Freeport-McMoRan Stock

All right. Why don't we get started? Kathleen, probably most of you are familiar with Kathleen Quirk, the President and CEO of Freeport. Thank you for being here. We've done this for several years. It's always a pleasure to host you and have this conversation. So maybe why don't we start with some introductory comments, maybe something that you want the audience to take away for sure today, and then I have some Q&A that we would go through.

Great. Thank you, Carlos, and thanks, Morgan Stanley, for hosting this conference. We enjoy being here every year and look forward to the continued engagement with the investors here, a lot of interest in what we're doing at Freeport. We've got big agenda going on. Copper is our focus, and we're working -- we're entering a new period here of growth. We've got some key initiatives that we're pursuing. One is the recovery of the Grasberg, which is going very well, and we can talk more about that.

We've got a very exciting growth profile in the U.S. that we're pursuing. We've got brownfield expansion opportunities that we're moving forward to make a decision on in the U.S. as well as a big investment or a big opportunity we have in technology. We're leaning very heavily into innovation and technology, which will allow us to capture some value, some significant value associated with processing of above-ground material that is ripe for Freeport to take advantage of. So that's a big initiative.

And then we've got growth also in South America. So it's a very exciting time within our industry at Freeport. In the near term, our focus is going to be on growth in the U.S., where Freeport enjoys a very advantaged position as being America's copper champion, where we supply about 70% of the copper that's produced in the U.S. comes from the Freeport operation.

So anyway, great time to be in copper, big challenges because as we look forward, we see a world that's becoming more copper intensive with electrification. And it's up to us to continue to be able to supply that market efficiently and reliably, and that's -- we're up to the challenge, and that's what we're working to do.

Great. I mean that sets the stage very nicely for the conversation. But maybe before we get into company specific, on the copper market, I think everyone understands very well the demand story. Electrification of the world will require a lot of materials and certainly, copper is one of them and maybe at the top.

But on the supply side, this is what I would like to start with you. We have had a series of issues in the last 12 to 18 months that have reduced production. But also prices have now been elevated for quite some time, and yet the supply response is taking a lot of time to arrive. What do you think that is from a company perspective, what is delaying the sanctioning of new projects?

When you look at our industry and go back historically, there have always been, it seems, periods of time where demand has accelerated and there are supply responses. There have been projects waiting to -- for the opportunity to develop when demand accelerates. This time, we don't have that. We -- I think one of the -- you start with one of the issues for copper supply is that discoveries, major new discoveries of new resources is extremely rare. And so you don't see constant replenishing of projects because there aren't significant new discoveries. When you do have a discovery, it can take 2 decades or so to be able to develop it.

So there's a real challenge now with the lack of greenfield opportunities. There are a number of projects that the industry is pursuing and you've seen a lot in Argentina in different places. But we don't have the pipeline of projects that we once had in the industry. So copper prices could go. You've seen copper prices go from $4 through $5 through $6.

And to your point, not a near-term supply response. But -- so what it's going to take for our industry? There is still a lot of copper out there and what it's going to take for our industries to be more innovative. And you've seen, at the same time, you've seen inflationary pressure. So it costs a lot more to develop a major new copper mine than it used to cost. But it's going to require us to be more innovative.

And so what we're doing at Freeport is working on technology and other innovative opportunities to recover more of what we have. And we still have a lot of copper within our operations that for various reasons, hasn't been recovered. The technology wasn't there to be able to recover all the copper out of the ore. And so one of the things we're doing is investing in technology to get us there.

We're also investing in brownfield opportunities. Those can be done more quickly with less risk than a greenfield development. And so I think you're going to see not only Freeport, but others in the industry start to work to get the brownfield projects moving. But it's the fundamentals of copper, in my view, as we look forward, have not been this strong in some time.

Over the past 20 years, you're seeing demand grow. Most of the growth has come from China in terms of demand drivers. Over the past 20 years, now with what you referenced in terms of the electrification, all of the power and energy infrastructure that's needed, it's more broad-based. And so we're going to need to work hard as an industry to find new ways of developing supply on a cost-effective basis in light of all the inflation we're seeing. So -- but at Freeport, we're up to the challenge, and we've got a number of levers that we're working for.

Yes. And you mentioned innovation and Freeport. And I wanted to get into that discussion. The leaching project that you have, obviously, will give you that. Will give you volume. Will give you low cost. Do you have, I think, a target of 300 million pounds this year and a long-term objective of maybe getting closer to 800 million pounds. What is the road map to take us there any updates, any latest developments on how that is going?

Yes. Thanks. So this is a very exciting and ambitious undertaking for Freeport. In recent decades, really starting in the '80s, there was a technology developed that allowed companies to extract copper from a process we call leaching where solution is used into release into the ore, and you can recover copper and actually produce copper cathode directly. And that was effective for some time. But over time, the amount of production available from leaching started to decline. And that's because you only get a small portion of the overall recovery through this process using historical technology. You may only get 30% of the copper that's in the ore recovered in using old technology.

What we've been working on at Freeport is using new technologies to recover more of that copper. And so we've been at it for the last few years using some different operational tactics initially. And now we're starting to get into deploying some of the new chemistry that we're applying and other initiatives that we're applying to these stockpiles to recover even more copper.

So when you think about it, having 800 million pounds a year from ore that has already been mined, and we're essentially just reprocessing. It's not a capital-intensive initiative. It's low incremental operating cost because you've already incurred the mining cost. So this is essentially reprocessing material and you have the ability to do it at scale. Now so far, on our journey, we've gotten 200 million pounds a year, roughly, out of the 800 million. So we still got a lot more to go.

And so what we're doing now to be able to scale it, as Carlos says, we're working to get to a run rate around 300 million at the end of the year. so that would allow us to increase our production, increase the scale. We're doing two things really. We have been working to qualify a new additive, a new reagent chemical reagent that we could apply to these stockpiles. The one we're using now that is a new technology was readily available. And so we procured some of it and started testing it, and it's providing some positive results.

But there are two additional additives that we've been working on in our laboratories, which is showing multiples of the recovery potential compared to the one we're using now. So we had to especially go and get this material procured and manufactured, and so we've been working with various chemicals manufacturers to manufacture the products.

And now it's on order. It's being manufactured, and we expect to get it at the end of this year. And early into next year, which will allow us to start deploying it at scale in the field rather than just in a lab. So that has enormous potential. It's not proven yet. It's proven in a lab. It's got to be proven in the field. But once it is, and it's a huge amount of value we're unlocking.

And so the second value driver for the leaching initiative is around the increasing the temperature of our stockpiles. We've got 40 billion pounds of copper in our stockpiles. We know that if that copper reacts more favorably when it's under high temperature. And so we're working to put higher temperatures actually starting to heat solutions before they're injected into stockpiles. And so the new additive plus the heat technology, will allow us to, we think, scale materially this opportunity. It's not a slam dunk. We're proving -- we're having to prove new technologies and new ways of doing this process, but the reward is tremendous.

And so we think based on our modeling to date of what we've been able to achieve in our lab and applying that to the field, we think we have the opportunity for -- to go from 200 million pounds to 800 million pounds within a 3-, 4-year period. And when you think about that, that's the size of a major new copper mine.

And how much of the incremental volume is embedded in the guidance for 2027 or 2028?

Yes. We don't have a lot of that in there because we need to prove it to ourselves as well. So we're confident in the ability to get scale this to the 300 million-pound level. That's in our guidance for next year. But beyond that, we want to see how these field testing work comes together, how the heat trials work. So we've got upside in our guidance numbers, but we've got to get the results.

And over the coming quarters, we should have better results communicated to you. But a really, really significant opportunity. It's a competitive edge of Freeport because we have all this experience in terms of leach processing, but we also have the inventory.

As I mentioned, we've got 40 billion pounds of copper that's above the ground. It's not -- it's already been mined and we just need to find ways to recover more of it and the technologies are evolving so quickly. So it's exciting. It's going to take this. It's going to take these kinds of technologies to meet this demand that you're talking about that's coming from all these new sources of electrification, which is copper is key, copper is very key when it comes to electrifying the world, which we're doing. So...

And obviously, you mentioned -- you highlighted the point that you have already mined material in stockpiles. So there is a cost advantage to process those into copper. I think the company has mentioned something around $2 $2.50 per pound in cost in maybe in 2027, 2028.

How are we tracking -- how are you tracking towards that? Obviously, a lot of volatility on raw materials, diesel, oil prices and whatnot. But I think a question that oftentimes we discuss with investors is why even though you're producing 200 million pounds, why costs in North America really haven't necessarily reflected that? Can you elaborate on that?

Yes. So what Carlos is referring to is our U.S. business is higher cost than the rest of the places we operate. It's very efficiently run, but the reason why it's higher cost than, say, South America or Indonesia is because the grades that we mine in the U.S. are lower than the assets are more mature, the grades are lower than we have internationally.

So we have to be in terms of running our U.S. operations, we have to be extremely efficient, and we've been investing in automation. We're investing in different technologies to help us bring down our costs. But importantly, while our costs in the U.S. might be $3 a pound on average, and we have a goal to get that down to the $2.50 range. When you think about the margins and the bottom line contribution, particularly in the context of today's copper market, you're talking about a copper market where prices are above $6, roughly $6.50 per pound, that margin in the U.S. essentially drops to the bottom line. So it's very impactful.

We don't have the level of tax burdens and noncontrolling interest in the U.S. that we have in other places. So when you look at our results, our recent results, the U.S., while it may be a higher cost market really contributed more than half of our bottom line net income. So in this kind of copper market environment, the U.S. has a lot of very significant earnings and cash flow leverage.

But we've been working to bring down, to your point, we've been working to bring down our costs in the U.S. and roughly $3 range when targeting getting the $2.50. We thought we were on the verge of driving to that level in 2027, and that was more an environment where inflation has moderated.

But we've just now moved into some headwinds with energy, and particularly diesel prices and some other areas like sulfuric acid, other parts and supplies, et cetera, that will start to bleed in. But fundamentally, we're still looking to drive costs lower than what they would otherwise be through these initiatives. Through this innovation, and technology initiatives.

And when you think about the fact that we've already mined the material, the incremental cost of bringing on the new copper unit is low relative to the average cost. So, so far, this 200 million pounds has been incrementally a cost of less than $1. And Carlos asking why our average is still $3, and that's because we continue to fight the lower grades.

But as we scale from here, as we scale more production from this innovative leach process as we get more efficient with our U.S. operations, I think you'll see costs trending more positively. We've got headwinds with energy prices that we've got to deal with. But we're making great strides in the U.S. business. And again, coming right to the bottom line, every dollar that we save in cost goes to the bottom line as does the revenue. So that's what we're focused on is creating more value from our U.S. business.

And maybe before we go to Indonesia, given the leverage that you have operating leverage that you have in the U.S., what can you tell us about Bagdad expansion? I think the economic breakeven for the operations is -- or the project is around $4. We're at $6.50. How is the progress towards a final investment decision going? And what are the key challenges that you envision as a company to develop this projects?

Yes. So what Carlos is referring to is a very exciting brownfield investment opportunity we have at a mine in the U.S. that's probably a couple of hours, 2, 2, 2.5 hours away from our headquarters in Phoenix. It's a mine that's been around since the 1940s. And the reserves of this operation have grown to where the current processing capabilities are undersized relative to the size of the resource.

So we've been studying for some time the opportunity to do a major expansion at this mine. And it does require a copper price, an incentive price to earn our cost of capital of at least $4 a pound. And so we've been monitoring it. We've been monitoring this overall capital cost inflation that the industry is dealing with. We've been monitoring the availability of skilled trade in this area to be able to execute the project construction.

So whole things we've been doing in terms of studying, we've been looking for creative ways to execute the project. We -- in fact, in terms of this labor tightness that I talked about, we converted that mine's haul truck fleet all to autonomous recently. So all the trucks that we operate, haul trucks that we operate, the big -- haul trucks we operate at that mine are all being run without drivers and that's a technology that we look to adopt that will adopt across the U.S., but it's our first U.S. site to adopt that technology.

We're looking at how we can maybe build some of the components of the expansion off-site in areas where there may not be as much tightness in terms of labor. So we're working on those kinds of things.

But we're competing also with others that have deep pockets and looking for skilled trade as well. They're looking to build data centers and other energy infrastructure in the region. And so we're competing for labor with those markets as well. But we've got plan outline to take to our board later this year and very excited about the opportunity to invest in this operation, it would become the second largest copper mine of any copper mine in the U.S. It would importantly provide economies of scale, bring down its operating cost structure by having more economies of scale and allow us to have a more resilient operation there and profitable operations. So we're excited. We're nearing the point where we think we can bring it for a final decision and hope to have a positive green signal of this one by the end of the year.

All right. And then moving to Indonesia. I think about a year ago, right before this conference last year, unfortunately, Freeport had a terrible situation in Indonesia in underground mining there. Can you walk us through the turnaround and where do we stand right now? What are the milestones that we need to look for in the next few months?

Yes. So around this time last year, we did have an incident in our Grasberg mine. We've been operating in Indonesia for 60 years, almost 6 decades and have had a long and successful track record there. The incident was unprecedented, and we conducted an investigation. We now understand what the factors that led to it were and have put in place remedial activities to address the risk of -- it was actually a mud rush external mud rush that came into the mine. But we've done a lot of work. We've made tremendous progress over the last year.

We've restarted production in some of the smaller areas initially. But then earlier this year, we started production at a larger scale in our -- in the block cave, Grasberg Block Cave. And you probably saw in the second quarter, the performance where the ramp-up reached a -- essentially doubled during the second quarter.

And so we expect to be at roughly 65% of capacity in the second half of this year. We're tracking well. What we're doing now in order to get to full capacity as we go into '27 and by the end of '27 is, we're putting in place some additional upgrades into our materials handling system, the rail infrastructure at this site that will allow us to really be able to deliver any type of ore that we might encounter during the mining process. So we made really good progress there.

Again, this is a very high grade. So we're producing a lot of high-grade copper as well as gold, very attractive cost structure, a very significant margins, and we're looking to return to normal operations there. The team really feels like we're there in terms of the milestones. We've derisked the plan significantly once we started the production again in the Grasberg Block Cave, we've been ramping up according to plan. The conditions are good.

Our people are in strong morale and the accomplishment there in this recovery has been very impressive. Over the last several months, and we're going to continue that. It's an important asset for Freeport and one that's driven a lot of value in the past will drive a lot of value in the future.

And a lot of people want to ask about Grasberg, but we also have diversity within the company. As I mentioned, we get 50% of our earnings and net income to the bottom line coming from the U.S. now. So we've got great diversity within the portfolio, but we expect to continue to drive value in Indonesia as we go forward.

And maybe staying with Grasberg and the turnaround process and the ramp-up, is there a possibility of an accelerated ramp-up given the dry conditions that super El Niño brings to Indonesia in particular?

Yes. A lot of people have asked about that. And actually, if you look at weather patterns all over the world, it has caused some disruptions for -- within the industry, not specifically to Freeport but within the industry, particularly in South America. But in Indonesia, it's been a really dry period, as Carlos said, and that's good for the mine. And so when you look at the moisture levels within the material that we're mining compared to where we were earlier in the year, it's much, much easier to mine, much different now, much better. And that's two factors. One is the dry conditions. The other is the fact that we're mining at a greater scale.

But in terms of the overall change in the weather, it really hasn't affected our ramp-up. We're going to still do this upgrading that we talked about doing so that we have a robust situation system that will work in any kind of weather conditions. So I don't want you worried about what -- checking the weather every day in Indonesia because we'll be prepared for any type of weather conditions, which we have addressed in the past.

Perfect. And maybe on the smelting side in Indonesia and you have now the two smelters. You have some restrictions on what type of material you can export out of the country. What is right now the status with the two smelters, the production there and your shipments out of there?

Yes. So two smelters in Indonesia, one smelter that we built a new smelter in recent years, we were not operating it because the ramp-up was occurring. We've just restarted that smelter. So just at the end of August, we're now operating two smelters. You might have read some news about one of the smelters having an operational challenge, but that's been resolved.

And so we've now got two smelters operating. The new smelter is ramping up. We're still going through our start-up process, but that's all going well. Smelters are difficult animals to start up, but very happy with how the team is performing there. And one of the things about Freeport that's interesting and the governments around the world really like is the fact that we're fully integrated.

So not only do we have a significant amount of product that we mine, we also have processing capabilities for -- when you look at our balance, we've got enough processing capacity to process everything we mine. So we're fully integrated, strategic in terms of not only mining, but also producing the finished product, which is so important as governments and consumers around the world are looking at supply chains and security of supply. Freeport is very strategic in that it's processing essentially all the copper that it mines. And so that's been a big plus.

And particularly when we look at what the U.S. is trying to do in becoming more self-sufficient when it comes to copper, Freeport plays right into that because Freeport is supplying 70% of the copper that is produced in the U.S. is coming from Freeport processing. So smelters are an important thing in today's world a lot when you talk to policymakers, they want to know not only what you're mining and where your mines are, but where are your smelters. And so that's a strategic advantage that Freeport has.

I'm talking about government. My next question has to do obviously with what happened last week. A little bit of a headline with not a lot of substance, but the copper price as well as the equities really suffer on that one day. What are you hearing? What are your expectations regarding a potential Section 232 tariff on copper cathodes? I mean downstream products already are faced or are protected with the tariff, not the cathodes and everyone was surprised by the news. What is your interpretation of what is happening?

Yes. So I don't think there was anything new in the news report from last week. It basically said the government has not made a decision yet, which we all knew the government had not made a decision yet. But as Carlos was saying, our downstream products are being tariffed by as much as 50%. And there was a recommendation from Commerce that from some time ago that pointed to a recommendation of having a copper tariff on copper cathodes, which is the product we produce of 15% beginning in January of '27, moving to 30% in '28, that hasn't been -- that recommendation has not been -- it was scheduled to be reviewed again June 30.

And so that hasn't been decided on. But that's the government policy, and we'll wait to see what the government does decide, but there are, as you mentioned, tariffs on the downstream. And the news last week you saw a market reaction to it, but it really wasn't anything definitive. It just was the government hasn't decided. So we'll just have to wait and see longer.

And then talking about the smelters, it's a challenging business, returns on investment necessarily the most attractive. But what would -- what is the Freeport's strategy around smelting in the U.S.? If you approve Bagdad, you concentrate on production is going to also increase. Would you be looking at expanding U.S. smelting capacity, potentially the government could help with the funding? What is the Board thinking?

Well, I think the first step is to move forward with the project. in terms of the mining side of the project. We're currently balanced in the U.S. So we had enough smelter capacity do as to process everything we produce in the U.S., we also leach a lot. So we process everything for the most part that we mine in the U.S. domestically, but if we do go forward, when we do go forward with Bagdad, I would say that we would look at the expansion, more from a perspective of it's an integrated system. So we strategically, not only do we process the copper into cathode, but then we use the acid, which is valuable to us, the sulfuric acid to make more copper cathodes.

So it's strategically valuable for us, the whole system. So we'll look at it. We'll look at whether there are any incentives to take advantage of. But the first step would be to get moving forward on the mine production, and then we'll see what it might mean for additional smelter processing in the U.S.

We basically run out of time, but I do want to ask one last question. You have been paying a dividend, the base dividend plus the special dividend. Now you restarted your share buyback program, and you might start approving some projects in the near future. How is the company going to balance investment growth as well as returning money to shareholders?

Yes. Well, we have a framework where the policy is to take half of the available cash discretionary cash flow and return to shareholders and half for these investments and future profitable growth that Carlos is referring to, and so that's the policy really that our Board approved and that we're following. We've got a very strong balance sheet. And so this really is as we look at our cash flow capital allocation, we're looking to grow the business at the same time as returning cash to shareholders. If we get into what we're in now, where you've got very strong markets, that continues.

And I mentioned this thing about the U.S. business and how much leverage we have at the prices if markets change dramatically, we may have the ability to return more to shareholders if we don't have near-term projects to invest in.

So that will be a nice problem to have, and our Board has been one to return cash to shareholders in the past, and we'll look to do that in the future. But we want to grow as well. And the world needs our -- what we produce more than ever, and we want to continue to invest in the business for long-term profitable growth as well.

Fantastic. Thank you very much Kathleen. Looking forward for that. We appreciate you here. Thank you very much.

All right. Thank you.

Thank you all for attending the session with Kathleen Quirk, the CEO of Freeport, which has been one of our preferred stocks for quite a long time. And fortunately, the stock has done very well. And Kathleen and the Freeport portfolio have a lot going on. So Kathleen, first of all, thank you for spending time with us here in New York and what is certainly a very busy week. We appreciate you being here.

And maybe, if you could just, kind of, give us your -- a general overview as to what's going on at Freeport, take us around the world to your different assets and what you're doing operationally and where things are heading for you.

Great. Thank you. And thanks, Jefferies, and thanks, Chris, for hosting the conference and Chris' long-term coverage of our sector. We really value his analysis and insights over many, many years. But -- it's great to be here in New York and have the opportunity to talk about what's going on at Freeport. As Chris mentioned, we have a lot going on, a lot of excitement around our business. Freeport is so well positioned. The focus areas that we have currently, as you know, we're focused -- our strategy is focused around copper.

We benefit from having a very large-scale current production profile, diversified with embedded growth options in the business. And we're entering a period of growth for our business, which is very exciting, initially focused on some near-term opportunities we have in the U.S. But Chris mentioned, he asked me to, kind of, take a run around the business and some of the things that we're focused on, priorities for 2026, are around the disciplined execution of our plans, including on the Grasberg ramp-up, and that is going very well, and I'll comment more about where we stand there.

We are actively working to crystallize a very large potential value opportunity on an innovative leaching initiative we've been working on for some time and really starting to gain traction on. And we're leaning heavily as a company, as an organization into technology and innovation that we believe will help us maintain a competitive edge, bring down costs, improve efficiency. So that's a real significant focus area. And then, as I mentioned, growth. And we've got a number of projects that we're teeing up.

