Freeport-McMoRan Inc. (FCX) Q4 2018 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. Welcome to the Freeport-McMoRan fourth quarter 2018 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 at fcx.com. Our conference call today is being broadcast live on the Internet and anyone may listen to the call by accessing our website homepage and clicking on the webcast link for the 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 2017 Form 10-K and subsequent SEC filings. On the call today are Richard Adkerson, Red Conger, and Mike Kendrick. We also have Mark Johnson who has dialed into the call from our site in Papua, Indonesia. I'll start by briefly summarizing our financial results, and then turn the call over to Richard, who'll be reviewing our performance and outlook and using the prepared slide materials that are available on our website. Today, FCX reported net income attributable to common stock of $140 million, or $0.09 per share, in the fourth quarter of 2018 and $2.3 billion or $1.55 per share for the full year 2018. We had a number of special nonrecurring items in the quarter, these are detailed on Page – Roman numeral VII of our press release the charges netted to a net charge of $21 million or $0.02 a share. They included $331 million in charges related to disputed Cerro Verde royalty claims and some charges at PT-FI. These were largely offset by $310 million in tax credits and gains on asset sales. Excluding these net charges, our adjusted fourth quarter net income totaled $161 million or $0.11 per share. Our adjusted earnings before interest, taxes, depreciation and amortization or EBITDA, for fourth quarter 2018 totaled $885 million and we've got a reconciliation on Page 33 of our slide deck providing the EBITDA calculation. Our fourth quarter production totaled 841 million pounds of copper and 334,000 ounces of gold. Our production was higher than our sales which totaled 785 million pounds of copper and that was similar to our October 2018 guidance, but our gold sales of 266,000 ounces were about 64,000 ounces below our 2018 guidance. And this is purely a timing issue related to a delay in shipments at PT-FI late in the quarter associated with some unscheduled maintenance at the third-party operated Gresik smelter in Indonesia. So these sales were deferred from the fourth quarter. They will be shipped in the first quarter, but they had an approximate $80 million impact on our fourth quarter adjusted EBITDA, this was just for the gold deferral. For the year, our sales of copper totaled 3.8 billion pounds, sales of gold totaled 2.4 million ounces and we sold 94 million pounds of molybdenum. Our fourth quarter realized price for copper was $2.75 per pound and that was 14% below the year ago quarterly average of $3.21 per pound. Gold realized prices in the quarter was $1255 per ounce and that compared to $1285 per ounce in the fourth quarter of the prior year. Our unit cost net of byproduct credits on a consolidated basis averaged $1.54 per pound of copper and a $1.7 for the full year. Operating cash flows for the year totaled $3.9 billion and those exceeded our capital expenditures of approximately $2 billion. We ended the year in a strong position from a cash liquidity position. We ended the year $4.2 billion of cash and consolidated debt totaled $11.1 billion. We have no borrowings under our $3.5 billion revolving credit facility. I'd now like to turn the call over to Richard, who will be referring to the materials, the slide presentation materials on our website.

