Freeport-McMoRan Inc. (FCX) Q4 2016 Earnings Report, Transcript and Summary

Ladies and gentlemen, thank you for standing by. Welcome to the Freeport-McMoRan 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 and good morning, everyone. Welcome to the Freeport-McMoRan fourth quarter 2016 earnings conference call. Our results were released earlier this morning and a copy of the press release and presentation material for today's call are available on our website at fcx.com. Our call today is being broadcast live on the Internet, and anyone may listen to the conference call by accessing our Web site homepage and clicking on the webcast link for the call. In addition to analysts and investors, the financial press has been invited to listen to today's call and a replay of the webcast will be available on our website later today. Before we begin our comments, we'd like to remind everyone that today's press release and certain of our comments on this call include forward-looking statements and actual results may differ materially. We'd like to refer everyone to the cautionary language included in our press release and presentation materials and to the risk factors described in our 2015 Form 10-K and subsequent SEC filings. On the call today is Richard Adkerson, Chief Executive Officer. Red Conger's here, Mike Hendrix's here, as well as others from our management team. I'll start by briefly summarizing the financial results and then turn the call over to Richard who'll go through the slide materials located on our Web site. As usual after our prepared remarks we'll open up the call for Q&A. Today FCX reported net income attributable to common stock of $292 million, $0.21 per share for the fourth quarter of 2016. As detailed in the press release the fourth quarter net income included net charges of 59 million or $0.04 a share reflecting estimated losses on assets held for sale and oil and gas restructuring related charges partly offset by gain on a redeemable non-controlling interest in plains offshore. After adjusting for net charges fourth quarter adjusted net income attributable to common stock totaled 351 million or $0.25 per share. Our adjusted earnings before interest, taxes, depreciation and amortization for the fourth quarter totaled 1.7 billion. As you'll see in the press release FCX took aggressive actions during 2016 to restore its balance sheet strength and we had an active fourth quarter. We completed $5.2 billion in asset sales during the fourth quarter of 2016 bringing the full year asset sale transactions to 6.6 billion. Importantly, our net debt was reduced by 8.4 billion during the year and currently approximates $12 billion. Our sales for the quarter totaled 1.2 billion pounds of copper, 405,000 ounces of gold and 22 million pounds of molybdenum. And we sold 4.65 billion pounds of copper for the year, 1.1 million ounces of gold and 74 million pounds of molybdenum. During the quarter we completed the Tenke sale in November and our previous guidance had reflected Tenke volumes for the full year. Excluding that variance copper sales were approximately 7% below the October 2016 estimates reflecting lower mining and milling rates at PT Freeport Indonesia. Our fourth quarter realized copper price was $2.47 per pound that was 13% above the year ago, average of 2.18 per pound. Gold prices averaged 1,174 per ounce and were about 10% above the year ago quarter of 1,067 per ounce. Our unit net cash cost for the quarter was a $1.20 per pound, that was lower than the year ago period of a $1.45 per pound, that reflects the higher byproduct credits and also the improved volumes and efficiencies from the Cerro Verde project and higher volume for PTFI. We generated operating cash flows of $1.1 billion in the quarter which exceeded our capital expenditures of roughly 500 million. For the year our operating cash flow totaled 3.7 billion which is in excess of our CapEx for the year of 2.8 billion. As previously reported we completed the at-the-market offering of common stock during the fourth quarter and raised a total of 1.5 billion in gross proceeds through the sale of 116 million shares of FCX common stock. Our consolidated debt totaled 16 billion and cash balance at the end of the year was 4.2 billion, net debt was below $12 billion at year end. We ended the year with no borrowings under our $3.5 billion revolving credit facility. At the end of December we had 1.44 billion common shares outstanding. I'll now turn the call over to Richard who will be talking our outlook and updating you on current developments in referring to the slide materials on our Web site.