I'm going to start in Indonesia. And many of you know, it was about a year ago at this time where we experienced an unprecedented incident in our underground -- affecting our underground operations at the Grasberg Block Cave. We've been operating in Indonesia for 60 years, and have had, for many decades, experience in block caving. Freeport's viewed as one of the experts around the world and one of the leading experts around the world in block caving. And we had an unprecedented incident, a very serious incident where we lost 7 of our coworkers last year, which was heartbreaking for all of us. We're still grieving their loss. In fact, had a memorial service just this past week again for -- to remember those lost. We'll never forget them.

And we're really working on the future. The team has made tremendous progress over the last year in the recovery effort, in the investigation. We understand what happened, what we're doing differently in the future to manage this risk and feel very good about where we are today. We restarted some of the operations last October and then restarted a large portion of the operation in March of this year and have been on our ramp-up plan. And that's going very, very well.

We have a plan that we would be at about 65% of overall capacity in the second half of this year and then reaching 80% by the middle of next year and into 100%, approaching 100%, by the end of 2027. And that's all going very, very well. This is a very large, profitable ore body that, as I mentioned, we have a lot of experience in going back for decades. So that's going well. We also, just 2 weeks ago, started up our new smelter in Indonesia. We have 2 smelters, copper smelters in Indonesia, and one was operated since the 1990s, late 1990s, and now we're just starting up the new smelter that we constructed. So a very exciting time.

Freeport is fully integrated in terms of upstream and downstream in Indonesia and globally. So that's a strategic benefit of Freeport having not only mining but also processing. So we're selling copper cathode. And one of the things the governments like about us is we don't rely on any specific country for third-party processing. And there's a lot of debate about whether China has too much control over processing, but Freeport does not have a significant reliance on others for processing.

So Indonesia is going well. We're very, very excited about opportunities that we have in South America. We have a major project in Chile that we've just filed an environmental impact assessment statement on in -- earlier this year. And so we're advancing that. That's potentially a very large project that the industry does not have a lot of. And this is in a jurisdiction which it's a brownfield project. It's in a jurisdiction that we've operated in for years, very well defined by regulations there, and the mining industry is very, very positive about operating in Chile, which is about 25% of the world's copper production that happens there.

But we have a very large project there, and that's going to be very attractive as we go forward. We have a very big operation in Peru, and that's going very well, called Cerro Verde. It's one of the largest concentrating operations in the world. So Freeport is so important in copper and particularly important in the U.S. And I'm going to get to the U.S., where Freeport supplies, produces refined copper and supplies 70% of the copper that is produced in the U.S. comes from Freeport. So very strategic business in the U.S. We have multiple mines that we operate where we've operated for decades. We have a really a franchise there in Arizona and New Mexico. We also have some primary molybdenum operations in Colorado, but really exciting growth opportunities in the U.S.

And you can see from our financial results, if you're paying attention to the details in our financial results, the growing significance of our U.S. contribution to our earnings and cash flow. And because of the structure of the business, we own all of the assets in the U.S. We own the land in fee. So we don't pay royalties like you do in other countries. And the tax structure is attractive for us. So when prices move, you can see that drop, the leverage that we have to prices, you can see that drop right to the bottom line. And if you compare our results historically to where they are currently, you can see the leverage and the significance and the value of what's going on in our U.S. asset base.

And that's exciting. The world is going to need more copper. It's going to come from places where there are established in the near term, established opportunities to invest in brownfield expansions, and that's one of the things we're doing at Freeport. We've got a very exciting development project in one of our mines in Northwest Arizona that we're going to bring to our Board for an investment decision later this year. That's going to bring more relevance to this asset. The asset currently today is undersized in terms of processing compared to its reserves, makes a lot of sense for long-term value.

And at the end of the day, that's what we're trying to do is make investments that move the needle in terms of long-term value for the company. And we've got a capital allocation strategy around investing in our assets, but also returning cash to shareholders. And we've got a capital framework to do that. 50% of our discretionary cash goes to investments in our projects and the other half to shareholders' returns. So we're in a great position at Freeport. Execution is key. We all know that. We all know that investors rely on our teams to understand the risk and execute reliably and responsibly.

And at Freeport, we're really focused on doing that to deliver value for shareholders. So that, in a nutshell, what's going on around the company, Chris. And if you want to drill down or anybody in the audience wants to drill down and ask questions, I'd be happy to do that.

Yes. Let's drill down a bit. So a lot of people associate Freeport with Grasberg, high-profile mine always used to be the only asset the company really had in mining before the Phelps Dodge acquisition. But now you have sizable volumes in the U.S. In this higher price environment in the U.S. mines are profitable. You don't pay tax in the U.S. because you have NOLs. You make the point that with percentage depletion, the tax rate in the U.S. even without the NOLs will be lower than it is in most of the jurisdictions. And you're deploying capital into the U.S. now.

So you actually have -- you're actually leaning towards growth in a low-risk jurisdiction when many others in the industry are growing more in high-risk jurisdictions, which puts you, I think, from a risk perspective, kind of, you're moving in a more favorable position versus the industry. So -- but Grasberg, obviously, is still a big part of the equation. So if you revised the guidance a couple of times after the initial incident happened, but it seems like things are now starting to go according to plan.

Wondering impact of changes in weather there. I mean, we're hearing about less rain in Indonesia. Does that help you in terms of the ramp? Do you have more confidence? You reiterated the guidance again about getting to full capacity at the end of next year. Are there things that have happened recently that give you more confidence that you're going to get there? And just, kind of, talk about how that's progressing.

Yes. Well, the first part of your comments related to the risk profile of Freeport. Roughly 2/3 of the company's production is in places, North America and South America, and the rest of it is in Indonesia. Our gold is all in Indonesia, which makes Indonesia so important and special related to its profitability because it has high grades of copper and gold in the same ore body. But in terms of looking at the values of the company, during periods of when copper prices are low, you can look at Grasberg and say that is because it's very low cost, and it's going to be always valuable.

But when copper prices are low, it's particularly important because of its low cost. And so it provides a baseline of cash flow for the company in ranges of prices. But really, the supercharge, and you referenced this, leverage that Freeport has is in the U.S. where it's mature. So the U.S., some of our mines have been around for over 100 years, but we're very efficient. And we have to be in the U.S. because the grades are low, and we have to be keeping up with inflation. We have to be on our game in terms of efficiencies.

But when copper prices move and the world is becoming more copper-intensive, you've seen copper price today come down $0.30 or so a pound, but $6.50 copper is a very attractive price for us. And when you look at the U.S. business, if you're operating at a $3 cost and you've got that much of a margin and it drops to the bottom line, we've got a lot of leverage. Where we operate internationally, you've got tax -- big taxes and you've got other partners and noncontrolling interest, sometimes the government.

So a big portion of what we generate in Indonesia goes back to the government, something on the order of 70%, whereas here in the U.S., it's a much, much lower position. But Grasberg is still very important. We dedicate a lot of our resources to it. I'm just saying that today, on a relative basis, when you look at the value of the business, we're driving a lot of value in our U.S. business, particularly with where prices are and where they could be going as we look forward as the world needs more copper and you've got this demand driving ahead of where supply can respond to.

But in terms of the Grasberg ramp-up, I -- we had the incident -- and we did an investigation, thorough investigation. We developed a plan to a phased plan to restart it, and we've been executing under that plan. We did modify the plan in April to add some upgrades to our material handling system to have a more robust plan for the long term. This wasn't a safety consideration. It really was more from a efficiency planning. But what's happened, and Chris alluded to and everybody has been asking about El Niño, it's been very dry there.

This is a place that's one of the wettest places on Earth where we get rainfall every single day. And we're used to that. We've got to manage it. We've got to develop our systems around managing the situation in any kind of weather condition. But it's been very dry. And so when we started mining again in March, while some of the material that we were mining was moist from having been idle for a period of time and from rainfall, with what's happened over the last few months, it's become much more dry, which is good for mining.

But I wouldn't overly obsess with that. It is very helpful for us. But we don't want you worried about the weather as a long-term investor. So we're putting in all of the things that we've had to do to manage that risk. We understand the climate in Indonesia is going to be wet, and we need to plan around that and make sure we've got robust systems. But we feel good about where we are. We feel like there's been a significant derisking that has occurred over the last year. Mining still is going to have challenges, always has challenges. It's the nature of it.

But we're dealing with a situation where we've got all the expertise, Freeport is really well respected in terms of its ability for block caving. We've got the best experts in the world working with us. And so we feel very good about our plans. And from a big-picture standpoint, on track. We'll always have issues to deal with. But related to the incident, we believe that, that's behind us.

So if we're trying to get Grasberg back to full capacity, obviously, a very low-cost mine when you include the byproduct. So that alone should take your weighted average net cash cost down in an industry where cost inflation is a structural problem due to declining grade. So you, kind of, have, kind of, going against the grain there with your cost actually trending lower than in the U.S., but that's just getting Grasberg back to where it was. And in a high gold price environment, obviously, very good.

In the U.S., you're working on effectively transforming the business with new leaching, low grades, as you mentioned, mines that are 100 years old. But if you can succeed with your leaching initiatives where leaching production costs are $1 per pound rather than $3 or more, that could, kind of, transform where that business sits in the cost curve as well in a world, again, where costs for others are rising.

So you have this, kind of, idiosyncratic unique opportunity to move down the cost curve, ramping up Grasberg and delivering on the leaching. So maybe you could talk about what's going on with leaching. I know it's been a big focus of yours, what's happening there.

Yes. So this opportunity that Chris is highlighting is -- when you think about our industry, a capital-intensive industry, this is an opportunity that you don't see -- you never see. I have never seen anything so exciting in my experience with the industry. This is a situation where we have material that has already been mined in -- a lot of it's in the U.S., but we've got some in Chile and in Peru, but most of it is in the U.S. It's already been mined. It's sitting in stockpiles. We use the technology of the '80s to recover a certain amount of copper from that material. But there is 40 billion pounds. And, I mean, that's 40 billion pounds is a big number. We produce plus or minus 4 billion pounds a year.

And in the U.S., we produce -- say, 1.5 billion or so. So that 40 billion pounds is a lot of material that is there. It's not in our reserves. It wasn't under the technology of 30 years ago, it wasn't believed to be recovered. Now, with new technology, and we believe at Freeport that necessity is the mother of invention. And you've got a situation where there's not -- you don't have the availability of copper resources that you once had in this industry. A lot of the easier things have been done in our industry.

So where can you go to get more? You need to go to innovation, to go to technology, go to places that you know you have resources. Exploration has been limited in terms of its success. There's been some pockets of success around the industry, but we can't rely on greenfield exploration saying that's going to bring us as much supply as we need in the future to fuel this secular growth around electrification. So what we've been working on as new technologies have evolved is how to get those 40 billion pounds -- a portion of those. We're not going to get all of them, but how to get that -- we realize that.

And so we've been using technologies to put sensors and things into these stockpiles. And now we can see where there are areas that were undertapped into. And so we've been putting in targeted drilling, targeted injections to be able to get more copper. And so we built that up to roughly 200 million pounds a year through these initiatives, these new initiatives. And so now, when we look at all the stockpiles we have and the potential from some of these R&D efforts that we're analyzing, we think we can get to 800 million pounds a year.

Now, that involves some proving of technology, but we've been investing in this over the last 3 years. And we are now in a position where we've identified some additives through our testing and chemical testing and laboratory work, some additives that could enhance the -- or we expect will enhance the recovery of copper from these stockpiles. We've got one additive we're using now that was readily available, and that's why we're deploying it. But we've got 2 additional additives that show very significant promise. And -- but those require us to find a manufacturer. It's proprietary to Freeport, is our recipe. So we've located some manufacturers that can produce this additive for us, and we should be receiving it later this year and some in early '27.

But that's going to give us the ability to test it further. The other thing that we're doing to get more recovery is increasing the temperature within the stockpiles. And when you think about copper recovery, you think about a smelter, right, a very expensive smelter that has a furnace in it, that's heating up the material to get copper recovery. Well, what we're trying to do is apply higher temperatures within these stockpiles to get more recovery. But it's already been mined. So it's sitting there. It needs some additional processing. It's not capital-intensive.

When you think about going from 200 million pounds to 800 million, that's 600 million pounds a year. Somebody is going to spend to get that on a conventional way to do it, billions and billions of dollars. Here, it's not capital-intensive. The incremental operating costs are low. Most of it's in the U.S. It is a huge value opportunity for our company and will differentiate Freeport, but we got to prove it, okay? So we don't have a huge amount put in any of our guidance at this point. But we're on the path to it. And I really do believe that it has the potential to transform our U.S. business, as Chris was saying, bring down our average cash cost and differentiate Freeport in terms of being able to -- and it goes right to cathode. So you don't need a smelter for this type of processing.

So that's -- we're playing to our strengths. And this is one of our strengths. We've got long-term expertise in this area. We're bringing in additional expertise in terms of technology experts, chemicals experts and ways to take the old technology and modify it to what's available now. And so it's very, very exciting. More to come on that. It's -- there's not really value assigned to it. Chris can answer that question more than I could, but not really value assigned in the market, but something that we want to crystallize so that you can value it.

So we're seeing the U.S. government support critical minerals projects in the U.S. There's been talk of 45X tax credits, obviously, for copper in the U.S. And I'm just wondering on the leaching initiative, is there support for some of the technologies that you're deploying now? And can you get some government assistance and financing? Or, like, what other sort of -- and maybe talk about 45X as well, like...

Yes, the government -- the U.S. government has made critical minerals a priority, and there's been a significant amount of attention on critical minerals. And on what the government can do to help the U.S. become more self-sufficient in various critical minerals, including copper. Copper has been designated as a critical mineral. So there's all kinds of incentive programs. They're looking at permit reform, which is important. There's grants and financings that companies are tapping into. And we're getting some assistance on -- we've got a opportunity at our Morenci mine. This is a big mine in Arizona with this heat project to increase temperature in the stockpiles.

One of the heat sources that we're looking at is geothermal steam on the site. And so we're getting some assistance with that. But government is very, very supportive of what we're doing. We've had a recent visit by Secretary Burgum at our smelter. We've got -- Freeport operates 1 of 2 smelters in Arizona, in Miami, Arizona. So a lot of support, a lot of interest in what we're doing, but it's going to take all of us. The other thing that the government is getting involved with, which is great, is education and attracting more talent to this industry. And that is a huge opportunity for this industry because it's a mature industry, but it's been relatively small.

And so we haven't seen investments in technology like we have in oil and gas and other sectors. That could be -- I think there's huge opportunities to improve the efficiency and profitability of this industry through technology. And so the government is involved in helping us support talent development, talent in mining. We're working to attract more and more people. Not -- and it's not just, "Are you a mining engineer?" It's like, "Are you -- can you help with technology that will help this industry be more efficient?" Because we leave a lot on the table.

I talked about this 40 billion pounds that we have already mined over many, many years, but we haven't figured out how to unlock -- it's low grades, but how to unlock the rest of the copper that's in there. So that kind of stuff needs to happen. If we're going to be able to keep copper supplies going, we need investments in technology and the government is backing that. But we're very, very appreciative of all the support that the government is giving to this industry and the priority on critical minerals.

And then 45X?

45X. That's a great, I think, I believe, a great incentive for our industry, particularly the government wanted to incentivize this processing. So for companies that have -- that are in the critical minerals business and have domestic processing, it's an incentive. And so it's a 10% production cost benefit. The first step for Freeport was to get copper on the critical minerals list, which has happened. And now figuring out how to get copper within the Treasury regulations that would allow us to take a 10% investment tax credit.

And that is a big number for us, $500 million a year of potential incentive that would allow us -- would fund a lot of our investments in the U.S. And so we're pursuing that, advocating for that. It requires congressional action, but there is some support for it and bipartisan support for incentivizing companies that have downstream processing in critical minerals.

And $500 million...

Per year.

Right. But also...

To the bottom line.

And then if you -- but if you're building Bagdad and domestic expansions, the bigger [ cost ] in the U.S.

Bigger production cost...

Yes. So -- and just in terms of the U.S. growth, I mean, I think the big project there is obviously Bagdad, which despite the fact that it's relatively capital intensive, it's still highly economic even at prices well below current spot prices. So what's the timing on that? And what are the next steps we need to work forward?

So just to give perspective on the potential U.S. growth. In copper, you read all these things that copper takes 10 to 15, sometimes 20 years to develop a new copper mine. Well, in our U.S. business, if we're successful on the leach initiative as well as move forward with the Bagdad project, we've got the potential to grow our U.S. production by 60% over the next 4 years or so. 3 to 4 years, which you don't have that in the industry. And so we got to prove out the leach technology more and move forward on Bagdad. But the timing of it is likely to be before year-end.

While it is capital intensive, like Chris said, it is -- provides a return, covers our cost of capital at a price of $4 per pound, which is well below where we are today. And would -- it fits our strategy. It would make Bagdad the second-largest copper mine in the U.S. behind our Morenci mine, which is the largest mine in North America. It would bring down -- importantly, it would bring down our costs because -- you've got with an expansion economies of scale. We already have an existing operation there. So the incremental cost of the project are low.

And there's upside to it. I mean there's making this asset -- it was built in the '40s, making this asset, investing to modernize it for the future. We just automated all the truck fleet there. So we're using autonomous haul trucks. This was first mine in the U.S. to do this. We're going to be looking at taking that technology elsewhere across our U.S. operations. So making it not what it was, but what it should be and could be and making it more resilient. So this is in a remote area where we have a social license to operate, community support and communities is really important to Freeport. They are the fabric of our business. And wherever we operate, we've got to have really strong ties to the community in a win-win situation.

And that's something we have been able to do wherever we operate, but particularly in the U.S. where we have a franchise that goes back for many, many decades. So I expect we'll get our Board's input on it, but I expect that we will be moving forward with this project, and it will be a 3-year construction project. We don't need material permitting or anything like that. So this is a "shovel-ready" project ready to go. So that's exciting. And it's part of our overall strategy to, as Chris was saying, around diversity to increase the diversification of our business and prioritize some of these really attractive opportunities we have in the U.S.

Well, it sounds very exciting. So good luck with all that. I appreciate it.

All right. Thank you so much. Thank you.

Ladies and gentlemen, thank you for standing by, and welcome to the Freeport-McMoRan Second Quarter Conference Call.

[Operator Instructions]

I'd now like to turn the conference over to Mr. David Joint, Vice President, Investor Relations. Please go ahead, sir.

Thank you, Regina, and good morning, everyone. Welcome to the Freeport conference call. Earlier this morning, FCX reported its second quarter 2026 operating and financial results. A copy of today's press release with supplemental schedules and slides are available on our website at fcx.com. Today's conference call is being broadcast live on the Internet. Anyone may listen to the call by accessing our website homepage and clicking on the webcast link for the conference call. In addition to analysts and investors, the financial press has been invited to listen to today's call. 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 Chief Financial Officer; 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?

Thanks, David, and thanks, everyone, for joining us today. We're pleased to release FCX's second quarter results. They can be described in a single word, progress. Freeport and our shareholders continue to benefit from our long-standing strategy centered on our leadership position in copper and from our portfolio of long-lived assets with established track records for operational excellence, project development and capital allocation.

Electricity means copper. As the world continues to electrify, it will need what we produce more than ever. Freeport is particularly well positioned to grow as the market grows in the future. Our team today will talk with you about the great progress we have achieved in the second quarter across our global business, notably, the positive execution of the Grasberg ramp-up and the strong operational execution and financial performance achieved in the Americas. Our large-scale, long-life production with our attractive growth pipeline positions Freeport exceptionally well.

Our aspiration continues to be foremost in copper. Kathleen and I visited Jakarta and our mine site in Papua in June. I've been traveling to Indonesia regularly since 1988. And each time I visit, I'm inspired both by Freeport's accomplishments in Papua and in Gresik and by how the Republic of Indonesia has developed and progressed over the years. The best lies ahead for Indonesia and for PT Freeport Indonesia.

I am blessed and proud to have been personally experienced and been part of this growth and progress. Our Freeport global family is proud of the commitment and significant progress achieved by our team in Papua in the ramp-up of the Grasberg Block Cave mine. The Grasberg team has great morale and enthusiasm as it continues to execute exceptionally well.

We look forward to ongoing progress with the Grasberg recovery and to completing our mine life extension with the government of Indonesia so that Freeport can continue to generate benefits for all stakeholders in the decades to come.

We are also proud of the demonstrable progress being achieved by our Americas team through the application of modern and innovative technology to increase production and lower cost to generate increasing profits from our mature mines. It's truly impressive, and again, the best lies ahead.

Our CEO, Kathleen Quirk, will now lead our discussion.

Great. Thank you, Richard, and thank all of you for participating on our call today, where we will review our second quarter performance and update you on our initiatives, projects and attractive future outlook. You'll hear today about the work our teams are doing across our global business to drive value. The progress we've made to restore large-scale production at Grasberg safely and sustainably, the advancement of operational excellence and new technology initiatives in the U.S. and progress on opportunities for an exciting new phase of organic growth.

Starting with Slide 3, we provide the highlights of our second quarter. Our sales of copper and unit cash costs were better than our forecast. We made steady progress on the Grasberg ramp-up. And combined with the favorable metal price backdrop, we generated significant margins, cash flows and earnings. The strength and diversity of our portfolio comes through in the results with our U.S. mining operations contributing 2.4x more operating income in the first half of 2026 compared with last year's first half with strong conversion to the bottom line. This is further demonstrated by a 65% increase in our consolidated net income for the first half of 2026 compared with last year's first half.

Our Grasberg ramp-up plans are on track and together with ongoing initiatives to increase production in the Americas, we are positioned for future volume and margin growth. We are advancing our future growth options with a series of projects in progress to scale production from our innovative leach initiatives. We are nearing an investment decision for a major expansion of our Bagdad mine in Arizona and advancing our regulatory work in Chile for a significant expansion at our El Abra mine.

