Freeport-McMoRan Inc. (FCX) Q4 2011 Earnings Report, Transcript and Summary

James R. Moffett - Chairman of the Board David H. Thornton - President of Climax Molybdenum Kathleen L. Quirk - Chief Financial Officer, Executive Vice President, Treasurer and Commissioner of PT Freeport Indonesia Mark J. Johnson - Senior Vice President and Chief Operating Officer of Indonesian Operations Richard C. Adkerson - Chief Executive Officer, President, Director and Chairman of FM Services Company

Garrett S. Nelson - BB&T Capital Markets, Research Division John Charles Tumazos - John Tumazos Very Independent Research, LLC Raymond Kramer - BofA Merrill Lynch, Research Division Brett Levy - Jefferies & Company, Inc., Research Division R. Wayne Atwell - Rodman & Renshaw, LLC, Research Division Charles A. Bradford - Bradford Research, Inc. Unknown Analyst Brian MacArthur - UBS Investment Bank, Research Division Oscar Cabrera - BofA Merrill Lynch, Research Division Paretosh Misra - Morgan Stanley, Research Division Justine Fisher - Goldman Sachs Group Inc., Research Division Kuni M. Chen - CRT Capital Group LLC, Research Division Richard Garchitorena - Crédit Suisse AG, Research Division Michael F. Gambardella - JP Morgan Chase & Co, Research Division Sal Tharani - Goldman Sachs Group Inc., Research Division David Gagliano - Barclays Capital, Research Division

Ladies and gentlemen, thank you for standing by. Welcome to the Freeport-McMoRan Copper & Gold Fourth Quarter and Year-End Earnings Conference Call. [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. Good morning. Welcome to the Freeport-McMoRan Copper & Gold Fourth Quarter 2011 Earnings Conference Call. Our results were released earlier this morning and a copy of the press release is available on our website at 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 for the conference call. As usual, we'll have several slides to supplement our comments this morning and they're also available on our webcast link at fcx.com. 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 today, we'd like to remind everyone that our press release and certain of our comments on this call will include forward-looking statements. 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 SEC filings. On the call today, Jim Bob Moffatt, our Chairman of the Board; Richard Adkerson, our Chief Executive Officer. We also have Dave Thornton and Mark Johnson here with us today. I'll start by briefly summarizing our financial results, and then turn the call over to Richard, who will be referring to the presentation materials on our website. Today, FCX reported fourth quarter 2011 net income attributable to common stock of $640 million or $0.67 per share, compared with $1.5 billion or $1.63 per share for the fourth quarter of 2010. For the year 2011, FCX reported net income attributable to common stock of $4.6 billion or $4.78 per share, compared with $4.3 billion or $4.57 per share for the year 2010. Our fourth quarter 2011 consolidated copper sales of 823 million pounds and gold sales of 133,000 ounces were lower than our original October 2011 estimates of 915 million pounds of copper and 305,000 ounces of gold and the fourth quarter 2010 sales of 941 million pounds of copper and 590,000 ounces of gold, primarily because of labor disruptions and the temporary suspension of milling operations at PT Freeport Indonesia as a result of damage to the concentrate and fuel pipelines. Our copper and gold sales were higher than the revised 2011 estimates of 800 million pounds of copper and 105,000 ounces of gold, primarily because of higher Grasberg production late in the year and timing of shipments, principally from North America. The estimated impact of the labor and pipeline disruptions net to PT-FI totaled 165 million pounds of copper and 170,000 ounces of gold for the fourth quarter of 2011, and for the year, totaled 235 million pounds of copper and 275,000 ounces of gold. Our fourth quarter 2011 consolidated molybdenum sales were 19 million pounds. That was higher than our estimate in October of 18 million pounds and the year-ago fourth quarter sales of 17 million pounds. As we've been reporting, PT-FI's milling operations were temporarily suspended, resulting from the damage to the concentrate and fuel pipelines resulting from civil unrest that occurred during the course of the strike. We reached financial terms of a new 2-year labor agreement in mid-December 2011, and the repairs to the pipelines are substantially complete. We've begun to ramp up production and are also working cooperatively with the government of Indonesia to address the security issues. Maintaining security is a requirement of returning to normal operations. We're currently mobilizing the workforce, and full operations are expected to be restored during the first quarter of 2012. Our realized copper price during the fourth quarter was $3.42 per pound. That was below the fourth quarter of 2010 realized price of $4.18 per pound. And for gold, we realized approximately $1,656 per ounce in the fourth quarter of 2011, and that was 18% higher than the $1,398 per ounce realized in the fourth quarter of 2010. Our molybdenum price realization for the fourth quarter of 2011 averaged $15 per pound. That was lower than the year-ago average of $16.60 per pound. As anticipated, our consolidated average unit net cash cost, net of by-product credits, averaged $1.57 per pound of copper in the fourth quarter of 2011. That was higher than the unit net cash cost of $0.53 in the fourth quarter of 2010, principally because of lower copper and gold volumes in Indonesia. Our net -- consolidated net unit cash cost for the fourth quarter included $116 million on a consolidated basis associated with signing bonuses and other costs related to new labor agreements in Indonesia and South America. We also had higher unit net cash costs from higher mining and higher input costs in North and South America. Operating cash flows during the fourth quarter totaled $746 million, and for the year, totaled $6.6 billion compared with $6.3 billion for the year 2010. During the fourth quarter, our capital expenditures totaled $785 million, which brought the total for the year to $2.5 billion, and that compared with $1.4 billion for the year 2010. We reported our preliminary estimated consolidated proven and probable reserves at year end 2011. Our reserves included 120 billion pounds of copper, 34 million ounces of gold and 3.4 billion pounds of molybdenum, which were determined using long-term prices of $2 for copper, $750 for gold and $10 per pound of molybdenum. We've added significant reserves in recent years, and drilling activities conducted during the year have identified the potential for significant reserve additions in future periods. We ended the year in a very strong financial position. Our cash of $4.8 billion exceeded our debt of $3.5 billion. During the year, we repaid $1.2 billion in debt, and our common stock dividends to shareholders totaled $1.4 billion. We currently have 948 million common shares outstanding. Now I'll turn the call over to Richard, who'll be referring to the slides on our website.