Good morning everyone in a very complicated world today, politically and economically and we have a lot of excitement here to report among our management team and globally across our organization. We had a very active year in 2018 and it was culminated by the completion of our transactions with the Government of Indonesia on December 21st. And this is a - frankly a heavy load lifted off as we've been dealing with this for a number of years and in this process, particularly over the past three years in such a positive way is very gratifying. Now we're focused on 2019 and the years beyond that. Some of our accomplishments in 2018 start with the fact that globally we had a very safe and productive year in our operations. If you look back three years ago, 2015, 2016, when commodity prices were very low, the outlook was very weak. As a company we had a heavy debt burden and it wasn't clear how we're going to deal with that, but in the Americas at that time to conserve cash we ramped down our mining operations and this past year we restored mining operations to establish ourselves for our long-term future of productivity in those mines. We ramped up our mining activities by nearly 20% and this is going to support our long-term mine plans and preserve our optionality as we go forward. That's like building a new mine when you think about the 20% of an operation this size. We advanced the construction of a new mine at Lone Star. This is an ore resource that joins our Safford mine. That mine was just getting started when Freeport acquired Phelps Dodge in 2007. It has processing capacity that we're able to utilize productively with developing this new resource. And we continue to drill the Lone Star ore body and resources and really are identifying a massive new resource which will be good for the future of our company, be great for the future of our company. This mine is located just across the mountain ridge from Morenci in Eastern Arizona. Our mill at Cerro Verde continues to hit new records. This is not the largest milling complex in the world, one of the very largest since we began its operations it has just performed magnificently and continues to do so. At our Bagdad mine in Northwest Arizona, we have a very interesting process this year where we completed an efficiency project using Big Data and artificial intelligence models its lifted productivity with this mine in a low capital-intensive way and now we're going to take that experience and carry it forward to our other mines. We increased our reserves in the Americas by over 35%. For too long we've held on to using a $2 dollar copper price to determine reserves, we increased that to $2.50 and while this increases the proved and probable reserves that we'll report to the SEC it is also going to be very beneficial as we look to the future when we develop these assets to create additional value for our shareholders out of these operations. In Indonesia, we made really important progress in preparing our underground mines for the future. This is the future because we will complete mining from the Grasberg pit this year in 2019 the first half of this year. For over a 15-year period now we've been developing this infrastructure including the installation of the state-of-the-art underground rail and overflow systems and we've developed the infrastructure necessary for large-scale underground mining. This is – we are addressing the size seismicity issues for mining that we've encountered at the separate Deep MLZ mine and the results with that data are encouraging and we're gaining increasing confidence about our ramp-up plans for the Deep MLZ. Over the next two years now we've been foreshadowing these two years for ever since we developed our long-term mine plans at Grasberg in the mid-1990s, we've been foreshadowing the fact that there would be a transition period as we complete mining in the pit and ramp-up production from two large-scale high-grade underground mines. And we expect production in the Grasberg district will double between 2019 and 2021 and this has always been our plan, but now we got – we've de-risked the infrastructure development. The transition years are here. This is equivalent to a new startup operation for our mine. We've completed the open pit here and now we're in the underground area. It's a major undertaking that our team has carefully planned over the years and is now executing and it is all going on schedule. I personally cannot be more pleased with the outcome of our negotiations with the Indonesian Government, all three parties, the Government of Indonesia, our former joint venture partner Rio Tinto and Freeport accomplished each of our fundamental objectives. And for those of you who follow us, you recognize this was no easy feat in the complicated circumstances we faced. But at the end of the day, all of us were happy. We were successful in maintaining for Freeport the basic economics of this ore body and the deal that we have going forward is roughly equivalent, approximately equivalent to the economics we had under our contract work and it maintained, sustains our exposure to this world-class asset, world's second largest copper mine, and world's largest gold mine, it's a remarkable asset and really worth all the effort that we poured into it over the years. Really important in this process is we ended the tough, tough negotiations on a positive note. We now have a new partnership structure that strongly aligns Freeport's interest with the Government. For all these years we've been on the opposite side of the table in really an unproductive way. I'm convinced that this will mitigate political risk as we go forward and other major risks related to everything from security to labor relations, community relations. We now have aligned interest. We are partners with a state-owned company. That state-owned company has incurred significant debt to finance this transaction. Just like we, they will be looking to have positive cash flows coming out of this business over time to service that debt and to provide dividends of substance to the Government for years to come. As a company, I look back three years ago and think of just about how bad our situation was then with markets and with our debt position. Over that time we've reduced our debt. We're in a strong financial and liquidity position, and the steps taken to reduce our debt by nearly two thirds were way beyond the targets we set at this call two years ago, position us now to manage this transition in Indonesian and deal with the market uncertainties that we may face. We'll talk more about this, but on the call and answer your questions. You know, the fundamentals even today with all the confusion economically in the world and with all the risk that we hear about every day, the fundamentals of the copper market point to a very positive future. In our company and our management team are managing our company's assets to enable our shareholders to benefit significantly from what I'm confident will be strong copper markets ultimately in the future. With today's uncertainties in the global marketplace, neither we nor anyone else can predict short-term movements in copper prices. But our management team is confident and we have the right portfolio of assets, the right structure and we've de-risked so much of our business over the past three years and particularly in 2018 that we can deliver significant values over the long-term to our shareholder. So, we are going to now answer your questions about the past if you have any, I'm sure you will, but we are going to focus on what's ahead of us in the future. It's all about execution now. Our team recognizes that. We are focused on it. We have a great track record of executing in project development and operations and now we're going to use those capabilities to build success. When I sit back and look at it today's world is confused in many respects and dysfunctional. We're not confused at Freeport and we're going to be functional. We know what we need to do and we're going to set out to do it. So, turning to the slides now, Kathleen has reviewed the 2018 highlights, just a couple of comments. We had this problem with the smelter in Gresik being down. We had 130,000 tons of concentrate that we had produced at Grasberg that was in inventory in our concentrate bonds at Grasberg, normally it is 20,000, so 100,000 tons of concentrate that was produced, otherwise would have been sold if Gresik had been up. We had 60 million pounds of copper and 100,000 ounces of gold that's not in our numbers this year. Copper prices dropped $0.12 in December. Much of our production for the year is priced at December prices. We've put out a guidance note for our analysts who publish earnings guidance in December. I would encourage you to read that note and apply it. Several analysts didn’t do it this year and that resulted in the expectations about earnings being higher than it otherwise would have been. So anyway, past is past. We're focusing on the future, Slide 4, summarizes the transaction with the Government of Indonesia. Importantly for our financial reporting purposes, because of the structure of our shareholders' agreement with Inalum, the state owned company, Freeport will continue to consolidate PT-FI and PT-FI is now larger because previously we separated the interest in the joint venture between Freeport and Rio Tinto, now all of that is part of PT-FI. All of that will be in our consolidated results. And our consolidated reserves will be higher as a result of that report. FCX's equity interest in the reserves will be equivalent, will be the same. But those are details and if you have questions we will answer about it. Now, turning to priorities, here's what we're going to do. We're going to ramp-up production from our large-scale underground mines at Grasberg. Two basic mines, although the Grasberg Block Cave has two headings in some ways could be viewed as two bonds within the Grasberg ore body and the Deep MLZ mine. We're going to focus on productivity and cost management globally in the Americas as well as in Indonesia. We're going to advance this Lone Star development and continue to look at the very exciting long-term expansion opportunities of that ore body. And then we're going to look at other future growth opportunities from our large portfolio of reserves and resources. We have a great opportunity in Chile with our El Abra mine and then we have a number of opportunities in the U.S. mines. We're going to be evaluating them and ranking them and be prepared to go forward when markets give us the comfort to go forward. We're not going to be spending capital in those in the near term. So copper markets, you know in the face of all the investment - investor uncertainties that come about for obvious reasons that still retain their concerns about the ultimate risks to the economy in China and the global economy from a number of items, including the unfortunate trade policy issues that are being considered now. The fundamentals in the marketplace remain very strong. China set records for copper imports. They are continuing to invest in smelting capacities. They are reducing scrap going into China. There's just a lot of things about China. China as a country has enormous financial resources. They are looking at stimulating their economy, investing in one road initiatives. China has lots of alternatives of dealing with issues it faces in the current marketplace. Time will tell whether this will develop into a serious problem and we'll be prepared for that. But today, the outlook going forward is good. In the U.S. it is really amazing, we supply maybe a third of the copper to the downstream market. We're