Good morning everyone, as I started thinking about my presentation today I recall a comment that Jack Welch made several years ago and it was, 'don't be giving bows for Act I when the audience is looking for Act II', and I know everyone here is focused on Indonesia. It's the focus of our senior management team as we go into 2017, but having said that I'm very proud of what our team did during this past year. A year ago at this time our share price was well below $4 a share, our credit revolve swaps were 2,700 basis points, we were announcing a plan to reduce that and sell assets. There was a lot of uncertainty about our ability to do that and the values that we would realize. We were completing the construction of our Cerro Verde project and ramping it up and it was a big project, $4.6 billion and big projects in our industry have been challenging in general. We're very pleased that we successfully executed that construction project and ramped up Cerro Verde in a very effective way and today it’s a long-term cash flow generating asset for our company and a core asset. We've had a year of really strong cost and capital management, 19% reduction in consolidated copper unit site production and delivery cost year-to-year, 56% reduction in CapEx year-to-year, 17% below our year ago estimate for CapEx as we manage our capital spending. This call last year in response to a question I indicated a goal of reducing our debt by $5 billion to $10 billion, I didn't really set a time frame on it at that time, but we have reduced our net debt from last year to the end of 2016 by roughly $8 billion. We refocused our business under the direction of our restructured Board of Directors to focus on our mining business and on the copper industry and we were able to come out of this process of selling assets and raising capital with that high-quality copper portfolio that situates our company for creating long term values for our shareholders. Kathleen mentioned our asset sales, they're detailed on Page 4. In the first quarter soon after our year end conference call last year we announced the sale of an incremental interest in Morenci to our long-time partners Sumitomo for $1 billion and in the fourth quarter it was a culmination of a lot of work that went on throughout the year with the closing of the Tenke Fungurume transaction, the resolution of uncertainties of that transaction within the Democratic Republic of Congo, and our partner Gécamines is there. We closed oil and gas transactions to sell the deep-water assets and the California production price is well below what our company paid for them, but at prices that were very reasonable in terms of the current marketplace. Took a lot of work, each one of these transactions was very complicated and beyond that there were a lot of alternative transactions that we put a lot of effort into to give us a set of alternatives before we settled on doing these particular transactions. Page 5 looks at the management of our cost and capital, you can see the 19% decline in our unit cost ending the year with a unit cost net of byproduct credits of a $1.26 for last year, our free cash flows increased, our capital expenditure is decreased as expected, as a result of the completion of the Cerro Verde project but moreover by the in-effect exit from the oil and gas business where we had spent roughly $3 billion of capital in 2015 and over a $1 billion in 2016. Copper market, in the fourth quarter, all of us have been pleasantly surprised by the recovery in copper prices as you know copper lagged behind other commodities. During 2016 it was up roughly 17% for last year, but as we ended the year we improved market sentiments supported by fundamentals in China and the U.S. and the global marketplace and global economic conditions improved. Supply growth continues to be constrained by yearend, we were seeing more impact of supply disruptions which had been uncharacteristically low during the first half of 2016, the price required to develop new supplies is $3 a pound or better the incentive price that Wood Mack points to is $3.30 in real terms. So even at these prices, the industry is still not undertaking new supply development projects. When those projects are undertaken, it takes years to get them to the point of developing supplies, so we're in an inevitable move of reduced supply. The question mark is demand, demand has been better and that points to a bright future for copper today we have relatively low inventory, clearly deficits in the marketplace are in our future, the question is what will the timing and extent of those deficits be and that depends on the global economy and particularly events in China, but we remain -- throughout all this, we remain very optimistic about the outlook for copper and to position our company to take advantage of it. The world's leading copper producers are on Page 7, you can see that we rank in terms of net interest of production behind Codelco, this is excluding Tenke and adjusting our ownership interest in Morenci, if you looked at the operations that we manage, we're roughly equivalent to Codelco taking into account minority interest in the operations that we manage. Our assets include seven copper mines in North America where we supply roughly 40% of the downstream copper to the U.S. economy, two copper mines in South America with the Cerro Verde project in Peru, El Abra with our partner Codelco in Chile, which has a potential for a massive expansion in the future and then of course the Grasberg operations in Papua and Indonesia. You can see in terms of reserves, they're basically equally distributed among those regions, so we got good diversity in terms of copper resources. Our molybdenum only mines are in the U.S. We have byproducts in the U.S. and in South America as well and then our gold sales are associated with the very large gold byproduct in our ore at Grasberg. Cerro Verde commenced operations in September 2015 and achieved operating capacity in the first quarter of 2016. The large-scale long-live reserves net unit cost decline 19% year-on-year, this is a great project and is operating very well and we're very proud of our team for accomplishing it. Our reserves are shown on Page 10. I mentioned earlier when you look at our proved and probable reserves, they are equally distributed by region and beyond that we have substantial mineralized material that we’ve identified in conjunction with our existing mines of substantial amounts, 100 billion pounds of contained copper and then beyond that there is potential that we are qualifying now of very large amounts. What this shows you is that our company is situated with reserves that provide for a very long term future in the copper business. We will have a steady stream of growth projects that will only be initiated when the market indicates a need to for it and we can be very disciplined about where we spend capital looking for attractive rate of return projects and looking for projects with relatively low execution risk, other brownfield expansions. So, our company is well situated. We don't have to make -- enter into the M&A market, but with our balance sheet improving with copper price outlook improving, we’ll be positioned to participate in that marketplace either as buyers or as sellers. Now, we have our large development projects listed on Page 11. They're in alphabetical order, this is not an order that we might pursue them, but it includes six projects with major sulfide opportunities which would be each major expansion opportunities for concentrator projects. Interestingly, five of the six are in the United States and as we look at the relative economics of investing in the United States or outside the United States, in recent years, investments in the United States have become increasingly attractive. The energy situation here with the abundance of energy and the cost of energy, because of the shale oil and gas developments in the United States has provided us low cost of energy. We have a work force in the United States that is much more flexible. We have a none-union work force, we have communities that support our employees, whereas outside the United States, often we have to provide all the community support. So, it’s an interesting situation, what a change over the last 15 years, when this industry was thought to be dead here and now it’s a place for great investment opportunities. Also, El Abra is on this list and it’s got a very large resource that we are doing advanced planning on with our partners looking at potential consolidation of interest in the area and it would be a very large project, but potentially an attractive one and I believer one that ultimately the industry will need to meet the world's needs of copper. So, we've had a great Act I, turning to Act II. At Grasberg from an operations standpoint we have had continuing issues with, I'm going to say an element of our workforce and that is the workers in the Grasberg pit itself. The Grasberg pit has a known depletion point, it's been moved out to now where it will be -- we expect it to be completed in 2018, upon completion we will continue mining the Grasberg ore body as a very large block cave -- is located -- the ore body extends below the limits of the pit. We are currently operating underground in a significant way in our DOZ mine and our deep MLZ mine. We have been operating large scale block cave operations since early 1980s at the Papuan operations of PT Freeport Indonesia and we're very comfortable about technically being able to do that. But as we've approached the completion of the pit, workers have been raising complaints, grievances and have simply not been meeting productivity standards. We're taking steps to respond to that, the effect of this is not a loss of resource, this resource will be realized through mining activities, but what's happening is we're having lower production now which is extending the life of the pit and we're working with the union, with the workers, with our management team to take steps to rectify this and in our outlook, we give you the best estimates that we have going forward. Now I want to spend some time going over matters that many of you are familiar with, some of you may not be, but I think it's appropriate to do it now because the Indonesian government has just issued new regulations for mining operators broadly, and it has implications for us, but it's for the industry as a whole. So, I want to take a few minutes and set the stage for putting this in perspective with what our situation is given our current contract with the Indonesian government. Freeport signed its first contract in 1967 and then after the discovery of the Grasberg, signed a new contract of work in 1991. And this contract provided legal and physical certainty through 2041. And it was on the basis of this contract that Freeport has made a multibillion dollars of investment and we began that on signing of the contract. In the mid-1990s we formed a strategic partnership with Rio Tinto to advance the development of the new Grasberg resource. We had a major mill expansions, we undertook underground mine development and expanded the mine capabilities for output significantly and Rio Tinto remains our partner and we have a great relationship with them. In connection with that original contract we had a commitment to build a smelter in Indonesia, provided that was economic. And we fulfill that commitment. We’ve aggressively went out to find a partner, we found a partner in Mitsubishi, which had new smelter technology at the time and we’ve constructed a smelter in eastern Java at Gresik. And we have an equity interest in it, the majority owner the Japanese and Mitsubishi is operated -- it's operated very effectively and safely over almost 20 years of operations. Been one of the world's best smelters, have not made any money because of the economics of the smelter industry. In 2009, the Government of Indonesia passed a new mining law and implement new regulations over, the law was passed in 2009 and it took time to put regulations in place and really the governing regulations were not completed until 2012. The law provides specifically that existing CoWs remain in effect until they expire. It also instructed the government to seek amendments to the CoW make contracts of work more consistent with the new mining law within one year. We actually, began discussions with the designated senior representatives of government in 2011. And in 2012, the government established an evaluation team early that year to review CoWs. We’ve been in discussions with the government since 2011, 2012, but have never been able to reach a mutually acceptable agreement on reconciling the contract of work with the new mining law. The law says that the contract remains in effect. In early 2014, concentrate exports were halted for more than six months following a troubling January regulation on exports. We didn’t export for more than six months. It cost the government roughly a $1 billion in taxes and royalties, it cost us slightly less than that. But a very substantial amount. In that year, we resolved the ban on exports by entering