During the quarter, we increased our ownership in Cerro Verde through the opportunistic purchase of Cerro Verde shares in the open market, bringing total purchases over an approximate 2-year time frame to over $300 million, increasing our ownership by 2% to over 55%. In addition, we returned $600 million to shareholders in the first half, including roughly $200 million in share repurchases. Our financial position remains strong and markets for our products are positive, providing a solid foundation to invest in value-enhancing growth while returning cash to shareholders.

On Slide 4, we reiterate our ongoing priorities, which are centered on our drive for increasing shareholder value. Disciplined execution of our plans, including our ramp-up progress at Grasberg, crystallizing the value of our Americas leach opportunity, adopting new technologies to improve performance and investing in profitable growth will enable us to build significant value in our business. Our team is committed to the success of these initiatives, dedicated to overcoming challenges along the way and steadfast in our drive for excellence in all that we do.

Turning to the copper markets on Slide 5. As a leading global supplier of copper, Freeport is strategically well positioned and benefits from copper's essential and increasingly important role in the global economy. Copper's superior thermal conductivity makes it the metal of electrification and the world is quickly becoming more electrified.

Globally, copper demand is expected to rise in a number of applications, including the massive requirements for the power grid to support new technologies. LME price copper prices averaged $5.93 per pound year-to-date through June and closed yesterday at $6.30 per pound on the LME, an increase of about 12% since the start of the year.

In the U.S., COMEX copper is currently trading at an approximate 2% premium to LME pricing. As we speak with our customers across the U.S., they continue to report robust copper demand and order books associated with AI data centers and related energy infrastructure and improved demand from the auto sector, which is more than offsetting weakness in private construction.

Recent reports out of China, the world's major consumer of copper reflect continued strength in copper demand associated with power grid and electrical infrastructure and significant exports of Chinese manufactured copper containing goods. Visible inventories in China continue to draw to multiyear lows and exchange inventories located outside of the U.S. are exceptionally tight.

As we look forward, it is clear the market will require additional copper supplies to meet growing demand. And at Freeport, we have a valuable geographically diverse portfolio of copper assets and are strategically well situated for the long term with large-scale production, long-life reserves and resources and a portfolio of low-risk brownfield expansion opportunities to serve a growing market.

I'm going to move to the operating highlights by geographic region, and that's on Slide 6. Starting with the U.S., we are making important and tangible progress in increasing mining and processing rates. Our equipment reliability metrics are improving with a key example at Morenci, where second quarter mining rates were 30% higher than the average achieved over the last 5 years, a great accomplishment. Sustaining the higher mining rates will translate into improved copper production over time and we expect copper production to grow in the coming quarters.

Our innovative leach initiative continues to show promise and a number of projects are in motion targeting meaningful potential to scale. The deployment of our first internally developed additive is producing results, and we're planning to field-test 2 additional high-potential additives in the coming quarters.

Pilot testing at Morenci is underway where we are testing heated solution, leaching solutions, in our existing stockpiles. We know that increased temperatures in our stockpiles will enhance recoveries, and our work is focused on finding the most effective engineering and cost solution to achieve this.

We remain encouraged with the ability to achieve further scale in the near term and unlock our long-term path to 800 million pounds per annum from this initiative. We are also continuing to incorporate innovation into our basic mining practices and see significant value in using emerging technologies to enhance operating performance.

In South America, performance was positive as the Cerro Verde team effectively navigated mine and mill constraints. Despite the challenges, mining and milling rates during the quarter exceeded expectations and sales and cost performance was slightly better than estimates going into the quarter. At El Abra, our operation in Chile in partnership with CODELCO, there is significant activity currently with a leach pad extension and plans to conduct testing in the back half of 2026 of heated stockpile injections to enhance leach recoveries.

We are pleased with the engagement with the Chilean government following the submittal in March of our environmental impact study for a major expansion at El Abra, and we continue to advance this process. We're very pleased to report steady progress with the ramp-up of the Grasberg Block Cave mine during the second quarter. As you'll see from the chart, production rates at the Grasberg Block Cave doubled during the quarter from an April average of 34,000 tons per day to an average of 69,000 tons per day in June. Upgrades to the material handling system for our automated rail system are progressing on schedule and we continue to advance work for a restart of production Block 1 South in 2027 and are progressing a series of risk mitigation initiatives.

Consistent with our April update, we continue to target overall rates in the district approximating 65% of full capacity in the second half of this year, reach 80% by mid-2027 and approach full capacity by the end of 2027. The team is doing excellent work executing the phased ramp-up safely and efficiently, and we continue to derisk the plans and increase confidence in the long-term outlook. After reaching a memorandum of understanding with the Indonesian government earlier this year to extend our operating rights for the life of the resource, we submitted a formal extension application in June in accordance with the agreed MOU terms.

Formal license approval would provide continuity of large-scale operations, enhance future growth options and durable benefits to Freeport Indonesia's many stakeholders.

Turning to growth on Slide 7. As we talked about, market fundamentals point to requirements for additional copper supply and Freeport is really well positioned to grow supply with a robust organic growth pipeline. We benefit from a portfolio of projects, which can be developed from Freeport's known resources in jurisdictions where we have established history and experience. We have progressed a number of these projects to where we now have line of sight to more advanced stages.

We're entering a period of growth in our Americas business with near- and medium-term opportunities to scale our leach initiatives and more than double production at our Bagdad mine in Arizona. We have longer-term growth in the Safford, Lone Star District and an exciting project at El Abra in Chile. As we talked about, the extension of rights at Grasberg will open up additional opportunities longer term. These projects are all brownfield in nature and leverage our existing infrastructure, our experienced workforces and relationships with key stakeholders and communities to move more quickly with less risk than a greenfield project.

We're using innovative approaches to improve efficiencies, reduce cost and capital intensity and shorten lead times for our projects. The high potential low-cost innovative leach initiative is an excellent example of using new technologies to maximize value from our existing resources. Our low capital intensity associated with the leach initiative makes it one of the more attractive investment return projects within our industry. We talked about the results from the existing additive that we're testing, and we expect additional results to come in coming quarters from both new additives that we're deploying and heated leach solutions to provide support to achieve our near-term scaling objectives and to define the pathway to significantly higher leach production over time.

We're finalizing the investment case for a major expansion at our Bagdad mine in Northwest Arizona and expect to be in a position to move towards a final decision in the second half of this year. The project benefits from a large resource in an established operating environment, opportunities to capture economies of scale and an attractive fiscal regime in the U.S. We've studied the project extensively and it would make Bagdad the second largest copper mine in the U.S. behind our flagship Morenci mine, and we've taken a number of steps to derisk the project execution.

We're continuing to finalize our capital cost estimates. We're working closely with vendors and contractors as we advance engineering to retest our capital cost estimates and update economic evaluation. While our review is ongoing, preliminary indications based on current market conditions indicate capital in the $4.5 billion range, which is approximately 30% above the estimate prepared in 2023.

The increase reflects commodity and labor escalation, revisions to project scope and updated estimates associated with additional engineering. With enhancements to the operating model, the project still remains supported at a $4 per pound price of copper, well below current markets with significant long-term exposure to favorable copper markets.

As a reminder, there are no major permitting hurdles. We've done a significant amount of planning and early work and can complete the project within a 3- to 4-year time frame. Studies are continuing in the Safford/Lone Star District, very excited about this to evaluate the optimal expansion and development options. We continue to work to capitalize on the large undeveloped resource we have in an established U.S. mining district, which is near the Morenci mine.

At El Abra, we have a great opportunity with our partner, CODELCO, to develop a large-scale expansion. This is a significant resource with total copper reserves at El Abra approaching the size of the large position we have at Cerro Verde. The Chilean government is enthusiastic about the project and is working with us to achieve a timely review of the application. The project positions us extremely well to transform El Abra from a relatively small current producer to a significant contributor in Freeport's portfolio. Again, the theme of this is an established mining operation located in a low-risk jurisdiction.

In Indonesia, we also benefit from our large resource position and have a long history and successful track record. We continue to progress the Kucing Liar project in Indonesia to sustain a low-cost, long-term production profile in the Grasberg district and a life of mine extension opens up additional future growth options.

Moving to Slide 8, where we talk about Freeport as America's copper champion, where a significant portion of our reserves, resources and future growth are located in the U.S. 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 back to the late 1800s. We're aggressively pursuing a series of initiatives to enhance our U.S. business through innovation, automation and investment in expanded facilities.

We're targeting adding production with low incremental costs to improve profitability and resiliency of our U.S. business. In an industry where development lead times can span more than a decade, our U.S. business is strongly positioned with the potential for a 60% increase in copper production over the coming years. Our team is very positive about these opportunities, and they represent a value driver of significance for Freeport.

In addition to an impressive outlook for growth, recent performance in our U.S. business is notably positive, coming in as our highest earnings contributor across the portfolio year-to-date. This highlights the exposure of our business in the U.S., the favorable copper markets and the strength of Freeport's diversified portfolio under a broad range of market conditions.

I'll now turn the call over to Maree, who will review the financial outlook, and then we'll take your questions.

Thanks, Kathleen. On Slide 9, we show our 3-year outlook for sales volumes of copper, gold and molybdenum, which remains broadly consistent with our April estimates. And as we move through 2026, we expect a large increase in second half sales volumes driven by higher volumes at Grasberg and our U.S. operations. As you'll see in the reference materials on Slide 20, our second half copper sales are expected to be over 20% higher than the first half and gold sales more than 65% higher.

For 2027, we expect annual copper sales to increase by more than 20% compared with 2026 and gold volumes to increase by more than 50% with additional growth projected in 2028 for both copper and gold. Our teams remain focused on disciplined execution of our plans globally, including the phased ramp-up progress at Grasberg, which is well underway and growth volumes in the U.S.

On last quarter's call, we discussed the cost pressures impacting our business in connection with the conflict in the Middle East and the volatility in oil and related products as well as sulfur and acid. Whilst markets remain volatile, our current estimate for 2026 average unit net cash cost approximates $1.90 per pound, slightly below the April estimate of $1.95 per pound with higher by-product credits more than offsetting other unit cost increases.

Putting together our projected volumes and cost estimates, we show modeled results on Slide 10 for EBITDA and cash flow at various copper prices ranging from $5 to $7 copper. These are modeled results using the average of 2027 and 2028 with current volume and cost estimates and holding gold flat at $4,000 per ounce and molybdenum flat at $30 per pound. Annual EBITDA would range from approximately $13 billion per annum at $5 copper to $20 billion at $7 copper with operating cash flows ranging from approximately $9.5 billion per year at $5 and $15.5 billion at $7 copper.

We show sensitivities to various commodities on the right. You will note we are highly leveraged to copper prices with each $0.10 per pound change equating to approximately $390 million in annual EBITDA in the 2027, 2028 periods. We also have exposure to gold prices with each $100 per ounce change in price, approximating $105 million in annual EBITDA. And to molybdenum, which has shown significant price strength in recent months, each $1 per pound change in molybdenum approximates $85 million per annum. With our long-lived reserves and large-scale production, we are well positioned to generate substantial cash flow to fund future organic growth and cash returns under our performance-based payout framework.

Slide 11 shows our current forecast for capital expenditures in 2026 and 2027. Our 2026 capital remains consistent with our prior forecast and 2027 capital expenditures are estimated at $4.8 billion, approximately $300 million above the April estimate, reflecting investments in upgraded mining equipment and revised cost estimates.

The discretionary projects are expected to approximate $1.6 billion in 2026 and $1.9 billion in 2027 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, upgraded mining equipment and capitalized interest.

The discretionary category reflects the capital investments we are making in new projects that under our financial policy are funded with the 50% of available cash that is not distributed. These projects are value-enhancing initiatives and are detailed on Slide 27 in our reference materials. These estimates exclude projects that remain subject to completion of final studies and Board approvals, including the Bagdad 2X expansion project. We continue to carefully manage capital expenditures and will continue to deploy capital strategically to projects with the best return and risk reward profiles.

Finally, on Slide 12, we reiterate the financial policy priorities centered on a strong balance sheet, cash returns to shareholders and investments in value-enhancing growth projects. Our balance sheet is solid with investment-grade ratings, robust credit metrics and flexibility within our debt targets to execute on our projects. We have no significant debt maturities during 2026 and have substantial flexibility for funding the 2027 maturities. With our strong balance sheet and significant cash flow generation, we have substantial resources to invest in future growth projects in a prudent manner whilst returning cash to shareholders.

Since adopting our financial policy in 2021, we have distributed $6.3 billion to shareholders through dividends and share purchases and have an attractive future long-term portfolio that will enable us to continue to build long-term value for shareholders. Our global team is focused on disciplined execution, profitable growth and long-term value creation.

Thank you for your attention. We'll now turn to questions.

[Operator Instructions]

Our first question will come from the line of Lawson Winder with Bank of America Securities.

Very nice to hear from you all. Congratulations on a solid quarter and progress at Grasberg. If I might start with Bagdad. Thank you for the additional color and the additional guidance. You've described an upfront CapEx is expected to be somewhat higher than the 2023 estimate, yet you're still looking at an incentive price of around $4 per pound. Are you seeing some offsetting operating level benefits that would offset that higher CapEx? And then should we think about a decision on this project in 2026? Or should we be thinking about that spending starting in 2027?

Thank you, Lawson, and thanks for your comments. We're doing a lot of work on the Bagdad project to be in a position to review it with our Board and seek final approval in the second half of this year. We've been doing a lot of work, as I mentioned, with our vendors and suppliers to really nail down the capital cost estimates. We're going and seeking firm bids. We've been working with the contract labor organizations who are going to supply the construction labor to define the rates and incentives to make sure that we get the best people to come to this operation.

It's a very competitive construction labor market in this region right now with the activity from everything from semiconductors to data centers, et cetera, power generation. And so we're doing a lot of work to make sure that we've got good estimates of what labor is going to cost and what all the various components are going to cost. We've taken some approaches to work on how we can be more efficient doing off-site labor, doing some prefab work and so we've done a lot of extensive work on how to execute the project.

In parallel with that, we've also been working on the operating plan and working hard to think about the future of Bagdad, not being what a typical project would be in the past but how we can look at the operating model and bring in new technologies. We've already put in the autonomous trucks there. This mine will be completely autonomous but we're looking at other areas of the operating model to be more efficient. And so we've been working on that, working on our operating plans, we've also been looking at the throughput from this concentrator and how it might impact, how we may be able to get more out of the existing plans for expansion. And so we've optimized the operating plans.

We use the long-term markets for all the input costs and still have a very attractive project when you think about at $4 copper, which is significantly below today, covering cost of capital and having exposure to this very large resource that's going to make Bagdad a lot more resilient, a lot lower cost and a modern facility that will take us out for decades.

As we bring down costs, that expands the resource. And so we're not just bringing the resource forward, but we're having the opportunity to expand the resource as we go forward. So there's a lot of attributes that as we've been working on this project, we're recognizing that the operating model can bring further efficiencies, and that's helping the economics and helping offset the higher capital cost.

Our next question will come from the line of Katja Jancic with BMO Capital Markets.

When I look at the Grasberg mine plan, it shows that in '28, there's a bit of a reduction to copper and gold production. Can you talk a bit about what is driving that?

Yes. Over the 5 years, it's very similar to what we had presented in April. We did have some lower grades in 2028 compared to the prior estimate. But in terms of the operating rates and the plans, they're all very, very similar, but there was some sequencing timing changes in the 2028 time frame.

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

Just on Grasberg, congrats on submitting the formal application for the extension. Can you maybe, Kathleen or Richard, give us an update as to what the timing and the next steps would be for hopefully reach a final agreement? And any color on potential terms that you have been discussing?

Okay. Well, the terms were agreed and negotiated as part of the memorandum of understanding. So we signed a memorandum of understanding in February with the government of Indonesia and it was witnessed by the President. And those were the terms that were negotiated and approved at the time. So what we have filed in June is the formal application consistent with the terms that were agreed to in February. So the mines -- we submitted it to the Energy and Mines Ministry, and they have a process that they go through to review these extension applications. There is a regulation that was passed some time ago that allows for life of resource extensions for companies that are integrated. And of course, now with the completion of our new smelter in Indonesia, PTFI is a fully integrated producer and supplies refined copper in Indonesia and abroad.

So it's consistent with regulations and we expect that the MOU terms will be the terms that we ultimately have under the new license. In terms of the timing, we're working diligently to respond to any questions that the Energy and Mines Ministry has. All of us want to -- we share the objective of getting this done on a timely basis. It's very important and the government recognizes this that we have sufficient time for planning the future so that we get the license extension and can begin to look at opportunities that would allow us to continue beyond 2041 to provide large-scale production with significant benefits that go to the government. The government owns 51% and will own more than that after 2041, but we also pay significant taxes and benefits to the local community.

We're all aligned of the advantages and importance of this. And so we'll work through the regulatory process as quickly as we can. But there's no prescribed time frame to getting it done but we're working very hard to get it done this year.

Carlos, when we went to Indonesia and Jakarta and later the job site in June, there was one spectacular day of all the days that I've been going there at the end of this day, I felt it was one of the best we ever had. I had the chance to have private meetings with the President and with many of his very top advisers. The President, who I've known since the 1990s was very positive and encouraging and totally understood the need to get this done, the issues if it did not get done. And he's also focused on international relations in a major way and felt that this -- getting this done would be a very positive in building good relationships between Indonesia and the United States.

So all the signals are good. As Kathleen says, we have to go through this process but everybody understands that this is something that's necessary and beneficial for all the stakeholders, not just shareholders, but for the government, the workforce, the community in Papua, which relies so heavily on people for its operations for its economy. So we feel very good about the meetings and now we just have to work through the process. And in Indonesia, sometimes that takes time.

Our next question comes from the line of Timna Tanners with Wells Fargo.

Could you provide a bit more information, please, on the purchase of the stake in Cerro Verde? And is there opportunity to do a lot more of that? How do you think about those purchases and balancing them with shareholder returns going forward?

There's a relatively small float that's publicly traded for Cerro Verde. And so when those opportunities become available, it's something that we take a hard look at. Of course, the asset is spectacular. And so Freeport would be interested if there are opportunities that arise reasonable values to continue to increase, but there's a limit on what we can do and there's not a lot that becomes available. And so we'll just have to continue to be opportunistic about it. This is investing in an operation we already own and manage and the economics have been attractive to date on our share purchases. It doesn't really impact the share buybacks at the FCX level. We're continuing that program, which is based on our -- as Maree was talking about, the performance-based where we look at the cash flows and return 50% of available cash to shareholders, both through dividends and share repurchases. But we're very pleased to own more of Cerro Verde and would be interested in owning more if the opportunities arise.

Our next question comes from the line of Nick Cash with Goldman Sachs.

Just wondering on Freeport and the ramp of Grasberg here. I mean, the 1Q guidance, I think, estimated an average of 60 kt per day in second half of '26. And you guys are exiting June at about 69 kt per day in June. Just wondering what's driving that as the ratio of wet to dry draw points improved? And could there be potential upside to that 60 kt average in the back half of this year?

Thank you, Nick. And Mark Johnson is on the line as well, and he can supplement my comments. But in terms of the second half of this year, it's in line with what we had guided to in April. We did exit June at an average of 69,000 tons a day from the Grasberg Block Cave, and our guidance is based on a 60 to 65, plus or minus in the second half.

So what's going on in the second half is that right now, we are completing the work that we were doing in one of the chute galleries associated with this spillminator work that we're doing, the chute regulator that we're putting in to allow us to have flexibility to deal with certain types of ore types. And then we will transition to another area in the second half to complete that maintenance work or those upgrades.

And so during the second half, we'll have some of our production -- we'll have some production coming on as we complete the current work and then some production going down to complete that work. So we'll kind of be at a steady state from June forward as we complete these projects to upgrade the material handling system. And then as we get into 2027, that work is completed earlier in the year and then we bring on Production Block 1 South, which will add production in 2027.

In terms of the conditions, they are good at Grasberg. We've had -- we talked about wet and dry in April, but we have had -- as we expected, but we have had some draw points that were wet in April convert to dry as we've had more activity and movement in the cave in terms of production. And also, we've had -- you read a lot about the wet conditions in Chile but we've had dry conditions in Indonesia. So our dry to wet ratio has improved throughout the quarter. But these upgrades that we're making will give us a more robust plan longer term to be able to deal with any type of material.

So that's a long-term investment that we're making, but we will have some downtime associated with that in the second half, which is all reflected in our guidance and consistent with where we targeted in April. And that work is going very well. While we're on the topic, Mark, maybe you can add a little bit about -- add to what I said, but also add about what we're doing in terms of the risk mitigation and how we're working towards being able to get back into production Block 1.

Sure. Nick, just to add to what Kathleen covered it really thoroughly. The areas in which we're currently working on the chute galleries to install the new technology that we proved up about 3 months ago. One of those is in CG-44, which has 9 chutes. It's one of our bigger production areas for the next 3 years.

So when that comes up, which we expect it to be done by the end of the year, we'll see an increase in production associated with that. There's about 25,000 to 30,000 tons a day that come out of the CG-44 area. So that will be a step change once that is complete. And then in 2027, we have some ongoing construction on implementing these chutes that will be taking place in the future '27, '28 as well.

On the mitigation, we've made progress. We've had a number of drill holes that we've been able to get into the old pit bottom. And that, along with the drier weather, the pit bottom is essentially dry. We know that the rain is going to come back at some point. It's like Kathleen said, the El Niño is going is dry for our part of Indonesia. We've got a new drill that I know we've talked about before. That's being commissioned right now. It's in place, and we should be drilling within the week on that. We'll have another drill of that same type coming in August.

And so we have plans with this new drill that where the current drill technology, we might get 5 to 10 meters a day with core drilling. This new drill, we expect to get well above 100 meters a day with a larger diameter. So that's going to be a key part of our ability to continue to address any collection of water in the pit bottom. So that's going well.

We've started a new drainage gallery that will be along the north side of the pit bottom within -- outside of the cave, but will give us additional access for drilling and other opportunities to remove any material that would gather in the pit bottom. And then we're advancing a couple of other, we're looking at being able to drop in a surface slurry pump. That work is continuing to go on. That will be something that would be more towards the end of '27.