Good morning, everyone. As reflected in Kathleen's summary of our financial results, the second half of 2011 and particularly the fourth quarter were very eventful for our company. We faced some significant challenges at our operations in Papua in Indonesia with the strike. That was our first strike of that nature that we've had in our 40-year-plus operations there. And with the civil unrest and security issues there, we also had a lengthy strike at Cerro Verde in Peru. When you step back and look at those challenging circumstances to see the financial results for the year, where we exceeded our records that we had established in 2010, it's really a gratifying accomplishment. The labor disruptions and security issues at Grasberg did affect our fourth quarter results. But even during the course of the strike and bar the other operations that we had, we had very solid operating performance, and our operating team has just done a great job in these circumstances. We do have new labor agreements at Grasberg that we've reached an agreement on. We were able to complete an agreement at Cerro Verde where we were able to operate without a significant impact on production during the course of the strike. And then we reached a new agreement at El Abra in advance of the expiration of the contract there on a "normal course of business" basis. As we were dealing with these issues, we continued to advance our growth projects to increase our copper production, and those projects are leading to a 25% increase in our copper production over the next 4 years. We continue to pursue and are accelerating our exploration program to identify future reserves and production growth. And our company has a very strong balance sheet, which provides us the basis for investing in growth and also for our board to consider returns to shareholders. The slide on Page 4 has the details of the data that Kathleen reviewed with you, and you can see the impact in the fourth quarter of the situation we faced in Indonesia. We gave revised guidance early in December, and our results are consistent with that with slightly higher gold production -- or higher gold production. Even in these circumstances in the fourth quarter, before working capital changes, we generated over $1 billion of operating cash flows during a time when we had less than $800 million of capital expenditures. So the company continued to have strong financial results. Page 5 shows our cost structure with the lower volumes in Indonesia. We had an abnormal cost situation on a unit basis there. We will be returning to a normal situation as we go forward. We also had costs associated with the new labor contracts, and that added $0.14 per pound to our consolidated net cash cost. At the bottom of the slide, you can see our sales by region in North America, South America and Indonesia, and the very low amounts that we had in the fourth quarter in Indonesia. This was an adverse consequence to us, but it was also adverse to other stakeholders in the project. The financial consequences of the strike were felt by our workforce. Those that were on strike received lower pay. It was felt by the local community in the Timika area by the province. The government of Indonesia has more than 50% participation in the cash flows generated by our project, so it was a significant financial issue to the government. And we are going to be using the stakeholder impacts in terms of developing relationships with our employees going forward, and we have reached an agreement with them that future labor negotiations are going to be based on cost-of-living changes and competitive wages in Indonesia. So we are going to take this situation and work to do the best we can to avoid a recurrence of this situation in the future. As I said, it's the first strike we've had of this nature in Indonesia since we've been there. The markets today, overall, do reflect the concerns about the situation in Europe and the situation of relatively low growth in the United States. But the copper markets, having said that, are tight worldwide. The LME inventories have come down recently by 25% during the fourth quarter. China continues to be strong despite concerns going into this year and throughout the year about credit tightening and inflation factors there. Record imports of copper into China occurred during December. Today, worldwide inventories are roughly 10 days of consumption, and we're seeing a fairly positive outlook actually by our downstream customers in the United States. Certain sectors are strong, including automobiles and export-related sectors, and there's some improvement even in the construction business. So as we look forward in a world that involves economic uncertainties, we see a tight and encouraging market for copper as we go into 2012. Gold continues to be trading at strong levels, and molybdenum prices are hanging in there. And we feel very positive about the future for molybdenum and are investing in our business to grow our participation as the world's leading producer of molybdenum. Page 7 talks about some of these issues about the physical tightness in the marketplace, the positive data from China. In the U.S., I mentioned sectors that were growing, including the automobile area and residential constructions. Improvements are still weak but improving. And the overall market sentiment is good. So demand in a world that goes forward without Europe growing to create a global financial crisis, if that is avoided, we feel good about our markets as we go forward. And the copper producers continue to face supply constraints in terms of developing new projects and keeping existing mines operating. A couple of comments about the labor agreement. We -- at Grasberg, we had a strike that began on September 15. We had an earlier work stoppage in -- at the beginning of July, and then the strike occurred. We had the disturbance in mid-October, which resulted in breaching of our pipelines, and thus being forced to shut down our milling operations because we couldn't deliver concentrates from our mills in the highlands to the port. And our team did an excellent job before the strike was settled in restoring the pipeline situation. We diverted the pipelines around the area of where the breaching and the destruction of our pipeline occurred. Our team went into emergency mode and was able to accomplish a lot in a short period of time, which they've done over and over during the history of Grasberg's operations. With the assistance of the government, we were able to reach an agreement on the financial terms with the union, which were very similar to the terms that we had been proposing there. There had been widespread misunderstanding of what the union was demanding and what we were paying. The union's demands were clearly excessive. And when that was understood, efforts were made to reach a conclusion. We were able to do that in the middle of December, and now we're going forward. As Kathleen mentioned, there was a significant impact to fourth quarter production. The fact of the matter is the resources that we would have produced then are still there. I mean it's not a question of losing these sales permanently. The resources are there, and they will be