into an MOU with the government, in July, that covered six main points. Exports, smelter development, divestiture, all of these were subject to negotiation of legal and physical certainty and an extension of our operations from 2021 to 2041. It was contemplated that that MOU would be resulted amendments to the CoW in six months. The government changed in late 2014, the MOU was extended in 2015 and we continued discussions with the government. That led to the government providing our company a letter of assurance regarding extension of the CoW, regarding legal and physical certainty beyond 2021. And it was that assurance, in that letter and in the MOU and in the CoW, the government has, in Freeport have honored this CoW since the first one was signed in the 1960s, and the new one signed in 1991, that has given us the confidence to make the ongoing level of investments that we’ve been making and developing our underground resources. Now just in January of this year the government has introduced new regulations and these new regulations require CoW holders to convert to licenses called IUPK in order to export, and with a license in and of itself there is no assurance of legal and physical certainty and we have been unwilling to give up our CoW to go to strictly a license. And so, what I want to do now is, and this is in our slides and so you can review this and follow up with questions, but I want to point out what our contract of work actually says. It says that we shall have initial term of 30 years from 1991 going to 2021, and that we shall be entitled to apply for two successive 10-year extensions of this term subject to government approval and that government approval cannot unreasonably be withheld or delayed. So, we have the rights to extend the CoW on its existing terms for another 20 years beyond 2021. We made application for this extension and have not yet received approval. With regard to export, there is a specific provision in our contract that says without in any way limiting the Company's basic right to export, that we shall be -- we'll be subject to a reporting -- administrative reporting and non-monetary provisions. With respect to taxes the CoW at specifically that we shall not be subject to any other taxes, duties, levies, contributions, et cetera, except for those expressly provided in this CoW, which provides for an income tax rate of 35% which is higher than the standard rate in Indonesia and provides for royalties. With respect to divestment, there's a specific provision that said, if after signing this agreement the effective laws and regulations of the government's policies impose less burdens on divestiture requirement than those that were in the CoW, those less burdensome requirements apply to our -- to the parties of the CoW. And what happened after CoW was signed in 1991 Indonesia in general adopted new laws and regulations that eliminated requirements for foreign ownership that triggered this provision and we have a letter from the government through its investment board called BKPM in 1997 saying that we have no future divestiture obligations. Then there is general provisions that says the government will take no action inconsistent with the CoW, adversely conductive to the enterprise and including without taking any action or condemnation or nationalization of the enterprise or any parts there under. Later on in this CoW is an act of expropriation and nationalization. So, that's a matter that's strictly covered in the contract. The CoW also said the agreement shall have the full force and effect of law and the law that governance is the law that was in effect at the time of the contract 1991. So, that is what our position is, is that this contract establishes rights and obligations of each party, Freeport and the government and that the government cannot change its obligations by adopting new laws and regulations. And this is part of just the general rule of law, you can’t do that in the United States or other countries around the world. If laws or regulations are changed, then any government has the right to adopt laws and regulations. You can’t avoid obligations under contracts by the government by doing that. And if they do do that, then the government would be responsible for financial losses or damages from the breaches of these contracts. And so, as we enter into discussions with the government, that’s the basis for our position, and the government points to the 2009 mining law, and that’s the element of disagreements that we’ve had. I mentioned this October 7, 2015 assurance letter. And it’s very important because in that letter, which was issued by the Ministry of Energy and Mineral Resources, it talks that the government warrants -- now this letter is in Bahasa Indonesia, and warrants is a term that we’ve translated to. I’ve been advised by our people that the law itself could -- you could use the word guarantee or warrants or assures to reflect it. But it says that we would be able to submit proposal of contract extension immediately on implementation of the regulatory amendment and the government will not reasonably withhold or delay it. It is further understood that the approval will ensure, and this is really important, the same rights and the same levels of legal and physical certainty as contained in the Contract of Work. So where are we today? The government issued these new mining regulations on January 12, 2017, which under previous regulations was the date that prohibited exports beyond that date. The regulations that allow our continuation of exports, subject to conditions, including conversion of the CoW to the special operating license called an IUPK. We are working with the government to deal with the reconciliation of these regulations with our contract. And what we’ve agreed to do is convert our contract to an IUPK subject to obtaining an underlying investment stability agreement, similar to what we have in other countries, which provides us this legal assurance of physical terms and other rights. The CoW remains in effect until it’s replaced by a mutually satisfied alternative. And we have requested the government to allow us to export, while we immediately begin to discuss with the government this new license and stability agreement. Our recent discussions, we have not yet been given an export right, our very recent discussions with the ministry indicates that we will be given that right, and we will target dealing with the conversion to the license and the stability agreement within a three-month period. So, we’re committed to start working immediately on that. We’ve been given indications that we will be allowed to export, but I want to note specifically, we have not yet been approved for that. If in fact, we are not allowed to export, the significant impact on our company. Each day, it’s 70 million pounds of copper and 100,000 each month -- 70 million pounds of copper and 100,000 ounces of gold for each month. The nature of copper concentrate is that it's bulk material and we don’t have the ability to inventory this to any great extent. We would be allowed to ship domestically to the smelter at Gresik and we would have to restructure our business to allow us to do that, but it would be a major curtailment of our business. Unlike 2014, at this point where our company is not in a position to maintain the existing operations without being able to export. So, we would have to take steps to curtail operations, curtail costs, that means very large layoffs and the cutbacks in capital spending, and we have developed plans to do that. I will say we don’t expect to have to do that based on very recent discussions with the ministry. But we -- it still remains for us to get these exports approval and we've been given assurances that we will. I just want to close this discussion of Indonesia to make just some very general comments. We are one of the oldest and largest foreign investors in Indonesia. And over the history we have had a very positive relationship with the government and together we've done great things in Papua. This is I would suggest the most technically challenging mine to operate in the world, because of its physical setting and the nature of its ore body and how we have to deal with environmental issues and disposals of tailings and waste material, and the development of underground resources. And we take great pride in what we've accomplished there, and we take pride in the positive relationship we've had with the government and our goal is to remain a positive partner with the government, but while we firmly represent the interest of Freeport's shareholders. We take pride in the benefits that our operations have provided to the government and local communities over our long histories. We produce over $50 billion of economic benefits to the Republic of Indonesia and our future impacts would be even greater. Under our current physical terms, Indonesia receives more in taxes and royalties than any other country would receive if we were to take this mine and put it into U.S., Canada, Chile, Peru. The deal for Indonesia is very fair by international standards. In summary, it is in the best interest of both Freeport and the government to reach a mutually accepted resolution and I believe both sides recognize this and I have confidence that we will reach this resolution that is fair to all parties and we're going to commit all of our time and resources to achieve that goal. We'll answer questions, but I want to just point out our 2017 outlook is for over 4 billion pounds of copper, 2.2 million ounces of gold, 92 million pounds of molybdenum. The copper and gold presumed we will continue to export in Indonesia. Our site production and delivery cost before byproduct credits would be about in the range of $1.50, after credits this is a $1,200 gold and $7 molybdenum would be a $1.06 for the year, this upcoming year, the year we’re in and about $1.15 for the first quarter. At $2.50 copper, we’ll have $4.3 billion of operating cash flow each $0.10 change in copper, plus or minus $2.50, is $385 million. Capital expenditures of $1.8 billion, which $1.1 billion is for major projects. The vast bulk of that is for the underground development in Indonesia and then our sustaining capital is $700 million. Our sales profile for the next three years is shown on Slide 19, net of Tenke and Morenci transactions, we were at 4.17 last year, this year would be 4.1 and roughly 4 in 2018. And you can see our gold increases as we complete the mining of the Grasberg pit [ph] in 2017 and 2018 and our molybdenum sales, which we manage to a certain degree in response to the marketplace, and we’ve done a great job, by the way of processing our molybdenum and our downstream operations to reach a chemical grade where realizations are substantially higher than from metallic molybdenum. Our models for EBITDA and cash flows are shown on Page 20. EBITDA between $2.50 and $3 is $5.5 billion to $7.5 billion. Operating cash flows are roughly $3.5 billion to $5 million between $2.50 and $3, with limited amount of free cash flow. This gives us a clear path for making our debt targets. The sensitivities to price changes for our business is shown on Slide 21 and capital expenditures on Page 22 were without oil and gas now we will significantly reduce capital this year and next and continue to constrain capital until market warrants moving forward with new projects. This balance slide is something that looks great to me. I mean, we went from $20 billion to $12 billion net debt from last year, from year before last to the end of last year. And then if we look forward next year with the range of $2.50 to $3 you can see our debt dropping below $10 billion. And that’s a big positive change for us. And we’re committed to a strong balance sheet now. A strong balance sheet in this industry allows you to be protective of your Company’s shareholder values. It allows you to make investments when their warranted, it allows you to take into account operating risks and risk such as the one we’re facing in Indonesia. We’re much, much, much better prepared to deal with those risks today than we were a year ago. And it’s a major accomplishment for our company to have met the challenges of having a massively overleveraged balance sheet and getting down to where we have a strong balance sheet. I’m really excited about our future. I mean, we’re industry leading copper, and copper in my view is going to be a great commodity to be in. We’ve got a great team of operators and developers. We’ve done all these different projects, spanning the globe, there is not a project in our industry that we could not do effectively. We've got this long-lived geographically diverse attractive cost structure resources, and now we are financially strong to be able to run our business in an effective way. So, Act I. We are working every day on Act II, as we work to keep our business safe and produce volumes and control our cost. So, thank you for your attention and I felt -- I know I've taken some time on the call, we'll answer your questions, but I felt under the circumstances reviewing some background was needed.

