Q2 2025 Earnings Call Transcript

Ladies and gentlemen, thank you for standing by. Welcome to the Freeport-McMoRan Second Quarter Conference Call. [Operator Instructions] I would now like to turn the conference over to Mr. David Joint, Vice President, Investor Relations. Please go ahead, sir.

Good morning, everyone, and welcome to the Freeport conference call. Earlier this morning, FCX reported its second quarter 2025 operating and financial results. A copy of today's release with supplemental schedules and slides is available on our website, fcx.com. Today's conference call 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.

In addition to analysts and investors, the financial press has been invited to listen to today's call. 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 non-GAAP measures and forward-looking statements, and actual results may differ materially. Please refer to the cautionary language included in our press release and slides and to the risk factors described in our SEC filings, all of which are available on our website.

Also on the call with me today are Richard Adkerson, Chairman of the Board; Kathleen Quirk, President and Chief Executive Officer; Maree Robertson, Executive Vice President and CFO; and other senior members of our management team. Richard will make some opening remarks. Kathleen and Maree will review our slide materials, and then we'll open up the call for questions. Richard?

Chief Executive Officer of Freeport-Mcmoran Inc & President of Freeport-Mcmoran Inc Thank you, David, and thank you all for joining us. Copper is currently in the spotlight, of course. COMEX prices are hitting all-time highs. LME prices are strong.

Uses are growing. Electricity means copper and the world is increasingly electric. This results in high demand, and the industry continues to be challenged to find the supplies to meet this demand and future demand. Governments are focused on critical minerals, including copper.

Our company is strongly positioned. 1/3 of our copper is in the U.S., roughly 1/3 in Indonesia and 1/3 in Peru and Chile. We are the dominant producer in the U.S., producing over 70% of the country's refined copper. We're fully integrated. We have substantial organic growth to U.S., and we're committed to that growth.

Freeport committed to its strategy to copper over 20 years ago. Our tagline has been foremost in copper, and that's what we're striving to be. The start-up of the Indonesian smelter is a big accomplishment. Congratulations to the team at Freeport.

We will now be effectively fully integrated producer globally. We are pleased to see the trade agreement between Indonesia and the United States and productive discussions with President Prabowo and President Trump. We conveyed to the Indonesian leaders negotiating the deal to note that Freeport, a widely held public company in the U.S. with almost a 60-year history of operating in Indonesia is the operator of the world's second largest copper mine located there. Grasberg operations and district is our cornerstone asset.

Second largest copper mine in the world. In this most recent quarter, we had a net credit for operating cost of $1 a pound. This asset has enabled us to create the modern Freeport. With the smelter nearing completion, we are progressing our discussions with the Indonesian government about extending our operating rights beyond 2041. Doing so would create great value for FCX shareholders, but it also would be very positive for all stakeholders in the operation.

With those comments, I'll turn the call over to Kathleen and Maree and to report on our quarter and our outlook.

Great. Thank you, Richard, and I'll cover the highlights of the second quarter starting on Page 3. We generated strong margins and cash flows during the quarter and achieved significant milestones on several important initiatives. Our sales of copper and gold were better than [indiscernible] and net unit cash production costs during the quarter of $1.13 per pound were significantly improved from what we guided to and from last year's second quarter. With an average quarter copper realization of over $4.50 per pound, which was about $0.20 per pound above the international benchmark pricing, we generated quarterly EBITDA of $3.2 billion and operating cash flows of $2.2 billion.

Our sales volumes exceeded production as we were successful in reducing inventories in Indonesia, both at the mine site in our newly commissioned precious metals refinery, which performed well during the second quarter. As we look at the balance of the year, we're well positioned for continued strong financial performance. Our sales of copper in the second half are expected to be nearly 10% higher than our first half volumes and gold sales after taking into account revisions to our Grasberg gold production, which we'll talk more about, are expected to be similar to the first half levels. The current premium on our U.S. copper sales, which recently tripled from second quarter levels, adds additional margins and cash flows.

And as we look ahead to 2026 and 2027, volume growth and lower costs set us up nicely to expand margins and cash flows as we go forward. We achieved a major milestone in the quarter with the start-up of our new copper smelter in Indonesia, a project we've been working on for the past 10 years. We started up about a month ahead of schedule and have progressed start-up activities to the stage of producing our first cathodes, which we expect by the end of this month. We remain focused on ramping up to reach design capacity by the end of the year.

Another real exciting development during the quarter was the start of a field trial at our U.S. Morenci mine using an internally developed leach additive. Our team of scientists have been working on this for some time, and we are progressing work on additional options, which are showing very impressive lab results. There's more work to do, but we're making real progress.

Identifying the right additive combined with our precision leaching operating practices will be a big step toward reaching our objective of producing 800 million pounds per annum from this initiative. We continue to advance optionality in our organic growth pipeline, and we're well positioned with our significant resources and experienced team and our strong financial position. We purchased 1.5 million shares of stock during the second quarter, bringing our first half stock purchases to 2.9 million shares at an average cost of $36.41 per share. And we continue to target 50% of excess cash flow for shareholder returns in line with our financial policy.

Turning to the next slide on 4. It's a summary of our 2025 priorities. We've covered these on previous calls, and these are the areas that are defining our everyday pursuit of value creation. First, execution, mastering the basics and making everyday count our key objectives. We're focused on delivering our plans safely and efficiently and driving our costs lower, particularly in the U.S.

Scaling the leach opportunity is a major value driver for Freeport. We continue to target a 40% increase in our run rate to achieve 300 million pounds by the end of the year on our path to 800 million pounds per annum. Delivering the smelter, a safe and efficient ramp-up of the PTFI smelter is strategically important. It will derisk our plans and position us for extension of our long-term operating rights in Indonesia.

With the early startup, we're well on our way. We posted a video this morning of the progress on our website, and we hope you had the chance to review it. We're very proud of what our team is accomplishing there. Innovation is an increasingly important value driver for our business.