produced in future years. There was, as I said, near-term adverse financial consequences to all stakeholders. The security issues are a matter of concern to our company, to our workforce, to the local community and must be addressed. And we are working aggressively with the government authorities to find a way to deal with that, to provide security, to find a resolution of what's behind the shooting instance that occurred. We must get this accomplished to restore that. But as this is happening, we are ramping back up to work. Strikers are returning to work and are being integrated back into the workforce as we speak. The strike at Cerro Verde was also a very long strike, but we were able to continue to operate there and it did not have a major impact on production. We've got a new 3-year agreement, and we're going to work to build relationships with our workforce there to try to avoid future instances of strikes like this. And as I said, we were able to get a new contract at El Abra without having to face the challenges of a strike. The strategy of our company is very, very clear. We have enormous resources to deal with. Our proved and probable reserves are at $2 copper, are at 120 billion pounds. We also have identified mineralized material beyond those reserves, based on our exploration work and analysis of our drilling and understanding of our ore bodies, that provides us a material that has contained copper essentially equivalent to our proved reserves. And so that gives us an enormous resource base of copper for a world that's going to be needing copper for years and years to come. And we think this is what gives our company such a great opportunity and a bright future. We're focused on continuing to explore to add to these resources and then converting resources to reserves and reserves to development projects and development projects into cash flow generation. And we've got a program to do that. In the near term, the midterm and the long term, we will have a continued opportunity to grow that will be based on our existing properties. The success that we've had there is illustrated on the chart on Page 10. At the bottom, you can see that since the combination of Freeport and Phelps Dodge in 2007, we've had very substantial additions to our proved and probable reserves, substantially in excess of our production. Our reserves are growing. They continue to grow. And as I said, this is the future of our company. Page 11 shows what I was mentioning earlier, that at $2, we have 120 billion pounds of proved and probable copper reserves. At $2.20, contained pounds of roughly that same amount in our mineralized material. Interestingly, over half of that is in our North American properties, which not too long ago were viewed as being dead end, short life properties. But with the world's need for copper, they've turned out to be very valuable assets and assets that we will be focused on in growing for the future. Since 2006, we have spent roughly $800 million on exploration. On Page 12, you can see where that is spent geographically. That's resulted in adding 46 billion pounds of proved and probable copper reserves. Cerro Verde has been a resource of where a lot of those reserve additions have come from and is a good example. Cerro Verde was a sizable mine. Our exploration activities generate -- identified significant new reserves and resources now. We have development plans to triple its mill output, and it will be a very valuable contributor to our growth plans. The same opportunity is happening at El Abra, which 4 years ago, 5 years ago, we didn't really have any prospects for growth, but we've identified additional sulfide resources. But it's just an example of what we're about and what our opportunities are for our company. Near term, our copper projects that we restarted after the suspension of activities in the financial crisis of 2008 and 2009 have gone well. The Morenci mill has restarted. We've increased the mine rate. Together, that's adding 25 million pounds of copper a year. The Miami restart is substantially done to add 70 million pounds a year. And our mine in New Mexico at Chino is now ramping up, and by 2014, we'll have 200 million pounds coming from that. These are all projects that we had deferred in 2008, 2009. We also, at that time, deferred the restart construction project at our Climax mine in Colorado. It's a pure molybdenum mine. Now we're virtually completed, 95% complete of this restart project. We'll be starting this up in 2012, ramping up to initial capacity of 20 million pounds of molybdenum a year. This is expandable beyond that. We started mine development earlier this year. And in the very near future, we'll be feeding ore to the mill and going forward with it. The El Abra Sulfolix project, which was really a replacement project for depleting oxide ore at El Abra, commenced production in the first quarter of 2011. This project extends the mine life by 10 years, with a substantial annual copper production. There is -- our team has identified a very large sulfide resource that goes beyond the resource that would be processed through Sulfolix, and we are now studying the potential for our major mill project there, similar to what we've done at Cerro Verde. The long-term underground development at Grasberg in Indonesia is proceeding. We have very significant underground reserves there: aggregate reserves of 37 billion pounds of copper and 32 million ounces of gold. That's a huge resource. Our current underground mine, the DOZ mine, has a capacity of 80,000 pounds per day and we're ramping that back up to restore that to normal production. We are developing the Big Gossan mine, which is a high-grade mine that will be operational in 2013. The Grasberg block cave, which is the resource that lies directly underneath the Grasberg pit, we are completing our advancing development of that resource so that it can come on stream when the pit depletes, which is currently scheduled to occur late in 2016. And the Deep MLZ mine, which is an extension of the DOZ mine, is now being subject to a feasibility study and starting it up in 2015, so that as we convert from the open pit to underground at the Grasberg, the MLZ will be a significant contributor. All this together will allow us to reach underground production of 240,000 tons per day, which is a remarkable level of underground production. But we're comfortable with this because we've been block-caving at Grasberg since -- for over 20 years now, and we've had great success with it and are very comfortable with it. Beyond the near-term copper projects, we are having significant mill expansions as I mentioned at Cerro Verde. This will result in Cerro Verde being the largest milling operation in the mining industry. The capital numbers are now included in our CapEx projections, as you'll see in a minute. We have a mill expansion at Morenci where we're completing a feasibility study. It appears to be very straightforward, spending just over $1 billion of capital to get 225 million pounds per year of incremental copper. And we're now under construction at the first expansions phase at Tenke to add 150 million pounds of copper for less than $1 billion, and we expect to just achieve full