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, and welcome to the Freeport-McMoRan fourth quarter 2017 earnings conference call. Our results were released earlier this morning and a copy of the press release and slides for today’s call are available on our website. Our conference call today is being broadcast live on the Internet. Anyone may listen to the conference call by accessing our website homepage at fcx.com and clicking on the webcast link for the conference call. In addition to analysts and investors, the financial press has been invited to listen to today’s call and a replay of the webcast will be available on our website later today. Before we begin our comments, we’d like to remind everyone that today’s press release and certain of our comments on the call include forward-looking statements and actual results may differ materially. We’d like to refer everyone to the cautionary language included in our press release and presentation materials and to the risk factors described in our Form 10-K and subsequent SEC filings. On the call today are Richard Adkerson, our Chief Executive Officer. We have also have Red Conger here, Mark Johnson, and Mike Kendrick. I’ll start by briefly summarizing the financial results and then turn the call over to Richard, who will be reviewing our performance and the slide presentation that included on our website. After the prepared remarks, we’ll open up the call for questions. Today, FCX reported net income attributable to common stock for the fourth quarter of 2017 of $1 billion, or $0.71 per share. The results include net gains of $291 million, or $0.20 per share, primarily related to tax benefits associated with U.S. tax reform totaling $393 million, partly offset by charges for adjustments to environmental obligations. The benefit from tax reform principally relates to the appeal of…

Good morning, everyone. Thanks for joining our call. 2017 results reflect really strong operating performance throughout our global operations, as Kathleen just described. It also reflects the success of our ongoing cost management and capital discipline efforts, strong cash flow generation, we restored our balance sheet strength, developed attractive organic growth options for the future, and we made important and positive progress for the long-term stability of our operations in Indonesia. Most of you have been here and watched our company for sometime, just think about where we were two years ago. We had just lived through as the industry had significant drops in commodity prices. The price of copper was just over $2 a pound. Many expected to drop below that. We had the issue of having $20 billion of debt following the misplaced oil and gas transaction that we did. We had restructured our Board, restructured our management team and were faced with deleveraging. At that Board call, one of you pressed us to say what do you expect your debt levels to be. We weren’t sure at that time. We said, we hope to reduce our debt between $5 billion and $10 billion over the next two years. We are under $9 billion as we ended the year, this year. We were faced with the completion of our Cerro Verde project in Peru, which was a major project, which often are troublesome for the industry. We did not know what we’re going to do with the oil and gas assets that time. There were no buyers in the marketplace in the first quarter, but we successfully exited that business. We thought we were going to have to hold all those assets for a period of time. Many who followed our company were skeptical of our ability to…

Desalinization.

Desalinization project and transportation of that water of high. So it’s going to be a big investment, but it’s 2 billion pounds of 4 and 5 copper. Our correct expectation is that, it would involve the building of 240,000 tons per day concentrate somewhere to Cerro Verde could produce 750 million pounds a year. It’s a six to eight lead-time and we’re engaged in prefeasibility study and permitting panning now, so it’s something that will develop over time. We’re in no rush on this, but it’s going to be a great project for Freeport in the future. And you can see the results of drilling that have been done to date. You can see the reserve pit that has been identified the mineralized material shale and the continuation of mineralization with our deeper drill holes as we go forward in Indonesia. So, Mark, I want to again, congratulate your team for meeting the challenges that we faced at job site, while we’ve been dealing with this attention on the negotiations with government. I mentioned earlier, we had exports disrupted. We had labor problems. And the labor situation is so much better than they have been it’s been since going back to 2010 timeframe. We’ve had some security issues and that’s Papua is always going to be a complicated place to operate. But in the last couple of months, we’ve had some security issues. The thing that’s encouraging now versus previous times is, we’re getting great cooperation from the Indonesian authorities. The head of the police who had previously served in Papua is totally engaged. I’ve got to know General Tito a number of years ago, he’s very well regarded in the government, he understands it and he is committed to help us. There’s a new head of the military and…

Operator, we can take questions now.

Ladies and gentlemen, we will now begin a question-and-answer session. [Operator Instructions] Your first question comes from the line of Alex Hacking with Citi. Please go ahead.

Hi. Good morning, Richard and Kathleen.

Good morning.

Regarding Grasberg and the potential that the government might buy the 40% stake from your JV partner, Rio Tinto, how likely do you think that outcome is? Is that now the most likely outcome in your view?

It’s – at a stage of negotiation. So you don’t want to get ahead of those negotiations. It appears to be the desire parties to do that. So I would characterize as a most likely outcome.