Our operating teams are embracing technologies and new tools to enable better productivity and cost performance. And we're continuing to build optionality in our growth portfolio. We have 3 major project opportunities being advanced in the Americas, which we'll talk more about. Turning to copper markets on Slide 5. Copper has been actively covered in the media recently with widespread recognition of the rising strategic importance of this essential metal and a broad use of applications.

Market fundamentals remain positive, underpinned by copper's increasing use in the global economy and is an important driver of electrification, global energy requirements and defense systems. Copper prices averaged $4.32 on the London Metals Exchange during the quarter and $4.72 on the U.S. COMEX Exchange. Following the July 8 U.S. tariff announcement, U.S. prices rose significantly.

While tariff policies have dominated headlines and resulted in rising inventories in the U.S., global exchange inventories remain at low levels, particularly in relation to consumption trends. Copper demand globally continues to benefit from the secular trends and major new investments in AI technology, power infrastructure, decarbonization and transportation. In the U.S., demand continues to be supported by these secular drivers, and we are seeing improving trends in Europe. China continues to be a major driver of copper demand and India represents an important growth market in the future.

As we've talked about in the past, the fundamentals of the copper markets are highly attractive with the outlook for demand growth to outpace available supplies as we go forward. Here at Freeport, we're in a great position to increase volumes in the coming years to supply a world with growing requirements. Moving to Slide 6, we talk about the regional premiums and the market differentials between the U.S. pricing benchmarks and international benchmarks. For background, the reference price for Freeport's copper sales contracts is based on geography.

Our international sales are based on the London Metals Exchange price and our U.S. sales are based on the U.S. COMEX reference price. These 2 benchmarks have been closely correlated in the past. But as you can see, a differential emerged earlier this year after the U.S. opened the Section 232 investigation and the differential widened significantly earlier in July following the U.S. announcement of a 50% tariff on copper imports with an expected implementation date on August 1. We're still waiting on additional details on implementation of the tariff announcement.

The U.S. currently imports approximately half of its copper cathode requirements and the current domestic supply of cathodes, the rest of it are majority produced by Freeport. As indicated in the charts, as of yesterday's close, the U.S. premium approximates $1.25 per pound or about 28% above the LME price. This implies an approximate $1.7 billion annual financial benefit on Freeport's U.S. sales. Longer range, the differential will be determined by market factors, including how the tariff structure is applied to various copper products, available domestic supplies and requirements for imported copper and other factors.

We're actively working to boost domestic supplies of copper with a special emphasis on growing our refined production in a cost-effective manner through our innovative leach initiative, and we're focused on supporting the growing requirement for our U.S. customer base. Freeport is an important American copper producer and is by far the largest contributor to the U.S. copper market with an established and successful franchise dating to the late 1800s. As America's copper champion, we appreciate the administration's recognition of copper as a critical mineral and the efforts underway by the U.S. government to boost domestic production.

Our operations in the U.S. supply approximately 70% of the refined copper produced here. Our operations in the U.S. are fully integrated with mines and smelting and refining facilities and innovative leach processes that efficiently produce refined cathode. About 60% of our U.S. production is sourced through leaching processes and the balance through our smelter. We employ a large workforce in the U.S.

And importantly, we've earned the trust of communities in the Southwest U.S. where we operate and with our U.S. copper customers. In talking about our global refined metal on Slide 8, Freeport is a significant producer. With the completion of our new smelter in Indonesia, Freeport will essentially be fully integrated globally with internal processing facilities for its mine production. This is important because countries are becoming more and more focused on critical mineral supply chain resilience, national security issues and global trade.

Freeport's positioning as a major producer of refined copper is of strategic significance for the long term. As indicated, we produce a substantial amount of refined copper from leach processing, which does not require a smelter process. And we're going to continue to pursue innovative opportunities to add refined copper on a cost-effective basis. Moving to operations on Slide 9. We'll talk about the operating highlights by geographic region, starting in the U.S., where we continue to drive operating disciplines to enhance efficiencies and improve cost and margins.

We're making progress as indicated by the improved performance compared with the year ago quarter. With several initiatives underway, there's more opportunity ahead. Our operating teams are benefiting from new tools and data analytics to drive value. We continue to rebuild skills within our workforce to reduce reliance on more costly contractors.

As we look forward, we expect production in the U.S. to increase in 2025 and 2026 compared with 2024 levels. Absent changes in commodity-based input costs, we're targeting unit costs to trend to the $2.50 per pound range in 2027. The autonomous haul truck conversion at our Bagdad mine in the U.S. will allow us to test this potential of applying this technology for use at other locations. At Bagdad, we have half of the autonomous trucks in service and expect to complete the balance over the next few months. We have several initiatives in progress to achieve further scaling in our innovative leach program.

This is a high priority. Our teams are now much better equipped with new data and analytic tools, expanded areas under leach and precision leaching processes to achieve higher recoveries and material previously considered waste. Achieving our targeted run rate to 300 million pounds per annum will benefit 2026 production. We are planning projects to use heat in our injection process to further enhance recoveries, and we're advancing internally developed leach additives to provide additional volumes toward our ultimate target of 800 million pounds per annum.

As I mentioned, a field trial is underway at Morenci with our first internal generated additive, and we've recently identified a potential second additive with initial lab testing indicating superior performance compared with anything we've seen to date. In addition, we're advancing new technology and automation in our basic mining processes to optimize performance. Our work to date indicates a significant opportunity for value creation through meaningful cost reduction and reserve expansion within our existing operations. We'll also continue to advocate for U.S. legislation to recognize copper as formally as a critical mineral and eligibility for incentives to promote domestic production.

Moving to South America. The team at our Cerro Verde operation posted another solid quarter with volumes and costs in line with our expectations. As anticipated, volumes at Cerro Verde were below the year ago quarter because of lower ore grades. At El Abra, we have advanced plans to test heated raffinate injections in our leach stockpile there expected in 2026, and that is targeted to increase copper recovery and metal volumes.

