expect one of the mine goes completely underground. So you have 2013, $0.68 a pound?

Oscar, as we approach at the end of the life of the pit, we’ll be in a net credit position in terms of, as I said the gold revenues will more than offset the total cost of production, as we get into the underground era and get ramped up. We expect the unit net cash cost net of credit at current gold prices to be below $0.30 a pound. Oscar Cabrera – Bank of America Merrill Lynch: Right, well thank you very much.

That's based on today’s input cost levels and everything else. So below $0.30 a pound driven by what happens to input cost in – those are large part correlated to copper prices and gold prices. So it’s still world-class in every respect. Oscar Cabrera – Bank of America Merrill Lynch: Yeah, absolutely. Thank you very much.

Okay, Oscar. Thank you.

Our next question will come from the line of Jorge Beristain with Deutsche Bank. Jorge Beristain – Deutsche Bank Securities: Good morning, everybody. My question was just following up on the update that you have for your resource estimates, what you referred to as your mineralized material, I did notice that you recently upped the cutoff grade for copper prices to be $2.20 per pound, historically you used a quarter about $2 per pound cutoff, but we have not seen an incremental increase in the resource there. And I was just wondering if you could comment as to, is that because you are now expecting slightly higher operating costs for those potential mineralized resources. And at what point do you think we’re going to start seeing additive or conversion of those mineralized materials to actually proven and probable as this has been a theme you’ve been talking about for few years? Thank you.

Jorge, on the first part of the question, we used the same pricing this year that we used last year on our reserves, it was $2 and on the mineralized material $2.20, so that’s consistent with what you have seen in the prior year.

And years too, I mean it has been more than just past year.

Yeah.

And then Jorge, that slide that we showed for the near-term reserve additions potentially can come from with a big element from El Abra and others, that’s doing exactly what you’re talking about, that’s looking at those resources and doing the work that it takes to get it to reserves and essentially what that requires is feasibility study. We have to be able to demonstrate that we can come up. We know the resources are there, they have been identified through our drilling, core drilling, and now the process of converting them to reserves required that you look at the mine plant, access to power, and water which is critical. In Northern Chile of course, this size of processing facilities, the cost, how you deal with metallurgy and processing and all of those factors and those are major things that require time to work on. So that’s really…

It’s Jim Bob. Most important thing in the metallurgical area is that we have scarcity of data, mineralized versus resources means what kind of spacing, do you have on your drilling? And in some of these metallurgical areas it’s just a matter, going out and drilling, increasing our spacing, and we go ahead, we may have drilled those that are a mile apart, and we just have to project what those, what’s in between those, as we go in, start to close in the degree, that’s how you turn mineralized into resources, and then into proved reserves and it’s a vast area. As you might have imagined with the amount of money we spend, last seven years to add this, $43 billion and that’s definitely sensitive mineralized because we just didn’t have the spacing. So that’s a definition, which you need to fill in there as how much drilling do you have to get enough data to really be call it mineralized versus resource. Jorge Beristain – Deutsche Bank Securities: Sorry, I didn’t misread the difference here. Your mineralized material is at 2.20 cut off and your PNP is at $2. And just another question Richard, maybe on the comment that you made on, earlier in the call about your target for net debt under the combined PXP MMR deal, you said now that you might be targeting to get net debt down to about $12 billion, and at that point, we’ll be in a position to either spend on growth buyback stock and/or raise dividends. could you just flesh that out a little bit more wide to slightly higher level, is that in response perhaps to shareholder pressure to return cash to shareholders sooner or what’s driving the thought process there?

Okay. You’re right, it is net debt and with the continuation of current commodity prices, we should reach that target level in a relatively near-term, roughly 2.5, 3 years or so. So we should be down to that in a relatively short period of time, assuming continuation of current commodity levels, price levels, and what that allows to do is kind of all three of which, you’ve talked about, continue to invest, have the excess cash to shareholders, kind of be in the situation we’ve been in recent years. We got down to zero debt.