Okay. Thanks, Richard. And can you remind us of what Rio Tinto’s CapEx commitment is to developing the underground? And would you expect that in the scenario, where the Indonesian government buys Rio Tinto stake that they would also assume that that share of CapEx commitment? Thank you.

Yes. We have an understanding within Indonesian government that – in the event that they do a deal with Rio Tinto Freeport’s economics under the existing joint venture agreement would be preserved. Alex, you understand what I say? Am I saying clearly?

Yes, yes.

Okay. So…

Yes, I understand that clearly. Could you just remind us what Rio’s commitments are?

All right. Well, it’s complicated in that this joint venture agreement is relatively complicated, because under the agreement, which was signed in the mid-1990s, certain projects are designated as expansion projects and certain projects are designated as replacement capital. Rio Tinto placed 40% of the expansion projects and small amounts of the replacement capital projects, we’ve agreed to share other projects 50-50. So there’s not really an easy answer for that. But if you look from right now through 2022, when the conversion would be under the joint venture agreement to a straight 40%, after that, it’s a 40-60 joint venture sharing straight up. Their projected cash flows…

Pretty much offset the CapEx.

…pretty much offset the CapEx, and those are going to be based on whatever copper prices there are.

Okay, thanks. That’s clear. I’ll let somebody else ask the question now and I’ll hop back in the queue. But thank you very much.

Okay, Alex, thanks.

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

Okay, great. Thanks for taking my questions. Just stepping back for a minute. Obviously, the balance sheet significantly better than it was. Stabilization in Indonesia, at least, seems to be heading in right direction. And it’s like quite a bit of free cash flow generation potential. Way back when the management team, the Board did payout this free cash flow dividends, special dividends, pretty big one at points. And obviously, on this call, your opening remarks are really more focused on highlighting the project. So I have a high-class problem type of question. As we go through 2018 and 2019 is a preference to spend that cash on developing projects, or is there also thoughts towards giving some of that back to the shareholders?

These projects are very long-dated, Dave, I think, as you know. So we’re not likely to be spending significant amounts of capital on these projects in 2018 and 2019. We’re now building into our CapEx numbers this Lone Star project, which is a good project, but not huge. So with positive cash flows, my expectation was – is and we’re – this is a Board decision and we’re talking with the Board and this has emerged pretty quickly with the copper price coming back so quickly and so forth. But my expectations are that, we would be looking at our long-term tradition of returning cash to shareholders.

Okay, that’s helpful. Thank you.

And we’re going to be very disciplined about all these projects. They’re big, they’re low risk. But we’re – there’s still risk to the global economy as we all know and we’re going to keep our finger on it, see how it’s progressing, how China is doing, how the rest of the world is doing. And – but my expectation is, we’re going to be generating cash. And I believe, our Board will be predisposed to returning to shareholders when we can.

Your next question comes from the line of Matthew Korn with Goldman Sachs. Please go ahead.

Hey, good morning, Richard and Kathleen. Thanks for taking my questions. At Grasberg, operational question, now given all the challenges in the last several quarters in the production side, maybe you can remind us if nothing would have changed from the current situation of the government? When would Rio’s 40% stake kick in? Would that be 2022, 2023 now? And then once the whole Block Cave is ramping and you’re deep into, maybe the next decade, everything is as it should be. What kind of production delivery cost that you expect once we’re there and solidly on the ground?

Okay. So the answer to your first question is 2022 and sort of when in 2022 is at the margin could vary, but it’s going to be expected to be then. And our net cash costs at $1,300 go and current levels of production is going to be in the neighborhood of…

Low $0.50 a pound.

Okay. All right. Got it. And another thing that’s come up as we talk to lot of companies is that the – now that there’s no tailwind from currency, from oil other kinds of improvement, other kinds of help on the price or the cost side. People worried about wages, they worry about labor, they worry about capital goods. I’m curious if – as you outlined your capital spending over the next couple of years, how much of that is on yellow goods? And how much of that would be exposed to, say, price that’s not completely locked up, or PPI linked, or are you still don’t have a complete visibility there?

What we do have in our capital plans just maintenance and replacement of trucks. We tend to do a lot of truck rebuilds ourselves with our dealers on part. So there’s in our sustaining capital a significant portion of that includes maintaining our equipment and replacing our equipment. We are seeing some past inflation. You can just watch the oil price and are seeing some cost inflation from oil-related prices. But our team is very focused on being very disciplined about spending money, both operating and capital and timing it in a way that that we’re not in a rush to get the equipment. We’ll do it in a smart way and be disciplined about, again, just trying to use what we have on hand and the new stuff that comes in just being disciplined about the timing of purchases of that equipment. But there is some cost inflation that’s coming through both on operating and capital.