Operator, we'll take questions now.

Ladies and gentlemen, we will now begin the question and answer session. [Operator Instructions] Our first question will come from the line of Chris Terry with Deutsche Bank, please go ahead.

Hi Richard, couple of questions from me, just trying to cut out a few of these more details on Grasberg. Maybe to start on the underground development you're going through with the deep MLZ zone and most of it the Grasberg block cave. At this point has there been any slowdown on that? I'm just looking further out to some of your guidance and comparing it to past periods. I think the 2019 guidance for example has changed a little bit, have you changed anything there or are you still waiting for resolution on the near term before you make any decisions.

It’s a good question Chris and there's two factors here. First of all, with the fact that the pit has been extended because of the labor productivity issue that we faced, then that pushes back the ramp-up of the Grasberg block cave. We are proceeding with the development of the block cave and that has gone very well. These labor issues and so forth have not carried over to our underground operations or mill operations. And so, we are on schedule now, we slowed things down a bit to conserve capital and to make this fit in with the startup following the completion of the mining of the pit. With respect to the Grasberg block cave development, we will not get to the point of initiating cave activities until we get the contract issue settled. But that is scheduled to occur in the future in any event, between now and 2018. Because once you start the caving, you got to stay with it or you lose resource. So, we're progressing with the underground development, we're timing it to coincide with the completion of the pit and to a certain extent we're looking at the contract situation before we go forward with it to get to the point of actually beginning caving operations leading in production. The deep MLZ mine development is complete, we have one cave that's in operation with a number of draw points on that cave. We have had an issue related to underground stresses associated with the advancement of the cave. And that has caused us to have to put in more extensive ground support than we had originally contemplated. And that has resulted in a delay in some of the production that we had originally projected for 2017, '18 and '19. So, we’ve had a bit of a slowdown in the development of the mine itself to make sure that we’re comfortable with the safety factors for their underground support, and that’s taking some time and pushing out some production. No lost resources, it does involve some incremental cost, but it’s something that once we identified this and this occurred during the fourth quarter, then we are taking the steps to ensure safety and the ability to produce this thing over the long term.

Okay. Thanks, Richard. And then just in terms of the now, so you’re continuing to produce. So, can you just give us some guidance may be on how much storage capacity you actually have, and then when you have to make decision on that? Is that early fit that you can keep operating until before you’d need to get to losses?

Yeah, coming into this January 12th date, we scheduled shipments to take into account the potential for a delay in granting of the export license. So, by mid-January, we had shipped our exports out under our previous license authority and shipments for the upcoming weeks are scheduled for the Gresik smelter. Now Gresik smelter is undergoing a strike and is currently having to deal with that. So, that has an impact. We have a limited amount of storage spaces, as I indicated, and we would need to take steps no later than mid-February, if in fact we're not granted for license. So, it is something that looms in a very short time horizon.

Okay, thanks. And then just the last one for me on the CapEx. Just noticed into 2018 the part that’s not the growth capital, I assume that's the sustaining capital, the 0.9. Is that representative to the business now that you’ve divested most of the oil and gas, or is that still work in progress? Are you under-spending there or can we look at that as more of a steady-state number?

Well, we are aggressively constraining spending. And our team was just here last week with all of our mine managers, and necessity is the mother of inventions, but it’s -- we’re sharing inventory, sharing equipment, sharing people and doing every step we can do. This is not going to be sustainable at that level forever, but we're not having to increase it in the near-term horizon. But this is an aggressively constrained level of maintenance capital spending. But it is what -- we can meet our production targets with this level of spending.

Okay. Thanks for the color.

Your next question will come from the line of Andreas Bokkenheuser with UBS, please go ahead.