So all of these are going in parallel. We've made good advances on all those. At the same time, we're working in the PB1 area, finishing the cleanup, reinstalling the chute gallery, reinstalling the spillminator chutes in CG-21, which services a big part of the PB1 South area. So that's on track as well.

Our next question will come from the line of Richard Garchitorena with Barclays.

Great. Kathleen, Richard and Maree, congrats on the great result in the second quarter. I just wanted to ask about the guidance for the year. It looks like there was some reorganization, sequencing, maybe at some of the mines because you had sales down versus the prior expectations for the third quarter at 750 for the quarter. And it looks like it's made up in the fourth quarter. So maybe just if you can talk about timing on that front?

Right. Thank you Rich. So for the third quarter, our production is expected to be significantly higher than sales. Most of that is in Indonesia, where we're starting to ship concentrate from the mine site. We have been shipping to one smelter. We'll start shipping in the third quarter to the new smelter and it will take some time to build up that inventory to be able to run consistently in the new smelter.

So we've got some -- as we've gone through the actual operating plans of the smelter and the timing of refined copper sales, we've got some timing adjustments between third quarter and fourth quarter but we do expect to build some inventory in the third quarter and make up some of that in the fourth quarter.

Okay. If I can ask a follow-up. In terms of cash cost, you did take the full year guidance down slightly despite obviously, gold prices coming in a little lower, I guess, we're setting the expectations $4,000. In terms of the impact from the energy, diesel, Strait of Hormuz issues, any changes to that versus what you talked about in the first quarter?

As Maree talked about earlier, situation continues to be volatile with respect to diesel prices. We are assuming prices that are pretty similar to what we experienced in the second quarter. So we changed it modestly in terms of the assumption going forward, but it's pretty similar to what we had in the second quarter. There's also some impacts of sulfur and acid that we're rolling through. But in 2026, we don't have a lot of acid that we purchased on a spot basis. So that impact is not significant.

But we will be subject to volatility in the oil markets. I know they're up today. We'll continue to monitor that. But the average is pretty similar to what the second quarter was, which was elevated compared to earlier this year. Just a comment on acid. While you see the impact of sulfuric acid in our operating costs, we also benefit from Freeport's position with -- as a fully integrated producer.

So in our revenues, we're getting the benefit of selling acid as well. So that provides an offset, but you don't necessarily see it. So that's an advantage that we have where we essentially have a hedge on sulfuric acid with our significant smelter operations.

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

I've got 3 hopefully quick questions on your U.S. business. Firstly, on Bagdad, is there any possibility that this could receive any kind of government grants or incentives to offset the CapEx budget?

Second one, just on smelting and refining growth opportunities, just given the growing importance of in-country processing assets, are you looking at any options to expand your smelting and refining capacity beyond Bagdad and your leaching operations?

And then the final third one, just on your leaching operations. What's the level of confidence in reaching this 300 million pound run rate at the end of this year? And should we view this as incremental volumes? Or will there be some offsets from lower production elsewhere in the asset base?

Thanks, Liam. In terms of incentives for Bagdad, you start with the fact that the fiscal regime in the U.S. is very attractive relative to other countries. And that's part of the reason why when you look at a mine like Bagdad, we don't have royalties because we own the land and fee. And our tax position in the U.S. is attractive even after we go through the NOLs, the effective tax rate in the U.S. is substantially lower than it is in other countries. So that really does help with the economics, having a less of a financial burden from royalties and taxes.

In terms of incentives, one of the things that we're continuing to pursue is the opportunity for because Freeport is an integrated producer, again, in the U.S., we have a smelter in Arizona, 1 of 2 smelters operating in the U.S. We would qualify under certain incentives under 45X for a 10% production tax credit. The first step was getting copper designated as a critical mineral, which was done several months ago and we appreciate the administration's work on that.

And now the next step would be to get it put into the treasury regulations that would allow for copper to conform to the critical minerals list and be part of this 45X credit, which equates to about $500 million a year. And so that would go a long way in helping us with our investment plans in the U.S. to continue to reinvest things like these production tax credits into our U.S. business.

So we're continuing to work and speak with there's some proposed bills in Congress to do this. We're continuing to work on it and that would be a really attractive way for us to make significant strategic long-term investments in the U.S.

In terms of the question about smelter, today, we process either through the smelter or through our leach processing, all of the copper that we produce in the U.S. We have had exports from time to time of concentrate, but that's been small. And essentially, we're processing either through the smelter or leach processing, everything that we produce.

With the Bagdad expansion, we could potentially look at opportunities, and we have been looking at opportunities potentially to expand the Miami smelter, which is running extremely well, performing extremely well. And so we'll continue to look at whether that makes sense for us. There are some advantages of the smelter and logistics and having that additional asset. There's some synergies that come back to our operations. So we're taking a tough look -- I mean, a hard look at that opportunity as well.

And then the third question around the target on scaling the leach opportunity. We're just around 200 plus or minus today. We are targeting getting to the run rate of 300 by the end of this year. Where we are today is a lot of the work that we've done on tactical execution and bringing in incremental pounds through the operational processes that we've been deploying. We've been installing additional irrigation lines. We've been using technologies to have targeted drilling to inject solutions.

But the next phase and very exciting phase of opportunity comes from the innovation work that we've been doing. I mentioned the additive work and the heat work. And those 2 things are going to allow us to get more scale and then define the path to really a new copper mine, the way it looks.

So Cory Stevens is on the line and his team is working on this. It's one of the most exciting things that we're doing in the company. And maybe, Cory, you can just maybe give a little more color on what we're doing to get scale in this really fun and attractive leach innovation opportunity.

Yes. Thanks, Kathleen. The base tactics, we call that leach everywhere that's been more mature as we continue to -- you're leaching with putting drip line in with helicopters or refining our raffinate injection processes with feedback loops with improved sensoring and analytics. We're even recontouring certain piles that allow us to access to areas that were unreachable before that allow us to reach before that. That's giving us a strong foundation.

And then you've got the additive work that comes behind that. So our Gen 1 additives are in deployment. The early results are better than we had expected to see and we're continuing to monitor that. But we're not waiting. We've got Gen 2 additives that we believe are a multiple effectiveness than the Gen 1, and we've already got sourcing in place and 4 targeted demonstration piles across the portfolio, a couple at Morenci, one in New Mexico and then El Abra, an additional pile there. Then so we're pretty excited about that. That's going to -- that's giving the early results from the Gen 1 is giving us good confidence on that front.

Additionally, we talked about some of the heat projects that the pilot at Morenci is going -- we've got in the final phases of construction, more of a demonstration commercial unit that's going to be starting in the second half of this year at El Abra. El Abra is particularly sensitive to temperature. So we're excited there. We're sure there's going to be learnings as we get into it, but the team is actively and dynamically thinking through all the different permutations of what could happen there and what adjustments we might make.

And so that will actually set the foundation as we go forward on those fronts for the next wave of heat as we move into the next phase. And so we've got geothermal drilling going on at Morenci that could add a substantial amount of additional heat as we refine those recipes. There's other tactics that we're going through with the smaller sites. This is opening up options to consider additional, what we call rehandle or opportunities where we can move older piles to more convenient locations to apply heat and/or additives and then below cutoff grade opportunities.

So as we consider expansions or some of our major projects with Safford, how does these new learnings come into play and add incremental value or replace the capital that you would otherwise use for more traditional methods. So all those are in flight.

Our next question will come from the line of Bill Peterson with JPMorgan.

Nice job on the quarter. I'm not sure if it was asked, but I guess for expectations around any sort of change in Section 232 copper rulings, I don't get the impression Freeport is really pushing one way or the other given there's probably pros and cons. But can you talk about how this might benefit the U.S. footprint, including how much NOLs remain and then any impact on the broader market?

Thank you, Bill. So we and the rest of the market are continuing to monitor and wait for decisions on 232. As you know, Bill, the decision last year was to review it again in terms of copper cathodes, review it again for potential to add a tariff on cathodes under a phased approach beginning in 2027. There's been no decision on that situation. You've seen the situation where a lot of copper has moved to the U.S. in anticipation that something might be coming, but there hasn't been a decision yet.

And as I mentioned before, when you look at inventories outside of the U.S., it's created a very tight market situation, particularly in the heavy consuming regions in Asia. So everyone is watching the situation closely. In terms of how it would impact Freeport, if there is a tariff and if there is a premium, all of our U.S. sales are priced on the COMEX. And so we could be in a position to get a higher price for copper on our U.S. sales than we do internationally, but we'll have to see. And you can see the breakout of our U.S. sales and that's an area that's growing, right? I mean that's an area that's growing in terms of this work we're doing on mining rate improvements and also on this leach initiative. So it would -- Freeport would be a big beneficiary of it for our U.S. business.

In terms of the NOLs, we do have about just under $6 billion of net operating losses which we can use against our U.S. income. You can probably see in the results that we started to pay -- be subject to a minimum tax in the U.S. this year, and it's relatively small effective rate is somewhere in the 6%, 7% range, and we'll pay that -- you don't take NOLs against that tax. But we do expect for the coming years for the NOLs to start to be used as we -- at current markets, but we'll have multiple years of being able to use those NOLs.

Our next question comes from the line of Bob Brackett with Bernstein Research.

I'm impressed by the Morenci mine rate being up 30% in the second quarter. Can you talk to how you're defining mine rate there? And what might the implications be for, say, copper sales going forward or lessons learned there that you could apply more broadly?

Thank you, Bob. We have been working on this for a number of years as we went through the pandemic and went through a lot of turnover in the workforce and intentionally, during the pandemic to -- because we did have a reduced workforce and did have constraints, we intentionally took down the mine rate. But then rebuilding that mine rate has been a labor and a work in process for a number of years. And so there are combination of factors that have come together to see this roughly 900,000 tons a day of material mined in the mine, and that is substantially higher than what we've achieved in the last 5 years.

A great accomplishment but it's been a lot of work, a lot of focus on -- and using technologies to allow us to be more efficient and get our equipment health and asset health because it's all interconnected with shovels and all of your equipment to get everything working to where it should be. And now we're at a point where the availabilities are -- of the existing equipment are much higher than they have been. Our maintenance programs are performing much better. We're not having as much unplanned downtime, which is an area of focus for us.

But it's really exciting, but we have to sustain it. And that's what we're emphasizing that these are disciplines that need to be institutionalized and we need to sustain it every single day. And so it's a constant. But Cory, do you want to add anything to that in terms of the journey and what we see as we go forward?

Yes, Kathleen. It's been pretty exciting. The way we talk about it internally is we're focusing on people, process and technology, and it's not one or the other. There's no technology solution that's going to be the end all be all. I mean there's a lot of hard work. We mentioned the labor workforce is stable, but now the team is stepping up and there's a lot of leadership and coordination that's going on. We've centralized some of the activities around the mine work so that we can have the expertise in the right location, providing the insights to the field folks so that they're able to make better decisions and not have to manage the 20, 30 things that they have to manage in the shift. They get these insights during the shift and being able to make the right calls as they go.

And then we're layering on more technology on top of that to add another layer of sophistication to as one piece of equipment might break down, all right, what's the best option to go to a different area. One other thing worth probably mentioning that's going to add some wind to the sails is during the second quarter. We started transitioning a number of trucks to a higher capacity 400-ton ultra-class truck. That's going to continue throughout the remainder of this year.

We've got plans to add an additional 20-plus trucks next year in the same fashion. And so as we're able to exhibit operating excellence and we get better tooling, we expect to see even better results as we go forward and work through the volumes that we want to work through.

Very clear. My follow-up would be, we're getting close to the official license for the Grasberg extension. That sort of is the flag to go back and explore. Can you tease us on how you think about exploration plans for that region once everything is done?

Well, we have some targets that we're pursuing below the Deep MLZ as an extension. And so that is exciting. We've done some drilling there. We're going to pick that back up, but that's an exciting opportunity for us. The other opportunity is our resources don't end in 2041, our existing resources. So with the Kucing Liar project as, for instance, that asset can continue to go for many years beyond 2041. So that is a way for us to really leverage the existing operations beyond 2041. So we have -- this is a district that has not been explored extensively in many years and we've just been adding extensions that could make sense within the 2041 time frame.

But with an extension, it's going to open up a whole new horizon for us with extensions of existing ore bodies, including Deep MLZ, including Kucing Liar. So it's -- and because you have that existing infrastructure, it makes it compelling from an economic standpoint.

I think it was clear from Kathleen's comments, but because we didn't have any rights beyond 2041, we haven't reported any reserves beyond 2041, even though we know that the existing resources will extend beyond that. And we've begun some of this earlier as we were making progress with the government in our negotiations. We've begun to do some extension exploration work. And that's one of the points we keep making with the government about the need to get this done as quickly as possible so that we can understand what the resources are because that will affect all of our future plans for processing, tailings control and all of that.

So there's one thing that's characterized this Grasberg district since it was first discovered in 1988. It's always gotten bigger than we -- any of us working on thought it would. And so that's why we're excited about seeing what else lies out there. And with this extension, that will give us the ability to do that.

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

Yes. Most of my questions have been asked, but two quick ones. One, you referenced some of the incremental increase in the 2028 (sic) [ 2027 ] CapEx associated with spending at Bagdad tailings and preparation for the expansion. Is that incremental to the $4.5 billion CapEx guidance? Or is it to some degree, part of that? That's the first part.

And then the second part also on the North American business. You previously guided to a target of $2.50 per pound operating costs in 2027. Is that still a valid estimate?

With respect to the first question, what is in our numbers for CapEx for Bagdad is the work that we've been doing and we're going to continue to complete on the new tailings facility. And this is work that we accelerated to put us in a position to be able to do the expansion, but was going to be required in any case with the existing assets because we've got so much reserves there, it would be required in the future.

So that is in our CapEx forecast. What we don't have in the forecast at this point is and it's pending final decision is the CapEx for the project in terms of building the concentrator and related infrastructure. And so that would be an add to the existing projects when -- to the existing CapEx when the project is approved. We have substantial ability to fund it out of cash flow, we expect, and we've been kind of planning for this for some time, and our balance sheet is in great shape as well.

In terms of the target in the U.S., we continue to have a target of $2.50 per pound. The current market conditions with energy prices and sulfur and acid prices are taking that opportunity a little bit away from us in '27, but we're continuing to work on that. We've got -- Cory talked about some of the work we're doing on automation and technology improvements to improve our basic mining practices, build more efficiencies.

The leach initiative with scale will go a long way to helping us because that is much lower cost than our roughly $3 average in the U.S. So it's still a target. It's still something we believe is achievable. At this point in time, it's not something with current markets that we can achieve in '27. But we're continuing to work on things within our control that will allow us to bring the cost down. And that incremental leach is one that will be a big driver for us.

Our next question comes from the line of Brian MacArthur with Raymond James.

A lot of them have been asked. If we can just go back to the Bagdad expansion and all this discussion about the incentive price, have you changed your assumptions for molybdenum in these economics? And if so, what molybdenum price are you using?

Second question, just on molybdenum. You are a big producer of this, and there's a lot more interest in it. It looks like the primary operations are producing a little more. Can you maybe talk about any opportunities there? And the other incentive price question, just you've talked a bit about the NOLs. In that new incentive price for Bagdad, are we assuming a lot of NOLs? Or maybe another way to ask the question is if you didn't have NOLs, all else being equal, would you still do Bagdad?

I'll start with the last part of the question. And we look at it on a pretax and an after-tax basis. And so really, on -- at the end of the day, we're looking at it on an after-tax basis, not including the NOLs. And so the project still supports at a $4 incentive price supports the economics. So it doesn't -- it's not relying on the NOLs. But it does benefit from the favorable fiscal regime that we have in the U.S. So the effective tax rate in the U.S. for mining is relatively low relative to the rest of the places where we operate.

In terms of the moly price, we always run ranges. But in terms of that $4 case, we were using a $20 moly price, which the price now is substantially higher than that, but we were using a $20 moly.

What was the second part, Brian, of the question?

Just in general, with moly being better, you do -- nobody ever -- we don't talk about it a lot, but you do have a primary molybdenum business that I assume doing a fair bit. Is there any opportunity to get additional value out of Climax and Henderson?

We do have ability at Climax. That mine could produce more moly. We also have a lot of byproduct moly. And this Bagdad mine, as you point out, has got significant byproducts. The Sierrita mine, which is one of the lowest grade copper mines is one of our lowest cost. So the lowest cost in the U.S. and benefits from its significant moly production. So with El Abra, we'll have moly in the new project. So the byproduct moly is -- that goes right to the bottom line. So that's a focus for us as well. But we do have some optionality with the big operation we have at Climax.

Great. And just maybe one last question. Assuming all the projects meet your investment hurdles, it sort of looks like Bagdad, we can make a decision maybe this year, 2 or 3, 4 years to produce it. So it's producing in early 2030. El Abra, you kind of goes through the permitting process, you're talking 2033. Safford and Lone Star, you still have to get what you need, and you talked about it being producing in the 2030s. Are the time lines of Safford and El Abra going to end up at the same time? And if so, would you feel comfortable building both of them at the same time? Or would they be kind of sequential projects just from a peer management of large project strategy?

Well, one of the things, Brian, that we know is that within the Freeport organization, when we focus on a project and put resources on it, our execution is extremely well -- extremely positive. Some of the things that lessons learned over time is doing too many at one time, not just from a financial standpoint, but just from an execution standpoint, makes it more challenging. But we are organizing right now in terms of allocating resources to Bagdad, allocating resources to El Abra.

The Safford opportunity, as Cory pointed out, is really excited because we're going to be able to use some of the learnings for it from this leach work. And so the flow sheet on Safford may look different than the others, may not be you may have a smaller concentrator and do primarily leach. So we're excited about what it might do, but we're still in the throes of studying it.

The permitting process for the Safford opportunity is compressed relative to what we have in Chile. So you could theoretically have an opportunity at Safford around the same time as El Abra. But our focus really is on defining the opportunity and then look at what makes sense, how to sequence these things, how we're resourcing it, how we execute it most efficiently. But the work we're doing today is to really crystallize the value in the option opportunity and better understand that.

Our final question will come from the line of Chris LaFemina with Jefferies.

So actually, I have two quick ones. First, on the new smelter in Indonesia. I know you received the insurance proceeds last quarter, but is there any outstanding work that needs to be done there to complete the repairs? Or is that good to go and get to full capacity? That's my first question.

And secondly, just on Kathleen, you explained earlier the variability in copper sales on a quarter-by-quarter basis through 2026, and part of that is a function of building inventories at the smelter. So you've changed your guidance quite a bit on a quarter-by-quarter basis. But I'm wondering if your internal projections on copper production rather than sales on a quarter-by-quarter basis have changed since the end of last quarter. In other words, have your production forecast been unchanged, but it's about building more inventory at the smelter, and that's why the sales are being pushed back? Is this something happening on the production side as well?

Okay. With respect to the smelter, it is the work -- all the work that we need to do with the new smelter is complete and actually had started operating last year. We completed all that work in the first part of 2025 and it had started operations during 2025 before the September event. So it has been operating in a standby mode to date. We've been taking advantage of the time to really go through and complete any work that was left over from the main project, test things. train our teams. And so that smelter has been ready to go and ready to go. I can't wait to get started.

In terms of the production, there's really no pluses and minuses. But in terms of Grasberg, really no changes in the production, but we've got a different shipping plan and operating plan for the smelter, which -- and it takes time to get through the smelter and to be able to sell the refined sales. So what you're seeing on the sales is actual refined copper sales and our production is very similar to what we talked about in April.

And I'll now turn the call over to management for any closing remarks.

Well, we appreciate everyone's participation and questions. If you have any follow-ups, feel free to reach out to David, and we look forward to reporting in the future on our progress.

Thanks, everyone, for participating onward and upward.

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

Just before we take our coffee break, I would -- well, I guess I'll introduce myself again for those who weren't here this morning. I'm Lawson Winder, BofA's Senior North American metals and mining analyst. And please join me in welcoming Kathleen Quirk, who's President and CEO of Freeport-McMoRan, an influential global mining executive and a leading voice in the global copper market with more than 20 years at Freeport, and has been instrumental in guiding that company's past and future. So hello, Kathleen. Welcome to Miami. Please join me on stage.

And folks, the setup for today's chat with Kathleen and I will be a fireside chat. We're also welcome to take questions from the audience. Hi, Kathleen.

Good to see you.

So we'll just sit down and get right into it.

Kathleen, you recently spoke about copper and copper being in a new era. You talked about it being driven by electrification and AI data centers and investment in the grid. Why the change in tone? It's quite a bit more positive than even just a year ago. And then how sustainable do you see those demand trends?

Actually, at Freeport, we have been very positive about copper going back a very long time. In 2003, the era of copper was really defined by the massive growth in China. And at that time, we started looking at the situation, growing demand for copper and started to see the issues around supply development. And so really in 2007 was when Freeport made its big strategy commitment to copper through the acquisition of Phelps Dodge.

And as you remember, Freeport at that time was about -- with Grasberg was about 60% copper, 40% gold. So it was a big copper, gold producer, and it was complicated from a multiple standpoint of how the company traded. But we really looked at the fundamentals of the copper industry and felt that the opportunities in copper would be very, very positive over the long term. We didn't expect in 2007 to see what we're seeing today where copper is becoming even more important in the global economy. It's not just about just development, urban development and development of people around the world, but it's communications, it's electrification.

And copper today is really underpinned not just by growth in China, but more broad-based. And when you look at how much is going into energy infrastructure and electrification and power grids and what's needed really to -- for countries to compete on a global basis with respect to technologies and AI, copper is right there. And copper is -- its characteristics are superior when it comes to connectivity, it's the metal when it comes to electrification. And yet over this time period, it's become even more challenging to develop new sources of supply growth.