Yes, there’s definitely some correlation between some of our input cost and copper price. I mean, that’s just – I mean, we’ve got trucks from Indonesia, in New Mexico right now and more on the way. Red, when is the last time we bought a new haul truck?

2008 was the last new haul truck.

New haul truck – last new haul truck we bought was 2008. So we’re having great experience with this rebuild program. We’re working on extending tire lives. I mean, it’s a constant deal. We need as a senior management team with our mine operators the week before our earnings call. And this relentless effort these people have to try to find ways of offsetting cost increases with efficiency gains is really remarkable. I mean, we use a lot of diesel, but power for many of our operations comes from not from petroleum. And so, anyway, we’re going to offset a good bit of that. But it’s going to be a factor for the industry. I mean, we – lots of years we’ve been Caterpillars biggest customer. I had a chance to glance over their earnings release early this morning. So I mean, you can just see what’s going on that and labor issues will be an issue. And one of the things in terms of the industry is next year, there’s a lot of labor contracts coming up in this year, I keep saying next year, 2018. Thanks, Red. This year, there are a lot of labor contracts in Chile and Peru coming up. And you can expect those negotiations to be challenging, it could be supportive from a supply standpoint. So Codelco has a real challenge in maintaining production. All these things are challenges for the industry, but they’re supportive of supply.

Got it. Thanks for the comments. So good luck for everything.

Thanks, Matt.

Your next question comes from the line of Andreas Bokkenheuser with UBS. Please go ahead.

Yes. Thank you very much. Just a question on Grasberg there as well. You mention that the Indonesian government has agreed to pay fair market value or it considered the divestment at fair market value. It always seem that they did agree to fair market value, but their fair market value estimate was always much lower than yours. Would you say that effectively you have now agreed on a fair market value for the divestment, or are you still somewhat a part on that issue? That’s the first question.

Let me answer that…

Yes, I’m sorry, go ahead.

Let’s go ahead and answer as you raised them. So one thing and those of you who are veterans of this know this. There are lots of things that come out in the Indonesian press that are comments about people either in government or in business who are not directly involved in the process. So be cautious in overreacting to things that you might see that are said. Now, we have not had a negotiation involving an exchange of values and so forth with the government of Indonesia on divestment values. What we have agreed to is a recognition that the standard for those negotiations would be as they are in all of the negotiations that we have standards related to way resources are valued in global markets. So this idea of limiting the valuation to 2021, when our primary term of our contract ends. Our saying, you don’t take into account reserves and so forth. All of those things are not part of the discussion any longer. The government has appointed internationally known financial advisors to work with them in this process, and they are being engaged and it’s being additive to the process. So while we have not negotiated value now, this issue with our joint venture partner really changes what the divestment obligation from Freeport would otherwise be. And so that negotiation is of much less significance to us than it would be if we were having to divest 51% of PT-FI. So all of that’s in play. All of us had hoped that this would progress more by the end of 2017. But the government concluded they needed to go through a due diligence process and we’re working very cooperatively with the government and its advisors on that process right now. So while I can’t say that there has been this give-and-take or specifics on values, I do feel comfortable that the values that will be negotiated will be reasonable.

Thank you. That’s very clear. And just a second question and I’ll just talk about something other than just Grasberg. In your Americas operations, we did see a bit of a drop in lower grades and recovery rates as well, which is something you’ve guided for before. Can you give us a sense of, is this mostly just one-off, or there sustainability to it on the operational side? Thank you very much. Harry “Red” Conger: Yes, Andreas, this is Red. We did have lower recovery primarily at Cerro Verde in the last quarter. We took or out of stockpiles in the area, in the where the material has been oxidized, but it didn’t recover as well. We don’t see that as an ongoing thing in the future. We’ve also got some changes in mining rates in those kinds of things right now that are making the numbers jump around a little bit quarter-to-quarter, that’s all going to even out as we go forward.

As we look at the guidance going out for the Americas business, our numbers are relatively flat in terms of copper production that’s sustainable over several years.

Over several years. I mean, we’re brining – it’s not a big numbers, but we’re brining up Cerro mine and with higher moly prices. Its cost cost structure is attractive. And then I pointed out in El Abra, we are – where we curtailed production. We curtailed production in both of those operations when prices drop low. We’re building those back up and then coming into play. Over time will be this Lone Star Project, which has cost structure that’s right in the neighborhood of our current level of cost structures, so.

That’s clear. Thank you very much.