Thank you very much and congratulations on the fantastic job on deleveraging last year. That was certainly quite impressive and I don't think it was a small thing at all. At the risk of you know being slightly predictable I also have a question on Grasberg. You've obviously highlighted your willingness to potential convert to an IUPK assuming you get the fiscal and legal certainty attached to a CoW. If you assume for a second that you get this fiscal certainty but the government digs their heels in and says, no, you still have to divest 51% ownership. Would I be right in assuming that you will not commit the vast amount of CapEx to Grasberg if you can't be no have majority control of the mine, is that the right assumption?

The government currently owns 9.36%, and that goes back prior to the 1991 CoW. In terms of negotiating with them over the past five years and it was an element in the 2014 MOU, we agreed to divest up to 30%, which was another 20% roughly over the current government's ownership, with the proviso that that divestment be at fair market value. And a year ago, in January we supplied to the government a valuation of PTFI based on valuation parameters of that time, consistent with the negotiations we were having with Morenci and ultimately with China molybdenum on the Tinke sale, which valued PTFI at that time at $16 billion. We have not had any interaction with the government to review that valuation and clearly today copper markets are more positive than they were a year ago. The government has expressed over time an interest in having Indonesian ownership over 51%, but they have indicated they would want to see Freeport continue as operator and to be in control of operation. And so, the thought process as I understand it with the government, is to have Indonesian nationals in some form owning 51%, but not to be in control of the business. Now we believe we have gone a very long way to meeting their aspiration with agreeing to this 30% and at current time we've just noted our opposition to the regulation that requires 51% for all companies, but in our case our contract requires no divestiture. And we have documentation from the government supporting that. There's no question that had we had a requirement to divest 51% from the start of this contract, we would not have invested in the way that we did. While there has been indications that government officials, certain government officials accept the fair market value concept, my point is, you just don’t develop an asset and sell it to somebody else at a fair market value at certain point in time. And so, that remains a matter of disagreement between us and the government. And clearly, if that were a requirement, it would affect negatively our future investments for this business.

That’s very clear. Thank you very much.

Let me just say, while I expect that we will get the approval to export and some time to deal with developing this IUPK investment stability agreement, we will still have to deal with this regulation for 51% divestiture and the government’s intention to impose export duties and the level of those duties has not yet been published. So, we have work to do.

Right. I appreciate that. Thank you very much. That was good.

Your next question will come from the line of Tony Rizzuto with Cowen & Company. Please go ahead.

Thanks very much. Hi, Richard and Kathleen. I also want to congratulation on Act I as well. And Richard, when I listen to you detailing the articles in the contract of work in the specific areas, I couldn’t help but think that I was hearing increased frustration as to be expected in your voice. And my goodness, you look at all these -- the details in the articles and how it’s been violated over time and just your response to the last question about this 51% divestment stake and so on and so forth and the question is about operate control and all these types of things. And I clearly heard you say earlier about this kind of very critical date, as you come up upon mid-February, which is not that far away. If these issues in Indonesia persist, would you consider, in addition to reigning in investment there, could we see Freeport look seriously at perhaps restarting some of your [technical difficulty] idled capacity elsewhere in the world?

Well, I really think that those are independent decisions. And I don’t think we would start idled capacity just because something was happening in Indonesia. We’re going to look at the idled capacity in investment of developing new resources based on market conditions. And Tony, one of the advantages of having a stronger balance sheet, which a year ago, we were really dealing with the situation in Indonesia and other potential risk in places we operate outside of Indonesia from position of weakness. Now, our canons are loaded, and we can represent our shareholders much more strongly then we could have then, and that’s really important.

Okay.

We have the rights to pursue claims against the government in the form of international arbitration. And our legal team advises us that our case is very strong in doing that. We have consistently represented to the government that we don't want to do that, I don't believe that would be advantageous for us, but I also think it would be very negative for the Government of Indonesia. So, we have and as long as we have the opportunity to try to resolve these matters in good faith we'll continue to do it through trying to reach an amicable mutually agreeable situation. But if we get to that point where we can’t and that point would include not being able to export, then we would be left no choice and we're prepared to do that.

Richard just on the labor situation you mentioned, I was unaware that the Gresik smelter was dealing with a strike situation. Your own situation there as it relates to the mining operations, is there a labor contract which expires there this year? It seems like the two year -- I notice every two years.

It's every two years and we have to again this summer begin the negotiation of a new CLA agreement with our labor union at Grasberg and that's -- under Indonesian law that's required every two years, as you pointed out.

Is that the expiration on that Richard, is which date?

September.

End of September, and that's to all of the workers at the mine, mill, everything?

Well, there is you know -- our total work force, is 30,000 to 34,000 people. Half of those roughly, little less than half are employees, and a majority of employees are members of one union, and that’s the contract we're talking about. The others are contractors and certain of those contract companies have separate unions and separate negotiations, but for the major employee union, that is the contract that we've just been talking about.

Got it. That's very helpful, thank you.

Your next question will come from the line of Orest Wowkodaw with Scotia Bank, please go ahead.

Hi, good morning, more questions on Grasberg, specifically your guidance for 2017. Just curious what throughput rate that assumes at Grasberg, because obviously, it’s been tracking kind of below expectations given the productivity rates that you talked about.

Orest, this is Kathleen, the big driver of our metal in 2017 comes from the Grasberg open pit and we are using an estimate -- an average of 140,000 tons a day of mine rate and during the third quarter of 2016 we averaged a 170,000 roughly. We had forecast 160,000 going into the fourth quarter and we had some work stoppages and some productivity issues that we dealt with in the fourth quarter and so we averaged 122,000. The 140,000 that we're estimating for 2017 is very doable, but it is at risk for issues related to productivity and work stoppages, but we think it's very much achievable and potentially we could do better than that.

And is that -- in your guidance reduction for '17 is that driven purely off of the productivity issues or is there an impact from the ban in the current -- the export ban in the current change?

It’s principally related to the lower mining rates and to the delayed start up or delayed ramp-up at deep MLZ that is affecting 2017. We do have some allowance for the concentrate delays, but we’re expecting under this plan to be exporting in February.

I see. And just finally on Grasberg, Richard talked earlier about your relationship with Rio Tinto. But can you just please outline, I think to everybody, how the 40% interest is going to work with Rio Tinto starting in 2021 and how that pertains to -- whether that pertains to their stake in PTFI or at the asset level and how we should think about that?

Okay. They do not have any stake in PTFI. The operation, even though we call it all Freeport, is actually a joint venture between PTFI and Rio Tinto’s Indonesian subsidiary. And so, they own no shares of PTFI. The numbers we present are proportionately consolidated. So, it excludes Rio Tinto’s interest in current operations, which is very small. But it also, when we report reserves and resources that’s net of Rio Tinto’s interest. And they have an assignment of our CoW, and so it is really a joint venture and they had a varying level of participation from the time it began in -- the production began in the joint venture in 1998 until 2021. Now there's been some extensions of that date for force majeure items. And after that date, they have a 40% interest.