So Freeport is committed to copper, is foremost in copper and is well positioned not only with current large-scale production, but with organic growth opportunities and some innovation and technology that will allow us to drive value in the future. So we're very, very excited about the demand drivers, which have become less cyclical recently and more secular in terms of trends and demand drivers. And Freeport is just really well positioned to participate in that.

So sticking with the copper market, supply disruptions have been a feature of the market for a decade now. To what do you attribute the heightened level of copper supply disruption recently? And then what needs to change in the industry for that track record?

So if you look back at the data and some of the industry consultants do an excellent job at tracking and so does our sell-side equity analysts as well, but tracking disruptions. And historically, they have been -- around 5% of mine supply has been subject to some type of disruption. In recent years, to your point, that has moved up, some estimate, to 6% or 7% of the market. And so it's a part of the market. It's been a feature of the market even going back more than the time frame you talked about is having mines that have issues in terms of meeting what they expected to meet on any given year.

And so when people and analysts forecast supply and demand, they usually provide some type of allowance for disruptions in their fundamental supply-demand balances. But to your question about why this is occurring and why it may be recurring at a greater scale, a couple of percentage points over historical. It's an interesting dynamic.

Historically, if you go way back, you'll see there's been a lot of disruptions that come from labor disruptions or labor issues. That's been less of a feature of the market. And I think one thing that the industry has done, our industry has done is, has improved a lot labor relations, has improved a lot on community relations. If you see -- sometimes you'll have disruptions coming from operations because of community issues or roadblocks or things like that. And I think the industry has gotten a lot better when it comes to managing risk, not only technical risk, but non-technical risk and dealing with things in a very proactive way. So that's been a positive.

But normally, when you have some large disruptions, it can come during a start-up phase. It can come early in the phase of a ramp-up of a mine. With a newer mine, you have less of a track record, you have less certainty about exactly what the -- what sort of issues you'll have to work through as you're ramping up. So many times, and we, as an industry, try to bake this in when we're giving our forecast and guidance that you are going to have some challenges when you're starting up. But sometimes they're more than what we expect.

But one of the things -- and we at Freeport feel very strongly about this but one of the things that we need to do as an industry, not just for investors, but for all of our stakeholders, for those that rely on us, our customers is have a reliable production profile. Now that is easier said than done. This industry has many, many challenges, both technical risk and non-technical risk in terms of meeting production forecast. But it's something that we have to do. As an industry, we have to do better. At Freeport, we're very focused on doing what we say, executing, understanding the risks of what we're doing, being proactive about how to address those risks.

And we've had you go back in history, and I think Freeport has a pretty good track record when it comes to execution. But we've had some issues just recently that I know many of you already know about when we had our disruption at Grasberg in September of last year. And when you have a disruption at a mine the size of Grasberg, the second largest in the world, it is a big deal. It is a big deal for supply.

Now it's our job as a management team to really work to avoid any unforeseen disruptions. And we've operated at Grasberg a very long time, and we have been operating the underground before this occurred for 5 years or so, the Grasberg block cave. We have underground history going back to the '80s. But this particular ore body we had been operating for 5 years prior to this, and had an issue which humbled us. And our team worked very, very -- under difficult circumstances and recovered very well.

Now we're back in the ramp-up mode. We've had some delays with downstream and material handling that we're working through. But when you have a big mine like Grasberg and there is an issue, it can be a big disruption to the market. And so it's our job as a management team to really work hard to avoid these situations to understand the risk to -- when there is an issue to address it very proactively. And I think our industry as a whole is getting better in many different areas of operations.

But as you think about what we're dealing with now as an industry, the technical challenges are more difficult than they were historically. The mines that are being developed now, the big, large underground mines are more technically complex than a surface mine would have been. You can't generalize every single operation. But generally, the places where we're investing, not necessarily just Freeport, but everyone in the industry is having to invest in more challenging geographies, which that brings another level of risk.

So one of the things that we benefit from at Freeport in terms of execution and managing our risk is that we're in jurisdictions where we have a lot of experience. So a lot of the growth that we're doing at Freeport is actually brownfield in nature and lower risk. We do operate some technically complex places. But for the most part, a good portion of our assets are in the Americas or in established places. And we'll talk -- we'll have a chance, I hope, later in the presentation to talk more about our growth options in the company.

But it's about understanding the risk, managing those risks, doing what you say you're going to do, being proactive, being transparent. But it's mining, we are going to have inherent risks, and it's our job as the industry and management team to be able to overcome any challenges, and that's what we focus on doing.

So for folks following your story very closely in the turnaround and ramp-up of Grasberg, what are the milestones they should be watching over the next 6 to 12 months just to know everything is on track and give them confidence that you're on the right track?

So the big milestone that we achieved in March was actually completing the work that we needed to complete between September and March, number one, to understand what caused the issue, how to avoid it in the future and to do the remedial work in order to prepare ourselves for startup. That was a big derisking period that we went through between September and March, and that was accomplished.

Now the ramp-up has started. We reported last month a slightly slower ramp-up schedule during our earnings release in April, a slower ramp-up schedule than we originally targeted. And that was to put in place some additional downstream infrastructure to deal with material types over the course of this long-term asset.

And so we made the decision to enhance the material handling systems within the operation, and that's going to require us some additional time to get to the full ramp-up, but we're operating today. We're ramping up. We expect to be at around 60%, 65% as we get into the second half of this year, reach 80% by middle of 2027 and approach full capacity by the end of 2027. This is a big operation, and we've got plans in place to install this equipment, and that will be the milestones of installing these material handling systems that allow us to transfer ore from our block cave to the railcars for further processing.

And those are the enhancements we're making to the systems now. We've got the plan. We'll continue to optimize it. We think we have opportunities to do that to optimize as we go forward. In any startup because this is now somewhat similar to a start-up, even though we have a lot of operating history, you're going to face challenges. We know that. We try to allow for time to address any challenges we may encounter as we go forward.

But our team there is very experienced, extremely experienced. We've been operating block cave mines in this district since the 1980s. Freeport has, in terms of skill sets, among the best underground mining capabilities in the industry. So we're confident in the resource. We're confident in getting back to full production, but we're doing this for the long term, and we do it in a way that will give us a more robust system, downstream system to be able to handle any type of material that's being produced from the mine.

So those are the big things. We'll report on this regularly. Every quarter, we'll give a full update as to where we stand, but our team is very confident. This is not -- this is a timing issue, as you know. It's not a change in the resource or anything like that, but we're very confident in the long-term future of this great asset. We just got our -- signed an MOU in the first quarter with the government of Indonesia to extend our operating rights beyond 2041.

So that gives us a lot of running room as we go forward with this great ore body that has both copper and gold in the same ore and is among one of the highest grade and most valuable ore bodies in the world.

So before we leave Grasberg, I like that you pivoted to the future outlook at the asset. So thinking about the extension beyond 2041, how does that change your capital allocation now that you have this longer runway?

Well, if you look back at where we were with this asset, we -- Grasberg was discovered in the late '80s. And our contract was signed -- this current one was signed in '91 and goes out to 2041. We did an amendment in 2018 when we brought in the Indonesian government as a big shareholder. But we were always thinking about the district with lenses on, that said it's 2041. But it's a huge district. And we know that there is more resource there beyond 2041.

And so what this extension really does is lifts those lenses and allows us to think about more broadly, what is the potential here. And in the past, any investment that we were making had to be robust enough to pay out before 2041. Now as we think about it, we can think about what is the best long-term value opportunity. And there are investments that we're making now like in the -- we've got an ore body that we're investing in called Kucing Liar.

Our previous economics were based on being able to generate attractive returns between now and 2041. Now that resource doesn't end in 2041. We've got a lot of resources within this district that go on and extend beyond that period of time. And so it will allow us to think about things in a much broader way to say what's the maximum potential, not having any date in mind, but what's the right way to invest here to maximize the value potential for this district for all the stakeholders.

It's not just for Freeport to benefit, but it's all the community, it's all the government stakeholders, our workforce, everyone can think about this as a life of resource type opportunity rather than saying, oh, I have to make my investments and get returns back by 2041. If you had that scenario, you wouldn't make any more investments. And so this will allow us to continue to invest in, like I said, one of the world's -- the second largest copper mine and sometimes the world's largest gold producer in any given year, single mine.

You said that very recently that novel leach would experience a pivotal change this year. And you also made other comments that it's one of the highest NPV opportunities in the portfolio. And as well, you've spoken about how heat and additives could drive another step change. When you're thinking about that asset, what needs to be proven in 2026 to then validate the path toward 400 million pounds and then 800 million pounds per year? And then how do you see the key risks of scaling that?

Okay. This is something that we're so excited about at Freeport. We have the potential with existing ore that's already been mined to reprocess the ore and recover more copper. And so what Lawson is talking about is the potential from all of these stockpiles that we have, many of which are located in the U.S., we've got over 40 billion pounds of ore that's in these stockpiles that has already been processed, but we've left behind a lot of copper.

So previously, old technology, we would have thought this was waste. Now with new technology, it can be recovered. Not all of it, but a good portion can be recovered for value. And so when you think about the potential for having 800 million pounds a year, that you can recover from existing stockpiles that have already been mined, materials in the stockpile already. So you've already incurred costs to get it there.

And now you have to come up with technology to reprocess, which we're well on our way to. It's a huge value. It's not capital intensive. It might cost to build an 800 million pound a year mine, copper mine. It might cost you $10 billion or more. Here, we don't have big capital requirements. Now we have to prove the technology, and that was what he was talking about for 2026. To date, what we've been doing is going into these stockpiles in different ways using sensors and using different operational tactics to recover more copper. And we've been successful in getting a run rate of just over 200 million pounds a year.

Now this year is pivotal for us because we're deploying not just operational tactics, but new technologies on these stockpiles. Freeport has been, over the past few years, working to develop an additive that could be applied to the stockpiles to enhance copper recoveries. And we've been working in the lab. We've been pilot testing. And now we're actually deploying this additive at scale in certain stockpiles at Morenci, our biggest mine in North America. And we're seeing encouraging results.

We also have in our lab, other additives that we've been testing that show even more promise, maybe 2 or 3x more recovery than the one that we're deploying in the field now. So a lot of promise there. We're going to start getting results as we go through the back part of this year. The other thing that -- and you think about like copper and how copper is produced and copper going through a smelter, like what catalyzes it? Heat. A smelter is a very, very hot furnace and ultimately produces copper from concentrate.

Here, we have all this copper sitting in the stockpiles, and it's been proven that the hotter the temperature, the more you raise the temperature within the stockpiles, the more recovery you're going to get. So we've been pursuing opportunities to add heat to our stockpiles. And so we -- right now, we've just deployed, we've just constructed some technology at our Morenci mine to put in some boilers. We're doing the same thing in our mine in Chile to add heat, but we're going to start directly putting heat into the stockpiles to raise the temperature to get more copper recovery.

So this information, this data that we're getting is going to guide us for the future. And between the heat and the additives, that's where we see the step change. We're well on our way. We've been investing in it. We've got all the experts, not only internally, but externally helping us through this. And we're going to crack this code. It's going to be a lot of value for Freeport, given the fact that we have this big footprint of stockpiles where we have copper that hasn't been recovered in.

I'm going to pick up on your comments about the U.S. operations. Another thing you've talked about recently is the ability to drive cost down to $2.50 from above $3 right now today in the U.S. operations. So as you think about that goal and that ambition, what's the interplay between the innovation piece of it and volume growth and then some of the external cost pressures and other factors that are ultimately going to allow you to get to that $2.50.

Yes. Well, our target has been to go -- to bring our driver cost in the U.S. down. Our U.S. mines are low-grade. And so they're higher cost than something like would be like in Indonesia or some of the international locations. So our work has been on making the U.S. operations as efficient as possible. This leach opportunity that I was just talking about is one way that we're doing that is bringing on incremental pounds rather than $3 per pound, the leach opportunity could be like $1 per pound.

And so it brings down our average cost. The more volumes we add at a lower incremental cost brings down our average cost in the U.S. The other thing we're doing is we're leaning heavily into technology. And so we're using technology in different ways than we have in the past. We're becoming a lot more automated. We just converted one of our mines in Arizona to completely autonomous. And we're leaning more heavily into technologies that will automate the business, make us more efficient, help us maintain our equipment better, help us manage downtime. All those things that will drive value in the U.S.

And I know we don't have a huge amount of time left, but I want to highlight that Freeport's U.S. business is really well positioned in this kind of environment to generate huge amounts of cash flow. It's highly leveraged. We've got low grades, relatively high cost compared to other places. But as copper prices in this environment increase, the leverage really shines through. The leverage really comes through because it goes right to the bottom line. We don't have -- in the U.S., because we own the land and fee, we don't have big -- we don't have royalties. We don't have -- we have NOLs currently.

And even when we do get into a taxpaying situation, the U.S. tax rates are low relative to what they are internationally. So our U.S. business with its growth potential, with this novel leach potential is a source of significant value for Freeport. And again, if you look at the math and look at the sensitivity of where copper prices are and you have a positive view of the copper industry, this U.S. business is going to be extremely valuable.

I want to check with folks in the audience to see if anybody had any questions. Please just pop up your hand right now if you do, and we'd be happy to address that in the few minutes that we have left. Otherwise, we do have a question from an analyst that covered you over 20 years ago.

This is going to be a real -- this is going to be from the expert. He remembers all this stuff.

The interesting thing I've noticed this morning over the presentations comparing this conference to a couple of decades ago, everything then was focused on exploration, exploration, exploration. These days, it's on brownfield expansions or call them greenfield projects adjacent to existing projects and big districts for mining instead of mines.

With that said, how does the exploration situation look going forward? Are we going to just see incremental growth in districts? And with all the growth that's predicted and analysts are very good at predictions, do you see enough supply coming online?

It's great to see you, Dan. Exploration has got to be part of the industry. I mean, we have to work to continue to try to find new resources. But as you know, that history of our industry, it's a mature industry and large discoveries are extremely rare. And Freeport used to have a chart in your days that would show all the time that showed the years of discoveries of the largest resources.

And the newest ones were places like Grasberg in 1988 or '89. And you've had others, you've had DRC, had some success in DRC. But using -- relying on exploration as your future growth is not something you can always count on. But you have to do it, you have to work on it. But what we as an industry are trying to do because we do need to grow, we do need to be able to meet the demand that's coming in this industry, we need to have more predictable sources of growth over the medium term. And those lead you to brownfield. And those are the things that can make a difference over the next 5 to 10 years.

The exploration that you're talking about is a 20-year exercise. But the things that can move the needle in the medium term are going to be brownfield opportunities. And I'm a big believer in technology because we put a lot of money in exploration. And sometimes it works, but more times than not, it doesn't. But it's something like R&D that you're investing in and you're doing a lot of work to qualify exploration, but it may not always work.

Technology is sometimes the same thing. We, as an industry, need to be putting more investment in technology. We have an industry where, like, in the leaching technology, we only recover like 40%. It depends on what the nature of the ore is, but we may only recover like 40% of the copper. We need to be recovering all of that copper, if we're going to meet the requirements of the future. And so technology investments and ways to make us more efficient. Like in the U.S., we have resources that go on for miles and miles and miles, but you hit the economic limit. So you can't produce them economically after a given period. But if you drive down your cost, guess what, you have more reserves that you can recover economically.

So those are the things that, in addition to exploration, we need to spend money on and bring in smart people and partners to help us with technology investments in this industry because I think there's still a lot of untapped potential left.

And to answer your question about meeting supply, we're committed as an industry so that our consumers rely on us, and we're committed to finding ways to grow our production in a reasonable way so that people can feel comfortable that copper is there to support their power project or data center or whatever they're doing to -- as the world becomes more and more electrified.

Kathleen, thank you very much. Folks, we're going to take a brief break right now and we'll be back in several minutes.

Ladies and gentlemen, thank you for standing by, and welcome to the Freeport-McMoRan First 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 first quarter operating and financial results. A copy of today's press release with supplemental schedules and slides are available on our website, fcx.com. Today's conference call is being broadcast live on the internet. Anyone may listen to the call by accessing our website home page 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 Chief Financial Officer; and other senior members of our management team. Richard will make some opening remarks. Kathleen will review our slide materials as well as Maree then we'll open up the call for questions. Richard?

Thank you, David, and welcome, everyone. We are now in the 20th year since Freeport combined with Phelps Dodge to create the modern Freeport by forming a global leader in copper. Our strategy was set after I became CEO in 2003, just as China merges the dominant source of copper demand. Our decision to build our company around copper was a good decision then and has only gotten better over time. We were in Chile last week for the Annual Global Copper Conference, which I first attended in 2004 and learned that the then expected supply response to China's demand would be more muted than expected. This year, there was a strong positive consensus by attendees by copper's future.

We are now in a new area of growth about copper, which is broad-based and driven by the growing demand for electricity. Simply, electricity equals copper. Our assets at Freeport are long-lived and have embedded major growth options, which we are advancing for the future. We have exciting growth ahead in the Americas with significant opportunities to improve profitability using modern technology. Grasberg will continue as a major long-term contributor to our growth and profitability with high grades of copper and gold. The extension of our rights to operate beyond 2041, pursuant to our recently signed MOU with the Government of Indonesia is positive for continuity of these benefits from this remarkable world-class history.

We just celebrated our 59th year of successfully operating in Indonesia. I personally been engaged since 1988. Our team there is best-in-class in large-scale Block Cave mining. Kathleen will review with you our operating results and outlook, including our plan to restore full production at Grasberg. I personally have complete confidence in our teams addressing the current challenges. I'm personally proud of Freeport's global team, and how our company is so well positioned for the future. Kathleen?

Great. Thank you, Richard, and thank you all for participating on our call today. We will review our first quarter performance and update you all on our initiatives, projects and outlook for the future. It's an active time for our teams across our global business as we work to restore large-scale production at Grasberg safely and sustainably, drive value through operational excellence and new technology initiatives in the U.S. and prepare for a new and exciting phase of organic growth.

Starting on Slide 3, we provide the highlights of our first quarter. Our sales of copper, gold and unit costs were better than our forecast and the favorable metal price backdrop allowed us to generate growth in revenues, EBITDA and cash flow compared with last year's first quarter despite our Indonesia operations operating at reduced capacity. The strength and diversity of our portfolio comes through in the results with our U.S. mining operations contributing 2.5x more operating income in the first quarter of this year compared with last year's first quarter, with strong conversion to the bottom line. We were successful in completing the required remediation at Grasberg to commence our phased ramp-up initially in production blocks 2 and 3 in the Grasberg Block Cave. This was an important milestone and involved impressive execution by our team. I'll cover in more detail the challenges encountered with material handling bottlenecks and the initial ramp-up, how are we addressing the issues and the impacts on our ramp-up forecast.

As Richard mentioned, a notable highlight of the quarter was the memorandum of understanding reached in February with the Government of Indonesia to extend their operating rights for the life of the resource. This is an important long-term value driver for Freeport, the government and the many stakeholders who benefit from our long-standing operations in Indonesia. We are advancing our future growth plans and submitted an environmental impact statement in March for a major expansion project in Chile. We're progressing several initiatives to scale our innovative leach project and completing our work to be in a position to potentially greenlight our brownfield expansion project at our Bagdad mine in Arizona later this year. We returned approximately $300 million to shareholders in the first quarter including common stock dividends and the purchase of 1.7 million shares of our common stock. Our balance sheet is solid, and we're in a strong position to invest in our future growth while returning cash to shareholders.

Moving to Slide 4. We summarize our priorities for 2026. These are the same priorities we set at the start of the year, and each of these represent areas of meaningful value creation. Strong execution of our plans, including achievement of a successful ramp-up at Grasberg, crystallizing the value of our leach opportunity, adopting new technologies to improve performance and investing in profitable growth will enable us to build significant value in our business. We know we will face challenges along the way, as evidenced by the current situation at Grasberg, but I'm confident our highly experienced team will address and successfully overcome any challenge with urgency and determination.

Turning to the markets on Slide 5. As a leading global supplier of copper, Freeport benefits from copper's increasingly important and critical role in the global economy. As we look forward, we see rising copper demand associated with massive requirements for the power grid to support new technologies. Copper superior conductivity makes it the metal when it comes to electrification and the world is becoming much more electrified. Copper price have averaged over $5.80 per pound year-to-date and reached an all-time high, exceeding $6 per pound in the first quarter. Demand signals remain strong. Our customers in the U.S. continue to report rising demand associated with AI data centers and related energy infrastructure, which has more than offset weakness in private construction and in the auto sector. Recent reports from China reflect a significant resurgence of demand with significant power grid spending and significant draws on Chinese exchange inventories in recent weeks.

As we step back and assess the fundamentals, we expect the market will require additional copper supplies to meet growing demand. At Freeport, we have a valuable geographically diverse portfolio of copper assets and are strategically well situated for the long term with large-scale production facilities, long-life reserves and resources and a portfolio of low-risk brownfield expansion opportunities to serve a growing market.

Turning to operations on Slide 6. We summarize the operating highlights by geographic region. Looking at the U.S., production was above the year ago quarter, but a bit lower sequentially compared with the fourth quarter of 2025 and our expectations. Our operating teams continue to focus on our operating disciplines, improving unplanned downtime and achieving sustained maximum output from our existing assets. We're really encouraged by the recent improvement in our mining rate, particularly at Morenci, where we achieved a 19% increase in rates compared with last year's first quarter. Sustaining the higher mining rates will translate into improved copper production over time, and we expect copper production to grow over the course of the year. Our innovative leach initiative continues to show real promise. We are deploying our first internally developed additive and have a line of sight to a new additive which shows significant promise in lab test. We have commenced the pilot test at Morenci to increase the temperature of our stockpiles by applying a heated leaching solution to the stockpiles. We know that higher temperatures will enhance recoveries and our work is focused on finding the most effective engineering and cost solution to achieve this.