rates there at 2013. The Morenci mill is illustrated on the charts on Page 18. Interesting about Morenci, the flagship copper mine in North America, since 1943, it's produced 26.5 billion pounds of copper and yet -- and was thought to be on its last legs not too long ago. But if you look at its existing proved and probable reserves and its resources, which we're continuing to explore and expect to add to, you can see that it's maybe based on that only roughly halfway through its life. So it's going to be a source of growth for us and a significant profit contributor. The Cerro Verde mill expansion is a project that involves applying existing technology. We had a major expansion there that was completed late 2006, early 2007. Water issues are a challenge in Peru. We've come up with an approach that is being very favorably received by the local community and the government of developing a wastewater treatment plant for the city of Arequipa, and that will improve standards of living there but also provide us the water for our plant. We are now having our EIS reviewed and expect to commence construction in 2013, have this online in 2016. At Tenke, expanding mill throughput to 14,000 tons per day, expanding the mining rate, adding tankhouse capacity. And as I said, we expect to have 150 million pounds of copper a year. Construction is now underway. There were elections in the DRC in November throughout this period, which there was some turmoil associated with the political activities. We were able to continue to operate in a normal fashion. And as you can see from the financial results, we had positive operating results at Tenke during 2011. Beyond these projects, which are actively being pursued, we are also engaged in significant studies for further future projects. And in North America, these include a large-scale mill project at Morenci; expansion possibilities at Sierrita and the adjoining ore body at Twin Buttes; at Bagdad; at Ajo, which is a historical mine with a resource that looks attractive for further development. At Safford, the adjoining Lone Star ore body provides us the opportunity to have a very long life for that facility. I mentioned El Abra in Africa. Beyond the existing project, we have additional expansion opportunities with the identified oxide ore base. And we're drilling and doing evaluation of the large resource associated with mixed ores and sulfide ores at Tenke, and we expect to have future major expansions there. Our exploration spending budget has been increased to $275 million, reflecting our positive outlook for the copper business going forward and also the resources that we have available to us. This is being focused on our existing ore bodies and brownfield opportunities, with some greenfield projects that we are also pursuing. For 2012, because of mine sequencing activities and the need to do some stripping operations at Grasberg, we're going to have a lower-than-normal year for copper and gold production there. For the company as a whole, our copper production -- copper sales are projected to be 3.8 billion pounds, gold at 1.2 million ounces and molybdenum at 80 million pounds. Interesting thing with molybdenum is, and for the near-term market, as Climax is being ramped up, it is going to be a period of time where because of mine sequencing in the ore body, we'll be having somewhat lower production out of Sierrita. So we won't be flooding the marketplace. But as we go forward, Sierrita return to normal levels, and we'll have the opportunity to participate in a positive market for molybdenum as we go forward. The unit cash costs are going to reflect an unusual situation in 2012. Because of the low volumes of copper and gold at Grasberg, future unit costs will decline to a more normal level for the Freeport organization as those higher volumes are achieved in 2012 and going forward. At $3.50 copper, this plan would generate $4.7 billion of operating cash flows, net of $800 million in working capital uses. And capital expenditures are projected at $4 billion, including $2.4 billion for major projects. The near-term sales profile is shown on Page 24. You can see increasing sales, and we've also included a bar there for what our sales are projected to be once completion of our current projects are, and that's a 25% increase. You can see gold sales returning to more normal levels at Grasberg in 2013 and 2014. Our quarterly sales are shown on Page 25. For this year, you can see copper production building up as we go through the year, and the gold sales situation at Grasberg, which again reflects mine sequencing there. The sales by region are shown on Page 26. For your information, on Page 27, you can see our cost structure for 2012. I'll again point out the unusual situation at Grasberg. Because of the mine sequencing, 2011 saw a period of time where we did see some increases in input cost across our operations occurring across the industry for energy and other costs. But our basic cost structure is not changed. We illustrate that on Page 28, we show a reconciliation of our 2011 cost of -- on a company basis, consolidated, of just at $1 a pound and what it would be in 2012 if we had, had in 2012 the volumes of a normal year at Grasberg. And we're using the average of 2013, 2014, our costs would've roughly been $0.20 lower going into 2012. EBITDA on various copper prices and cash earnings, operating cash flows are shown on Page 29. At $3.50 copper, operating cash flows would be $6.5 billion, roughly. At $4, they grow to over $8 billion and over $11.5 million of the EBITDA. The sensitivities for copper, molybdenum and gold and certain of our input costs are shown on Page 30 for your use, so that you can see how those would change as prices or costs vary. Our capital expenditures are shown on Page 31. The numbers now include Cerro Verde and Tenke. Those projects have been approved and are being advanced. It does not include the major expansion that we're looking at, at Morenci. And as we proceed with advancing that project, we would expect additional capital to be spent there. Our balance sheet, of course, is very strong. We've been focused over the past 4 years on debt reduction and have been successful in doing that. And so our company is very strong with just $3.5 billion of debt and just under $5 billion of cash. What this allows us to do is to be comfortable with investing in growth, and we have these growth opportunities that are available to us. And we believe the markets will be very positive for having that growth create significant profits for our company. It will also allow our board to consider our returns to shareholders. We've had a history of paying strong dividends and buying stock back on occasion. This is a board decision, and they'll be reviewing this on an ongoing basis. As I said, second half of 2011 was an eventful year. Our operating team has just performed in an outstanding way in facing these challenges as an organization. The team has done well in addressing production opportunities, addressing safety, addressing growth projects. And we have a great group of people here, and we really look forward to going forward into 2012. With that, operator, we'll be -- we'll open the line for questions.