And if you, like last time you previously talked about selling down 20% to the government, did that -- so would that have included pro-rata share from Rio Tinto or was that strictly Freeport share?

That’s strictly Freeport share. We only negotiate with the government with respect to Freeport’s interest. So -- and for example, when I referred to this $16 billion of valuation, that is exclusive of the valuation attributed to Rio Tinto. There’s only one CoW, they have an assigned interest in that CoW, we cannot make any amendments to that CoW that’s adverse to Rio Tinto’s interest. And we’ve been great partners since the start of this operation, and we’re in very close communication with them on all aspects of our business, technical, safety issues, the government relations issues, and so forth. So, it’s that partnership and I want to be clear, we represent PTFI, we have a joint venture partner Rio Tinto that represents their interest.

I see, and is Rio funding it’s proportionate share than of the underground CapEx and the future smelter?

With respect to the CapEx at Grasberg in the underground development. Several years ago, we reached an agreement on how those capital expenditures would be shared. Certain of those costs are deemed to be replacement capital and there are shared on the same basis as operating costs. Some of the costs are considered to be expansion capital and their share 60:40.

Like the deep MLZ.

Like the Deep MLZ project for example. Certain projects that -- for example the access -- there is a common access deep MLZ and to Grasberg and we have an agreed upon sharing. So, the capital that we report, that all these numbers in our presentation we report are report only. They don’t include cost share by Rio Tinto, those costs are relatively small right now, but will grow to 40% once the conversion to the 40% interest comes in play.

Okay. Thank you very much.

Our next question comes from the line of Andrew Quail with Goldman Sachs. Please go ahead.

Good morning Rich and Kathleen. Thank you very much for the update. Just got a couple of few questions, I don’t want to beat a dead horse, but I'm talking about Grasberg again. Obviously, from that mine rates in Q4, and it probably had something to do with labor as well as mine sequencing. Can you just give us some context about what -- how much does the workforce flex down as you guys transition to the block cave?

It's more of a transition than a flex down. Because actually underground mining is labor intensive, and over time as the open pit moves towards completion, the mine rate drops, we're moving much less waste material now than we did in the past. So, there is less equipment, less people and we sought to transition workers from the open pit to the underground through train where we could, we also will have ongoing after the pit is completed, material moving activities associated with the waste management of the waste material that will -- that’s been taken out of the pit and placed around the pit. And we have to manage that for long-term environmental reasons. We have activities in the loans, where we have a tailings disposal area that’s quarantined off with dikes and there is a constant effort on-going to build and maintain those dikes to execute our tailing management plan. So, I would say, Andrew, that is more of a transition than -- what was the word you used --.

Flex down.

Flex down.

Okay. Second question was about, you guys obviously are talking about a surface water tax. Which was about 470 million. Can you give some color on that and if that was to be paid would that come this year? I realize you guys haven’t made any provisions for it, but what's the background of that, is that the government sort of playing games?

This is a clear-cut example of why we have to protect our CoW.

Yeah.

Our contract says we’re only subject to taxes that are specified in the CoW. And what happened here is the provincial government, not the central government, has sought to impose a water tax on us, that we’ve resisted paying because it’s not part of the CoW. And we didn’t pay it, and the provincial governors sued us. It’s gone through the Tax Court now and there was a very recent ruling in the Tax Court that was in favor of the provincial government. And it’s one of these kinds of things that we face in other countries, whereas the amount of the tax I think was on the -- was less than $200 million. But there are penalty provisions in the law that are very aggressive and so that’s where it’s grown-up to the $350 million, $400 million level. We have made -- we have taken steps to appeal this Tax Court decision. We believe it’s wrong. We are considering submitting this matter to arbitration. But that’s what would happen to us if we went to a license without having an investment stability agreement. Under a license, you’re subject to prevailing laws and regulations. And any government can’t come in an impose taxes, fees, import duties, export duties, et cetera, et cetera, water taxes, surface taxes, vehicle taxes. And so, obviously, governments around the world needs funds of these days, and operational like ours is an attractive target, so we had to have some protection against this. We have made very significant voluntary contributions to the Papuan community, beyond what we’re required to pay under the CoW. We began in 1996 to voluntarily contribute, along with Rio Tinto, 1% of our revenues to a Papuan development fund and that’s accumulated, the last that I saw was $650 million, it's one of the largest community development funding activities on the globe. Freeport was just recognized in Forbes by being among the Top 50 civic mining companies, and that’s part of it. The fact that we voluntarily make this contribution each year for Papuan community development. So, it’s not like we’re trying to ignore our neighbors in the province, but we have to resist opening the door to being -- to having taxes imposed on us that’s not part of our contract. There is a real danger of that being a never-ending stream.

Richard, thanks very much. I've got one more, and it’s not in Indonesia, how about that. Switching to North America, Look, obviously copper prices have rebounded. Is there a some -- is there a price in your head that you guys will start looking now that balance sheet is pretty much fixed? You guys have done a great job there in the last 12 months. Is there -- how much of the capacity do you think is in North America that you guys could sort of may be flexing and maybe bring back on in time?

We had an interesting situation with our scale back. operations. We went through and evaluated each project and Red Conger's here and led this effort with Kathleen looking over his shoulder. But we reviewed every operation, every segment of every operation when copper prices dropped so low to see what would be cash flow positive. And we talk about cash flow positive, it includes maintenance capital as well as operating cost and really, we did this in 2008-2009 adjusted some operations and this time when we reviewed them like operations in New Mexico, they withstood that. We shut down production that was really reclamation activities in the Miami-Globe area, the Miami mine, that's not going to come back on, that's done. And we've adjusted it to make it purely a reclamation management effort. At our Serrida mine in Arizona it is a very, very low grade copper deposit, but a significant molybdenum component to it. And because both prices dropped, we started a plan to curtail productions significantly, we're targeting 50% or more. Well as we got into it the team there started finding ways of reducing cost to such an extent that we never cut it back as much as we initially intended. And so now we're just monitoring that. We're not making plans to take steps to invest right now to increase it, it does have future investment opportunities. But we're just managing production to meet cash flow objectives. We did in South America, I know you asked about North America, but we did cut the mining rate in half at El Abra and that remains curtailed. And we're looking at the future development opportunity there, but we don't see stepping that up at the copper prices expected for 2017.

There's something about [Multiple Speakers].