stretched. We're not being able to commit - to meet all the commitments of our U.S. customers. We actually have to go out and buy some copper. Can you imagine that Freeport, the world's largest operator of copper mines is having to buy some copper to fulfill customer demands in the U.S. All of this is really contrary to investor sentiment, investor sentiment is what it is. We live with it. But the market is fundamentally continues to be strong and then we look forward. We look at the declines in base production, you know experts are analyzing that to be over 5% over the next 10 years. If you look at modest demand growth, if we use 1.5% over the next 10 years you end up needing almost 5 million pounds of new copper per year, 5 million tons of new copper per year. And today it takes prices well over $3 a pound to justify new investments. So there's coming times when copper prices will simply have to rise. And then you look at where is today's copper coming from. And on Slide 7, the slide you've seen from us before you see the reserves in production from the top 10 copper mines in the world today, we have three of the five largest producing mines in the world. In aggregate those mines only produced 5.4 million tons a year in 2018. So you come back having to replace all of these mines 10 years out, it's a good outlook. So here's what our reserves are. We have – I've been talking with our team for some time now about why do we continue to use $2 copper. So we've changed to $2.50 copper in the Americas and that resulted in about a quarter increase in our reserves just by using that price. And that's not just an accounting exercise. That's helping us as we look to see where we rank these investment opportunities going forward. That's proved and probable reserves under SEC industry standards. Beyond that we have an equivalent amount of mineralized material associated with our existing mines that with additional drilling analysis, engineering planning and so forth could well come into reserves. Half of these resources roughly are in the U.S. So we are positioned as a company to benefit from this coming positive copper markets and have the ability to deal with it if in fact we have to deal with economic weakness. More information on reserves are shown on Page 9 and most of the additions that came about are in the Americas. We doubled our reserves at Bagdad which is a really attractive future investment opportunity mine for us. We've added significant reserves to Morenci. We've added reserves at Cerro Verde. Our reserves will also grow because the consolidation, the inclusion of the former Rio Tinto interest into PT-FI and the continued consolidation of PT-FI, big reserves, big resources. Cerro Verde, the operations are really going well. This is really a great mine. So glad we buckled up and made the decision to do the major expansion that we completed and started ramping it up three years ago. And the concentrator facilities, leading - industry-leading in size are performing well exceeding nameplate capacity and so this is a great mine, really pleased it is part of our portfolio. Lone Star, I mentioned there is a picture here. We're minding leachable oxide ore now, doing stripping. That's going to be a very profitable project for us. 5.6 billion pounds of copper, it's strictly leaching using the facilities that are already in place at the adjoining Safford mine. So that going to be a good project, but what's really exciting is beyond those 5.6 billion pounds of reserves now, we have 50 billion to 70 billion pounds of resources, enormous opportunity driven by the sulfide resources underneath these oxide resources that we're producing. We also have a sizable sulfide opportunity at Safford which has been to-date strictly a leaching operation. And so this has the opportunity of being a Morenci class mine as we go forward right in the heart of our operations in a community where they are welcoming mine activities part of the Brownfield expansion really exciting. Grasberg underground, this is just really going to be amazing. In the future as we look out beyond the ramp-up the primary asset is going to be the Grasberg Block Cave. Now this is the same ore body that we've been mining from the surface since early 1990s, not a different ore body. It is just physically, it is more economically to access it underground now from the surface. We'll be ramping this single underground mine. It will have two headings and Mark Johnson is on the call with us, it's late at night. He is in – came back for, but it's really in effect like two mines because it's two headings, ramping up to 130,000 tons a day from this ore body by 2023. We had our first drawbell blast on December 15. I was in Jakarta and that was exciting to be late at night at the Fairmont Hotel and watch that first blast go off on the screen and that's just one evidence of the progress we've made in developing the infrastructure. Now, it's important to note that his is an ore body we know. The Deep MLZ where we've had the mining and do seismic activities and separate mineralization area, an area where we began block cave mining in the early 1980s and have extended the depth, it is 1500 meters below the surface with 300 meters below the surface with the Grasberg Block Cave mine, different rock environment. We know the rock. We're comfortable that we won't have to deal with the conditioning exercises we're having to do at the Deep MLZ with the fracking operations. The Deep MLZ will be ramping up we feel confident to 80,000 tons a day by 2022. We began the fracking operations in 2018 to manage the seismic events, precondition the cave. This is not first time it's been done in the industry, first time we've done it and results to date are very encouraging and giving us increasing confidence about our ramp-up schedule. We have an inventory of 70 drawbells. So we are prepared to have this ramp-up going and we're giving you our estimate as to how we'll achieve which is shown here on Page 13. First half of 2019 we've basically finished at the bottom of the pit. We're looking out for opportunities to in the pit to get some incremental high grade ore as we finish mining in the pit. And one way we're doing that the primary way is we're mining out the ramp roads that have led down there is very hard grade and that will be the bulk of the source of our ore production during the first half of 2019, and then you can see in these schedules are the other mines will ramp-up. So we're into this transition period 2019-2020. We have an increasing confidence about our ability to meet our targets and we will end up with the Grasberg mine operating with totally underground feed with the mill of over 200,000 tons per day of very high grade copper and gold ore. And now the decks are cleared of all these issues that we've had with the government for us to proceed to do that in a business like fashion and it will be our primary focus. So we've got a global footprint of course are key parts of the companies that we operate all the assets and we have ownership interest in, you know we're not minority owners, we're not joint venture participants, but we have the ability to benefit from having a common operating group managing all these operations and that gives us lot of synergies to deal with both in supply chains and people and mine planning and so forth. The large part of our resource and reserves are in the Americas, 70%. We got a great team, real hot around here. Everybody is excited. We are ramping-up the operations today. We're planning for future development and all of us are happy about it. The leading position in the United States, you know looking back a number of years ago, mining the Southwest copper district was dead. Now it's really exciting. We got favorable tax situation. We have a huge operating loss carry forward from oil and gas investment. So taxes will be minimal in the U.S. going forward and improved regulatory environment. We have really good relationships with the states where we operate. And the energy situation in the U.S. with shale oil shale gas, flexibility of labor. We don’t have labor unions here. We have communities that support the families that work at our business. So anyway it's – we're really excited about our business in the U.S. Great opportunity in Chile with El Abra, world-class mine in Peru and of course Indonesia being historically tremendous asset. We showed this I think last quarter, but I want to come back to it, about just how difficult it would be to replicate what we have here at Freeport. You know, if we look at the copper equivalent capacity of our company, 4.5 billion pounds of annual production extending for as far as you can see, the cost to develop Greenfield capacity is $8 to $10 a pound, that indicates that to replace what we already have now could be in the order of $35 billion to $45 billion. Time will justify this and we are focused on giving the market the bases to do it. So we got our 2019 outlook. It is very consistent with what we had before. Unit cost will be higher the next two year than they have been or will be because of the volumes with the transition at Grasberg and then will affect our cash flows for our two-year period, but this is just like someone starting up a new mine, whether that mine is in Mongolia or Africa or Panama or whatever. It is a ramp-up period and that's what we have. Capital expenditures are consistent with what we've got it to before. A large portion of these were related to projects, it'll be adding significant future production. You can see our sales profile which will be increasing as we go through the ramp-up years. And then gold sales is particularly evident of course that's Grasberg and that's where we're having the transition. Slide 17 shows the volumes in cost by region. Our cost in the Americas has been fairly consistent. Each mine will be affected by some volume differences, but the fundamental cost situation is under control and remaining the same. Consolidated cost we're showing at current commodity prices for 2019 to be a $1.73, but that's with Grasberg being at $1.55 a pound. We think Grasberg after the transition will be no more than $0.30, maybe lower depending on commodity prices and if we pro-forma for that our cost would be a $1.30 versus a $1.73. We just keep willing to drive home the fact that we're in a transition year. This is page 18, and it shows what our average EBITDA and operating cash flows will be on average for 2019 and 2020 and then after the ramp up how much it will grow. So I'll let you look at those numbers and I think they're evidence for what we're doing there. No significant changes to our capital expenditures. The bulk of our major mining projects are Grasberg underground development. And our financial policy, we are going to be studying and ranking future investment opportunities. We're not planning to commit major amounts of new capital to those projects. We're going to continue with Grasberg and with Lone Star, but we're going to be looking at attractive projects for the future. We're going to continue to be focused on improving our balance sheet to the extent we get the period where we're generating excess cash, maintaining our current dividend and what we're really looking forward to is having production ramp-up, more positive copper pricing environment and that will allow us the ability to pay cash dividends as has been our tradition at Freeport. So, that is where we are as I said in a complicated dysfunctional world in many respects. We are very excited about where we are and we are focused on moving forward to make our company really successful for our shareholders. So, Regina we’ll open it up for questions.