We continue to plan for a major expansion at El Abra, which would capitalize on the large resource we have there and bring substantial scale and operating efficiencies to the mine. In Indonesia, during the second quarter, copper sales -- copper and gold sales were boosted significantly by a reduction in concentrate and in-process inventory following the mid-March approval of our export permit and good performance at the newly commissioned precious metals refinery, which processed all of the anode slimes produced at PT Smelting during the quarter. Milling rates improved in the second quarter compared with first quarter levels, and that reflected a restart of our SAG3 mill in the second quarter.

In April, we commenced a large planned maintenance project on our SAG2 mill, which is expected to be completed by the end of the third quarter. This will set us up for a return to mill rates in the 220,000 tonne per day range in the fourth quarter and beyond. Notably, during the second quarter, net unit cash costs at Grasberg were actually a net credit of $0.99 per pound. As indicated, the smelter start- up in the second quarter was a meaningful accomplishment, and we're working to ramp up in the balance of the year.

We have revised our near-term outlook for gold to incorporate adjustments to our drawpoint flow model in the Grasberg Block Cave. This resulted in an approximate 15% reduction in expected 2025 gold production, but did not significantly impact long-range plans as indicated on the next slide. We provided some information on Grasberg ore grades on Slide 10. And for background, the Grasberg Block Cave is 1 of 3 currently producing block cave mines in the Grasberg District. It's the same ore body we mined from the surface for over 25 years prior to transitioning to underground mining in the 2020 time frame.

For those of you who have followed us over time, you'll recall there are sections within the Grasberg ore body with significant grade variation, especially for gold. This results in large swings in gold grades depending on where the material is coming from within the ore body. At the Grasberg Block Cave is a massive block cave, we extract ore from 5 production blocks and have over 900 drawpoints currently producing within these 5 production blocks. We have a practice across the company of updating our forecast quarterly, taking into account all available information.

For our block cave mines, we use industry-proven software to model cave flows and ore grades. And during the second quarter, we experienced lower grades for gold than our scheduling model estimated and undertook a process to review our ore grade models. We recalibrated the model on a drawpoint-by-drawpoint basis to better reflect the timing of various ore grades flowing through the drawpoints. Importantly, the changes are timing related and not expected to impact the ultimate recoveries over the life of the deposit.

In looking at the updated model, we were able to replicate historical results with better precision than the prior ore grade distribution model. With mining, there are always learnings throughout the life of a mine, but the management systems and data tools we use today, particularly in our underground, are much improved from the historical open pit era. You can see from the revised multiyear production forecast that the impact is limited to 2025 gold production. Over the 5-year period, the actual -- the aggregate production of gold is close to our prior estimates, and there was no significant impact on copper production.

With the completion of major mill maintenance in 2025, we're set up to increase mill operating rates in the future. Also in our 2025 forecast, we've incorporated an increase in copper concentrate consumption at the new smelter in Indonesia because of the earlier than forecast start-up. This results in more in-process inventory than previously forecast and is a timing item. We want to point out that as we transition from an exporter of concentrate to a fully integrated producer in Indonesia, there will be timing differences between production and sales by quarter.

The sale of concentrates historically were recognized immediately on loading of ships at our mine site. And with the smelter, sales will be recognized after processing and sale of refined metal. So this is really a timing match between production and sales. As we look forward, and I'm moving now to our project pipeline, it's clear that additional copper supplies are required to support energy infrastructure, new technologies and more advanced societies.

We have an extensive copper resource position and a broad range of projects in various stages of development. These initiatives total 2.5 billion pounds of copper, which can be developed from Freeport's known resources in jurisdictions where we have established history and experience. Our projects in Indonesia also have the benefit of high gold content that go along with the copper. Because these projects are brownfield in nature, we benefit from leveraging existing infrastructure, our experienced workforces and relationships with key stakeholders to move more quickly with less risk than a greenfield project.

As we mentioned, we're also looking at innovation and really feel this can bring improvements to the capital intensity of developing new projects. In the U.S., the projects have the potential to increase production by over 1 billion pounds per annum with a large portion of that coming from low-cost and low capital-intensive incremental leach volumes. In addition, we have an actionable expansion opportunity at our Bagdad mine and are also studying the potential to expand and double production in the Safford/Lone Star district. In South America, we and our partner, CODELCO, are planning a major expansion at El Abra through the addition of a new concentrator, which would provide 750 million pounds of incremental copper per annum.

We're completing our permit application. We expect to file that in early 2026, and we're encouraged by the Chilean government's initiatives to expedite the permitting process broadly in Chile. In Indonesia, our Kucing Liar development continues, and we expect to commence production by 2030. We're conducting additional exploration below our Deep MLZ ore body and expect that with an extension of our operating rights beyond 2041, we'll be set up for additional long-term development options in the highly attractive Grasberg District. We'll continue to be disciplined in our approach, targeting opportunities that enhance long-term value.

And we've got some additional details on these projects covered on Slide 26 of the reference materials. Maree is going to cover our financial outlook on the next few slides, and then we'll open up the call for your questions. Maree?

Thanks, Kathleen. Just moving on to Slide 12. We show our 3-year outlook for sales volumes of copper, gold and molybdenum. Our guidance for 2025 takes into account the Grasberg ore grade revision, which Kathleen has already discussed, and the timing of production versus sales associated with the smelter startup. 2025 guidance for copper is around 1% below the prior forecast with gold sales down around 17%. But as discussed, these changes are not expected to impact our long-range plans and guidance for 2026 and 2027 remain consistent with our previous estimates and continued success in our leaching initiative would provide upside to these estimates.

We provide quarterly estimates on Slide 23 of the reference material. As you can see, copper sales in the second half of the year are nearly 10% higher than the first half. Our current estimate for net unit costs for the year 2025 using $3,300 for gold and $22 for moly is approximately $1.55 per pound, about $0.05 per pound above the April estimate, principally reflecting the impact of lower gold volumes, partly offset by higher prices of gold and molybdenum. The current unit net cash cost estimate is better than our estimate going into the year of $1.60 per pound.