We have and I think we've commented on this in previous reports, but we have ongoing work that Red and his team are doing looking at each site to see if we can change pit designs to get more -- to reduce costs and to get more production. That's not an easy exercise, but that's the kind of thing we're looking at. It's things that don’t require significant investments, that maybe we can do on the margin. But we're doing those kinds of things right now which would have a very high return.

Thanks very much guys, good luck for 2017.

Your next question will come from the line of Evan Kurtz with Morgan Stanley, please go ahead.

So, I just had a question on divestment valuation, I've heard all sorts of different conflicting reports out there and I know at one point you were hoping to get some sort of clarity on whether you could use an IPO on the Indonesia Stock Exchange and it seemed like maybe that wasn't going to work out and today there was a report out that kind of suggested that maybe that could be an option. I've also seen some other reports about the government only having to pay for replacement costs and none-entity [ph] ore and that sort of things. So just wanted to get your views there. Is that something we could see; how likely could you get most of the acquired divestment done through an IPO do you think?

Well, Evan we believe an IPO would be an attractive step in achieving divestment plan. Because it results in a market based valuation of the business. And the Indonesian Stock Exchange is growing to be a fair market and I know from discussions with investors there would be people interested in investing in an asset like Grasberg. So, we and others in Indonesia are supportive of that. It would not be a sort of thing that we could do a 20% investment in one step on the exchange, simply will be too large. And so, we think an IPO would be maybe 5% or slightly more than that and we would work with the bankers and all of that would be dependent on market conditions at the time we launched it. So, we think that with respect to these comments about replacement costs, there was some articles earlier this week about somebody saying we wouldn’t get any credit for underground reserves, which was a pretty wild statement. All of those things are just press comments. As I said, we have not been approached by the government to sit down and review our valuation. But with the government officials or financial advisors and we prepared to do that at any time. But we are -- there was a prior regulation that they had, they talked about replacement costs. But our agreements with the government in the MOU and other discussions have always included a requirement on our part that it be at a fair market value and we wouldn’t be prepared to enter into any kind of divestment without achieving that.

Thanks for that color. And maybe just one follow up, if I may. Just with respect to Rio Tinto and them taking their 40% stake as you look out past 2021. How is that kind of -- how discussions evolve between you and Rio as far as if you were to pursue a path with the IEPK and maybe one of the -- those paths includes having to divest up to 51% of company in exchange for some of the other protections that you’re looking for. How would Rio Tinto fit into that picture? I mean assuming they take 40%, would that come out of their stake, I know it’s 51% of the assets and not a PTFI that they’re looking for. So how do they fit into the picture and have you had any discussions with them on that front?

Well, the way they fit into the picture is, there one CoW, they have an assignment in it and for any changes to that CoW, we basically have to reach an agreement with Rio Tinto on it. And we talk with them constantly, we've had good positive discussions with them, so any decisions we reach would be within. I want to go back and repeat what I said earlier about divestiture. We only can talk about divestiture with respect -- we at Freeport, can only talk about divestiture with respect to PTFI and our interest apart from Rio Tinto, we can’t represent their ownership and that's their business in dealing with the Indonesian government on it. So, the divestiture discussions that we’ve had to-date and the $16 billion number and all the other things strictly relates to PTFI, which is an entity that Rio Tinto has no interest in. They're a joint venture partner just like Sumitomo is our joint venture partner at Morenci and Codelco is our joint venture partner in El Abra. Rio Tinto is our joint venture partner at Grasberg and even though it’s commonly referred to as, the total operations as being PTFI because we manage them, they have certain rights with respect to operations, which we work with them on and reach a meeting of minds on plans and investment and things of that nature too. So, it is a true joint venture.

And would they have say in the conversion from a CoW to IUPK? Since most of their rights are with the CoW? So, you have to get their sign off as well?

Absolutely.

Okay, great. Thanks a lot. I'll hand it over.

Your next question will come from the line of John Tumazos from John Tumazos Very Independent Research. Please go ahead.

Thank you very much for taking my question. Richard, could you clarify the production rate at Sierrita, is it more like half the capacity, 75% or 100%?

It’s about 75%.

It’s about 75%, John.

Could you tell us among the six possible sulfide mill projects which one or two are more likely to go forward first, and whether we’re talking about things that are [technical difficulty]?

Okay. I think the first one, John, that we would pursue would be the Lone Star project, which is adjacent to Safford. This is an enormous sulfide resource with an oxide cap and the Safford operation itself is facing the end of its resource life. Although there is a deeper sulfide project there. But what we can do as an initial step at Lone Star is mine the oxide cap using the Safford oxide production facilities and that would serve as a stripping of the material for a long-term sulfide project, which conceivably could include the sulfides at Safford as well as the sulfide at Lone Star, but that would be a major mill investment. So, I think the first thing you’d see us do is move to start mining the Lone Star oxide, which would not require the kind of major capital expenditures that a sulfide concentrator mill would require.

It's essentially a stripping project and would use the infrastructure that is currently in place at Safford.

Then beyond that, you start getting into these trade-offs between Bagdad and El Abra, would be I think the two that would be right now competing for that first step.

Thank you very much.

Your next question will come from the line of Chris Mancini with Gabelli & Company. Please go ahead.

Just a quick question on North America, how would a change in corporate tax rates in the U.S. potentially affect your cash taxes paid out of your North American operations. And then also would a change in Republican administration -- but with a new Republican administration change your decision process regarding any of these potential expansion projects going forward, make it easier or would it make it more likely that you would go ahead with any of them?

Hi Chris, that's a very complicated question, it's got really broader implications in Freeport. But let me just talk about a couple of things that applicable to Freeport. You start out by saying, because of losses that were triggered by this oil and gas activities we had, we're not paying cash taxes in the United States, and we have a very large carry forward that would shelter cash taxes for a significant amount of time in the future. And so, one thing we're watching is, in this tax reform are they going to do anything with carry forward. There is just a lot of questions about it, but I don't want to get into this because we could talk forever, and we a conversation at the business round table, but this border adjustment provision that they're talking about could really have interesting implications. Right now, we supply 40% of the copper to the U.S. market and we pay -- it results in taxable income which right now is being sheltered. Under the way this thing is structured as I understand it, if we export that copper we pay no taxes on it. But right now, if we buy a Caterpillar haul truck and we'd use it in Bagdad, Caterpillar would have to pay taxes on that. If we bought a Caterpillar haul truck and use it at El Abra, since it’s exported, Caterpillar has to pay no taxes on it. If we bought all the big -- right Kathleen's telling me to stop. If we were to buy all the big grinding equipment made in Germany, under this cross-border thing if we bought it for Bagdad, we'd get no tax reduction for it. If we bought it for El Abra we could deduct it in determining taxes in Chile. So, we're just one example of it, and so this debate over tax reform and particularly this cross-border situation is really going to be an interesting one to follow.