We remain encouraged with the ability to scale to 300 million to 400 million pounds per annum in the 2026, 2027 time frame, which will unlock our path to 800 million pounds per annum from this initiative. We're continuing to lean heavily into incorporating innovation into our basic mining practices and see great potential for the tools that AI and other tools will offer to enhance operating performance. In South America, the Cerro Verde team did an excellent job navigating the first quarter with severe flooding in the Arequipa region and with challenges with mill efficiencies. We continue to expect stable production levels at Cerro Verde and some growth at El Abra, a project in Chile in partnership with CODELCO over the next couple of years. There's a lot of activity going on at El Abra currently with a leach pad extension and plans to conduct testing in late '26 of heated stockpile injections to enhance leach recoveries. As I mentioned, we filed our environmental impact statement for a major expansion at El Abra in March. This project will transform El Abra from a relatively small producer to a large-scale contributor within the Freeport portfolio.

We summarized the highlights on the Grasberg restart, and I'll provide more detail on our progress in the slides ahead. We reached agreement with our insurance providers during the quarter for a $700 million insurance recovery, which was the maximum limit under the policy. We expect to collect the proceeds during the second quarter. In Indonesia, we continue to operate one of our two smelters with available concentrate and the new smelter remains on standby status, with an expected restart later this year.

Next several slides, we're going to take you through the Grasberg update, what we've accomplished to date, and where we're moving forward as we go through 2026. There's a summary on Slide 7 of the current status of the Grasberg Block Cave. Over the last several months, we were successful in completing the activities required to restart mining and production blocks 2 and 3, and we commenced mining on a limited basis in March. As a refresher, production blocks 2 and 3 were not directly associated with the external mud rush, which occurred in production block 1C, which is located closer to the surface and beneath the low spot in the former open pit. The location and characteristics of production blocks 2 and 3 do not have the same exposure to an external mud rush as we had in production Block 1C. However, production in production blocks 2 and 3 was temporarily suspended in September 2025 to install concrete plugs to isolate production block 1C panels and ensure no connection to the surface, complete cleanup of material on the extraction and service levels, restore infrastructure on the service level and strengthen our case management plans. This was a huge undertaking and the team did a great job executing this plan.

After we completed the projects and regained access to the area, we conducted inspections and sampling of the more than 600 draw points in production blocks 2 and 3 and was able to determine that the material characteristics within the cave changed significantly over the period of inactivity with a larger proportion of wet ore within the cave compared to when we suspended operations in September 2025. This increase in what material was associated with surface water, which percolates through the pave rock within the mine and is removed from the mine through gravity drainage. Under normal conditions, active mining, assist and managing the accumulated water within the cave. We have significant experience in mining wet material, our systems to extract the ore from the draw points rise fully autonomous remote loaders that are capable of safely handling that material.

The challenge we are currently addressing is downstream of the extraction level and relates to the material handling systems for loading ore onto our automated trains. Historically, we had a higher ratio of dry material, which allowed us to manage the wet material by blending to a consistency suitable for loading through chutes onto the trains. With the current conditions, we will need to install specialized equipment on the shots to regulate the flow of ore for train loading. We've been testing this equipment over the past few years in connection with our long-range planning in anticipation of potential changes in ore conditions over time. We understand the engineered solution to this issue, but it will take time to make the modifications which limits production in PB 2 and PB 3 to what our existing chute designs can handle. We expect that the majority of these bottlenecks can be addressed by mid-2027.

In parallel with addressing the shot infrastructure in PB 2 and 3, we're also continuing to work to prepare for a future start-up of production block 1 south and advancing a series of derisking initiatives on surface drainage and other risk mitigation strategies, including the recent installation of new imaging technology to enhance cave monitoring. Our current forecast reflects our best estimate of the time frame to address the current bottleneck. Still very early in our initial ramp-up and a number of factors could affect rates positively or negatively as we go through the coming months. This is a timing issue with a designed engineer solution, not a significant cost issue and not a change in the ultimate recovery of the resource. We're confident in the ability to restore large sale production safely and efficiently as we go forward.

On Slide 8, just for some background, we provide a summary of what we presented in January and an update of our current status. As indicated, the initial restart commenced slightly ahead of our schedule. We were previously targeting production rates in PB 2 and PB 3 to ramp up to 100,000 tonnes per day in the second half of this year. With the current material handling constraints, we now expect to be limited to approximately 60,000 tonnes per day from production blocks 2 and 3 in the second half of 2026, increasing to the 90,000 tonne per day range by mid-2027 as modifications, the ore loading infrastructure are completed over the next several months. As additional information in the reference materials on Page 39 that provides details on the ramp-up.

On Slide 9, this is an illustration of the draw point comparison of the current draw points compared to September of 2025. This is a planned view of the GBC extraction level withdraw points in PB 2 and 3 color-coded to show the number of wet and dry draw points prior to suspending mining in September 2025 compared to what we're currently seeing today. As shown in September 2025, 30% of the total 635 active draw points were wet compared with 45% currently, a 50% increase in the wet draw points. For blending purposes, we require a minimum of 1:1 ratio of dry to wet material measured within each panel to meet the requirements of our existing shot design. Currently, there are 10 panels out of a total of 23 compared to only 1 in September, which do not meet the 1:1 dry-to-wet ratio criteria, resulting in a derating of production until the chute modifications are in service. We're continuing to monitor the draw points to determine potential changes and the possibility that conditions could become drier as mining rates continue. However, we believe proceeding with these modifications will provide more robust material handling systems and enhanced flexibility as we go forward over the long term.

On Slide 10, we show a diagram to illustrate the mine layout and the planned modifications downstream of the extraction level. As illustrated, mining occurs on the extraction level, and that's not where the issue is. The issue is with the ore sent to the haulage level through ore and chute passes. The bottleneck we are addressing relates to the shots that are used to load the automated trains at the haulage level, and we show photos of the current shot design and the replacement equipment to regulate the flow of what material into the railcars. This is a robust solution. There's additional information on Slide 37 in the reference materials to show you the design of these regulators.

Summing this up, we provide on Slide 11 on reports of PTFI's revised 5-year production forecast. We've incorporated adjustments to our ramp-up schedule. And over the 5 years, the revision for the Grasberg district reflects an approximate 9% in reduction for copper and 7% for gold with the largest impacts in 2026 and 2027. Again, this material is not lost and is expected to be recovered over time. As I mentioned, we're in the early stages of the ramp up. There are a number of factors would provide upside to these estimates as well as a number of risks. Again, this is not a resource recovery issue or a significant cost issue to resolve. It's a timing issue, and we will work to optimize the plans as we go forward. Our team is highly experienced, and we're confident in our ability to successfully address the current bottlenecks and restore large-scale production safely and efficiently.

Moving to our growth, which is a very exciting feature of report. As I mentioned, we're looking at the fundamental outlook for copper. It's very clear additional copper supplies are required to support energy infrastructure, new technologies and more advanced societies. At Freeport, we benefit from a portfolio of organic growth opportunities, which can be developed from our known resources in jurisdictions where we have established history and experience. Our projects in Indonesia also have the benefit of high gold content that come with copper. Because our projects are brownfield in nature, we benefit from leveraging existing infrastructure, economies of scale, experienced workforces and relationships with key stakeholders to move more quickly with less risk than a greenfield project. We're entering a period of growth in our Americas business with near- and medium-term opportunities to scale our leach initiative and double production at our Bagdad mine in Arizona. We have longer-term growth in the Safford/Lone Star District and an exciting project at El Abra in Chile. We're using innovative approaches with our projects to improve efficiencies, reduce costs and reduce capital intensity and shorten the lead times for our projects. The high potential low-cost innovative leach initiative is a great example of this, and it's likely one of the highest NPV opportunities across the industry. We have projects in the 2026 pipeline to test injection of heated solutions into our stockpiles, which together with additives have potential for significant recovery gains.

This year, particularly in the second half, will be an important year as we get results from our heat trials, advance our additive deployment and work to scale next year to 400 million pounds per annum from this initiative and to define our path to 800 million pounds by as soon as 2030. The expansion opportunity at Bagdad is moving toward an investment decision. We're advancing engineering, retesting our capital cost estimates and economic evaluations and working with our vendors to secure pricing on major components. We're continuing to advance our work on tailings infrastructure there to further enhance optionality on the timing of the project. As a reminder, there are no permitting hurdles, and we've done a significant amount of work, planning and early works so that we can complete the project within a 3- to 4-year time frame. Studies are continuing in the Safford/Lone Star District to evaluate the optimal expansion and development options, and we continue to work to capitalize on the large undeveloped resource we have at Safford/Lone Star in an established U.S. mining district. At El Abra, we have a great opportunity with our partner, CODELCO, to develop a large-scale expansion. This is a significant resource with total copper reserves at El Abra approaching the size of the large position we have at Cerro Verde.

As Richard mentioned, we were in Chile last week, and the project is being received very positively by our stakeholders. The Chilean government is enthusiastic about the project and is working with us to achieve a timely review of the application. We're also continuing to progress the Kucing Liar project in Indonesia, to sustain a low-cost, long-term production profile in this prolific district.

On Slide 13, to wrap up my comments and then Maree will cover the financials, a significant portion of our reserves, resources and future growth are in the United States. Freeport is an important copper -- American copper producer and is by far the largest contributor to the U.S. copper market with an established and successful franchise dating back to the late 1800. We call ourselves America's Copper Champion, and we are aggressively pursuing a series of initiatives to enhance our U.S. business through innovation, automation and investment in expanded facilities. These initiatives are designed to add production at a low incremental cost and improve profitability and resiliency of our valuable U.S. business. In an industry where development lead times can span more than a decade, our U.S. business is strongly positioned with the potential for a 60% increase in copper production over the next several years. Our team is excited about these opportunities, and they represent a significant value driver for all of Freeport. As I mentioned, they were working to improve our cost position in the U.S., and we've got our sights on targeted reductions as we go into 2027 and beyond. While we're currently facing some new challenges with rising energy costs and other consumables, the work we are doing within our control will make our U.S. business more resilient, more profitable and meaningfully more valuable.

I'll turn the call over to Maree, who will review our outlook, and then we'll take our questions -- your questions. Thanks.

Thanks, Kathleen. On Slide 14, we show our 3-year outlook for sales volumes of copper, gold and molybdenum. The outlook incorporates the adjusted ramp-up schedule for Grasberg that Kathleen reviewed earlier, which is the primary change from our prior estimates. As discussed earlier, these changes are timing in nature and will be recovered in the future. We expect growing volumes in 2027 and 2028 as we reach full recovery at Grasberg. We provide quarterly estimates on Page 27 of the reference materials. As ramp-up progresses, our second half volumes are expected to be approximately 30% higher for copper and approximately 50% higher for gold compared with the first half, driving earnings and cash flow in the balance of the year.

On Slide 15, we highlight renewed cost pressures we are experiencing since the onset of the conflict with Iran in late February. The price of diesel fuel, which we use to support our whole trucks in the Americas and for a portion of our power plant in Indonesia has been totaled with the most significant impact in Indonesia. To date, it has been more of a cost issue than a sourcing issue, but we continue to monitor the separation carefully. For reference, a sharp rise in diesel prices in March equates to an approximate $500 million cost increase on an annualized basis. We are also monitoring the sulfuric acid situation where prices where prices more than doubled on the spot market. We do not have significant exposure to the spot market, and we are further insulated to the sulfuric acid market volatility through our natural hedge from our smelters. We have incorporated recent diesel prices in our updated forecast and have also incorporated updated assumptions for higher gold and molybdenum prices. With these updates, and the revised production profile, our current outlook for net unit costs is expected to average $1.95 per pound of copper for the year compared with the prior estimate of $1.75 per pound. The primary driver of the change reflects the lower contribution of Grasberg volumes.

Putting together our projected volumes and cost estimates, which show modeled results on Slide 16 for EBITDA and cash flow at various copper prices ranging from $5 to $7 copper. Whilst we do not project prices, we modified the range to show sensitivities with upside and downside to the current prices. These are modeled results using the average of 2027 and 2028 with current volume and cost estimates and holding gold flat at $4,500 per ounce and molybdenum flat at $25 per pound. Annual EBITDA would range from approximately $14 billion per annum at $5 copper to $21 billion at $7 copper. With operating cash flows ranging from approximately $10 billion per year at $5 to $16 billion at $7 copper.

We saw sensitivities to various commodities on the right. You will note we're highly leveraged to copper prices with each $0.10 per pound change equating to approximately $400 million in annual EBITDA in the 2027, '28 period. We will also benefit from improving gold prices with each $100 per ounce change in price approximating $110 million in annual EBITDA. With our long lead reserves and large-scale production, we are well positioned to generate substantial cash flow to fund future organic growth and cash returns under our performance-based payout framework.

Slide 17 shows our current forecast for capital expenditures in 2026 and 2027. Capital expenditures are similar to our prior estimates and are expected to approximate $4.3 billion in 2026 and $4.5 billion in 2027. The discretionary projects are expected to approximate $1.6 billion to $1.7 billion per year in 2026 and 2027. 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 Bagdad expansion the Atlantic Copper Circular Project, which is expected to be completed during 2026 and capitalized interest.

The discretionary category reflects the capital investments we are making in new projects that under our financial policy, a fund with the 50% of available cash that is not distributed. These projects are value-enhancing initiatives and are detailed on Slide 37 in our reference materials. We continue to carefully manage capital expenditure, and we'll continue to deploy capital strategically to projects with the best return and risk reward profiles.

Finally, on Slide 18, we reiterate the financial policy priorities centered on a strong balance sheet, cash returns to shareholders and investments in value-enhancing growth 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 have no significant debt maturities through 2026 and have substantial flexibility for funding the 2027 maturities. Since adopting our financial policy in 2021, we have distributed $6 billion to shareholders through dividends and share purchases and have an attractive future long-term portfolio that will enable us to continue to build long-term value shareholders. 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. Thank you for your attention. We'll now take your questions.

[Operator Instructions] Our first question will come from the line of Carlos De Alba with Morgan Stanley.

So maybe I wanted to explore a little bit on the level of confidence that you have on the new guidance for Grasberg. Obviously, a surprise on the reservations. But as you see -- as you move forward, are there any specific points or areas where you think there might be a higher risk for the potential reductions to production or ramp up that maybe we should be aware of that might realize or not, but you could maybe Kathleen highlight for us what those will be, that will be great.

Yes. Thank you, Carlos. The main thing that we are doing to resolve the issue is to install these regulators into the shoe calories. Right now, we have the capacity to mine the material, but we're limited because of the need to have a certain type of consistency to go through the chutes. And so when we think about what the risk to the ramp-up are at this point, it is a really a construction schedule a delivery schedule from our vendor, who we were already working with. We've got the -- some of the equipment is already on site. It will be installed on a phased basis. and we have over the coming months, additional equipment that will be coming to us so that we can install these -- we call them spilmenators into the -- onto the shots. So really, it's a situation where the bottlenecks will be addressed by the installation of this equipment. And we have equipment on site now. We've got equipment on order, and it's a matter of meeting that execution timetable. I want to go back to this team and what this team accomplishes in terms of the ability to construct things at Grasberg. This is not a lot different than a lot of the things that the team has done in the past. The work that they did to prepare for restart was a really busy schedule, a lot of moving pieces, and the team did an excellent job with the support from our centralized team to execute the plan, and we'll approach this in the very same way. It's got one of the highest net present values in the business right now to get this up and running. And our team is all over it. We have confidence in the ability to meet the plan. Now the risks are that there could be delays in getting the materials. There could be construction delays, but that has been -- we've managed that through this plan that we put forward, and we'll stay on top of it until it's done. Mark Johnson is on the call as well. And Mark, if you want to add any color to what we're doing there, please go ahead.

Yes, Kathleen. We've had one of these silminators what we -- it was a prototype about a year ago that we call Version 1. What we're installing now is a reengineered version of that, Version 1.5. We've got the first one installed last week, independent of some of this recent realization on the shift in material types. So we're testing that starting this weekend. As you mentioned, we've got a number more at side. Our fabrication is taking place in Indonesia. And the group that's doing it has been very responsive to our needs. We're looking at wrapping up the capacity of that plant in Indonesia. And then also the team is looking at other ways to shorten the construction cycle on the chutes. So I -- what we've taken and what we put into the plan is what we know we can do from the past. And then like you mentioned, we'll be continuing to look for things to do that we could optimize and make that installation just that much more simple and quick.

Carlos, one other thing, and Mark can add to this, but we want to reiterate that this is -- we're in the very early stages of the ramp up. And so the sampling that we did of all of the the draw points is, as of the present time, we have a process where we sample and inspect the draw points on a regular basis. As we continue to mine, it could be that some of this bottleneck gets resolved and our traditional blending systems can accommodate the material. We have not counted on that in this forecast. We've counted on using this more robust system of regulating the flow in the chute, but we could have a situation where the material becomes dryer as material is mined. And Mark, you can add to that if you'd like.

Yes. It was kind of the unfortunate timing of ramping up just as we were doing the forecast process, really at the beginning of March, I think our forecast based on the knowledge at that time, would have been very similar to the previous estimate. So what we've done, as Kathleen has mentioned, as we started mucking, we had a higher incident of spills occurring. Some of the material that we began mucking shifted to a weather material. So what we've done is implemented what we know today and use that as our basis. What we do know is, as we mark the porosity of the material above will improve. And that's the sort of upside we might have is that as we get a broader footprint, as we begin mining more draw points, more panels that some of these could convert back to where they were. It's a process where we -- as we're mucking, we do a very frequent assessment. So it's a very dynamic process. We already mined each panel, as Kathleen mentioned, remotely. It only takes 1 draw point within a panel to be wet that we do the remote mining. So we were set up to do that from the onset. And now it's just a matter of that ratio within each panel. There's also implications from panels adjacent to a wet panel. The team has also been very innovative on being able to remotely manage other aspects within the panel like rock breakage and hung up panels. And so it's more than just the remote mucking. There's a number of other initiatives that we're pursuing that will increase the availability of the draw points.

Maybe a very, very quick follow-up. Can the regulators handle a dryer material if the ratio improves over time?

Yes. Yes. It's really about being able to shut off the flow if it gets very sloppy, and it's a very innovative design, where the gate and the hydraulic grams, actually, as the material starts to flow it assists in us being able to shut off the flow if we need to. So it's a matter of preventing spills from the -- from happening on our haulage level onto the trains. But it will also handle the dry material.

It's a very flexible, robust system. And as we mentioned, we had planned over the long term to install it, and now we're accelerating that to make the system more flexible and robust to handle any type of material.

Our next question will come from the line of Alex Hacking with Citi.

Not to Monday morning quarterback, but you've got a very experienced team there at Grasberg. How is this issue missed in the initial assessment that water would start to build up as mining was halted. And then maybe in layman's terms, like why not add more drainage to the mine?

Mark, why don't you take the last part of that and what we're doing. In terms of the first part of that, Alex, we have monitoring of the water coming in and out of the cave. And so there was nothing that was detected of any significance or any significant concern. It's just a matter of getting access to each of these draw points and to be able to inspect them, and we couldn't do that until we got access in this March time frame. The -- it doesn't take a lot to -- for something to move from dry to wet, and it's just a small amount of moisture. So this isn't like a lot of water or some big overwhelming situation, it's just the nature of what's led or moist versus what's completely dry. But we do have a number of initiatives, and that's what I wanted Mark to cover a number of initiatives that we started after the incident last September to address a more robust drainage system. But the one we have now within the Block Cave in terms of the gravity drainage is very good. The one that we are pursuing is additional drainage from the surface. But Mark, why don't we cover through that, and we've got some information in the supplemental thoughts on it as well.

Right. Yes. The slide that you're referring to is 41%. But Alex, what we have right now and what we've had in place for years is that we have a pretty comprehensive drainage plan from the surface in the open pit where the pit has not been impacted. You're aware that as we Block Cave, there's a subsiding zone where the rock breaks. And where we have the wet muck coming from is the rainfall that falls onto that broken material. Our drainage system, both for groundwater and for the surface area that's been unimpacted is very robust. It's been in place functioning. But what the wet muck generation comes from the daily rainfall, it falls on to that rock. It works its way down through the cave. And as it gets to a draw point, that draw point turns into somewhat of a funnel where it concentrates some of that flow that's within that broken rock. And as Kathleen mentioned, it's only a couple of percent difference in moisture content that can convert material from a dry material that we can handle easily to a weather material that we need to manage much more significantly. So it's not a matter really of drainage, but what we are doing as a result of the external mud rush, the other incident, obviously, that's put us into the situation in the PB 1 area is that we're looking to be able to drain the water away that collects within the cave, essentially in that shape of the old pit. And so we're drilling into some of that broken rock above PB 1. And we're seeing some initial indications even with the smaller diameter drill holes that we've been able to access some of that water, that's encouraging. We're getting some other drills that will drill those sort of holes much quicker and a bigger diameter. Those are on schedule. They're coming in should be drilling by the end of June. And then we got some other initiatives that are more focused on the PB 1, reopening of taking away that surface water that ponds or pools and any mud like material, any liquefiable material that might gather in the pit bottom.

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

Just a couple of follow-up questions on Grasberg and kind of following up on what Alex just asked. So if we look at the portion of wet draw points before the mud rush ancient, I think you said it was 30% and it's 45% now. So my first question is, what sort of variability is there around that number? In other words, was at 30%, but sometimes 35%, sometimes 25%. What level of confidence do you have in the ratio of dry to wet today. And that's the first question. Second question is on the -- like when did you identify that the -- there were too many wet draw points. I think there was a media report a couple of weeks ago that indicated that Freeport was actually ahead of schedule on the blockade ramp. And that's -- maybe that was an incorrect media report, but I'm wondering if this is something that you just learned very recently and was not an obvious problem just a few weeks ago.