[Operator Instructions] The first question comes from the line of Chris Terry with Deutsche Bank. Please go ahead.

Hi, Richard and Kathleen. Two questions from me, the first one in your slide deck, Slide 27 where you've got the quarterly sales forecast for 2019, just looking for a little bit more color on the ramp-up of the two headers at the Grasberg underground presumably the first quarter of 2019 guidance the 825 million pounds includes a little bit of the sales that did not come true from 4Q 2018, I think 2Q 2019 from what you've said includes some of the open pit material at the slightly high grade is that really the second half of the year where we then more reliant [ph] completely on the underground, just trying to step through the profile there? That's the first question and just on your projects beyond Lone Star, can you rank at this stage what the order of preference would be for any new projects including El Abra or North American options? Thank you.

Okay, so Chris, you're exactly right. I mean you're reading the slides, the first half of the year the bulk of production at Grasberg is going to come from the open pit ramp mining and then by the end of the year the Grasberg Block Cave will be commencing production. We also over time have developed stockpiles of material that we will use to maintain as much throughput through our mill as we can, but that's been a long term plan to stockpile some lower than average grade material and that will be available for us as well.

And for the year Deep MLZ represents about 12% of our production, so relatively small percentage in 2019 and Grasberg Block Cave is under 10% for 2019. The rest of it will come from the open pit. The DOZ mine which has been operated for several years now is the other piece of this in addition to stockpiles and a small amount from Big Gossan as well.

Mark, do you have anything to add to that, we [indiscernible]?

No, that's perfect. We've also ramped up the Big Gossan and it'll be at full production of 7000 tons a day by the third quarter and it will consistently supply about just over 10% of the copper and about 4% to 5% of the gold.

So Chris, with regard to ranking I'd be careful because we can get some fairly heated discussions internally about that. We started out with a base I think with El Abra. It's – for a mine that felt by this time would be depleted and when we acquired Phelps Dodge almost 12 years ago now, our subsequent core drilling and exploration now since it gives a really exciting opportunity. We own 51% of that mine. Codelco is our partner and Codelco is very positive about expansion. On the other hand, the U.S. has the benefits of the - that I mentioned, energy cost, labor flexibility which Chile is recognizing is an impediment to that country's future in the mining industry now and we own 100% of the mines. We own the land and sea here. And our workers drive their pickup trucks to work and carry lunch pails and send their kids to community and state schools and have hospitals. So there are a lot of advantages in the U.S. Leading the pack right now in terms of timing would be Bagdad. We’ve invested in water resources which is a constraint there. We've done some work on land rights for tailings disposal and it's less capital intensive, smaller, easy executional project. And then longer range we've got some very large projects to consider, Lone Star and at Morenci and even in New Mexico where our mines are very old, but as we can continue to keep drilling these old ore bodies we get excited about what we're seeing there. So it will be a horse race to decide what to do, not a decision we will reach. We'll continue our work throughout the year and report to you how that analysis is going.

Okay, thanks.

Alright, thanks Chris.

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

Hi, thanks for taking my questions. I just, I had a quick question first of all on the capital spending for the Indonesia smelter, the slides obviously are before CapEx for the smelter and I know it's early days, when do you expect to start spending?

All right, so we have been spending some planning money to date, we will continue with that. Significant capital spending won't come into play until 2020. And we are now engaged in conversations about potential partners, about financing structure and how that will be dealt with. So we've deferred that until we got our deal done, the deal is done. We're now actively pursuing that project and you can expect updates through 2019 as we go forward, but not much in the way of capital during 2019.

And David, we will just point out on Slide 19 where we show capital expenditures, those are consolidated. And now we're bringing in all the aggregate capital from Indonesia whereas the previous structure was Rio Tinto. Their contribution was not included in our capital. So our capital spending really from what our previous guidance has not changed. We'll get under the economic arrangement we have with our new shareholder we'll have them make a contribution similar to what Rio Tinto would have otherwise done, but that won't be netted in our capital like it had been before. And with respect to the smelter, as Richard said, we are focused on, we're doing the front end engineering right now and while we're in those planning stages, we are going to work to try to find partners that may be interested in off take or other participation in the smelter. Ideally we'd like to structure the smelter similar to what we did with the original smelter we build in Indonesia where. PT-FI provided a contract to a smelter, project company that used that contract to finance the smelter, but we don't know yet. This is all new in terms of getting the deal done in Indonesia. So as we go forward, we're going to look to minimize equity contributions from FCX and look to try to find financing for the smelter as long term as possible to reflect the long term nature of the assets and the amortization of the smelter will have over time.

And Dave, let me make a couple of side comments on all this. All of the issues related to capital allocations in the smelter were settled with Inalum during our negotiations. Rio Tinto was a great partner of ours since the mid 1990s, but there were some issues related to the smelter and cost allocations in the final years before they went up to 40% that were unresolved. We resolved those now and those are settled with Inalum in a fair way and in a way that was consistent with the Rio Tinto deal. And when you think about the smelter, Indonesia really is exposed to roughly 50% of the economics of the smelter through taxes and royalties. Now they have a 50% equity interest. So 70% to 75% of the economics of the smelter will be borne by the Government of Indonesia and Freeport's exposure to the smelter which in today's world and perceivable world will have an economic impact is limited to 25% to 30%. I think that's obvious, but I think it's something I just wanted to point out.