We are continuing initiatives to drive costs lower as we go forward. The details of costs by region are presented on Slide 22 in the reference materials. Moving to Slide 13. Putting together our projected volumes and cost estimates, we show modeled results for EBITDA and cash flow at various copper prices ranging from $4 to $5 copper. These are modeled results using the average of 2026 and 2027 with current volume and cost estimates and holding gold flat at $3,300 per ounce and molybdenum flat at $22 per pound.

Annual EBITDA would range from over $11.5 billion per annum at $4 copper to over $15.5 billion per annum at $5 copper, with operating cash flows ranging from $8.5 billion per year at $4 to over $11.5 billion at $5. These estimates assume the U.S. price is the same as the international benchmark price. If we incorporate a 25% premium to our U.S. sales, which is similar to current levels, annual EBITDA would increase by approximately 10% and operating cash flows would increase by approximately 15%. A 50% premium would increase EBITDA by over 20% and operating cash flows by almost 30%. We show sensitivities to various commodities on the right side of the slide.

You will note we are highly leveraged to copper prices with each $0.10 per pound change equating to approximately $425 million in annual EBITDA. We will also benefit from improving gold prices with each $100 per ounce change in price approximating $150 million in annual EBITDA. Moving on to Slide 14. This shows our current forecast for capital expenditure in 2025 and 2026. Total capital expenditures over the 2-year period are similar to our previous guidance with some timing variances, which has deferred approximately $100 million of spend from 2025 to 2026. The discretionary projects are expected to approximate $1.6 billion to $1.7 billion per year in 2025 and 2026, with roughly 50% related to the Kucing Liar development and the LNG project at Grasberg.

The balance includes acceleration of tailings and other infrastructure to support the Bagdad expansion, the Atlantic Copper CirCular Project, which is expected to be completed by mid-2026 and capitalized interest. The discretionary category reflects the capital investments we're making in new value-enhancing projects that under our financial policy are funded with the 50% of available cash that is not distributed. These projects, which are detailed on Slide 31, will benefit our results in the future. We will continue to be disciplined in allocating capital to projects that enhance our position and generate attractive returns.

This is consistent with our track record of efficient capital allocation and value-driven approach. On Slide 15, we reiterate the financial policy priorities centered on a strong balance sheet, cash returns to shareholders, and investments in value-enhancing projects. Our balance sheet is solid with investment-grade ratings, strong credit metrics and flexibility within our debt targets to execute on our projects. We don't have any significant debt maturities until 2027. In addition to paying our first quarter base and variable dividend, we have repurchased $107 million of FCX common stock in the open market year-to-date.

In total, we have distributed over $5 billion to shareholders through dividends and share purchases since adopting our financial policy of returning 50% of excess cash flow in 2021. And we have an attractive future long-term portfolio that will enable us to continue to build long-term value for shareholders with the remaining 50%. We actively monitor current market conditions and carefully manage the timing of our projects to ensure our financial flexibility remains strong. Our global team is focused on driving value in our business, committed to strong execution of our plans, providing cash to invest in profitable growth and return cash to shareholders.

In concluding today's presentation on Slide 16, Freeport's large scale, low-cost, proven producing assets, actionable low-risk growth options, experience and leadership in the global copper industry as well as our advantageous U.S. footprint provide a strong foundation for the future. Thanks for your attention. We'll now take your questions.

[Operator Instructions] Our first question comes from the line of William Peterson with JPMorgan.

I wanted to ask about the, I guess, the mine plan change. And it sounds like -- you look at this on a quarterly basis, but trying to get a sense for, I guess, what's changed now? Is it something you had seen earlier, but felt you needed more data to I guess, change the plan? And just anything else that went into basically the modeling update and plan?

Yes. Thanks for the question. And Mark Johnson is here on the call if we need to fill in anything. But we update our quarterly forecast, as I mentioned, we update our multiyear forecast every quarter.

In Grasberg, we go through a process for each of the ore bodies and look at what the expected rates are in determining the grades, we use an established software package that the industry uses for modeling block caves. And we did detect starting in the first half of the year, some differentials between what we were actually getting out of the recovery of ore grades versus what the model suggested. Historically, it's been pretty close match. We did recalibrate it once before at the end of 2023. It didn't have material impacts.

But we took on a process to look at the various settings within the scheduling model and we're able to develop an update to the calibration that replicated very, very closely the match that we've historically were realizing. And so -- we have updated that. You need to consider just the background of the variation of grade within this ore body. And we have 900 drawpoints that we're collecting ore through, and there could be changes in the timing of how that ore flows through the drawpoints from which sections it's coming from, particularly below the pit, where you remember our -- in the open pit area, we had a very high-grade core of gold at the bottom of the pit.

So the interplay of the flows, where it's moving is really just a timing of figuring out scheduling of how that will roll through our grades. And we were very close when we recalibrated the model over the long term, but it did have this short-term impact. So I don't know, Mark, if you want to add anything, any perspectives to those comments.

No, I think -- well, you handled it very well, Kathleen. One thing I just might want to mention is what we're seeing is that as we start mining from a drawpoint, we're very confident because the material is just directly above the area that we're mining as we continue to pull through this column of rock, some of it is up to 500 meters above us. This estimation becomes a bit more complex. Not all the material makes its way through that column at an equal rate.

The smaller material tends to work its way through the column of rock quicker. And then also, we have material that shifts laterally and can end up in other drawpoints. So it becomes a bit more of a big mixing as you get further up. And as Kathleen mentioned, the team that we have on this, the tools that we use are world-class.

And really, we didn't see much variability at all on the copper. It's much more stable in the grades, but the gold can shift in value quite dramatically over a relatively short distance, same as it was in the open pit. But in the open pit, we knew exactly that volume of material that we were mining at any given point. And as I mentioned in the block cave, that becomes a bit more of a complex estimating of how that material work its way from the higher areas of the block cave down into these drawpoints.

Our next question comes from the line of Katja Jancic with BMO.

Maybe, Kathleen, you mentioned you continue to expect costs in North America to decline over the next 2 years. But if I'm not mistaken, that doesn't incorporate expectations for the impact from tariffs. Can you maybe talk a bit about how could tariffs impact that outlook?