[Operator Instructions] The first question comes from the line of David Gagliano with Barclays Capital.

I just had a quick question on the capital spending at Cerro Verde in 2012 -- actually, 2 quick questions. First, I just want to clarify that roughly $1-billion spend at Cerro Verde, is that your interest? Or is that on a 100% basis? And then the second question, if construction is starting in 2013, what's the $1 billion in 2012 going towards? Is that the wastewater treatment plant, equipment purchases or something else?

It is on a consolidated basis, Dave, and that spending would be for ordering equipment and in doing preparation for the construction to begin.

The next question comes from the line of Sal Tharani with Goldman Sachs.

Can you give us some idea of what's your plans for the cash flow is? There's a tremendous amount cash flow that you're going to be generating. Have you looked into -- now that the Grasberg's resolved, have you looked into paying increasing dividends or paying some special dividends?

Yes, this is -- as I said, we're really focused on spending capital. And we have $4 billion of CapEx to spend next year -- for this year, for 2012. And we have other projects that we're considering, and that's going to be our principal focus. Beyond that, the board will be -- it will be a board decision about financial policy with shareholders. And I can just refer you to what our tradition has been at Freeport for how our board has reacted to that in the past.

The next question comes from the line of Michael Gambardella with JPMorgan. Michael F. Gambardella - JP Morgan Chase & Co, Research Division: I have a question on Grasberg. When your slurry pipeline was cut, I think you were operating -- right before that, you were operating around 70%, 75% of capacity at Grasberg with the hourly -- about 25% of the hourly back, I think you had said, and contract workers and then the salaried workers. I thought you had kept those workers going on stripping and also advancing some maintenance projects. And I see you increased your gold forecast for Grasberg in 2012 versus your previous by about 10%, but you actually reduced the copper side by about 6.5%. Can you go talk a little bit about why you reduced the copper side and not the gold?

Yes, I'll let Mark address that, Mike.

Really, one of the impact of the pipeline sabotage -- as you mentioned, our fourth quarter forecast considered the workforce that we had to operate, and we were operating fine until the pipeline event. The impact of that was that really production from Grasberg essentially got shifted into 2012. The same happened for DOZ. One of the things as a result of the strike that had an impact on our 2012 metal is that the Big Gossan project got delayed. Our emphasis during the strike period was to continue to maintain the cave management at the DOZ for the underground mines. We took a lower priority on the Big Gossan operation and therefore, our ramp-up in Big Gossan has been delayed. And that's the primary impact to the 2012 metal, is that we had planned on being -- at the end of 2012, being up to 7,000 tons a day in Big Gossan. That's going to be delayed by 6 months. It's going to be more towards the middle of 2013. It's a very low tonnage mine but very high grade. It's about a 3% copper equivalent deposit, and that was the biggest impact to the 2012 metal.

The next question comes from the line of Richard Garchitorena with Crédit Suisse. Richard Garchitorena - Crédit Suisse AG, Research Division: Just a follow-up on that. It looks like you took your gold production forecast down slightly from 2013 to '15 at Grasberg. So just wondering, is that also related to the Big Gossan? Or is it -- is there any color on grades that you may be able to give us?

It's just the sequencing of the pit primarily there, is the shifting of the metal from one year to the other. Big Gossan will be back up. It will be at the full rates in 2013, so the ups and downs that you see from copper and gold beyond 2012 is more where we're at in the pit and just the shift from the end of one year to the beginning of the next. Richard Garchitorena - Crédit Suisse AG, Research Division: Okay, great. And then my second question, on the potential additional projects on Slide 21, I was just wondering, is there any way you can quantify how we should think about that going forward on top of the $5 billion that you're already targeting by 2015, '16 or so?

Well, those would involve very significant projects, and they will give us the opportunity to have substantial growth beyond that. At this point, we'll be filling you in as we go forward with identifying the projects and exactly how we'll be attacking them. But it's -- it does involve the opportunity for significant growth. If you look at the ones that would be the nearer-term projects along those lines, the major mill expansion at Morenci is one. The major mill project at El Abra is another. This gives us the opportunity to have, at El Abra, projects that would be in line or in the order of magnitude like we've been doing at Cerro Verde. Tenke is going to be a project where we'll have growth, I think, on a continual basis as we go forward. So it's a question of looking at these resources, and as I said, changing them into development projects and cash flows. But what we see for our company is a very long period of continuing growing volumes with what we have right now, and we're continuing to find new resources. And that will give us further opportunities.

The next question comes from the line of Oscar Cabrera with Bank of America Merrill Lynch.

With respect to Cerro Verde in Peru, you provide us an idea of the level of capital spend until you -- until the project becomes operational. You said $1 billion in 2012. What would that capital spend look like over 2013, '14, '15? And with changes in the tax code in Peru, are you looking at a similar situation to previous projects in Peru? Has there been any changes that may impact capital spend as you're developing the project?