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

Hi. Thanks a lot. Just first quick question is, just relative to this potential framework that you’re talking about with Rio Tinto and the Indonesian interest having that 40% stake post 2022, just to be clear. So even if something were to be agreed to, say, in the next few months, Freeport would still have – would have 90% – would have the right to 90% or 90.5% of the economics of Grasberg until – until 2022, or whenever the Rio stake would kick in, right?

Yes. Now that is not a certain percent that varies because of this metal strip concept that was part of their original contract. But what I’m saying is that, we have an understanding that we will maintain the economics for Freeport that’s embedded in the current joint venture structure.

Okay.

And there are structures that that might change how that’s done. But we reviewed that. We had very good discussions with the Indonesian, explained it to them, explained how important it is to us, because we’ve worked all this time to take – to benefit from this period. And so they understand it and we have an understanding that our participation will not be diminished in the event of their acquisition of the Rio Tinto interest.

Okay, great. Thanks. And just a quick question about Lone Star. So you’ve made the decision to proceed with the project $850 million and around $200 million pounds of copper a year. Could you just maybe describe your thought process relative to like how you think about approving certain projects relative to their the IRR, or the NPV of the project and what copper prices you use? And just generally speaking, how you evaluate it the decision to invest the capital in that project, and maybe how that might apply to, say, your next project like El Abra or something like that?

Well, it was a much easier decision. Let me just say with Lone Star then the next decisions will be. And that’s because we had this unused underutilized processing facilities at the Safford mine that was nearby. So we didn’t have to invest in a new SX/EW facility and so forth. So it was a pretty straightforward deal. I mean, this is near surface oxide material. You just need to determine how you mine it, how you transport it to the facilities. The rates returned very attractive. And it had the added benefit, as I said, of then exposing the sulfide or which would give us an option for future development of that. Around the world today, a lot of the newer deposits tend – most of the significant oxide projects have been developed. And so you’re looking at sulfide deposits and frequently you’re faced with a very large expense of stripping those to have that opportunity here. Our stripping is going to generate positive return for us. It’s going to add volumes, attractive cost and serve for the stripping thing. So it was an easier decision. In looking at projects in general, we don’t focus on any particular price. Now reserves are based on a $2 price. We talk about changing it. But that’s kind of a regulatory disclosure issue and there’s no sense in going through a huge internal exercise of raising the copper price $2.25 to $2.50. I mean, but when we come down to really thinking about investing in an El Abra, in a Lone Star sulfide or Bagdad sulfide or the next step at Morenci. We look at an array of prices and not just how that fits in with that project, but how it fits in with our overall portfolio. So that we think…

Right, right.

…interactive process we have been than something that’s formula-driven.

Right.

And the Ore Flow project fits right into our strength in terms of the geographic footprint, where we’re already operating a lot of synergies of the Safford team with the Lone Star team. And one of the big things we look at in qualifying projects is the size of the resource and the life of the project. And just, because something has a high NPV, but if it has a short life, it’s not something that we are excited about disposing dollars to it’s more of multiples in NPV that you can get over a long period of time, so that’s really…

Right.

…something that excites us. And looking at a range of copper prices like the Lone Star just for the oxide had a break-even up to 40 with an 8% return, with a lot of exposure to higher prices, but also exposure to the big resource that Richard talked about earlier.

Sure, okay. Right. So Lone Star really is just a little risk from a jurisdictional perspective, from a technical perspective, and it just provides you with lots of optionality to the upside. And so it just made sense to spend that capital. And then as these other projects kind of become available, you just have to weigh all of those different – all those different things in terms of the risk to completing it or a risk to operating at the optionality and what not. So I think I…

Exactly.

You got it.

Okay. Okay, thanks a lot, guys.

Yes.

Your next question comes from the line of Michael Gambardella with JPMorgan. Please go ahead.

Yes, good morning, Richard and Kathleen.

Hey, Mike.

Couple of questions on Grasberg. But first, just congratulations on derisking of the balance sheet now work in the last couple of years has been significant.

All right. Thanks, Mike.

Looking back to the Grasberg, I just wanted to clarify, I think, what I heard you say before. So in terms of your agreement with the government right now, has the government formally agreed at if your stake were to go under 50% that you would still maintain operating control?