We're monitoring very closely the impact of tariffs. In terms of what Freeport brings in as the importer of record, it's not a significant impact so far. The bigger impact that we're working with our suppliers on is what they are seeing and what various inputs they have into their costs. And so we're working very closely to monitor that.

We've got a task force set up to monitor it so that we don't have suppliers that are just trying to pass along -- use the opportunity to pass along price increases, but we're really getting down into the data to understand what it could mean. The tariffs to date, and I know there's some negotiations that are ongoing, but we're currently estimating potential to have a 5% impact on our costs. But that's something we're monitoring. We're going to look for ways to modify our supply chains, if possible, and work closely with our vendors to make sure that we're sourcing the material as much as possible that's tariff-free.

So -- but things like the steel and aluminum tariffs, that's hitting us to a degree as well. So we benefit on the one hand to a much larger extent on the copper situation, which we talked about, but the tariff is impacting our operating costs, but not to a significant degree. We're really -- the cost savings that we're talking about really the efforts underway to drive better efficiencies through our innovation that we're doing, focusing on the basics, rationalizing contractors like we talked about, reducing unplanned downtime, getting better asset efficiencies. Our asset health is in much better situation in the U.S. than it has been in recent years.

And so we're really -- now that inflation is somewhat moderated, we're now in a position where we're really driving what we can do to bring costs lower. We've got a lot of automation projects underway. So -- and of course, the leach initiative will really help us out because those incremental pounds are coming in at a very low cost. And so we're really excited about the opportunity in the U.S. to bring down costs.

And at the same time, we're seeing this premium. So our U.S. business should perform very, very well as we look forward. As a reminder, we don't have -- we have NOLs in the U.S. net operating losses. So it can come into our margins and cash flows and drop to the bottom line to our results.

And so it's a real opportunity for us, and we're very focused on driving value in our U.S. business through efficiency programs and cost reduction programs in addition to the benefit we're getting on this premium.

Our next question comes from the line of Orest Wowkodaw with Scotiabank.

A couple of questions, if I could. Firstly, I was wondering if there's been any discussions with the U.S. administration with respect to financing or incentives to advance any of your U.S.-based growth?

We've had discussions with various government authorities about Freeport. We've gone through the submission of the 232 comments, and we've engaged with various representatives of the U.S. government just as an education about what Freeport is doing in the U.S. as a dominant producer. We talk about supplying 70% of the refined copper that's produced in the U.S. to this market. We've talked about the technology and the innovation that we have in the business that will allow us to potentially in the short term, bring on some additional refined copper.

It's not given that you can bring on refined copper very quickly in terms of -- there's only 2 operating smelters in the U.S. And what we can do in the short term is really try to boost production, refined production through our leach initiative. We've talked with the U.S. about the IRA benefits that being a critical mineral, you have a 10% production credit. Copper is not currently on that list, and we're working to try to get copper on that list.

We know with the recent legislation, some of the IRA benefits are being phased out. But really, what we are hoping to accomplish, we're very happy about the attention to permitting reforms. But we're hoping to accomplish incentives that would be long term in nature and really could boost U.S. refined production. So we're educating.

It's a 2-way conversation. Richard has been involved in various discussions as well. And so we're in a good position on this. Our Bagdad expansion is actionable.

We are wanting to get our autonomous truck conversion completed. We want to understand the -- how this tariff situation will be implemented, et cetera. But in the near term, we're really looking at our leach initiative as an opportunity to grow refined production in the U.S.

And just as a quick follow-up, do you see any opportunity for potential tariff exemptions on your refined copper coming from either Atlantic Copper or Indonesia into the U.S.?

We don't know. We're waiting on the details of the implementation to be released. We don't -- we're not aware of any exemptions at this point.

Your next question comes from the line of Alan Spence from BNP Paribas.

Indonesia has $0.27 per pound related to treatment charges in cash cost guidance for 2025. Into next year with [indiscernible] up and running, what do you think your internal cost to operate that smelter would be on a per pound basis?

So they're going to be in different categories in terms of where the impacts of the smelter will be. The operating cost of the smelter, the new smelter is somewhere on the order of $0.27 a pound. That doesn't take into account the additional revenues that we get from getting -- essentially, when you sell concentrate to a smelter, the smelter takes a percentage of the metal that you're selling them. So that will show up in revenues, something on the order of 2.5% of the revenues -- of the additional volumes will show up in our revenues.

But net cost will be credited. Essentially, when you look at the impact of the smelter, you're looking at something on the order of $0.15 or $0.16 net when you consider the revenue impact. And then, of course, the export duty will go away, which was something on the order of $0.30 or more in the second quarter. So it should, at the end of the day, benefit our margins.

Your next question comes from the line of Lawson Winder from BofA Securities.

I wanted to just follow up on the Indonesian question there about potentially sending refined copper from Grasberg to the U.S. So just looking at the 2 agreements as -- or the agreement as we know it is today and then looking at what the import tariffs are as proposed, so 50% versus 19%. I mean, is there any thought internally for the potential just to ship refined copper from Indonesia to the U.S. and take advantage of that spread, assuming these agreements and the Section 232 tariffs are finalized as proposed?

Historically, Indonesia has not shipped copper in any significance to the U.S. We've been a concentrate producer mostly historically, although we've had the existing smelter at PT Smelting. But historically, the copper produced has been shipped out as concentrate or domestically consumed or consumed within Southeast Asia. We'll look at whatever makes sense in the future as to where it makes the most sense to sell the cathode coming out of our new smelter.

The logical places in the near term will be continued to sell in Asia, but we'll look at what makes the most sense. The point is, is that as the U.S. is looking at its strategic interest in critical minerals, having a U.S. company with a significant ownership of this operation in Indonesia and management over it, it gives the U.S. essentially a security of supply if it makes sense -- if it's required to use it. Today, the trade flows are mostly, as you know, [indiscernible] coming to the U.S. from places like Chile is the predominant suppliers in Canada and Peru as well. And so we'll have to just look to see how all this unfolds and what makes the most sense for trade flows.