Oscar, this is Kathleen. Actually for 2012, included in our capital forecast is roughly $600 million for the Cerro Verde expansion, which includes some long lead items and permitting and engineering that we're doing. That amount steps up in 2013, as we get into construction, to about twice that and then the balance in 2014 and 2015. We went through a process -- to your question on the taxes, we went through a process to evaluate the new tax regime and look at the Cerro Verde project in the context of the new tax regime. And it did not have a significant impact on our economics. It -- the way it worked is that at lower prices, it was actually a little better. And then at higher -- as prices got higher, there was -- the taxes were increased. But it didn't have a very significant impact on our economics at Cerro Verde. And with respect to Peru, I mean our focus really is on the development potential of this asset.

Yes, Oscar, as you know, there was a complicated tax government participation structure in Peru that involved these voluntary -- so-called voluntary payments that had been made over time. And the new tax code replaced many of those.

The next question comes from the line of Brian MacArthur with UBS Securities.

I just want to go back to El Abra. You've made a number of comments about it being a potential similar to Cerro Verde. Can you just clarify when you say that, whether you're referring the way you did Cerro Verde the first time, like 120,000 tons? Or are we talking about something that might be -- maybe not 360,000 tons a day, like Cerro Verde now? Or is it somewhere in between? Like what sort of magnitude are we actually talking about here?

All right. Brian, as usual, you get me walking down on slippery slope here because we're in the pre-feasibility stage. But just to try to be responsive, we're looking at a range of scenarios to be as much as maybe 240,000 tons. But that is what we potentially could do. We may not do one that big initially, but that is sort of the magnitude of what we're looking at.

Our next question comes from the line of Garrett Nelson with BB&T Capital. Garrett S. Nelson - BB&T Capital Markets, Research Division: Just 2 questions on Climax. Could you be any more specific as to what quarter of 2012 you're targeting startup? And of the 80-million-pound molybdenum sales guidance, how many pounds are incorporated from Climax?

We'll let Dave answer it since it's his business.

Yes, Garrett, we're looking at startup in the first quarter of this year. We're starting commissioning right now on some of the major equipment, primary crusher, SAG mill, ball mill. So we anticipate start-up before the end of the first quarter. For production for the year, we're estimating around 7 million pounds this year from Climax.

We also have in our projections lower grades from some of our by-product mines. And so essentially, this ramp-up at Climax is offsetting the decline in by-product, and that's why you don't see a significant change in our 2012 sales compared with '11. But we'll have the flexibility subject to market conditions to increase production, potentially ramp up quicker at Climax or change Henderson if market factors are there for us.

That's right. Garrett S. Nelson - BB&T Capital Markets, Research Division: Okay. And I think Richard mentioned Sierrita as being one of those mines.

Right.

That's correct. I mean Sierrita, I think, is the world's lowest grade copper mine, but it's a very profitable mine because of the significant molybdenum by-product there. And it's just a question of where we are in that ore body, and it's going to be -- the resource is there and it's going to be coming back to more traditional levels of production after we get through the next year or 2.

The next question comes from the line of Kuni Chen with CRT Capital Group.

I guess just a follow-up question on Peru. One of your peers in the mining space is having some difficulty with a big $5-billion project there. Obviously, there's been protests and whatnot. Just want to know what your thought process is around that and whether that has any implications for Cerro Verde going forward.

Well, it's in a completely different part of the country, a completely different community situation there. We've -- Cerro Verde's been operating near Arequipa for many years now, and we've put a lot of efforts into building relationships with the local community. So it's not appropriate for me to comment on somebody else's issues. But with respect to our issues, we have worked effectively with the water rights. We've done -- we were doing a water project for the city now. We've come up with this solution for improving life in Arequipa through this wastewater project with giving us water for our plant. As a result, for example, the mayor of Arequipa, who is a major supporter of Humala, is a very active proponent of our project. I met with the president at APEC on -- President Humala on a couple of occasions. I was very encouraged about his support of mine development and our project. And so that is -- I think that's our circumstance that we have now. Now we do have to get permits, and there's always uncertainties. But we feel very comfortable in the way we have approached the EIS and the project and with our relationships there.

The next question comes from the line of Wayne Atwell with Rodman Renshaw. R. Wayne Atwell - Rodman & Renshaw, LLC, Research Division: Do you have any projects in the pipeline which would be in situ copper leaching?

No, no. We've looked at that in the past. And no, our projects involve open pit development and block cave development underground. R. Wayne Atwell - Rodman & Renshaw, LLC, Research Division: Yes, I know you had done some work on one. And was that, that you thought that the technology didn't work or that project wasn't economic? Or what happened? That was years ago. Do you remember what happened?

That was years and years ago. And actually, it was a project that had some support by the -- some government subsidies. Those went away, and the economics just didn't look attractive to us. R. Wayne Atwell - Rodman & Renshaw, LLC, Research Division: Was it the technology? Or was it that project?

Wayne, this was many years ago, and I think it was focused on that project. We really had -- we monitor technology, but we really don't have a comment on it other than it's not in our plans.

Richard, I just -- It's Jim Bob. The biggest problem with leaching is that is leaves the gold behind. So when you have that added to the formula, Wayne, it just didn't make sense with the high-grade copper we have and the fact that we have gold by-product and silver by-product. You can't afford to leave that behind.

The next question comes from the line of Paretosh Misra with Morgan Stanley.

So on Morenci and talking about that larger, bigger expansion, what kind of activities have you planned for this year? Anything specific besides just more exploration?