Yes. Well, Mike, I want to be clear about this. In some ways, I’d like to just say, we’re working on this and defer comments, but I know, we’re just not in a position to do that. We’re not in a position to do it with people who follow us and our shareholders, and the Indonesian government has to respond to the – they have to respond to their parliament. So we all have constituencies that we have to talk about these things when things aren’t finally complete. I’ve tried to use the word understandings, because while we did agree on a framework, we don’t have formal agreements with the government yet. And there are still issues under discussion and we’ve been very clear on our position. We believe we have gained the degree of understanding from the government. But there are different views within the government’s team, the government itself. So this issue of control is one that’s very important to us just because of the factors that I mentioned earlier, the nature of the project, and the importance of having a disciplined investment in this underground. If you – without having a disciplined approach to the underground investment, the value of this asset dissipates. I mean, because this is – as you know well, Mike, when you’re dealing with these big projects and particularly Block Cave projects, you have to follow a plan and stick to it and deal with the long-term. So that’s one thing that – the main thing that we’re saying is, we have to be able to sustain that approach to investing and running this business. It is unusual, but not – but there are other limited cases of where investors own more than 50% of an asset economically and control is transferred to…

From an economic standpoint, say, let’s just assume, Rio Tinto signs a deal with the government, is your understanding that from an economic perspective aside from smelter, aside from that, is your understanding the economics of your agreement same as they are today there’s no change or is there anything else that would?

Yes, that’s – we’ve had – we have had good discussions. We spent time explaining this and so forth. So that the acquisition of Rio Tinto interest would not change our economics. Now, in the framework for reaching the long-term agreement, we have said that, we would agree that the government’s financial benefits from the project will increase. These things may be reshuffled and reorganized in certain ways. But at the end of day, there would be – the government will be able to say to the people of Indonesia, they’ve negotiated a larger participation. And that larger participation would come through the fact that we are paying higher royalties than under the cap. And in fact, we’ve already been paying these high royalties since mid-2014. But the royalties would be, they use the term more than we do, but the royalties would be nailed down. In other words, we’ll agree on the royalties today and that would be the royalties for the remainder of the project. We agree on tax elements now and we made a lot of progress in defining them. We agree on local taxes and fees, all that would be nailed down.

The final question on Grassberg. But the Board, could someone give us the feel for after tax situation. Right now, I thought you [Technical Difficulty] your entity?

No. Well, so Mike, you were fading out. So I don’t cover your question. Come back and ask me to fill in. So the way that our tax situation has been structured, I mean, we’re – FCX is a U.S. company then we operate in these countries where we have mines through entities in those countries. And those entities are subject to taxes and royalties in those countries. Then, under the previous tax law you would consolidate all of that into a U.S. company and you’d have a consolidated tax calculation, but you would get foreign tax credits for taxes that you pay internationally. And then, and so, and there was limitations on that, there was this alternative minimum tax calculation that would come into play, but then you would calculate a U.S. tax on the base of that consolidated results. Now to the new tax laws, they’ve gone to a territorial system and so now the, in large part the U.S. taxes will be based on the taxes for the income you generate within the U.S., the U.S. And within the U.S. we have a very large loss carry forward. We also have the benefit of percentage depletion which was left in the law and the AMT was repealed. So, we will have no taxes for as far as you can see in the U.S. We will continue to pay the taxes in these individual countries based on their own tax laws and our stabilization agreements and so forth.

Fine, thank you, Richard.

Did that cover Mike?

Yeah and that covers it, thanks.

Okay.

Your next question comes from the line of Lucas Pipes with B. Riley FBR. Please go ahead.

Hey good morning everybody and congrats on the progress in Indonesia. I was unfortunately on another call early on, this may have been addressed, but I wanted to touch on it, the net sum, I remember that there were export royalties in place while you were negotiating the new structure in Indonesia and I wondered to what extent is that currently being covered in the negotiations and Kathleen when you gave the $0.50 per pound cost guidance for I think 2022, would that include all of those royalty costs, in case they are even applicable? Thank you.

Yes, we are paying duties currently, export duties currently and those will face out once the smelter gets to a certain percentage, so post 2022 we have the new smelter completed in that timeframe, all of the concentrates will be treated domestically and there won’t be a need to export concentrates and there will be no duty, but we do have duties in our current guidance for 2018 and 2019.

And could you remind me about approximately what amount per pound those duties are?

You can see, we are paying roughly on the – just on the export volumes, we are paying roughly 5% currently and you can see in our – and I’ll let David to follow up on the exact numbers, but in our operating summary we paid $0.34 and that included royalties and export duties, so it will get you to breakout.

Alright.

Lucas, you may understand this, but just to be clear for everybody, roughly 40% of our production at Grasberg is processed at the PT smelting facility at Gresik that we built in the mid-90s in partnership with Mitsubishi and other Japanese investors. There is no export duty on that. It’s only own exports. And in your question you were talking about royalties and export fees, I mean we do have a royalty that’s assessed on all of the production, it’s unrelated to exports and then there is, we call it an export duty which has been the item of controversy that we’ve had over the last three and half years.