Yes. And then just a sort of follow-up on that concept in terms of refined copper within the United States. Have you given any thought to whether if Freeport were to build a smelter in the U.S., whether a brownfield expansion at Miami, would make more sense? Or would it possibly make more sense to build a greenfield smelter?

Yes. We're doing some work, and we have been doing some work even before this on whether there's an opportunity on a cost- effective basis to expand the Miami smelter -- Miami, Arizona smelter. And so we're continuing to study that as well as is there an opportunity potentially to recover some additional scrap and use our infrastructure in the U.S. to do that. That's been very, very limited historically, and we'll look at whether there's an opportunity to do it in the future.

But -- so we're looking at an expansion of Miami. The smelter in the U.S. is a greenfield would be very challenging. I mentioned the -- in terms of time frame, the -- I mentioned the Indonesia smelter, we were working on that. It feels like a lifetime, but we've been working on it for 10 years in terms of identifying a site to location for it, going through all that needed and Indonesia really wanted to fast track it, but it takes a long time to go through and find the proper site, find the -- and go through the permitting process, engineering, all those things.

But we do have the existing infrastructure here in the U.S. and Arizona, and we'll look to whether it would make sense to expand it. I want to emphasize, though, the real opportunity for us in the near term to get more refined metal in the U.S. is continued success with our leach program. And I mentioned the additive trial we're doing. We're making some progress on additional additives.

That combined with our precision leaching processes as well as we're going to introduce heated raffinate into the solutions that we're injecting into the stockpiles. So we're working on those things. And those -- that can happen more quickly than trying to develop a more costly greenfield smelter.

Our next question comes from the line of Liam Fitzpatrick with Deutsche Bank.

First one on the buyback. It was still very modest in Q2 in terms of the pace of buyback and despite net debt being well below your target now. Can you just outline what's holding you back at the moment in terms of increasing the pace of share repurchases? And if I can, one quick follow-up on Indonesia.

I know you've said the 2026 guidance on copper and gold is unchanged. But given the variability you're experiencing, what level of confidence do you have or can you really have in that medium-term gold guidance?

On the first question regarding the buyback, we are applying our financial policy, which is to distribute through dividends and share buybacks 50% of our available cash flows. And that's about what -- where we are through the program about at 50%. Now we've just seen this change on the U.S. premium, it tripled from the second quarter. So should it continue to be significant as it is today, that will provide more cash flow for shareholder returns under the policy.

And with respect to being below our net debt target, you'll recall that half was for the shareholder returns and half was for balance sheet or profitable growth. And we've got several projects that we are looking at that like, for instance, the Bagdad expansion project, which we haven't made a decision on, but potentially that could use some of the other 50% that we've generated since we put the policy in place at the end of the second half of '21. So that is -- that's where we stand. We should have -- as we look forward at today's prices, we should have more cash flow to deploy to our shareholder returns.

With respect to the gold volumes, -- we go through a comprehensive process every quarter. We feel confident with the modeling that we've done and that we feel that the gold grades are there. And so we'll just keep working as much as we can to get our rates up. We were impacted in the first half by 2 major projects, maintenance projects.

One of the concentrators was down for the first quarter in Indonesia and the second one is down now, but those are -- the maintenance will be completed at the end of the third quarter, and we'll be able to increase our mill rates and keep the mine rates going. So we feel confident in using the best information we have today. Mining is -- does have risks, as you know well, but we're working hard with the data we have. And you can look at our historical performance, and I think we've done pretty well when it comes to executing on and keeping our information up to date so that we don't have surprises.

The other area that's real important for us is getting the smelter up and running. In the fourth quarter, we expect to not be exporting concentrates in the U.S. Our plan does not assume any exports in the fourth quarter, and all of it will be coming from the new smelter. And so we're real focused on making sure that we get that smelter up and running and things are going well so far.

But the nature of these smelters is such that you do have issues from time to time. We've incorporated the ramp-up curve in our estimates, but we're going to work hard to execute on these plans as we've done in the past.

Our next question comes from the line of Carlos De Alba with Morgan Stanley.

So just coming back to the discussion of the smelting. Kathleen, what -- can the potential Miami expansion accommodate the increased concentrate from Bagdad and the concentrate portion of Lone Star expansions when it comes? Or if not, then what would be Freeport's options to handle those additional concentrates when they come?

Yes. So with respect to the Miami expansion, we've been looking at something on the order of 30% increase to the current concentrate treatment. Miami, by the way, the Miami smelter is performing very well. And that team has been very helpful.

That and the Atlantic Copper team both have been very helpful with our new smelter in Indonesia and helping our team there to achieve the ramp-up. But we've been looking at something on the order of 30%. Interestingly enough, on the Lone Star project, it will be kind of like -- over time, kind of like a Morenci, where you have a significant portion coming from -- of the production coming from the leach volume. So depending on how we do with our leach additive, we may have the option to send more to leach production as opposed to concentrating.

But we do have -- at the Lone Star project, we do have a part of the deposit that has both copper and gold in the grade. And so that will likely require a concentrator. But we're in a great position, Carlos, with this focus on getting refined production. We're in a great position with the smelters we have today to leverage those, and also with this leach processing where Freeport has a very significant experience in that.

So we're in a good position. It's not easy looking at the future of how to bring in more refined copper, but we're pleased with the portfolio we have that allows us to leverage it more quickly.

No, definitely, the optionality that you have is quite unique here in the U.S. I wonder if -- as part of your discussions with the U.S. administration, have you talked about the challenges of bringing smelting capacity in the U.S.? And how have they responded to that? Would they potentially consider some loans or investments, private/public partnership or something to that end to solve that issue and maybe accelerate the refining expansions?

We have not gotten into that level of discussion with the government. There is a desire to see more copper -- refined copper being produced in the U.S., but we have not gotten into any discussions about greenfield. We've really just emphasized what Freeport is doing in the near term through our lead innovation initiative and what we're doing to advance our Bagdad project as well.