Net debt.

Net debt at FCX, not because that was necessarily a financial strategy to get there. It happened in fact when we finished the Phelps Dodge deal, Jorge you may recall that we were talking about having long-term debt of roughly $7 billion at FCX going forward. but after 2008-2009, we had gotten to be very conservative, because of the risk there about managing cash and when the markets came back quicker and stronger than people anticipated. The copper prices start rising by the second quarter of 2009, we used that cash then to reduce debt, and so it was more of a circumstance of those times as opposed to the financial strategy, we like many of our shareholders have expressed to us believe that we should maintain an appropriate amount of leverage to leverage our balance sheet for our equity returnings, $12 billion would be less than one times EBITDA and so that’s kind of that we’re thinking about doing right now. And that said getting down to zero net debt was more of a circumstance of the situation as opposed to a financial objective that we were pursuing. Jorge Beristain – Deutsche Bank Securities: Got it, thank you very much.

And one other thing Jorge, I want to go back to this issue of this $2 and $2.20, I’ll make sure everybody understand, that is not our projection of prices. It’s not our view of any kind of long-term price of copper. It’s what we have to do just to comply with SEC reserve determinations and we’ve used this, it’s not something that easily changeable because you’ll have to – if you change the price you have to develop new mine plants and so forth, we actually as a company don’t have a long-term price projection. We consider a scenario of different prices when we look at investment opportunities, as I said before we want to manage downside risk, get exposure to what we believe is going to be a very positive future for commodities, and in that way we can make money and protect our down side risk. Jorge Beristain – Deutsche Bank Securities: Great, thank you.

Okay. Thanks.

Our next question will come from the line of John Tumazos, with John Tumazos Very Independent Research. John Tumazos – John Tumazos Very Independent Research, LLC: Thank you, I wanted to congratulate you on the good operations at Grasberg and permit in Peru and completing the expansion smoothly at Tenke. Other companies have had tougher times in some of those countries? I'm trying to understand what would be normal in the new Freeport. And I'm trying to not think of it in terms of the old company, because you're adding oil and gas, and I'm not doubling, but significantly increasing the mining. In the current year 2013, you are sustaining capital is a $1.8 billion, and you are saying that that will fall to $1.4 billion next year, and $1 billion in 2015. And in 2015, the total capital before oil and gas would be $3 billion. What's causing the bulge in sustaining capital this year? What will depreciation be when the capital programs are done in 2015? And what will the – is it possible 2016 will be a down year for CapEx?

John this is Kathleen, we've been spending on sustaining cap to CapEx, something on the order of $1.2 billion to $1.5 billion, and as we've shown quickly during the '08, '09 financial crisis, we have some flexibility with those projections. The bump in 2013 reflects some of the timing issues that carried over from 2012 to 2013. We are investing an equipment to assure reliability. We're investing in trucks and shovels as we’ll expanding our mining rates, and so we do have some projects that we don't have every single year.

And this issue about getting to the end of the mine life at Grasberg where we’re going to be as I said, cutting back on equipment and so forth our sustaining capital at Grasberg will be dropping dramatically as we go forward. So let's see Kathleen is looking at this depreciation number.

Yeah, we're expecting depreciation for 2013 to be somewhat higher than 2012 were roughly $1.5 billion in 2013 versus approximately $1.2 billion in 2012. And then as we get these projects online depreciation will get up to roughly $2.2 billion in the 2015 time period, and that's just the business that we have today. Of course, we’ll have pro forma results, which will include, we'll have purchase price allocation associated with those assets. So we'll update our guidance on that as we go forward. John Tumazos – John Tumazos Very Independent Research, LLC: Will the $3 billion mining CapEx or total CapEx rate you are projecting for 2015 be something that we should think of as normal level given that the depreciation is up to $2.2 billion and there always be some projects?