I appreciate the extra details and color, it's always helpful. Just one other quick question, if you could just take a step back, obviously commodity price is down, all the big producers are out saying there's really not any good projects out there and so I just wanted to ask if you could give us an update on your thoughts regarding M&A activity in the sector in general and where Freeport shakes out?

So Dave, you and others read what other companies say and there is a consensus across the industry among the diversified companies that puts copper as a top priority of every company. I mean every company talks about that. And yet, as you point out the opportunities for investments are very limited just because of geology and politics and the nature of the ore bodies that are available to the industry right now. So over time I think there will be a strong desire for companies to try to expand their copper business and they're going to be limited by their ability to do that through exploration and development activities and I think that will add to the value of Freeport's assets. We don't have any strategy about M&A that's been formally adopted. We're going to be in the marketplace, looking for ways to increase shareholder value and that is the total focus of our company as we go forward. My long career in this industry, my observation is M&A opportunities emerge, people get in trouble when they try to force M&A ideas into a company's strategy, but they tend to be more, the good ones tend to be more opportunistic like our acquisition of Phelps Dodge wasn't a strategy that we planned. It was an opportunity that emerged because of the circumstances of Phelps Dodge, the circumstances of Freeport, the circumstances in the financial marketplace at the time and I think that'll drive, what we do in the future, opportunities.

Okay, just to clarify, is Freeport would you say more of a buyer or a seller?

I can see strategy working either way.

Okay, thanks.

Well, having said that to be a buyer would be faces an uphill challenge with us because we have all these resources where we're not getting any credit for in our current valuation and if we create values in those undeveloped resources all of that goes to benefit our shareholders. If you buy anything you have to pay the other company shareholders something, so it would be a real uphill battle for us to find an acquisition opportunity that makes sense for us.

Great. Thank you.

Your next question will come from the line of Chris LaFemina with Jefferies. Please go ahead.

Hi, thank you for taking my question. Just first a couple of quick questions on the transition to Grasberg and then one on costs for the entire company. So it looks like you actually slightly increased your production guidance from the Deep MLZ for 2020 and 2021 is that just a function as being more confident in the results of the hydraulics fracturing or something else going on there? And I guess kind of along those lines, what milestones should we be looking for are you looking for at the Block Cave and at the Deep MLZ through 2019 and 2020 that would give you even further confidence in the kind of successful transition to the ramp-up and production from those assets.

Okay, so the changes at Deep MLZ are just part of the natural updates of outlooks and here at Freeport we don't have an annual planning process. We update our mine plans every quarter. Before - at the end of every quarter we have a meeting where all of our mine managers globally come in, analyze what’s happened in the past quarter, how their plans were changed. And so it's a dynamic real-time updating and when you see adjustments like that that just reflects the information that came into the quarter. You won't see having these big adjustments based on annual planning process. Anyway, my experience has shown me it's best to stay on top of these things real-time and that's what we do.

Mark, do you want to comment on its roughly 2000 tons a day, more in 2020 and 2021, do you want to comment on some of the progress we're making at Deep MLZ?

Yes, really the only difference on that is that with the hydro fracing success that we've had, we’ve began to pull the ore body now. We have them for the last three months and what's happening is, as we frac the ore body, we watch very closely the air gap between the muck pile and the cave back where that's very small in a lot of cases it's less than 5 meters. We pull the material to continue to open up the space for the ore body to continue to propagate. And so that came on quicker than what we had previously forecasted, so we're continuing to do that today. We have days now on the Deep MLZ with the developments material that we, that is in ore grade also and the pulling of the cave were up over 10,000 tons which is marginally above what we had forecast last quarter. So we're very optimistic on that. We continue to frac in that area that's going to be one of our key milestones. We just recently commissioned our second hydro fracing pump. We've got six drill rigs, supplying the holes for the two hydro fracing pumps. So for me the deep MLZ it will be continued, the milestones will be continued success on the hydro fracing and we'll begin undercutting. We're forecasting to begin undercutting again in the Deep MLZ in April. So that will be driven by this continued success on the drill holes in the fracing, that goes along with them. In the Grasberg it's, there's really, it's just a matter now of undercutting and blasting drawbells and we've gotten off to a good start there were slightly ahead. And we don't see any issues there we've got a lot of development already in place in the undercut that we'll be developing over the next three years really. So it's just a continued ramp up of that, the trains and ongoing state of commissioning, but we see good progress on that. The ore flow was commissioned back in 2018 and really nothing that we need to do with the ore flow system in the next couple of years to meet the increasing production.

So aside from the, aside from the seismic, the mining of the seismic activity in the DMLZ you haven't really had any significant operational surprises at the Block Cave or at the DMLZ it seems like things are going pretty well recently, is that fair to say?

Yes, that is, the fracking, we've seen a much better response than we first had anticipated the case propagating better than we anticipated vertically and were establishing this fracking along the perimeter of the cave to where we'll be able to successfully and safely advance the undercut, so it has gone slightly better than what we anticipated in the last forecast.

Thank you for that. And then, sorry, Richard just one last question from me on the pro forma cost guidance of a $1.30 per pound, obviously the reduction 2019 into that is due to Grasberg. But what should we, how should we think about unit costs in North America and at [indiscernible] I guess over the last five years there's been some pretty stiff cost inflation in both of those regions and is any of that reversible or are we kind of looking at knew, the current kind of cost rates are going to be the normalized run rates of those assets, how is that going to change over time?

So, part of what you've seen in recent years was this ramp up of mining activity that we were restoring these curtailments that we put in place back in 2015 and 2016 for financial reasons. Had we not done that Chris, we would have seen volumes fall off because we weren’t mining at optimal rates to maintain production. So we've incurred some additional costs, I mean 20% ramp up involves a lot of people and equipment and so now we believe we've got it at roughly here red right. We've got it at really a stable operating rates and then we'll be just subject to the normal factors that affect call structures and to date we're not seeing anything like that, that's a major concern for us. We've done this great job with truck rebuilds. Red, was the last time we bought a haul truck?