But the export duty, I guess in those export duty that’s in our numbers or for PT-FI is just under $200 million for 2018.

Very helpful, thank you. And then maybe just to tie up some loose ends, I recall that was a $350 million Cerro Verde royalty dispute, has that been settled, could you give us an update on that?

There is really no update from our fourth quarter release, I mean from our third quarter release. We are continuing to work with the government officials to – on a settlement that would waive penalties and interests associated with that dispute and those discussions are ongoing, but there is no updated at this time.

Alright, well, I’ll leave it here. Thank you very much and good luck.

And Lucas that $200 million would reduce our taxable income, so that’s a pre-tax number.

Your next question comes from the line of Michael Dudas with Vertical Research. Please go ahead.

Thank you very much. Richard, just wanted to follow-up on your thoughts on the transition from the pit to underground, you seemed much more confident about that in de-risking. What are some of the absolutes that you achieved and what are some that we may look for as we look in for the fourth quarter of 2018 and for the first half of 2019 on the progress and the flow?

Alright, so that’s why we added the slide, I think it’s the first time we’ve used it. What was the slide number?

On the milestone?

Yeah, on the milestone.

Slide 19.

If you look at Slide 19, Mark, do you want to?

Yes, a lot of the challenge in the Grasberg block cave, the ore body system as Richard indicated, the rail systems there to be finishing, the conveyors that will, the crusher is already placed. The conveyers would be complete all of the way up to the mill in May, so we’ll have six months there where we’ll be able to just convey development mark, which is significant, we’re mining about 6,000 to 7,000 tons a day right now just in developing drifts. The access to the ore body is extensive in the undercut extraction level we’ve got the service level, the ventilation is in place, so there is – all the pieces are there, what we are going to start doing in the late fourth quarter is that we’ll start glassing in the undercut. And then in the beginning of 2019 we’ll start taking draw bells and actually start pulling the material. The cave should develop very quickly, the area in which we’re initially developing the ore body is in a very cave-able portion of the deposit. And at that point when we start that and the pit will be essentially done, there is a little bit of an overlap right now that we’ve reviewed with our consultants, we feel that that can be like a three-month overlap of ongoing pit operations while the block cave, some of this blasting, some of this very – the initial starting of the block cave can go on without any impacts. We’ve got a very good plan for managing the water from the pit. We been able to demonstrate that we can get the water out of the pit before the cave starts up. So there is a whole network or there is a whole list of things that we’ve been checking off over the last year and a lot of it’s been really just getting these meters of development. We did over 30 kilometers of development last year, that drops down little bit this year as we get the ore body developed, so we’ll be doing about 2200 meters a month and all of that just is moving along very well.

And the big deal in 2018 will be the installation of the ore flow and the scale.

That’s right, the shaft is commissioned, we were using that for people and so all these projects are all just starting to come together, the big one will be the ore flow system getting that and we’re doing that a little earlier than what we originally planned and it’s just to get the congestion out of the underground, it will be a much more efficient way of getting development muck out and getting men and materials in.

Right, that’s very encouraging, thank you for the update and my follow-up Richard is, I think we will on the corner, hoping some day these conference calls will be little less detailed in negotiations with Indonesia et cetera. If something comes together, however comes together and how do you think it’s going to be announced? And what’s the timeframe from, say, if there was – if it was announced tomorrow, how long it would take to get everything cleaned up and were there certain deadlines, et cetera? How long of a process and how clean of a process you think it will be if you can speculate towards that – towards the conclusion of this derisking?

Sure. And Michael, you’re talk about milestones. I have two personal milestones, I’ll share with you.

Please.

One is, when we start paying dividend – when Freeport starts paying a dividend again; and two is, when I can take a group of analysts and shareholders back out to Grasberg to see the place. This underground mine, Mike, I can’t tell you if you remember a trip we had a number of years ago out there, but this underground mine is really spectacular. I mean, it is not like anything you would think of as an underground mine. But it’s like a major manufacturing facility to see. And so anyway, I just – Michael, I just want to say, but okay…

Those are great milestones.

Yes. So what – actually, given the authority that the President has given to these ministers, reach an agreement is the key and documenting of things we’ve already worked on. I mean, we’ve gotten the form of the IUPK, where we’re working on. There’s an attachment. There’s – coming up with the structure to assure us that it can’t be changed by future laws and regulations. So there’s not going to be, this is something that the government is authorized to do under current laws. So it will not require changes to their laws or the involvement in the parliament in changing laws. The parliament will be informed and involved from that standpoint. But once the agreement is reached, the process of getting it documented is, it will be straightforward and not time consuming.