No, no. That’s simply where we are now with our plans. We don’t include CapEx in our outlook unless the projects have been approved. We are going to work hard as we talked about earlier to find new projects in our mining business to spend capital only because we think that is the way they create long-term value for our shareholders. So it’s a practical matter. It’s going to take time to get these projects to the point of where we can get them authorized. We are going to be responsive to the market conditions as we go forward, but we hope to find ways to spend capital, but this thing that we talked about earlier, they are just constraints on how quickly you can spend it, because we had to do these feasibility studies and other factors. But there is not really a normal aspect to this. We are going to be very return oriented to see where can we spend capital and get strong returns for the shareholders.

And John, there is not going to be a – this is not a question of having an old Freeport and new Freeport. This is going to be the long-term tradition of Freeport going forward in terms of the way we run this business and allocate capital and be disciplined about the way we do things. So this is not any kind of transformation, transaction that’s going to change the traditions that have been part of this company for the long period of time.

Our next question will come from the line of Tony Robson with BMO Capital Markets. Tony Robson – BMO Capital Markets: Good morning and thank you for taking my questions. First question I think to Kathleen, tax rate for the quarter were a bit lower than I had expected, it was about 28%. Any guidance for 2013 tax rates before the oil impact? And the follow-up question is on the oil, I guess to Richard or to Jim Bob. Feedback I’ve had from Freeport shareholders has been that the full acquisition was not controversial. Given the relative size of the deals and that feedback you may have had similar or almost, any thoughts on opening up that sort of – those mergers to Freeport shareholders to vote? Thank you.

Tony, hi, this is Kathleen. on the first part of your question, regarding taxes, effective rate in this quarter was 29% and for the year, it was 32%. They were some adjustments in the fourth quarter as we looked at the overall average for the year. As we get improved income relative to the size of the company, the improved contribution from Indonesia which has our highest tax rate, we expect tax rates to – effective rates to increase during 2013. We’ve got some disclosure on that in the back of the press release, but currently projecting 34% to 35% for effective tax rate before the transactions in 2013. Tony Robson – BMO Capital Markets: All right. Thank you.

What’s the question?

He asked about the shareholder vote for FCX.

For FCX? I’m sorry, Tony, I was looking at something else. You asked about shareholder for FCX. There will be shareholder votes for McMoRan and for Plains. For FCX, there is no shareholder vote. The requirements for shareholders vote are set by the New York Stock Exchange and we operate under Delaware law and the number of shares to be issued in this transaction to Plains is, that doesn’t exceed those levels requiring a shareholder vote and when shareholders votes aren’t required, I’m told by the lawyers virtually never held because buyers would not be willing to accept the condition in terms of agreeing to sell a business generally not in this case on the basis having some sort of voluntary shareholder vote. Tony Robson – BMO Capital Markets: Thank you.

Our next question will come from the line of Paul Massoud with Stifel Nicolaus. Paul Massoud – Stifel Nicolaus & Company, Inc.: Good morning and thanks for taking my call. My question, I guess my question is about your hedging policy, I mean obviously you guys don’t hedge comparable. Now that oil and gas assets that you’re going to be buying, do you have some hedges and so I was just curious if after the deal closes that you’ll be continuing the hedging policy that’s in place at Plains or if those hedges roll off and sort of purchase the oil and gas the same way you approach copper.