2008, a brand new…

A brand new…

We bought 150 of them over the last 12 years.

We've added 50 of them and so we're doing things like that. Our entire age is going great, so when you look past all the issues at Freeport have been related to the Indonesian contract and the transition underground. We've had a big part of our business has just been focused on nuts and bolts and doing a great job of that.

So in that one third we’ve got relatively stable costs in the Americas forecast.

Perfect. Thank you for that. Good luck.

I appreciate it Chris.

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

Hi, good morning everybody. The question, when you think about your potential growth portfolio beyond that of Lone Star, the prospects you've outlined for Cerro Verde, Bagdad, Safford, et cetera. You laid out this incentive price of $3.30, I know it's probably the most challenging question for a mining company when you have a long lead time between cash investment and incremental revenues. But what does the market look like where you make that decision saying, yes it's time to put in this capital. Price is 3.30 it stays there a quarter, two quarters, you know practically is that enough and if not what is?

I don't think you can simplify, it it's not just like the price, the current price or whether it will last couple of quarters or not. We don't allow ourselves to focus on a price. That's what history has taught me. We look at a scenario of prices. We don't think that you're going to get to a price analysts used to get upset when because with me, because they said what's your long term price and I say we don’t have one. What we would do as we look at these projects is look at the market, see what the opportunity would create for us if we did the project and got those volumes and had the benefit of the prices that were available and then we would risk it. We would say okay, if you make that investment prices drop not on that project alone but how would that fit in to your total portfolio of assets? What would that do to the company? Is the company financially strong enough and we're so much better now than we have been. And how we fit in? We've benefited back, we undertook three projects at once coming out of the 2008, 2009 downturn. We did an expansion of thinking expansion at Morenci, the major expansion at Cerro Verde. And we looked at all of those and strategically we come back to the fact that you've got Grasberg there with this high volumes and significant cop a go component giving you this long line, low cost reserve. That was the whole basis for the Phelps Dodge deal. So as we look at future opportunities, we go this base for the company of Grasberg there is now de-risk in a major, major way to support our company and that will allow us to be more aggressive in terms of looking at those investments. It s not looking at them on a standalone basis. So, I can't give you a formula, but is we hopefully get past these trade issues and the Brexit and the government shutdown and get some clarity on what the Fed's interest rate policies are going to be and what the global economy is going to be and how China deals, all these things they'll come together and they'll give us a view as to what's the time to start these. You correctly pointed out they are very long term investments. The price of copper jumped to $5 today, we would have significant incremental production for six, seven years and so there's going to be a coming time, unless there's some really disaster economically in China and the world where you're likely to see really, really high copper price. I mean it's just, you just read the tea leaves, look at these basic numbers and say, how are you going to replace the top 10 mines in the world in 10 years. That's not going to come from what's on the schedule right now. The prices have got to go way up. People are going scrambling to produce copper. We've got the resources to do it in a productive way and that's what the future is going to be.

The other thing we're doing in for our North American projects is, we're going through some work right now, some technical work to try to bring down the capital intensity of investments and that we’re working on some of concentrator designs that may allow us to bring in projects from the lower capital intensity standpoint than what just a conventional technology would bring. So we want to get the results of that, those studies done and in the meantime we're doing some value engineering on the El Abra feasibility study so that we can be in a position to make decisions and rank these projects and sequence them in a way that drives the most value for our company. So we've got the inventory, but we want to do them in the most economic way that we can and so we're going through some time during this market uncertainty to study ways to bring down the capital intensity of the projects.

Thanks Kathleen.

And this is a team that was a world leader in [indiscernible] and SAG mill development, high pressure grinding mill development, the development of Tinchi [ph] was technically industry leading and now with this new mill design that we did at Morenci. All of that's coming together to allow us to look at the next stage of how do you do these things with less capital, less energy, less carbon emissions, all the things that better recoveries. Better recoveries and now using this big data analysis project that we've done at Bagdad, that's what we've got to this company is going to be about and I really look forward to having earnings calls talking about these things rather than negotiations with governments.

Thanks, I appreciate that. That leads to my next question. I wanted to ask a little bit on the CapEx side, Slide 19 we see the other mining creep up a bit $800 million to $1 billion by 2020. The major project holding at $1.5 billion over 2019 and 2020 although, price per call did $900 million, Lone Star declines by $200 million. So given what you just said, could you break down what regions which mines are driving a little bit of a pop and the other mining whether we should be thinking about a $1 billion consolidated as the standard capital going forward and then as you're getting to 2020 what else is popping into that major projects bucket?

Well, so with the sustaining capital some of that affects this ramp-up effect that we talked about. Not only you can constrain operations we choked by necessity, maintenance capital, and I mean these quarter meetings we had was, back and forth between the teams and our Kathleen and the financial staff, and so now we're having to go back and do some things that we had deferred and that's all that that is. And so, I think the sustaining capital that you see in those years should be more normal and we'll find ways to try to reduce it. There won't be any unexpected increases right, all right write that down. That won’t be coming in there. And then by 2020 we may well have clarity on where we're going next with El Abra, Bagdad and other things that we'll be dealing with. So we'll just, we'll be updating, the milestones will be apparent to all of you now, because every quarter we're going to be talking about it. And that's the way this will unfold.

There's not anything major besides the underground and Safford, Lone Star. We do have some capital at El Abra that we're doing the next phase of the new leach pad at [indiscernible] to extend the life of our software [ph] project there. So it's the bulk of it is coming from Safford, I mean Lone Star and Grasberg underground.

All right, best of luck guys.

Thanks Matt.

Your next question comes from the line of Alex Hacking with Citi. Please go ahead.

Good morning, Richard and Kathleen. I guess, just following up on Indonesia, my first question, I noticed that the mining rights have been extended through 2031 at a 10-year period, not 2041. Was that always expected to be the case? And then secondly, the extension there was contingent on building the smelter and I guess paying taxes and royalties and any other contingencies on that extension? Thanks.