Excellent. Look forward to those dividends. Thank you, Richard.

Your next question comes from the line of Novid Rassouli with Cowen & Company. Please go ahead.

Hi, Richard and Kathleen, thanks for taking my questions. Just two for you first on Indonesia. The ongoing due diligence related to Indonesia potentially purchasing your JV partner share, does that have the ability to potentially delay Freeport’s goal of having an agreement here on the longer-term contract in the first-half of 2018?

No, the timeframe or the first-half, which is – has really been set more by the government is to allow for that due diligence. So, we had all hoped to have more formal agreements reached by the end of the year. But there was a decision that having the need for this due diligence and that’s why the target of midyear has been put in place to allow for that due diligence.

Got it, make sense. And then my second question, I think, anybody has really talked or asked about the broader copper market. So I’m going to go ahead and do that now. So based on the lack of investments over the past few years, as you highlighted in the past few calls, what do you expect the copper market to reach kind of peak tightness or deficits, I mean, in the coming years before maybe reaching an inflection point? As you said, we’re kind of getting close to that 3.25 that you said is necessary for people that have the incentive to start investing, haven’t really seen anything incredibly material yet. So just wanted to get a sense of how you’re seeing the next two years and when we reach that inflection point? Thanks, Richard.

All right. Well, thank you, Novid. The – you tell me what global growth is going to be. You tell me what China’s going to be, because my view is the supply side of this subject to the uncertainty about disruptions, which could only be supportive of supply. They’re not going to add supply, but they could take it away, is pretty clear cut at this point. Surprises will be on the negative side. You’re not going to see somebody say in the near-term, we’ve got significant amounts of new production that nobody knew about. People will work to – at the margin increase production, but it’s just going to be at the margin. And you know, you look at the long-term projects that are out there, whether they’re – whether it’s resolution Olympic dam, our big projects that we’re talking about El Abra and others, there’ll be more copper coming out of Africa, I believe, based on our experience there. But that’s going to unfold over a number of years because of the nature of the mineralization and how it has to be mined. You look at the experience of Oyu Tolgoi, it’s a great resource, great ore body. But the number of years that it’s taken to ramp up and the continuing issues they face with border crossings and power and the government. I mean, that’s just fundamental to all these big projects. So I think, you can your arms around supply outlook relatively easy. And then you plug in your own view about what you think the global economy is going to do. I just went back to Houston this week to give a luncheon address, not to a mining group, but to a general business group. And of course, it took me back after living in…

Thanks, Richard.

Thank you.

Operator, are there anymore questions? Hello?

We can’t seem to get to the operator. So I don’t know if everyone else is still on the line, but…

This is Lucie [ph]. Can you hear me?

Yes, we can.

Okay. We had an issue in a call center, I do apologize. Our next question will come from the line of Piyush Sood with Morgan Stanley.

Hi, Richard and Kathleen, thanks for taking the questions. First one, at Grasberg, it seems like total CapEx to be spent over the next five years may have declined to about $900 million to $1 billion. I just wanted to understand if that’s surrounding it, or is there something else over there?

No, there really wasn’t anything. It was just the time period of five years that we will, incurred last quarter versus this quarter and the way the rounding fell. So no material differences in our plans.

All right. And staying with Grasberg, labor relations at Grasberg seem to have improved. So could you comment on maybe worker productivity, how you’re taking care of expectations around employment as you move underground? And when we could expect the new labor contract?

Okay. So we signed a new labor contract in December, that’s for two years, under Indonesian law, we have to do a new one every two years. So we have signed it. Mark make some comment – I’ll let you make some comments, because you live with this thing.