Our next question comes from the line of Daniel Major with UBS.

Just a follow-up on the smelter -- Indonesia smelter and the sales destinations for those volumes. You mentioned the possibility of selling to the U.S. in an environment where there was a preferential tariff kind of regime. Can you make any comments on whether any of the volumes are contractually committed from either the existing or the new smelter over the next 12 months that would prevent you from selling to the U.S.

I just want to come back. I'm not sure that you've characterized exactly what we're saying about Indonesia. In the near term, our plans are based on selling our copper cathode that will be produced. We've been working on marketing plans and our near-term plans is that, that will be sold in Asia.

We have flexibility. We don't have long-term contracts locked up. We do have flexibility to send it to the place that makes the most sense. I mentioned that the trade flows currently are advantaged -- logistically advantaged selling it in Asia.

We're very what's happening in Indonesia with respect to domestic production. There's a real desire in Indonesia to bring up its domestic consumption of copper, and there's actually been some infrastructure developed by other companies in our -- near our operating sites. So we'll sell domestically and then look to where the best market is to sell. But we're not locked up long term.

Okay. That's clear. And just one other modeling -- a couple of modeling questions, if I may. Could you give us any guidance around working capital for the Q3 given the changes in shipment timings out of Indonesia?

Yes. We do have some working capital requirements in the third quarter, but that's expected to turn in the fourth quarter. For the year, we've had a use of working capital so far this year. But for the year, we're not expecting any kind of material working capital requirements for 2025.

Our next question comes from the line of Chris LaFemina with Jefferies.

So basically, I want to ask about the market. So we have COMEX prices up more than 40% year-to-date. I'm not sure we've ever had the price rally this much in such a short period of time from a pretty high starting point. And U.S. industrial economy isn't exactly firing on all cylinders right now.

So I'm wondering demand implications of this massive price spike in the U.S. and even globally with LME prices rising as well. Are you seeing -- do you think these sort of -- these price increases can be tolerated, demand is inelastic enough that this isn't really going to be affected by higher prices? Or are we getting to a point now with COMEX approaching $6 a pound that you could see real negative implications on demand?

Thank you, Chris. It's an interesting question. When we look at the demand drivers for copper and the secular trends, we see continued strong demand. What we do see from time to time, and we saw it last year in China, and you may see some of it going on in the U.S. is when prices move rapidly in a short period of time, some customers will try to figure out if it's real before they buy and people are trying to understand what the implications of this tariff are and the details haven't been released yet.

But underlying the -- what's going on with -- you hear about it every day, the AI data centers, the need for more energy infrastructure, more power generation, the underlying trends are significant. Copper within big projects doesn't end up being the biggest item. And so people can -- people need it, and it's a metal that is the best metal when it comes to conducting electricity. So I don't -- I can't give you a precise answer about whether there will be any short-term impacts from it.

But I think the long-term trends are positive in terms of needing copper to fulfill what we're trying to do from a technology standpoint and overall energy infrastructure standpoint. Richard and Steve Higgins is on as well. Richard, I don't know if you want to add anything or Steve to what I said.

Chief Executive Officer of Freeport-Mcmoran Inc & President of Freeport-Mcmoran Inc Yes. Let me just say a couple of things, Chris. This move that you've talked about reflects the fact that there was this global exporting of copper in the United States in advance of the tariffs, getting in it here and now before the tariffs came to place. Now there's this big question about what are the tariffs ultimately going to be?

They certainly don't reflect the -- even at these prices, they don't reflect the 50% tariff that was -- that's been floated, but we really don't know. And so once the tariffs are announced, then there will be an adjustment in flows and there will be potentially a benefit on LME prices. Ultimately, it's going to be global supply-demand that will end up driving it. And then whatever tariffs are there, how they're absorbed, where they're absorbed in the U.S. marketplace.

Copper is just so difficult to replace for its fundamental uses because of its inherent qualities. So it's not like -- and there will be pushes as prices rise to find ways to substitute copper to thrift it and so forth. But underlying all of that is just nothing conducts electricity like copper and the world is electric. So that demand -- the fundamental strength in demand will be there.

Steve, I don't know if you have any other thoughts.

No, nothing to add. That was very well said.

Yes. I mean I guess what I was thinking there is -- but I was thinking the competitiveness of kind of downstream in the U.S. if we -- let's assume these tariffs are a permanent thing, do you start to get a mix in demand globally to other regions? And I get it that the LME price depends on global supply and demand. But for Freeport specifically, obviously, the COMEX premium matters as well.

So do you start to get a shift in tons away from the U.S. to elsewhere, which means that the benefit of the tariff to U.S. producers becomes less over time.

Well, I think that very much depends on how it's applied to downstream derivative products, which we don't know.

Chief Executive Officer of Freeport-Mcmoran Inc & President of Freeport-Mcmoran Inc And there's another factor here that really we haven't mentioned on this call that's a big uncertain. Going back to a previous question in the past, we've really only lobbied the federal government to try to make permitting more efficient and try to coordinate permitting between state and federal government. Today, we're encouraging the government not lobbying because we can't lobby, but encouraging the government to reach deal with our international partners that are favorable to both companies, both countries and trying to educate people.

I'm sure you all watch news commentators and you hear things that sometimes is just astounding, like people wanting to open up these old smelters, reopening the old smelters. They don't realize they're gone. The smelters that are once there are no longer here. And to try to build a new smelter in today's world where you have 0 or negative TCs and RCs is a tough deal now.

They have not raised the idea of government subsidies and so forth. We've been trying, as Kathleen said, to get this production credit applied to copper, but that's a challenge. The thing that's overhanging this that we're looking into more is the impact of scrap in the U.S. There's primary scrap and secondary scrap and the U.S. had over time and closed the secondary scrap processors because of the environmental issues and cost issues associated with it.

And almost all secondary scrap been going to China or elsewhere. Now there's been some new secondary scrap facilities opened up. And that's the potential source of U.S. refined supply. But it's complicated as well for the reasons I just mentioned.