Okay, no we always knew that because of Indonesian mining law and regulations that we had to do 10 by 10 two 10-year and part of the negotiations were and that was the case with old contract, that was a primary term to 2021 then we had rights to 2041 in two 10-year increments, past 2021. So we always knew we had to deal with that, a focused area of negotiations where what was going to be the contingencies for that 2031 to 2041 and we ended up agreeing that there would be very specific criteria and we said that with those criteria met it would be automatic and those criteria are simply this. We pay our taxes and royalties, pay what's due, we build a smelter. Other than that, there's no environmental review or other administrative, no - we thought we could all come with our rights on to the cab, but the - the Indonesian Government had to grant those extensions without unreasonable - without any unreasonable delay. There are no reasonableness on this. It's measurable, specific criteria is totally expected by the government and by last that we will extend and now our partner Inalum well had to be extended. So we're in a much better position than we were under our [indiscernible] in many respects and this is one of them.

Okay, thanks Richard, that's very clear. And then once Grasberg is through the transition it's going to be a big cash cow, do you have any kind of guarantees on your ability to get that cash out of Indonesia? Thanks.

We do, and one of the things that was again a focus point of negotiations was that within the shareholders agreement is an agreement on financial policy. Dividends will not be set by the Board of Commissioners or Board of Directors. There's an agreement that to the extent that cash is generated from the operation beyond in excess of its capital expenditures and other cash requirements, that's going to be distributed as dividends and there's no restrictions on that. So we have a set financial policy that goes to 2041. The entity can't incur debt without mutual agreement so…

Okay, thanks. Again, very clear and then just one final one if I may. On the Cerro Verde royalty dispute, do you anticipate any midterm cash flow impacts from that and does it affect your 2019 cost guidance in anyway? Thanks.

We've got some payments worked into our plan where we are paying some amounts in installments under protest. We're going to continue to pursue legal strategy to get those payments back, but we do have some amounts going through our cash flows over time to pay on those obligations for those claims.

Okay, thanks Kathleen. Best of luck. Thank you again.

Your next question comes from the line of Matthew Murphy with Barclays. Please go ahead.

Hi, I had a question, another one on the Grasberg Block Cave ramp up. I'm just wondering how major this first drop point blast, is this is being followed up with like mocking and this cave is propagating or is it still very early days, so I'm just wondering how you look at the de-risking of the project over the course of the year and what stage do you think you feel more comfortable with kind of with the proof of concept here?

Okay, Mark.

Yes, it's the first step, so it's significant in that the blast went well, good fragmentation. We are not - right now what we do until we hit a hydraulic radius in this area of the Grasberg Block Cave as we continue to do the same thing. We continue to undercut blasts and follow it up with a drawbell blast. We are about 50% of the hydraulic radius and that's the span with which the cave we had expected to start caving on its own. We expect to be at hydraulic radius late second quarter, early third quarter this year and at that point you can start to muck the drop points that you've already blasted while you continue to add new drop points as Richard stated the Grasberg Block Cave is - we've got multiple work areas there it's essentially – it's mineralization, but the geometry is essentially, we have two mines that we're developing concurrently that share the same infrastructure. We have two fronts right now that we already established with the undercut sequencing on the very southern portion of the ore body. And within this quarter we start to develop the northern limb of the ore body and that will continue on in a similar fashion. We don't see any surprises. Like Richard said, we know this ore body very well. We're not deep. There's the geology and mapping is indicated the same fracture frequency and consistency of the rock that we had initially modeled. So I really don't see any issues there in fact. You know we think that there's potential for upside, we've got a lot of the construction ahead in the Grasberg Block Cave a lot of the drawbells have been constructed and are ready to be blasted. So we've got a good inventory of development ahead of us. The infrastructure is in place. We continue to add ventilation and pumping systems as we need to, but we're in very good shape in the Grasberg Block Cave.

Okay, thanks for that. I mean not to get too bogged down on details, but I'm just trying to picture, I mean you've got a big open pit and a lot of rainfall above this area, just wondering at what point do you start seeing some of that water flow and how do you deal with it? Thanks.

Yes, we've got extensive drainage within the grasp of blockade development. We end up fortunately for an underground mine our failsafe is that gravity drains out to the rich camp area. We've got the attics that are at a lower elevation. If the pumping systems were to go off the failsafe would be is that the access drifts are built to handle the peak flows that we've modeled. We put a lot of effort into deep watering along the periphery of the Grasberg Block Cave to keep the groundwater away from the cave and that's going well. We've got surface training systems at the Grasberg around the pit that will continue to maintain to minimize the amount of surface water that gets into the cave. We've done a lot of work on this we've looked at a lot of contingencies and we feel very good about the system that we have and essentially the pumping system that we put in is purely to more economically provide the mill with water. If it wasn't for the mill needing water we could essentially let gravity do its thing at the GDC with all the drainage systems that we're putting in as part of the Block Cave development.

So Mark, when do we put in the [indiscernible] attic?

Yes, it was in the 1990, actually this was probably about 1995 because we found the big [indiscernible] with that.

So the only point of that is this water management issue is not a new issue associated with the current development. It has been something that's been part of this operation from the very start and what we've done in the past will allow us to deal with these issues that you raised.

One thing, as big as the pit is right now and if you look at what we're doing, we've been very good at being able to manage the pit bottom. We're only pumping about 2000 gallons a minute from the pit bottom and we have access to this [indiscernible] drift that Richard mentions, we still use that for pit dewatering. So we've been able to get keep the pit dewatered with a very minor amount of pumping infrastructure because we can use the access that we have underground and we'll continue to look at those sort of approaches with the GDC.

All right, thanks Mark. Let's move along.

Our next question will come from the line of Orest Wowkodaw with Scotia Bank. Please go ahead.

Hi, good morning. I was just wondering if we could get a bit more color on the cost outlook and I appreciate the long term pro-forma cost guidance you’ve given us here of a $1.30 a pound. Does that imply that we should anticipate costs in North America and South America close to the $2.00 a pound range before thinking about Grasberg?

No, I think it's a $1.70 range not $2.00.

That's 70?

Yes, $1.75, that's sort of where we are now and that's what our current outlook is unless there's some major changes in the input cost.

But what drives down from I think you're guiding this here in North America cost of a $1.86, so what, in the future I would think rates declined, what would be driving the long term cost per pound down?

Richard was talking about a blend between North America and South America…

I was talking about the Americas combination. So if you look at South America, North America combined which we look at is kind of one business unit, that's where the combined rate was.