Chris, on the diagram, we show on Slide 9, the number of draw points dry-tow comparison, the important thing to look at here is also the panel. So in September, we had only 1 panel within PB 2 and 3 that didn't meet the ratio. And so we were dealing with that with lending and so that was only one that we were addressing. On now, you've got 10 out of the 23 that don't meet the one-to-one. So the -- that -- what it ends up doing is derating the production of the whole panel because you can only produce the -- at the level of the 1:1 until we get these enhanced material handling systems installed. So that's an important factor in what's going on within each panel. In terms of the variability, Mark can comment further on this. But we wouldn't have had significant variability in the past, but we do have ongoing monitoring that looks to see for our processes to monitor these draw points for planning and management systems. But since we started mining, we have had some draw points that were wet initially in March go to dry and vice versa. So it is a little bit of a dynamic situation right now in the very early days of the ramp-up. As Mark talked about earlier, the timing of all this is we had just really commenced the ramp-up, and so there was new information that we were getting along the way in April as we were going through the forecasting process. Freeport, we did not modify any of our guidance, the actual progress we were making on the ramp-up in terms of -- or the products we're making on the restart was very good. As I mentioned, we got that done ahead of schedule. Some of the media reports that you may be referencing relate to some of the discussions in Indonesia, where there could be government people that are asking questions about the plan or media asking about the plan. And those would have been based on our original plan because we had not formalized our forecast until recently. Again, the recovery and the preparedness to get to the ramp-up was going very, very well, and it's only this new information that has been unfolding in recent weeks at where we had to address the forecast. Again, it's very early days and things can move from here, but we do have a solution. We're going to execute against that solution, and it's a positive long-term solution to giving us flexibility to deal with these sorts of things as we go forward over the long term.

I might just add, since the start of the Grasberg, we've also had a model that predicts the future of that wet to dry ratio. And all the way through the life of PB 2 and 3, that ratio is generally 2:1 that we have 2 draw points of drive to 1 wet. There'd be some panels that are -- that vary -- the variability is more across the footprint. But broadly, we had a much better ratio that we've been forecasting and using that as part of our mine plans, that's a big part of the reason that we built GBC to be able to be remotely mined from the onset. So we've been working on this for quite some time. It's a bit of a complex model. It's both material characteristics from size and then managing how the water makes its way through the broken rock mass. So our indications were that were much different over the longer term. It didn't indicate the need for the stilminators at this point of the mine. As Kathleen mentioned, we were working on that and saw certain panels that would require that. But what we've looked at now is a much more taking what we have today and just applying that, making sure that the chutes themselves are not the bottleneck. So the current plan is that that will replace all the chutes that will have that additional flexibility.

Our next question will come from the line of Nick Cash with Goldman Sachs.

Just wanted to switch gears a little bit here. You mentioned deploying the first initially developed additive and working on a second additive in North America. How established are the supply chains for each of these? And how quickly can you scale those additives, and how much of the $800 million guide incremental for leaching is a result from these new additives? And then lastly, given the increased deal cost and global supply chain pressures, is there any risk for the $2.50 unit cost targets for North America in '27?

Thank you, Nick. The -- in terms of the additive, the one that we're deploying now, and we started with one stockpile of Morenci and are now deploying it more broadly across the stockpiles at Morenci is readily available. And that is -- we've got a supply chain for it, and it's being applied and the results will continue to evolve as we go through the year, and that's the data that we want to see. In the lab, the additive that we're referring to, we've got two additional additives that we're focused on and maybe more after that. But we call them our next-generation additives. We've seen with these additional additives, performance in the lab that is a multiplier effect of benefit above the one we're using now. So we have been working with potential suppliers on those. It's not as easy to find, and we may have to have it made as the ones that we're using now. But we've been conducting some meetings in recent months with anticipation that we will commercialize one or more of those additives, and that's really showing potential. And to answer your question about the scaling, it's the combination of additives and heat that is going to get us to the 800 million pounds. So we can -- at the current levels, all of the initiatives we're doing on precision leaching, all those things, all the things we're doing on leach everywhere, we've got helicopters that are adding irrigation lines to places that we couldn't access before. All those things are sort of operational work that we're doing, and that will allow us to be in this 250 million pound, 300 million pound range. The rest of it really comes from the additives and heat. And it's not just one by itself because the combination of using an additive on side of heat could give you a 1 plus 1 equals 2.5 or 3. And so that's why this heat work is very important as well to get to our ramp-up rates. We've just started at Morenci. We've got a pilot where we're heating the rafinite that will go is we just really just literally just started this to heat the rafinite to try to raise temperatures within the stockpile. We're doing that on a test basis. We have our idea to put in some modular units of heat that could be applied to all of our stockpiles. Initially, we're using natural gas to heat, but we're very excited about potential to have geothermal heat at Morenci, and we've got promise there. We're actually doing some drilling to define a geothermal resource that would be a low-cost way to heat the stockpiles. So we know that heat works, raising the temperature of the stockpile will add volumes of significance. And that, combined with the additive, we have a path to getting to 800. We've got to solve what's the right additive for different material types. And we've got to solve the engineering of how to best get the temperatures raised in the stockpile. Cory Stevens is on. He and his team are leading this effort, and I'll ask Cory to make any -- and I'll come back to your 250 question, Nick. But Cory, if you want to add any color to what I just said, that would be helpful.

Yes. Thanks, Kathleen. Yes, so Kathleen said it, we've got a pilot going. We're using that to calibrate or heat models and what we would expect to see at Morenci. And in parallel, we've got a bigger project going where we're going to be tripling the size of that for our El Abra operation that's going to add some volumes there. And additionally, we have a number of other targets where we're looking at a modularized version that can be deployed more readily across the portfolio, particularly in North America. We're pretty excited about where we're headed on that front. Additionally, there's options with chemical heat using pyrite and air. Here in the second quarter, we're going to be starting our -- what we call our perfect pile in New Mexico, and that will have a next-generation design on being able to leverage heat from the natural pyrite that comes with the process there?

Nick, on the 250 question with the changes in consumable costs and energy costs, we're reviewing what all that means, and it's been a volatile situation. But in terms of where we were on that, if you looked at the energy cost, asset costs, all the various consumables in place in recent quarters, together with the addition of these low-cost incremental pounds of getting to our 400 target sometime next year. That would bring us -- so we had a path to get to 250. We now need to look at what the right environment is for things that we don't control like the cost of diesel or other inputs. And so that will cause us to relook at the 250, but the point is, is that with the input costs that we've had in place over the last several quarters and the addition of these very low-cost incremental pounds, we see being able to get our U.S. cost down significantly closer to where we are in South America. So that is still intact. We just need to continue to monitor what impact these commodity input costs will have on our cost structure. But the things that we can control, we're working very hard and have confidence that our unit cost will trend lower, all other things being equal. The sulfuric acid situation, while Maree said, we don't have a lot of spot exposure this year, we'll have to see how that unfolds as we get into next year. And while we're hedged naturally because we have the smelters, the cost of the assets that we buy will be shown in the operating cost for the U.S., and we'll have an offset elsewhere with the smelters that we have where we actually produce and sell assets. So I hope that helps you give you some color around that.

Our next question comes from the line of Bob Brackett with Bernstein Research.

Staying on the leaching theme. You all have been on a tear in terms of getting patents. I think you've had more patents in the last 3 years, a couple of dozen that you've had in the previous 10, many related to leaching. What's the philosophy of those patents? Are they sort of defensive to make sure you can execute on your inventory on your resource, or could they be potentially offensive where you could be partner and get access to additional resources with your technology?

I'll let Cory add to this, but it's really both. Our focus -- we've got 40 billion pounds-plus of copper in these stockpiles, which have been treated as waste in the past. And so there is a huge value opportunity for us and that's our immediate priority to recover some of that copper that's sitting there in stockpiles, which needs a catalyst to produce it. So that is our first priority. The second is, yes, we could leverage technologies that we develop to potentially partner with others, potentially having synergies in an M&A transaction, et cetera. But it's -- our first priority is to maximize the value of our own work here. The team we have working on this, we have a technology center in Tucson, and the team we have working on it is really, really strong. We've added to the team, recently added some chemists and some other disciplines to the team. So we have a multi-disciplined team, working not only on what's the best additive, but also what's the best way to commercialize and our corporate development team has been actively involved in that as well. So it's -- like I said, it's a very high net present value project and would transform our U.S. business and something that we're making a lot of advances to, and we're going to crack the code as we go forward.

Yes, Kathleen, you nailed it, really, we're moving forward with this powerful group of innovators and fill in the pipeline. The 42 billion pounds that are within our existing stockpiles don't count the other options that we have within our company for below cut-off grade material that we're currently considering ways today that could be extremely valuable for us in the future as these options materialize, it's a very competitive market. And so we're being very careful to protect our interests as we come up with these innovations.

Our next question comes from the line of Lawson Winder with Bank of America Securities.

If I could, I'd like to follow up on the theme of industry cost pressures and just get a sense for what you provided on the slides, and maybe this is best addressed by [indiscernible], just in terms of the sensitivity of diesel. So it's interesting. So versus the Q4 slides, it looks like diesel sensitivity has actually increased. Can you maybe just walk through why that would happen, why there'd be a large impact on EBITDA now than there was 3 months ago?

PAll right that Maree reviewed has our sensitivities to copper and all of our input costs, et cetera. And so what we do to calculate the sensitivities is use what's in that forecast for diesel price assumptions and then measure a 10 -- plus or minus 10% change to that. So we have now incorporated a higher cost of diesel in our assumptions than what we had previously, and that's why a 10% change is more than what it was before. Is that the question you were asking?

Yes, Yes. No, that's exactly right. It just seems like it was a bit nonlinear. So that's it. I guess you're just assuming much higher diesel is a base case at this point?

Right, yes. So we'll have to monitor that. We'll have to monitor it as we go. But in our forecasting process, we typically use the prices in effect around the business been volatile, but the price is in effect at the time of the forecast. So those '27, '28 have higher diesel costs than we would have had 3 months ago.

Okay. That makes perfect sense. And then just thinking about industry cost pressures. I mean there's -- we heard of explosive costs being higher, grinding media, you mentioned some insulation from sulfuric acid. When you think of some of the other key cost items for your business, are there other places where you feel there's some level of insulation? And then where are some of the other items where there might not be and there could be more exposure there?

It's been very regional, Lawson. So as Maree mentioned, we have we've had a significant rise in diesel costs, but the most significant impact has been in Indonesia and other Asian regions have experienced that inflation more significantly. We haven't seen a lot of things in terms of what we buy, being adjusted at this point. But that will be something that lags, and we'll have to see how long the situation continues and whether it will start to flow through other components of our costs. But some of the things that trade on the spot market, you can see have reacted. But a lot of our consumables are contractually negotiated. So we'll have to just continue to to monitor those.

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

Recently, we saw there was a change to Section 232 tariffs impacting derivative products. Do you see any impact from that, or do you expect any impact from that?

Not associated with what we sell. So that we have changed a lot of the codes for what gets tariffed. It did not change anything with respect to the refined copper cathodes at this point. And as you know, actually this is -- that is something that the government said they were going to be reviewing potentially by middle of this year.

And then maybe just quickly, I know you mentioned the support acid, you're hedged, but can you let us know how much of it you actually do purchase in U.S. for your U.S. operations?

It varies, but we do purchase some assets in the U.S. We also have -- of course, we have the smelter, which provides a base load of asset to our U.S. operations. We have actually a sulfur burner where we buy sulfur and convert that to acid at our Safford operation. And so it varies what we buy in terms of the amount of assets [indiscernible]. We internally generate a big portion of what's needed in the U.S. And then, of course, in Spain, where we have a smelter, that's all sold externally. And then in Indonesia, we sell acid, and we'll be selling that Grasberg ramps up, we'll be selling more acid because we'll start to operate both smelters in Indonesia. So we're net long. And we do have -- in South America, we do buy acid. And as we said, we don't have a lot of exposure to the spot market at this point in time. But if this continues, we'll have to look at what it means for 2027.

Our next question comes from the line of Timna Tanners with Wells Fargo.

Two questions from me. I wanted to follow up on the Grasberg forecast. I know you talked about it being a timing issue, but I just noticed an it's small, but it does look like some of the revisions extend out to 2029. So I just wanted some color there. And then pivoting to Peru, if I could, just would be interested in your thoughts on the upcoming political election given your presence at Cerro Verde.

On the Grasberg, the real impact, the real significant impacts were in '26 and '27. We do have a small impact in '28 and '29, but those are really on the margin, there really wasn't any. We don't -- we're not projecting any sort of issue related to this material handling issue as we get into those periods. That is just the normal forecasting updates and the founding it's pretty close to where it was.

Got it. Okay. And then your thoughts on Peru, if I could.

Politically, we work with any administration. There's been -- as you know, there have been many presidents in Peru in recent years. And so we're prepared to work with any administration that comes in. And we have a really good relationship with -- which is really important in Peru with the local communities. We know we have to earn that every day, but that's really important at the local levels as well in Peru as we manage our risk there, having that relationship and having the partnership that we have on water that we supply to Arakuipa has been been really positive for Cerro Verde. But in terms of changes in administrations will just continue to work, do the right thing, good corporate citizen in Peru with great benefits to the community. So that's been a real positive for Cerro Verde for many years, and we expect that in the future as well.

Yes, let me just add that what Kathleen mentioned about our relationship with Arakuipa is really special and our team down there, deserves a lot of credit for the way that they've built relationships with the community when so many other mining operations down there, face a lot of challenges from the community. So that's -- and we've dealt with a whole wide range of presidents, politics are very complicated, but you can look at our operating record and see how we've operated at Cerro Verde throughout all of that terminal, and I'm confident we'll continue to do so.

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

A couple for me, please. I noticed the idle cost recovery costs at Grasberg went up to $1.3 billion from $900 million previously, in terms of costs that are being excluded from your reported cash costs. Is that -- I'm just wondering, is that incremental dollars going out, or is that you're just shielding more of that from being included in cash costs?

That's basically the -- because we're not at full capacity in the second half a portion, and it will be -- start being just a declining portion, but a portion of our cost are expensed and don't go through the inventory and cost of sales. So it's really -- it's not an increase in cost. It's really characterization of whether it's included in our unit costs, or how it's treated for accounting purposes. So we're just following the accounting guidance and as we modified the ramp-up schedule since we're not at capacity yet, a portion of our costs are treated as idle and those are expensed right away. So that's really what that is. It's really no change in absolute absolute costs other than the input cost that we have with [indiscernible], et cetera. But in terms of the idle cost methodology, that's consistent.

Okay. Perfect. And then just coming back to the operating recovery at Grasberg. You've identified the chutes as being a bottleneck here for the more substantial level of wet ore. Are there any other potential bottlenecks ahead as this will get solved that could play into the recovery rates?

This is the big one. As Mark was saying, we -- our plan in terms of mining has been to have the mining capacity and the loading capacity at the distraction level to handle what material. So this is really just a logistical of how to get it loaded onto the trains. So this is really the -- solving this issue will get us where we need to be in terms of the large-scale ramp-up.

Okay. But the wet versus dry doesn't impact the capacity of the trains. Is that correct?

Right.

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

Two quick follow-up questions. Firstly, just looking at Slide 9 of the presentation again. It doesn't look like there's been any significant change in the ratio of wet to dry in PB 1S or in the other sections. Is that the right read, so no change there?

Well, this really was the -- this really was the comparison in PB 2 and PB 3 of wet to dry. So PB 1, we're still doing our work on PB 1 to be in a position to restart PB 1 South by middle of next year. So this chart really just deals with the wet to dry in PB 2 and 3. In terms of the overall the overall contribution of PB 1 and then ultimately, PB 1C, it's relatively small that we have in these forecasts. So our focus -- our initial focus is to get scale from PB 2 and PB 3 and then optimize the situation at PB 1S. And then as Mark said, as we get more of our derisking done with the work we're doing with the drainage at the surface consider reopening PB 1C. But this plan largely particularly in '26, '27, '28 time frame is largely from the PB 2, PB 3 ramp-up.

I'm sorry, go ahead. .

No, maybe you were answering that. I mean I was just going to say, are you also then installing the similar modifications to the systems in PB 1S to ensure that you can achieve nameplate capacity even if the ratio is higher in that zone as well.

Yes. So that was already planned, that was already part of our plan, is to have these devices in the panels and the chutes and PB 1, 2 calories in PB 1. But go ahead, Mark.

That was what I was going to add. I was just going to let them know that Daniel know that the chutes in PB 1 were damaged with the external mud rush. So the plan was to replace them with the newer technology.

Okay. And then just a final one. What is the CapEx associated with these modifications? And there's been no change to group CapEx guidance? And if you've deferred CapEx, is there any implications on the mine plan beyond 2030.

These are not terribly expensive equipment that we're installing. We've added something on the order of $60 million to $70 million in CapEx associated with this and had some timing variances within the plan that offset that. So it's not a major cost driver, particularly considering how much copper and gold production you get from having this. So it wasn't a big cost didn't show up as a big cost bearing capital cost payers.

And I will now turn the call over to management for any closing comments.

Well, thank you, everyone, and thanks for taking so much time with us, and we'll continue to report our progress as we go forward and we're available if anybody has any follow-ups. Thank you very much.

Thanks a lot, everyone. I can assure you we're going to be transparent and all things that go on with this ramp up. Thanks a lot.

And that concludes our call for today. Thank you all for joining. You may now disconnect.

Next up, we have Freeport. We will do this as a fireside chat. So if you do have questions, please send them in through the app. With us today is President and CEO, Kathleen Quirk. Kathleen, thank you for joining us today. And maybe to kick us off, I will turn it over to you for any opening remarks.

Great. Thank you. Thank you, Katja. It's great to be here. Happy 35th anniversary, BMO Conference. You guys have just knocked them out of the park every year, and it just only gets better. And we've just been happy as Freeport to be participating over a long period of time in this conference.

The Freeport story, all of you know well. We're very focused on our copper portfolio. We're -- we've got a big agenda for 2026. We're going to be focused on getting Grasberg back up and running. We've got great momentum there, have made good steady progress towards our scheduled plan to get our Grasberg Block Cave back up in the second quarter. We're doing a lot of work with our U.S. business to increase production and reduce costs. And then in South America and I see our great partner here at the front table, CODELCO. We're very excited about the El Abra project, which we'll be filing our environmental impact statement on in the middle of the year. So lots going on. We're focused on being foremost in copper, and it's well structured. Of course, copper is well structured. We have a great portfolio to build from and enhance shareholder value as we go forward. So I'm happy to be here and ready for your questions.

Perfect. So last week, you signed an MOU with the Indonesian government to extend your mining rights in Indonesia. Maybe first question there would be, is that a -- once it's formalized, is that going to be a permanent expansion? Or is there an expiration date?

So last week, we were in D.C. and Richard Adkerson is actually here. He was with me there. It's something that's been a personal goal of his to see Grasberg's mine life be extended, our rights to be extended for the life of this great resource. This is a place where we've operated for almost 60 years. And even though we've been there for 60 years, there is significant production in front of us, reserves in front of us, potential in front of us as we go forward. So with the completion of the smelter that we built, we now have the ability to apply for a life of resource extension.

And this MOU basically set forth the terms that would set our operating rights out for the life of the resource. It will be the license will have to be granted and the license will be reviewed every 10 years more for administrative purposes. But actually, now we can think about this great resource, planning it out, what's the optimum NPV over its life as opposed to a limited period of time. So it's very, very exciting milestone for us to be able to get that extended.

And just in regards to that, can you discuss how you think about the longer-term potential at Grasberg? In other words, are you planning to grow production there or maintain it?

Well, actually, with this extension, we can think about growing. What we have been doing up until now is looking at what our production profile is over the period before 2041 and maximizing the net present value of that resource over that period. Now with an extension beyond 2041, we can look at the resource more broadly over a multi-decade period. And when you think about mining, it is a multi-decade view. Some mines, we've got mines in the U.S. that we've been operating for over 100 years and have 100 years left of life in them. So you really need to think about these resources with a long-term view, and that's what it will allow us to do at Grasberg.

So we're very excited about it. We're going to do some more exploration drilling. We haven't done extensive exploration drilling in recent years. So we'll do -- we have some ideas about where we're going to drill. And so we're excited about that. The Kucing Liar deposit, which we're developing now, the life of that deposit will go well beyond 2041. So we won't have to spend extra capital, but we'll get more value out of Kucing Liar just by virtue of the extension. So it really does open up a lens into Grasberg that hasn't been opened for decades now. So this is really a good thing for the company, but also the Indonesian government, the people of Papua because now we can think about continuity over a very long period of time.

And then as part of the news, it was also mentioned that you could broaden marketing of Indonesian refined copper to the U.S. market if the U.S. needed it. Would that copper be shielded from any potential current or future tariffs?

So historically, Grasberg has been a concentrate -- principally all concentrate producer. We had one smelter in Indonesia that processed about 40% of our production there, and we just completed a second smelter. And so now Freeport PTFI, Freeport Indonesia is fully integrated. And so now copper cathode is produced and it could go anywhere. Wherever the market is best for that material to go, it can go anywhere. Now our plan was that the cathode would likely be in the Southeast Asia region, some in Indonesia, but other parts of Southeast Asia and China. But the U.S. is looking to broaden its supply chains. And with Freeport as an American company, having a significant participation in this mine, it does provide for good security of supply, if needed, from this asset to the U.S. But ultimately, economics will drive us to determine where the best place for the copper cathodes to flow.

You mentioned Grasberg and the restart plans. Can you talk a bit more about how the restart of the PB2 and PB3 area is current, or how you're progressing towards that?

Yes. We just gave an update on our year-end call, and things are continuing to progress from there. We have made steady progress. The mud removal within the tunnels has essentially been completed. We've been installing protective barriers, concrete plugs to isolate the area that was the area where the incident occurred. So that's essentially been done. The last part of the puzzle in order to restart PB2 and PB3 is the installation of communications and electrical services within the mine that were impacted by the incident. As you all probably know, we operate the extraction of ore from the surface. And so there is a sophisticated communication system, electrical system underground that was damaged during the mud flow.

And so we're reinstalling these communication lines and that's progressing. We expect for the construction to be completed by the end of March, and we'll start ramping up Production Block 2 and 3 during the second quarter. By second half of this year, we will have 85% of Grasberg restored. So that's a big deal. We're confident that we've got the right plan in place, the risk mitigation in place. During 2027, we will start -- we have plans to start PB1 South by middle of the year and PB1C, which is where the incident occurred, at the end of the year. Those are smaller areas of the mine. But once we get those restarted, we'll be at full production.