Well, we're as focused initially on Morenci on the near-term project, which would expand the mill to 115,000 tons a day, and that feasibility study is being completed. Beyond that, we are looking at potentially a larger mill expansion and going through what would be required in terms of that. The exploration results or data that we've been gathering that would support an expansion but there are other factors, including water and permitting, that we have to work through. But on the near term, on the horizon, we felt this initial project was very actionable. Permitting is underway. We believe we have the water for it, so that's something we're focused on in the near term. But beyond that, we've got to solve some other issues to get to the major expansion.

And Morenci has just been a place of great activity. I mean, when we faced with the situation 2008, 2009, we took the mill -- the existing mill, the whole mill down. We cut the mine rate in half. We idled a huge number of trucks, 100 trucks or so. And now since then, we've been in stages increasing the mine rate, starting up the old mill, improving the logistics of the operation, working on longer-term recoveries. Now in this mill expansion activity, we're going -- we've got this major mill going. A number of you visited Morenci, and so it's an area -- it's a mine with lots of activity going on, lots of exploration drilling and strategic planning for where we're going with it in the future. It's a great operation.

The next question comes from the line of David Stevens [ph] with Decade [ph].

For Grasberg, it looks like that ramp-up is progressing pretty rapidly. Could you give us a sense of what the current utilization rate is or maybe what the current daily production rate is? And also, how far off do you think we are in terms of weeks from achieving the target utilization rate?

Well, we are ramping up. There's a question that -- there's time that's required of bringing the workers back. There were roughly 6,000 striking workers, as well as some contractor employees. We have a workforce of roughly 23,000 out there and a little more than half are employees. So there is a period of time of physically getting people back to work and getting them integrated, safety briefings and things of that nature. As we do this, we're addressing these safety -- these security issues that continue to be a major, major concern for us. So we are delivering concentrate to port now. We expect to have the mill rate up, say, by the end of this month, the middle of the first quarter. And that would represent a return to kind of full normal operations, subject to the continued progress on all the areas that I just talked about.

The next question comes from the line of Charles Bradford with Bradford Research.

Just a quick question on TC/RCs. I believe I saw that they were going to be 60 and 6 for this year. But is that the correct number? And how long does that price last?

Chuck, our -- we have completed our negotiations with our smelter customers, and we're slightly above that 60 and 6. I mean there is numbers that are out in the press. Actually, we don't comment on them because they're commercial numbers, but there's amazing reporting on TCs and RCs in the press. But we're slightly above that 60 and 6, and we reached agreements on very positive terms with our customers. They've -- we've had long histories with them. We've worked with them in challenging times, and there are a couple of customers that are going through operational issues in the Philippines right now. They've worked with us in dealing with the issues when we've had production issues like we've had at the end of 2011, so we're going forward. We have annual negotiations there. Some people have mid-year negotiations. Our contracts -- our TCs and our RCs are negotiated on an annual basis. So we've completed it for 2012, and we'll go through another negotiations at the end of this year into 2012. And David, our mill is operating at roughly 160,000 tons per day now in response to your earlier question. We did have one day where it was up to 200,000, several days. So that's kind of where we are as we speak.

The next question comes from the line of Brett Levy with Jefferies & Company. Brett Levy - Jefferies & Company, Inc., Research Division: Just a little bit more refinement on the ramp-up process. My sense was that during the strikes, both in Peru and Indonesia, that there was a little bit of high grading going on. Can you guys talk about kind of the quality of the ore grades and if you're going to have to do a little bit of extra overburden removal in the first couple of quarters after these strikes? Just give a little color around that.

Well, it really wasn't high grading. Kathleen's saying maybe a little bit of that at Cerro Verde. But in the overall picture, not significant at Grasberg because the mill was shut down and the road was blocked beginning in mid-October. While we did some mining for stockpiles, we focused on wastes movement and maintaining the draw points in the DOZ. So I would not at all call it high grading in Grasberg. It's just when we had the opportunity up through the middle of October to produce, we produced in more or less a normal fashion, about 3/4 of regular capacity. So even though we did focus on waste removal, because of the limited workforce that we had after the road was blocked in the middle of October, we really fell behind some on waste removal at that point, too, which now is reflected in our mine plans as we go into 2012.

The next question comes from Justine Fisher with Goldman Sachs.

I was just wondering -- I had a question for Kathleen on the capital structure. Obviously, you guys mentioned in your press release that the $3 billion of 8 3/8% bonds are callable on April of this year. And I was wondering whether or not -- what level of debt Freeport would be comfortable going down to. Would it be kind of a $2-and-change billion level? And then also, given where funding costs are in the corporate market, obviously, you're not really making much on your cash on the one hand, so you might as well spend that on CapEx. But would you consider increasing the level of debt in order to fund some of the CapEx programs just to -- just because your balance sheet can take it?

Well, in terms of the level of debt, we've been repaying debt because we had excess cash. We're going to be looking at refinancing the debt that you've referenced. It's highly attractive to us to do that. Our funding costs of a new debt instrument would be significantly lower than the current coupon, so we'll be looking at that. We'll be looking at how much to refinance versus repay. And when we look at the debt capacity, even though we bring the debt down to a certain level, we still believe we have significant capacity to have additional debt if we have uses for the cash. And so we want to make sure that we don't have debt on the balance sheet that's not -- where we're having interest where we don't -- we're not using the cash to generate returns. And so that's really what we're focused on there.