But the bottom line on a change in the corporate tax rate in the U.S., right now given our situation with NOL is just a simple change in the corporate tax rate, wouldn't impact us.

Right okay and the border, it's all just so complex that it's tough to really say what the net effect will be.

And we're also not one of the companies that’s affected by having cash off shore that has been taxed, you know repatriation issues and unified tax structure cuts, we pay more taxes outside the U.S. than we do in the U.S., the typical case is reverse of that. So, we don't have that issue facing Freeport.

Okay, okay great and then I mean right and I guess that a new administration -- I mean that in Arizona it's very favorable to mining and expansions of mines and this kind of thing and so the new Republic Administration would necessarily change your minds and I don’t think relative to expansion projects, but I guess it wouldn’t hurt -- there is the potential to stop them going forward, might be a little bit lower or does it really matter?

Well, I would say we’ve been here in Arizona for 10 years. 10 years ago we acquired Phelps Dodge and Arizona is an excellent, excellent state for us to operate in. We’ve had Democratic governor when we first moved here, we’ve had two Republican governors now and they through both administrations have been very supportive of our business. We do things the right way for communities and the way we run our mines and so they appreciate that. So, we’ve got tremendous support by the state. The area that we’re watching that could have a big influence on us is EPA regulations. Because we inherited legacy environmental obligations all over this country from historical operations that go back into the 19th Century. And we just entered into a settlement that you may have seen with EPA and the Navajo Indian tribe in the Four Corners area with some significant historical uranium clean-up sites. We were very pleased with that, the government I going to pay significant part of that and we’re going to deal with some of those obligations on behalf of our company. So, these EPA regulations which is a big focus of the new administration is important to us.

Okay, great. Thanks a lot.

Your next question comes from the line of David Gagliano with BMO Capital Markets. Please go ahead.

First of all, I’d actually like to start-up by saying, I agree with some of the comments earlier. It’s unreal to me how the Indonesian government is constantly changing agreements and rules over the year. But nevertheless, I guess it is, what it is. So unfortunately, I actually two -- I have two Indonesia follow-ups. Both I think are probably more clarification. But first of all, does the investment stability agreement that Freeport would propose to the Indonesian government, which my understanding is would be the core to converting from the contract of work to this IUPK. Would that investment stability agreement include basically the same six articles that are included in your slide deck, that are included in the contract of work now or if not how with those differ? That’s my first question.

Okay. We go back to this October 7th letter, this is a slide deck as well. And in that letter, the government gave us assurances, warranted or guarantee that under the new regulations, we would get the same level of assurances on legal and fiscal matters that we had in the CoW. So, that's the starting point and the endpoint in our view of where we go with that. So, the answer is yes, it would continue all the important provisions related to fiscal and legal certainly that are in the CoW, they would now be in the stability agreement. And our analysis shows that the government has authority under the law through its investment laws to enter into this sort of an agreement.

Okay, great. Thanks for clarify. And then back to the Rio Tinto discussion, just for a second. Another clarification question, I just want to make sure I'm thinking about this the right way. If Freeport was required for whatever reason to divest down to that 49% ownership. After Rio Tinto comes in beginning in 2022, does that essentially mean the net result for Freeport would basically be that the company goes from having the rights to essentially 91% of Grasberg’s volumes today down to about 9% by the beginning of 2022 or am I thinking about that the wrong way?

Well, if you would look through it, after what is the net Freeport interest in this, today, as we sit here today, PTFI has let’s just say virtually all the interest through 2021. Rio Tinto has a small piece of that. After 2021, Rio Tinto has 40%, PTFI has 60%. FCX owns 90% of PTFI, so it would be 90% of 60% would be 54%. If we divest --.

Half of our interest [ph].

Well, if we divest, let’s say, 30%.

So, it's still the 20%.

Yeah, so if we divest 20% in Indonesian interest, we'd own 30%, FCX would own 70%. So FCX would own 70% of 60% or 42% net interest. If we divest it half, FCX would own 50% of 70%, or 35%.

Okay. All right. That’s helpful. Thank you for that.

And David, I know your speaking questions more from a big picture standpoint, but because of metal strip adjustments, the 60:40 split will probably be more like a 2023 event.

Yeah, because that’s been adjusted for -- for example when we had the almost seven months inability to export. And we’ve had some other interruption in operations over the years that triggered an adjustment to the effective date of Rio Tinto’s 40% interest.

All right. Appreciate. Thank you for clarifying.

Okay. Thanks, David.

Our final question will come from the line of Lucas Pipes with FBR & Company. Please go ahead.

Yes, thank you very much for taking my question and sorry to belabor the point, but it’s about Indonesia. Richard, I think you mentioned that you are prepared to go to arbitration. And I think you also mentioned that it’s a function of whether you obtain the export license. Could you clarify as to what is the timing, let’s say, a month from now, mid-February, you don’t have an export license, would that be the time that you go to arbitration? And then secondly, you also mentioned that arbitration would have negative consequences or there are a number of downsides for Indonesia. Could you tell us what those are? Thank you.

Okay. To coin a phrase, I don’t want to draw a red line here. I mean, we are -- if we got to the point of where the government is just arbitrarily saying they’re not going to grant us export license unless we convert to an IUPK without conditions, then we would have no recourse other than going into arbitration. But we believe we -- I want tell you what I believe, I believe we will be granted export, and we’ll have a period of time to negotiate these things. That's what I believe is going to happen. But the point that would trigger it, Lucas, is if the government just said no we're not going to talk with you anymore, we're not going to negotiate, you either have a choice of going to the IUPK and not exporting, then we're not left with any room on it. So that's the key. And then, from the Government of Indonesia's standpoint, you see advertisements here of the government encouraging foreign investment. They had a section in the USA Today, you can their ads in the Charlie Rose most nights. You know they -- the country needs international investments to achieve its economic goals and I've listened very carefully to President Joko Widodo on his trips to the U.S. and at APIC and I feel very positive about his philosophy about investments and so forth. So here Freeport is among the oldest and largest investors in the history of the company -- country, and it's almost history of the company too, but I meant to say country. And so, for us to have to a very public dispute over things like this would be negative for both of us.

Okay, thank you, thank you very much for that clarification, I appreciate that, good luck.

Thank you very much Lucas, and listen everyone long call, for those of you still on, thank you for your interest and I appreciate that you have a lot of questions about this Act II. You can tell just how focused we are on it. It's good to be in a position of our company, where it is -- it was a priority all during the year, I made five or six trips there year in the midst of all this other stuff. I was just there and we're going to stay with it and work to resolve this problem and then next year I think we're looking at Act III and hopefully that will be looking to invest in all these great resources that we have from a very copper market. So, good luck to all of us and thank you for your interest.

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