Yes. Well, 2017 was a very dramatic year on the labor. In February, we had 32,000 employees and has combination of employees and contractors. With the export ban, we had some cost reductions, it was kicked off with a 10% employee hurdle program. After we started that program, we had a number of employees that went on an informal strike, it was not a legal strike, it started missing work. And with the labor laws in Indonesia, they essentially resigned their positions. And that resulted in about 5,000 employees leaving. Recent to that, it’s back about 4,000 contractors, so we went from 32,000 to 24,000. And now we’re back up to around 28,000. The PT-FI component of that is under 8,000 employees now, it was 12,000. The contractors that we hired in have been very cooperative, have been very energetic. We’ve had a very good response. As kind of a byproduct with the new guy coming in, our PT-FI work forces also picked up the efficiencies and we’re seeing a much improved morale, our safety. With all of that transition, we have the lowest incident rates for our reportable accidents that we’ve ever had since the beginning of the project. So we feel good about the status of our labor force, the composition of contractors and internally employees, and really the effectiveness of our supervisors with under a new – kind of a new composition of labor. As Richard said, there was a lot of transition within the labor unions that we’ve dealt with their leader had been removed. He had some legal issues. He’s out of the picture. The new team has come in has worked very closely with us. There’s a second union that we’re dealing with, that was kind of a new component of our negotiations this year, but all of that worked out. We went on a little bit longer. But we didn’t have any threats of strikes. We didn’t have any concerns that the workforce is going to – have any sort of a walkout. So during that whole period of negotiation, we didn’t see an interruption in our production, and it allowed us to focus on safety and bringing these guys on and focusing on the project. So we saw some benefits in there, for instance, in the Grasberg pit. Our unit rates went down by about 30% in the fourth quarter to what they’ve been in the first part of the year. So we’ve seen efficiencies. We’re getting more out of each worker, and that’s also run into on the development side and then into the capital projects. So we feel well-positioned in 2018 with the group that we have.

And for years, we’ve been planning for this transition, because it is new skills, new work requirements and so forth in the underground from the open pit without the drivers for the all trucks and the big electric shovels and so forth. But we’ve been doing that and it’s much more mechanized. So anyway, that’s all progressed very well.

Great. That’s helpful. And Kathleen, you did comment on the long-term prospect for Grasberg at about $0.50. But just want to understand as we go into a transition year in 2019, is there kind of a step down coming in your total cost over there or would cost kind of lag – the decline in total cost lag while maybe production also – so should we kind of expect cost to go up drastically on a per pound basis or do you have some control around that?

In terms of absolute cost, we are not anticipating any significant changes on a unit basis, on a metal basis you know it will depend on the volumes and the grades that we’re mining, so in 2019 as we get into a lower year, we will have higher costs than what we had in 2018, but it is still very, very attractive on a unit basis although it’s cost mine in the company. So, as we go forward, we start to improve on the volumes after 2019 and the cost position goes down as a result on a metal basis per unit, but in terms of absolute costs, we are not expecting to have major changes in the absolute total costs of the operations.

You know generally our costs are fixed, there are some things that vary, so when definitely some of that cost going up is unit cost going up, absolute cost we’ll continue to manage to keep as low as we have, but for most part that’s fixed.

That’s very helpful, thanks so much for the color.

Alright thank you, so let’s have our last question and appreciate, I think it was, Michael was saying he looks forward to when we don’t have to talk so much and nobody looks more forward to that than me.

Okay, our final question will come from the line of Karl Blunden with Goldman Sachs. Please go ahead.

Hey guys thanks for taking the question, all the questions today. I think you had alluded to this a bit in the call, a question back on Grasberg. So it sounds like potentially if the government is looking to get a 51% stake in the asset that Rio’s stake would count towards that, is it clear that you’d be able to I guess get away with a much smaller divestiture than initially thought about?

Well, I would not use the term get away with, you know, but you know if Rio Tinto wants to sell they would reach agreement and they buy, it means that there will be a much lower level of divestment that would come to PT-FI. So the government currently owns 9.36% of – in effect the long-term 60% interest, so that’s 5% plus. Rio Tinto has 40% and so our remaining divestment obligation would be roughly 10% of PT-FI which would be another net 5% plus, so that’s the way the math would work and it’s all contingent on everybody reaching an agreement on that transaction. That’s the best outcome considering that Rio – it’s up to Rio Tinto, they have been great partners, so anyway, but then their negotiations are with the government, we’re facilitating them, but they have direct negotiation with the governments, so it would ought to be an elegant outcome.

That’s very helpful. And then you mentioned earlier credit ratings momentum certainly been positive, what are the next steps we should look at or what are the gating factors on further upward momentum for you guys when you discuss this with the agencies?

Well, I think you know if you just look at our credit statistics and our balance sheet and cash flow generations, and really the portfolio of the assets that we have in the company I think our credit metric signals high ratings, but won’t continue to review these with the agencies as we go forward.

Look, we’re focused on getting this Indonesian thing resolved and recognizes and until we do, you know that’s going to be a factor for credit ratings, stock valuation, share valuation and everything, so we know what we need to do and we are focused on getting it done. So, let’s see.

Are there any more questions? Okay.

Okay listen, thanks for all of you who stuck around to the end of this and we appreciate your interest. If you have follow-up questions contact David Joint, thank you.

Thanks everyone.

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