Historically, Freeport has not been a company that has levered up in order to return cash to shareholders, but we have seen a lot of other companies do that given the cost of borrowing in the corporate market. Is that -- is returning cash to shareholders considered an appropriate use of additional debt by you guys and by the board?

What we've really been focused on is the use of cash flow that we generate. And as you mentioned, we're not just spending money on capital just because we have cash. We're spending money on capital because we've got great projects that have high rates of return and we're very positive about our forward markets. So beyond that, it's more of a question of using cash as opposed to thinking about some sort of levered returns to shareholders.

The next question comes from the line of Jimmy Nguyen with Merrill Lynch.

This is Ray Kramer. And actually, my questions were all answered.

The next question is a follow-up from the line of Sal Tharani with Goldman Sachs.

Richard, you mentioned about working with other stakeholders in the future at Grasberg to avoid what happened in the fourth quarter. I was just wondering, can you elaborate a bit more on that? Does that mean that when you go in the next time, you will actually handle those -- all those besides the union across the table? Is that the way you will be handling this?

Well, Sal, we did this time. I mean, it's a very interesting and complex social situation there. I mean, we are more than 90% of the economy of the regions where we're located. We're more -- we're 2/3 or more of the economy of the province of Papua. So everything that happens to us has very broad consequences to the local community. And the local community has many components to it. There are the indigenous people that originally lived there and in the area. There's been a huge influx of people from Papua and other places in Indonesia there. And then our workforce adds a lot to that. So what happens to Freeport has consequences that are very broad across the community, so we continually work with them. We had a great support from the local community during the course of the strike. And we're going to use that, use the experience that we learned here to try to work together in a more positive way with our union workforce and its leaders to help us avoid having anything like this in the future. It was harmful to everyone, and I think people recognize that now. And we're committed to finding a way of dealing with this more positively.

The next question comes from the line of Oscar Cabrera with Bank of America Merrill Lynch.

On your copper reserves and mineralized material, you've been doing -- you guys have been doing a great job in increasing the amount of reserves in the Phelps Dodge acquisition in 2007. What caught my eye though is that your long-term prices from last year and this year are similar. And you replaced your reserves, which is great. But just wondering -- like, gold companies are using a substantially higher long-term price to value their reserves. And smaller -- granted, smaller copper companies are using a higher long-term price. So just wondering, what's the thought process behind that? And have you done, like if you were to put like $2.25 or $2.20 on your -- that you use for your mineralized material to your reserves, what would the effect be?

Okay. Well, thanks. We do use $2.20 for our mineralized material. First of all, I want to be clear: what we use for reserve pricing is not reflective of our view of the markets. It's -- we use this to come -- have a conservative price for determining reserves. We are looking for opportunities. We're not -- we don't limit our opportunities to any arbitrary reserve pricing mechanism. When you do have these regulatory requirements to report reserves, they do involve a process of going through mine plans based on these prices. So it's not a question of just changing a price and you add volumes at the end or things like this. The changing of the price really would involve going with a significant amount of work of developing new mine plans on the basis of that price. And so we felt that it was just conservative and efficient for us to stay with last year's pricing for determining reserves. It's not really what drives our investment plans. We don't lock in on a particular price. We use an array of prices in thinking about what opportunities are there if prices are higher. And if prices go lower, how a development project would fit in to our overall portfolio of assets and how we would manage that, not as an individual project, but on a portfolio basis. So it was more -- those prices were used more as a basis for conservatism and efficiency.

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

There have been these unfortunate incidents of sporadic shootings or attempts in West Papua. Could you update us on how large is the security force, whether it's troops or your own people, armed or not; and how much bigger you think it would have to be to try to eliminate any hazard to your employees, given that over the years, the Grasberg location has been sort of like a Harvard pedigree for mining technical people? And you've always had a tremendous organization and I'm sure it's paramount to you to preserve that.

Well, your last statement is exactly right. It is the most important thing we're faced with and our very highest priority. So we are -- I can assure you, we're giving a lot of attention to this and working with the government authorities at all levels and working on the ground with people and getting security advice from others. Our security forces are not armed there, so our internal security has never been armed. And they serve a role in security, but the principal responsibility for dealing with armed insurgents or others who are involved in these shooting activities has -- is the government supported by our people in going forward. The -- Freeport is one of a handful, 6 or 7, I believe, operations in Indonesia that's designated as a vital national object. And in 2004, the responsibility for providing security was transferred from the military, called the TNI, to the police. Going back a number of years, they were under a similar command. Now there are 2 sets of organizations, and the police are the ones that are primarily responsible for security there. There's special assigned police from outside Papua there. There's organic police that's located there permanently. And there's also military in the area that forms sort of the outer ring of security because of the issues beyond the nearby areas and the fact that it's a border area with PNG as well. So we believe that the total number of police and military there vary. It's something like 1,200 to 1,800, depending on rotating assignments. The number of people is adequate. The issue is one of dealing with the difficult terrain and having effective management of the forces that are there in terms of manning security posts, conducting convoys and providing security for those convoys. And we're -- what we're focused on now and working with the government officials is to have more effective management of the resources there and more effective follow-up of pursuit and arrest and bringing people who are doing these terrible acts to justice. And we're getting support of our contractors and the people in the local community because this is not a Freeport issue. It's a community issue. It affects us, and we're very concerned about our people and the people of the community and putting our top priority into addressing it. And it's a necessary element for us to address in terms of restoring our production to its -- to traditional levels. Thanks, everyone, for your interest. Follow-up questions can be directed to us through David Joint, and we look forward to reporting to you on our progress as we go forward.

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