Okay, well, just to comment about it, Paul as you noted, we have had a tradition of not hedging in our mining business. We manage our price risk by the way we structure our portfolio of assets and respond at different pricing market conditions. Many of our input costs in the mining business are highly correlated to the price of copper. So if price goes down the input cost go down, and so forth. Hedging is more common among in the oil and gas business. We’re independent producers. Plains had made a significant acquisition of assets from BP earlier, well in 2012 and had adopted a business strategy of delevering the debt that it took in connection with that acquisition and the hedges that they put in place were supportive of that deleveraging strategy and that will carry over to our own deleveraging strategy because their production volumes have a strong history of production and now by having prices assured at attractive levels will be able to have degree of assurance for our own policy of reaching these targeted debt levels that I mentioned earlier. Whoever will go beyond that is something that we’re going to talk about and consider as we go forward. And that will be part of our review of the strategy of how we invest in oil and gas business, but that is not yet…

This is Jim Bob. Let me just add, the 21% of our cost as you’ll see from the charts is energy related. So by having the oil and gas hedges that give us good price for oil and gas is the hedge, our energy cost that we have across the board in our mining business.

Okay, thanks Paul. Paul Massoud – Stifel Nicolaus & Company, Inc.: Thanks a lot.

Our final question will come from the line of Wayne Cooperman with Cobalt Capital. Wayne M. Cooperman – Cobalt Capital Management, Inc.: Hey, guys.

Hello, Wayne. Wayne M. Cooperman – Cobalt Capital Management, Inc.: Hey, sorry if this is repeated, I apologize. Would you guys entertain more energy acquisitions at the right price if you saw stuff you liked and b) I think you said this, but assuming the MMR ends up being very successful and you really prove out the ultra-deep. Could you see separating the oil and gas assets again because they would have a much different cost to capital than the copper and gold company?

Well, Wayne this investment that we’ll be making in oil and gas business gives us a platform for looking for growth opportunities across a broader range of assets. And so we’re going to be, first of all, I want to say, we are going to be disciplined about it, our business plan of delevering and where we commit capital. But it will give us an opportunity to consider where to invest for the highest returns. There is not a plan to make acquisitions either in the oil and gas business or in the mining business, but we’re going to be cognizant of opportunities across the set of assets that we will have and we will make decisions based on our assessments of those opportunities and the discipline factor. And we are focused on achieving success in the investments in McMoRan, the investments in Plains, where there is significant growth opportunities that complement what we have in our mining business and that’s what we’re focused on as supposed to any kind of long-term strategy about future restructurings of the company. Wayne M. Cooperman – Cobalt Capital Management, Inc.: All right, thanks.

Wait, this is Jim Bob, wait a minute, I will just add to that. When you talk about what we are going to do, I have been Chairman in this company now for over 30 years and CEO for 20 years, Richard have been CEO for 10 years, so you have got 30 years of management that you’re seeing and nothing is going to change about this dialog what we do. What we try to do is to be the best management team and for that matter in the corporate, and we think we’ve done a pretty good job on average and our employees also have a well documented record. So what we’re going to be doing is, to use cash flow and resources that you are saying in the pro forma. And looking at, how do we and does that regionally or globally because with these acquisitions, we’ll now leapfrog, we’re bigger than (inaudible), we’re bigger than (inaudible), we’re bigger than Anadarko, we’re bigger than Apache, (inaudible) is the only company that’s slightly large in here. So we’ve got a resource even now which is basically a major resource, which you can complete with the majors more or less. But what that means is we want to take this Board and the management, Richard, myself and many of the employees, we are going to be looking at the best opportunity to grow our assets. And what we do with the capital, would have been, the prices of the commodities are, we’re committed to having the size of products that Richard talked about, we’re committed to do Rich, I and the shareholders. So nothing changed about this company obviously. 30 years of management, this guaranteed continued management of the company. This Board has a solid record. We acquired Phelps Dodge and we’ve shown inside into that and we’re taking a company that was 150 year old company, and tripped in the reserves that they had, the timely acquisition to our exploration expertise. So what everybody needs to remember is, the authority is that you’ve with the management. Now this is Jim Bob and our great Board of Directors made decisions that yield same kind of returns you’ve had in the past.

All right. well, thanks to everyone for participating in our call and we’re available for follow-up to the extent you would like to follow-up.

Ladies and gentlemen, that concludes our call for today. Thank you for your participation, you may now disconnect.