Release Date: July 23, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Freeport-McMoRan Inc (FCX, Financial) reported strong margins and cash flows with $2.7 billion in EBITDA and $2 billion in operating cash flows for Q2 2024.
- The commissioning of the new smelter in Indonesia is a significant milestone, positioning FCX for long-term operational benefits.
- The innovative leach project is showing promising results, with incremental production doubling from the comparable periods in 2023.
- FCX continues to execute its shareholder return framework, distributing $0.5 billion in dividends and share purchases year-to-date.
- The company maintains a strong financial position, with favorable future outlooks and an investment-grade rating from all three major rating agencies.
Negative Points
- Copper and gold shipments were impacted in June due to delays in obtaining the export license in Indonesia.
- Lower ore grades in North America have resulted in higher costs on a per-unit basis.
- The company faced some unplanned maintenance and disruptions in North American operations, affecting productivity.
- The ramp-up of the new smelter in Indonesia is complex and carries risks, with the company acknowledging potential startup issues.
- Gold volumes for 2024 are expected to be lower due to changes in mine sequencing, impacting short-term production.
Q & A Highlights
Q: On the North American operations, your grades were lower year on year. And the leaching volumes in Q2 annualizing above the '24 target, yet copper sales guidance was decreased. Do we conclude that the North American optimization targets are more challenging this year?
A: Alan, we are really focused on productivity in North America. We made good progress in the second quarter, but we continue to face some unplanned maintenance disruptions. The leach production is helping offset lower ore grades, and we are working on improving equipment reliability to avoid unplanned outages. We believe we are turning the corner and are focused on meeting our production targets.
Q: You mentioned a high probability of getting to the 300 million lb to 400 million lb range by '26 for leaching. Is any of that included in the '26 guidance?
A: Right. We have our current rate of 200 million lbs per annum in our forecast. Any additional scaling beyond that would provide upside to our numbers.
Q: Can you give us some color on how much lower cash cost the leaching initiatives have relative to the North American overall current cash-cost?
A: The incremental cost per pound for the leach initiatives is under $1 per pound. This is because the mining costs have already been incurred, and we are recovering more metal from material that has already been mined. This helps bring down the average unit costs in the US.
Q: With the new regulation for IUPK in Indonesia in place, what is the path ahead to get the approval of the extension?
A: The regulation was issued in May, and the smelter commissioning positions us to apply for the extension. We are preparing the application package and expect to apply during 2024. The government wants to move forward quickly, and we aim to get this done within the year.
Q: Can you give us some color on the ramp-up profile for the new smelter in Indonesia and any key milestones?
A: We have been planning for this for an extensive period and have brought in expertise from around the world. We expect to get first processed concentrate through the facility in August and ramp up through the end of 2024. The flash converting furnace is a critical component, and we are taking extra precautions there.
Q: Why don't the lost gold ounces from the wet conditions in the Block Cave come back in the plan period?
A: The 150,000 ounces will come back into our plan over the next few years. It is purely a timing issue, and our overall five-year plan remains largely unchanged.
Q: Is there a hard dollar amount required for the additional exploration and refining capacity commitment for the IUPK extension?
A: The regulation does not specify a dollar amount. It involves conducting additional exploration and evaluating additional refining capacity in Papua, which will be discussed with the government.
Q: Will you receive any proceeds for giving up an extra 10% in the asset post-2041 for the IUPK extension?
A: The 10% share transfer will take place in 2041, and the price paid will be a reimbursement of the capital incurred between now and 2041 that benefits the period beyond 2041. It is essentially a book value concept.
Q: How should we think about the trajectory of leaching output from here?
A: The current run rate is in our numbers, and we see opportunities to build on it through initiatives to move up to the 300 million to 400 million lb per annum range. This will come over time, and we will continue to update as we progress.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