And -- but that's the thing to watch is what we're watching as we look at all of these things going forward. It's just a complicated world, and we just all have to focus on doing it. And listen, I'm real proud of what our team is doing. I mean, we've been through history at Freeport of having to dig our way out of some real tough problems over the years.

Now we've got a lot of those past problems behind us. And Kathleen is leading the team and focusing on technology, get more copper out of what we have there, reducing costs. There are ways of doing that. And that's what we're really focused on as we wait for this political situation to clear and to see where we're going from here.

Our next question comes from the line of John Tumazos with John Tumazos Very Independent Research.

Could you explain some of the hurdles in engineering the Bagdad expansion. Clearly, you've been mining a long time. You know about the reliability of the ore grades, the [indiscernible] character. And explain just how it takes a year or so to get to definitive fees.

And concerning Lone Star, is the expansion and consideration increasing the mining and stacking rate 120,000 tonnes a day oxide? Or is it also bringing forward the sulfide mill? Just looking forward to all the good progress.

Yes. Thank you, John. On the Bagdad side, we've done a lot of work there, and we've been working with -- internally and with our outside engineers on defining that project. And really, it's not been -- the big constraint for us has just been the ability to execute a project in the environment we've been in, in the last few years in an inflationary environment where labor was really, really tight.

And we watched projects elsewhere in the industry have big cost blowouts, and that's not something that we wanted to do. And really, from Bagdad standpoint, we're going to be able to produce these reserves regardless of whether we expand. The expansion obviously would give us more near-term production, near-term cash flows, but it's really a question of when the right time is to start it. And we've been taking the time while we're considering to advance some things and derisk the project with this autonomous truck conversion that we're doing is going to reduce reliance on employment.

We will have to expand our employment there, but not to the degree if we had the trucks that were all operated with people. So we've been doing that. We've been dealing with housing at Bagdad. We've been advancing some of the tailings work, which we would ultimately have to do long term, but we've been advancing it so that when we're ready to go, we can just move forward with construction.

So we've been creating optionality with the project. But the main caution that we've had with it is just wanting to make sure that we convince ourselves that we can execute the project efficiently within our capital budget. Now we've got -- we want to monitor what's happening with tariffs and how that might be affecting capital costs. And so we want some more clarity there while we continue to advance the autonomous truck fleet.

So that's where we stand at Bagdad. Lone Star, we're advancing a study to look at what the next phase of expansion could be. We've got the [indiscernible] deposit at Safford, which I mentioned earlier, is high grade and also has gold in it. So that would be a concentrator project.

But with respect to Lone Star sulfides, where we're going to look at the right mix of leach versus concentrating. If we put the concentrator in [indiscernible] deposit, that will help the economics ultimately of putting sending some through the mill. But the vision -- the big picture vision, this is an enormous resource in this district. Big picture vision is to have a cornerstone asset like Morenci that will be a leach and concentrate producer of scale over a very long period of time.

Lone Star was the last big mine that -- I mean, Safford/Lone Star was the last big mine that was done in the U.S. We brought it online in the '27-’28 -- 2007, 2008 time frame, and we've expanded it since then. So it's -- for U.S. mines, it's relatively new, even though that was some time ago. So we're really excited about the potential there, and we want to get this study done to really define what the flow sheet will look like.

Our final question will come from the line of Brian MacArthur with Raymond James.

Can I just go back to Grasberg to make sure I understand this. You sort of lost 200,000 ounces over your 5-year plan. And again, that sounds to me it's just different flow-through drawpoints. But if I look past the 5 years, is there anything different I should worry about there?

And is there anything you've learned through this whole process that would change your thinking on KL, just given it is a lot higher gold grade going forward?

Yes. Nothing has changed with respect to our long-range Grasberg Block Cave plans. We are, to your point, about KL, looking at what is the best NPV when we're developing KL, but what's the best NPV? And we always look at the interplay between grades coming from various ore bodies that could maximize the net present value.

So we'll have that opportunity. The development of Kucing Liar adds additional optionality within the portfolio. And you've pointed out, we've got high grades there, both copper and gold. Currently, the recovery assumptions in our reserves are lower than what we're getting in the mill recoveries, what we're getting in Grasberg Block Cave, but that's a real opportunity for us.

So -- but you're right to point that out, Brian, and we're constantly relooking at what the right sequencing is between these ore bodies. And with a 2041 extension, it's going to open up a whole lot of opportunity for us to recover more than we could have otherwise. So we're very excited about the long range and what we can do there.

And sorry, you actually went to my second question there. As you pointed out, I mean, the recoveries at KL and the metallurgy was different, was an awful lot lower in the gold. Would you -- from what you see now, do you think you're going to be able to get up to the current recoveries you see at GBC -- or -- because obviously, you said that's a pretty big opportunity.

Yes. We have not yet. I mean we've been able to make some changes over time and have brought the recoveries up, but that's still an opportunity for us.

Chief Executive Officer of Freeport-Mcmoran Inc & President of Freeport-Mcmoran Inc Brian, this is Richard. Let me add just one quick thing on this because I've observed some things about this grade issue with the Grasberg Block Cave. I just want to point out a couple of things. One, when you look at that shortfall, don't forget to take into account the tax effect of that and also the noncontrolling interest effect.

The government of Indonesia has 51% of that, and there's a tax effect to it. So I've observed some people overstating the impact of it. And as Kathleen and Mark said, this is not a fundamental change that the resource is requiring us to make operating changes in the way we operate. What we're talking about here is getting a better handle on when that gold in the ore is going to be processed.

And we're learning more about it. We're using better models. It's not a resource question. It's a timing question, and we want to give the market, as we always do, our best effort in giving you guidance as to when that gold is coming.

It's going to be there, it's going to come. It's a question of when.

And with that, I'll hand the call back to management for any closing remarks.

Thank you, everyone, and thanks for a comprehensive call. We're available if anyone has any follow-up questions, and thanks for your -- thanks. We'll keep you updated as we go forward.

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