But in general, the maintenance costs that Richard referred to that we've been incurring catching up those all level of get back in sequence. And we get back to those historical rates

This is not - the nature of these ore bodies, they're low grade, but they don't have significant declines in grade over time. They'll change year-to-year, but it's not a question like a big open pit war free where you mine the high grades first. I mean the highest grades remind you of 100 years ago. So it's more consistent grades than you might see at other mines, and you would see at other mines.

Okay, and in terms of the reserve increase, how much, can you give us a rough idea what percent of that increase has to do with the copper price change versus additional drilling?

A big portion of it is related to the copper price change. We did do some drilling at Lone Star and actually have done more drilling that isn't reflected yet in 2018 reserves that will be incorporated into the mines in 2019, but most of that is really dealing with the price assumptions and what we'll do is look at how to develop those reserves over time at the lowest possible cost. And really just expanded the footprint brought in pounds that would meet the reserve criteria 250 or less.

Yes, so what we do is, we look at our current operations that we've got planned and we're just removing this artificial constraint on the footprint of the cone of the reserves that we previously limited to $2 and now it's extended to show what would be economic in $2.50.

And we'll be likely mining in our $2 reserve plan for a long time. So we try to keep mining in a plan that keeps the cash cost as low as possible. But this gives us more optionality to look at expansions or bringing metal forward over time.

Great, thank you very much.

Thank you.

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

Thank you. Your reserving mineralized materials very interesting with the Americas Reserve going up 23.7 and the mineralized material gone up 42 billion pounds. In addition to that 66 billion pounds is like two times Grasberg, but smaller than Escondida. Could you give us a little more explanation how much of the mineralized material was new drilling at El Abra and new drilling at Lone Star versus the $3.00 resource price was that the same $3 price as a year ago?. Maybe it will be good if you just posted the reserve and resource pages of your 10-K on your website today, it might be more interesting than the rest of it. [Indiscernible] it deserves more than some antiseptic legal summary that your SEC attorneys write.

Right, but John with the exception of Lone Star it's mostly price change, there's not a lot of new drilling that that drives that change.

But having said that John, over the past 12 years we've done an enormous amount of drilling. I mean previously when we walked in here Phelps Dodge and not, I mean had really management decision had limited drilling. They just hadn't done it, so we came in, we drilled out El Abra and added significantly drilled Lone Star, we did drill more at Morenci, Bagdad. So it is not just what happened this past year, but the cumulative effect and then by releasing this artificial constraint at $2.00 we were able to take into account, previous drilling results and expand the cones of these reserves to some that was more realistic to $2.50. But we're going to continue to drill and understand what the resources are and that will go into our ranking of future investment opportunities.

Did the higher copper price for mid molly resources to come into reserves from the properties that are copper with a molly credit is that how the molly went up a 1 billion pounds?

Yes, exactly because of expanding the cones for Bagdad, Sierrita, Cerro Verde, all of those byproduct molly operations, it took into material that was once outside the reserves and now it is in reserves.

I just hope you explain the 66 new billion balance, wonderful.

Yes, that's what we're going to be focused on now John.

Thank you.

Thank you.

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

Hi, thanks. Just a quick question on the North American operations, are you experiencing any labor inflation due to the low unemployment rate just generally in the U.S. and are you having any trouble say finding skilled workers to drive the trucks and things like that and does that kind of play into your analysis relative to building these big new projects? We've been hearing just broadly speaking even trucks you know difficulty finding long haul truck drivers in the U.S. and things like that just wondering what are you guys experiencing from that perspective?

Yes, Chris. In North America we brought out 2500 new employees last year in a very tight market. Truck drivers, equipment operators we've been very successful with. We're still a bit short on skilled craft, people, mechanics, electricians, those kinds of things were in type demand. We're very pleased with how our team has approached that and attracted great new employees to come work with us for the future and we don't see that as a deterrent to spending going forward.

Having said that we're working with states and local communities, and craft training and trying to encourage people. We've invested a lot in facilities for our employees, particularly at Morenci it's a challenge to get people to live in these remote rural communities and we're working with universities. We're looking beyond just truck drivers, but we're working with universities now to define future leaders in engineering, metallurgy, geology and technical skills. So it's a real problem. It's coming problem and we've given it a lot of thought, investment and community activity work to try to deal with it.

Okay, yes that’s great. I mean guess you been in Arizona for such a long time and it's that you're in an advantageous position I guess relative to some others? Thanks a lot.

All right.

Your final question will come from the line of Michael Dudas with Vertical Research. Please go ahead.

Thanks for getting me in and I hesitate to bring up a football analogy given what happened on Sunday.

We're going to have a moment of silence at the end of this. Terrible.

Yes, good luck with the lawsuits. I would characterize since the 2006 to 2018 timeframe, you've had to play a lot of defense, especially with the balance sheet and such but prices being low and maybe any negotiations with Indonesian to resolve the issues are you set up to be play more offense here and is your balance sheet structure do you think to do that given what you've done and in that context if you were to see much lower copper prices are plans in 2019 and 2020 pretty much set in stone and conversely if price were to spike and get more generation of cash flow is that poised towards balance sheet, is that towards CapEx or other issues?

Okay, so you're exactly right. I mean, I really liked the analysis of switching from defense to offense, Tsunami. Three years ago the defense was survival with $20 billion of debt and not a clear cut path as to how we're going to get out of it. But we took some bitter pills, we sold assets, raised some capital, got that dealt with. Then we had the struggle with Indonesian, and three years ago we were at the point of filing an arbitration claim. And I stood in a press release in Jakarta and you know basically drew a line in the sand and now we work cooperatively to where you know the last press conference I had in Indonesia we were shaking hands and smiling and everybody was pleased to report we ended up with, so you're exactly right now. If you look at our debt repayment schedule, we don't have any near term debt requirements, and so as we look at the next two years if we do have to face a severe downturn in commodity prices, we can weather that, we can weather that without having to alter our long term mine plans. We will tighten again where we have to tighten and we'll respond to it, but it's not the critical situation we were in three years ago and so we can manage through that. If prices get higher during that period of time in that timeframe we're not likely to change our capital spending and to the extent we generate if they do allow us to generate excess cash, we'll use that for the reduce debt for the time being and that will accelerate our plans for future spending.

Thank you, Richard.

All right. I appreciate it.

Now I’ll turn the call over to management for any closing remarks.

All I'm saying is, I'm not watching the Super Bowl.

Thanks everyone. We’re available for any follow ups.

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