Are there any opportunities to maybe speed up the restart of PB1 South area?

We'll always look at those potential opportunities, but our focus is on a safe and sustainable restart of PB2 and 3. That will derisk a lot of the production if we are able to get the startup to go smoothly. We'll always look at opportunities of what we can bring forward, how we can optimize. But the team is focused on PB2 and PB3 initially.

Then when you look longer term, will the incremental risk management strategies you're currently undertaking impact the costs at Grasberg?

Of course, there will be some impact, but it's not -- it's on the margin. And at Grasberg, this has been a mine that we've had continuous improvement over our 60 years there. The automation that's taken place, the investment in technology, it's very, very sophisticated in terms of automation, underground mining, the work we do around risk management and water management has been one of continuous improvement. We benefit there from gravity drainage. We don't have to pump up water like some underground mines do. But -- so there's a lot of aspects of Grasberg that are beneficial.

But it's been one of continuous learning and continuous improvement, leaning into new technologies there. And what we found is, as we have invested in new technologies, it allows the operation to be safer. Over time, you've got investments that you're making in these technologies, but the costs actually are better if you're able to automate and put in some of these systems. So it's -- the cost issues are not something that are a big deal for us. It's more what's the right technology for the site-specific conditions that are present there.

And earlier, you mentioned the new smelter in Indonesia. Can you talk about what the current status of the smelter is?

So it's actually on standby. It's not operating. We had finished the smelter. Actually, remember, we had a fire there that we recovered from. And so it was operating -- had restarted and it was operating when this incident occurred. But it is on standby. We've got another smelter that is receiving concentrate now. That smelter is being operated. We expect that when we bring back the production in the PB2 and 3, we'll start to send concentrate to the new smelter in the second half of the year. So we'll fill up the first smelter first. And then towards -- in the second half, we'll have enough concentrate to start feeding the new smelter.

So I mean when you think about Freeport, and you talk -- and Maximo knows this, when you talk to governments around the world, every government wants to know where is your smelter? What's your smelter? Yvonne doesn't want a smelter. But at Freeport, we're fully integrated essentially. We've got a smelter in the U.S. We have a smelter in Spain. We have 2 smelters in Indonesia. So when you look at our production globally, we're fully integrated. Some of our production is produced through a leach process where you don't need a smelter. But when you look at Freeport and look at the security of supply provided by Freeport, you don't need to use a third-party smelter. Now right now, the rates are very, very cheap to go to a third-party smelter. But strategically, we can control our own destiny by having the -- already having the smelter integrated within our global portfolio.

So shifting gears to the North American operations. You're targeting potentially a 60% increase in production there. A lot of it or majority is coming from leaching and then potential Bagdad expansion. So when we look at the growth from leaching in '25, it seems like it slowed down a little bit. What gives you confidence that you could still get to that 800 million pounds per year?

Our U.S. business is extraordinarily exciting right now. If you look at our results in the fourth quarter and our segment reporting, you can see that the income from our U.S. business was 3.5x what it was the prior year. And the leverage of copper prices really comes through in our U.S. business because it drops to the bottom line. We don't have the burdens of taxes, royalties, noncontrolling interest. So anything that we're doing either from a self-help standpoint or the market is dropping to the bottom line in the U.S.

Now we are doing some things from a value-enhancing, self-help standpoint that's going to drive huge value for our U.S. business. And the leach technology that we have been working on the last 3 or 4 years is meaningful. We have reached our target of 200 million pounds per annum, and we've been kind of stable around that level. By the end of -- this past year, we were at a run rate of about 240 million pounds. But this year, we're expecting to produce about 300 million pounds from this initiative. The benefit of this is, rather than having a $3 per pound cash cost, which is our average of our U.S. business, these incremental volumes because the material has already been mined, have incremental costs of about $1 a pound. So you're talking about huge margins and cash flow generation that drop to the bottom line that allow us to essentially -- our target is to go from 200 million pounds to 800 million pounds by 2030. That's like a new mine we're developing in the U.S., principally in the U.S. We're doing some in South America, but with very little capital, very low incremental operating costs, a huge resource.

We have 40 billion pounds of material that's already been mined and sitting in stockpiles and waiting for technologies that will allow us to unlock this value. This is a real important year for us because what we've been doing up to now has been more operational, finding ways using data science and data analytics to find areas within the stockpiles that need more solution.

Now we're starting to deploy new additives, chemical reagents that we can apply to the stockpiles, and we're now field testing that on a broader scale, starting at our Morenci mine. And that we're doing this year. We're combining that with heat, where we're now injecting -- we'll be trialing this, this year and heating up the solution before it goes into the stockpile. And what the testing has shown us is that heat, combined with these new additives, kind of supercharges your recovery. So that's where we have a lot of potential to scale from the 250 million pound range to 800 million pound. And we're very, very excited about it. This year will be a real important pivotal year as we're trying to crystallize the value in this opportunity.

But when you think about an opportunity to grow our U.S. production by 60% between now and 2030, in an industry where lead times are 10 years or more, where we've already started the process, we've already got momentum, we've got another project, a more conventional project to invest in an expansion of -- a brownfield expansion of an existing mine in Arizona, you just don't see opportunities like this in the industry. And so we're in a really, really great position to grow our U.S. portfolio at a time when the U.S. is really looking for more refined copper units, and Freeport is in a really good position to build into that position.

And you said the U.S. is looking for those units, right? For -- regarding the Bagdad expansion, are there any potential opportunities to tap into government funding?

There's potentially an opportunity and the government has made it clear that they would like to facilitate the U.S. copper industry. We have access to more conventional types of financing, but we'll look at all the opportunities there. At Bagdad, we're working to get to a final investment decision this year. We're going out now with our vendor packages to confirm the capital cost estimates. That's one of the things that we want to be very, very sure about when we go into it to make sure we've got our arms around capital given what's happened in our industry over time with cost inflation. We want to be sure that we've got all of the I's dotted and the T's crossed as we go into this project. But financing is not going to be the issue with it.

And then the other thing that has been topical in North America are the costs. You have a target to reduce them closer to $2.50 by '27. Can you remind us what's going to drive the cost reduction there?

Yes. So we're -- our average cost, as I mentioned, in the U.S. is around $3 a pound. in South America, it's closer to $2.50 per pound. In Indonesia, actually, our gold revenues more than offset all of our cash cost of production. So in Indonesia, we have a negative cost, if you will, a credit. So on average, within the portfolio, last year, we averaged in the $1.65 range. This year, we expect to average $1.75, and that will decline as Grasberg comes back online. But in the U.S., we have an opportunity. The grades are low in the U.S. But as I mentioned, that doesn't tell the whole story because what you don't have in the U.S. is you don't have big -- you don't have -- we don't have royalties. We own all the land and fees, we don't pay royalties. We don't have the tax burden. So in some ways, the all-in cost isn't -- it's probably less than it is in South America when you consider taxes and other things.

But in any case, we have an opportunity to drive costs lower. And what we're doing to do that is we are working to increase volumes at a low incremental cost, which will bring down the average. And we're driving -- we're using innovation more and more in our business to improve efficiencies. One of the big areas that has impacted us in recent years, and we're not alone in this, I think it's impacted the whole industry is we've had a lot of unplanned downtime that's affected our U.S. operations and not just in the U.S. but across the globe. But the more that we can plan our work, work with our suppliers because it's not just internal, it's issues with suppliers that are providing equipment that isn't the same equipment that we've been used to getting the prior 5 years. So working to reduce downtime, to minimize unplanned downtime will allow us to not only reduce cost but to improve production.

And so we -- the $2.50 per pound is a target, to go from $3 to $2.50 over the next couple of years, but we believe with the initiatives we've got underway, both with increasing our volumes at a low incremental cost and driving greater efficiencies that we can meet that target.

We're getting towards the end of our time, but maybe one quick one on the M&A. It's very topical in the space. What is your view towards current opportunities in the market?

We're open-minded to M&A if it has the opportunity to generate value, particularly if there are opportunities for synergies. We don't have to have M&A. Freeport is very fortunate to have a significant pipeline for growth. I mentioned some of the projects that we have, the significant project we have in Chile with CODELCO, all the opportunities we have in the U.S. and of course, in Indonesia now with this extension, it's going to open up a whole new set of opportunities for us. So we have internal opportunities, but we'll always be open and willing to talk with industry participants on ways that we can generate more value for shareholders through combination. So we don't rule out anything and -- but we're focused on value for our shareholders.

Perfect. Thank you so much, Kathleen.

Thank you.

Ladies and gentlemen, thank you for standing by, and welcome to the Freeport-McMoRan Fourth 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.

Thank you, Regina, and good morning, everyone. Welcome to the Freeport conference call. Earlier this morning, FCX reported its fourth quarter and full year 2025 operating and financial results. A copy of today's press release with supplemental schedules and slides are available on our website, fcx.com.

Today's conference call is being broadcast live on the Internet. Anyone may listen to the conference call by accessing the webcast link on our home page. 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 members of our management team. Richard will make some opening remarks, Kathleen will review our slide materials and then we'll open up the call for questions. Richard?

Thanks, David. I thank each of you for joining our call today. We are pleased to report positive results for our fourth quarter. 2025 was a truly eventful year. Recent copper prices have been strong in the face of uncertainties from global trade, tariffs and geopolitical conflicts. The future for copper remains bright. Kathleen will report on the notable progress we have achieved during the fourth quarter following the September mud flow event at PT-FI. It is impressive and provides our organization confidence about our future. .

PT-FI has a well-designed plan to recover. Now we must execute and we will. Our long-term strategy commitment for Freeport to be foremost in copper remains intact. With our high-quality assets, our strong financial position and our highly motivated, confident global team, I'm personally enthusiastic and confident about Freeport's ability to create significant value for our shareholders and all of our stakeholders. Kathleen?

Thank you, Richard, and I'm going to be referring to our slide materials. We're very pleased to be here today to report on our fourth quarter results, review our 2025 performance and update you on our initiatives, projects and outlook for the future.

Starting with Slide 3 and looking back on our performance in 2025. Our team demonstrated resilience in overcoming challenges and achieved meaningful progress on several initiatives to support a strong foundation and position the company for a positive long-term future, centered on value creation.

As we look ahead, we're strongly positioned as an experienced global leader with compelling opportunities to enhance values through our ongoing operational initiatives and future prospects for substantial cash flow generation, which support investments in profitable growth and returns to shareholders. We show our annual information on this slide on Slide 3, on copper sales, unit costs and financial metrics for the year 2025.

We finished the year strong with copper sales and net unit cash costs slightly better than our adjusted guidance for the year. Despite the Grasberg incident, which impacted annual copper volumes by approximately 10% compared to our plan going into 2025, our consolidated unit net cash cost for the year of $1.65 per pound were within 3% of our guidance going into the year and adjusted EBITDA of nearly $10 billion for 2025 was similar to 2024 levels.

From a big picture standpoint, the results demonstrate the benefits of our diversified portfolio of copper assets, is clearly evident in our strong fourth quarter financial results the strength of our Americas business in this environment. I'm going to turn to our focus areas for 2026 where we summarize on Slide 4, our priorities.

The first is execution. This is a hallmark of the Freeport culture. We're committed to maintaining Freeport's long track record for successful execution, carefully planning our work and bringing relentless focus and energy on achieving our plans. The Grasberg incident was humbling but our team has risen to the challenge and is dedicated to safely and sustainably restoring our operations as we go through 2026. Across the business, we're sharply focused on delivering our planned volumes, meeting our cost targets, executing capital projects safely and efficiently and are maintaining discipline each day on the underlying metrics which drive our results, managing risk, overcoming unforeseen challenges and staying on top of what matters, both for the short term and the long term.

A second key focus area is crystallizing value in our leach opportunity. This is a meaningful value driver for our business, given the opportunity for near-term low-cost growth. The work we have done in recent years position us to scale production in the coming years and we're targeting a 40% increase in 2026 from this initiative on our path to achieving 800 million pounds per annum.

Third, we're adopting innovation, automation and new technologies to drive enhancements to reliability, efficiencies and overall operational performance. These initiatives show promise for significant value as we work to reduce costs, enhance growth and profitability of our U.S. business. We have a robust profile of organic growth options, and we'll continue to advance these initiatives during the year.

We've got 3 projects, major projects in the Americas that provide optionality for future growth. And as we go forward, our team is focused on opportunities to increase margins and cash flows through greater efficiencies and disciplined investments in long-term growth.

Turning to the markets on Slide 5. Prices on the LME during 2025 traded in a broad range. between $3.87 per pound and $5.68 per pound, averaging $4.51 per pound for the year. On the U.S. COMEX exchange, average prices for the year were slightly higher, although the differential is not significant year-to-date in 2026. Prices have risen significantly in recent months, with current LME prices approximately 30% higher than the 2025 average.

During 2025, copper prices largely track macro sentiment, market-weighed U.S. dollar weakness, expected U.S. rate cuts, accelerating AI and technology-driven demand and Chinese stimulus against mixed economic data, uncertainty around tariff and trade policy, economic pressures in China and elevated geopolitical risk. At a micro level, demand benefited from secular demand trends associated with electrification and AI data centers and offset the impact of weakness in private construction and more cyclical sectors.

Supply disruptions in copper and regional trade distortions, which drove significant material to the U.S. also impacted copper markets during 2025. In the U.S., our customers are reporting that data center demand represents the most significant source of growth for power cable and building wire. This growing sector is offsetting weakness in traditional demand sectors in residential construction and autos. Demand from China continues to be supported by significant investments in the electrical grid and continued growth in China's production of electric vehicles.

China's demand for copper continued to grow during 2025. As you'll see in this chart, global inventories of copper on exchanges have risen in recent months, during a period of sharp increases in copper prices. Most analysts are projecting that the market will be tightly balanced during 2026 with some projecting deficits and other small surpluses.

Copper superior conductivity make it the metal when it comes to electrification, massive investment in the power grid, renewable generation, technology infrastructure, and transportation are driving increased demand for copper and a forecast call for above-trend growth in demand for the foreseeable future.

As we review the fundamentals, we continue to expect the market will require additional copper supplies to meet growing demand. And at Freeport, we're well positioned to supply copper reliably and responsibly to a growing market. You've probably seen by now the recent report from S&P Global which was released earlier this month.

On Slide 6 and 7, we published some highlights of the report. It was a new study, which evaluated the role of copper in the age of artificial intelligence, and we've summarized key findings, which indicate that massive growth in demand for electricity will translate into above-trend growth in copper demand pointing to a doubling of copper demand through 2040. The study projects a long-term annual growth rate and demand of 2.9% over this period, including significant growth in new secular demand drivers. The reports available from S&P Global, and we encourage everyone to take a look at it.

Moving to our fourth quarter results on Slide 8. We've got a summary of the quarter. Our operating performance during the fourth quarter was favorable to our estimates going into the period. Production was in line with expectations and sales were better than expected principally because of timing of shipments in Indonesia. As indicated in our November update, we completed investigations on the Grasberg incident and restarted the Deep MLZ and Big Gossan mines during the fourth quarter. Since our November report, we've continued to make steady progress to prepare the Grasberg Block Cave to resume operations and we're on track for a second quarter 2026 startup.

With strength in copper prices during the quarter, the performance of our U.S. business was quite strong with operating income 3.5x the level of the 2024 fourth quarter. This demonstrates the positive leverage of pricing at these operations with strong conversion to the bottom line.

Moving to the operating statistics on Slide 9, we summarized the highlights by geographic region. Starting in the U.S., production was up 5% versus both the year ago fourth quarter and for the year 2025 versus 2024. This is notable given the declines that we faced in the prior 2 years. And despite the low grades, we've been working to increase volumes in the U.S. through efficiency gains and through our leach recovery initiatives. We're targeting an 8% increase in volumes in the U.S. for 2026 and in part related to adding scale and our innovative leach project.

We're making excellent progress with our initiatives to improve efficiencies and cost performance. We're continuing to integrate new technologies to realize better performance in our basic mining functions, and we're successful in 2025 in converting our haul truck fleet at our Bagdad mine to autonomous. We're continuing to refine the autonomous process but are optimistic that the value proposition of this technology can be applied on a broader scale.

In South America, performance was in line with expectations. The Cerro Verde team will highlight [indiscernible] strong to deliver another solid year. Our copper sales for South America for the year 2025, totaled 1.1 billion pounds and the expectations is that we'll have a similar amount of sales from South America during 2026. Our unit net cash costs in South America for the fourth quarter averaged $2.57 per pound and we expect a similar level in 2026. We're expecting stable production levels at Cerro Verde and some growth at El Abra project in Chile in partnership with CODELCO over the next couple of years. There's a lot of activity at El Abra currently with a leach pad extension and plans to conduct testing during 2026 of heated stockpile injections to enhance leach recoveries.

We're also finalizing the preparation of an environmental impact statement for a major expansion at El Abra, which we plan to submit in the first half of this year. With our progress, you'll see we added reserves for the El Abra expansion of over 17 billion pounds of copper, and we're excited about this project as we progress through the regulatory process.

In Indonesia, in line with our plans, we operated on a limited basis from the Deep MLZ and Big Gossan mines during the fourth quarter and continued our preparation for the planned restart of the Grasberg Block Cave. Sales for the fourth quarter exceeded production by about 60 million pounds of copper, which was a timing variance. Operations at 1 of 2 smelters resumed late in the year and the new smelter remains in standby status with an expected restart later this year.

We've made great progress to restore operations at the Grasberg Block Cave, which we'll cover in more detail on the next 2 slides. On Slide 10, we provide a refresher from our November call, the various work streams required to safely restart operations at the Grasberg Block Cave. As a reminder, the Grasberg Block Cave represents the most significant contributor in the district. We provided a schematic on the right showing the various production blocks within the Grasberg Block Cave.

And as a reminder, the incident occurred in Production Block 1C. Our plan incorporates a phased restart and ramp up of the Grasberg Block Cave beginning in the second quarter, initially in production blocks 2 and 3, followed by Production Block 1S in middle of 2027 and finally, Production 1C at the end of 2027.

With the successful ramp-up of production Blocks 2 and 3 beginning in the second quarter, we expect to have 85% of production restored in the district in the second half of this year. The milestones for restarting production Blocks 2 and 3 include cleanup of the mud in the tunnels, principally in the service area, the installation of cement plugs to isolate the panels in Production Block IC and to ensure there's no connection to the surface and replacement of the electrical and communication systems damaged in the incident.

For production Block 1S the repairs are expected to extend beyond the restart of PB2 and PB3, principally to install additional protective barriers and replace the number of damaged chutes used to transport ore to the haulage level. We continue to target a restart of PB 1, both PB 1S and PB 1S during 2027. And we're going to continue to progress the reopening plan as we monitor progress with various mitigation initiatives for the Production Block 1. We're incorporating recommendations from the investigation to enhance our risk management mitigation and the incident highlighted the need for more dynamic case management plans tailored for various conditions and for more robust controls and operational procedures to address areas subject to risks from an external mud rush.

In addition, we're continuing to adopt new innovative approaches to mud drainage solutions for the pit bottom. We've got those described on Slide 31 and to adopt emerging technology for imaging to improve cave shape monitoring and those are all being advanced. We've got a scorecard on Slide 11. We're very pleased with the progress that we've made to date. We're tracking the plan. Mud removals in the areas required to commence the startup of PB 2 and PB 3 is substantially complete and the barriers being installed to isolate Production Block 1 are advanced and expected to be completed in the first quarter.

With the installation of the protective plugs, infrastructure repairs are expected to move to completion by quarter end, positioning the restart to commence in the second quarter. We remain confident in reestablishing large-scale production and in our ability to safely operate this great ore body over the long term. The progress to date continues to derisk the plan and executing the restart, our team will be vigilant in prioritizing safety above all else.

We're pleased to report on our reserve at year-end 2025. Those are reported on Slide 12. As you know, at Freeport, we benefit from a significant reserve and resource position, where we have established operations and successful track records.

A summary of the reserves are indicated here where we continue to maintain long reserve lives and substantial resources to support long-term production and our growth opportunities. The reserve additions that we're reporting in 2025 are substantially in excess of our production, and those principally relate to the addition of over 17 billion pounds of copper for the El Abra project, which was previously considered a mineral resource. The reserves in Indonesia are included and reported through [ 2041 ].

And we note that an extension is in progress, and that would enable the portion of the reported resource to be included in our longer-term reserve plans. In addition to the reserves, we have significant incremental mineral resources with over half located in the United States. We'll point out the large resource in the Safford Lone Star District as we continue to advance studies to evaluate a major opportunity there.

Slide 13, we wanted to update you on our growth plans. It's clear additional copper supplies will be required to support energy infrastructure, new technologies and more advanced societies. Our projects at Freeport would provide significant copper, which can be developed from our known resources in jurisdictions where we have an established history and experience. Our projects in Indonesia also benefit from the high gold content that goes along with the copper. Because these projects are brownfield in nature, we benefit from leveraging existing infrastructure and experienced workforce and relationships with key stakeholders to move more quickly with less risk than our greenfield projects.

We're now entering a period of growth in our Americas business with near- and medium-term opportunities to scale our leach initiatives and double our production at our Bagdad mine. We have longer-term growth in the Safford Lone Star District and an exciting project, as we mentioned at El Abra in Chile. In approaching these projects, we're using innovative approaches to improve efficiencies, reduce costs and capital intensity and work to shorten lead times for our projects.

Our high potential, low-cost innovative leach initiative is a great example of doing this. We've talked about what we've done to date. We've produced over 200 million pounds from this initiative in 2025. We're targeting 300 million pounds in 2026. Some of the progress and milestones that we reached in 2025 was the initiation of deployment in the field of our first internally generated additive at Morenci. We've got encouraging results there, and we're planning to adopt it on a broader scale during 2026. We're continuing to be very encouraged by lab testing of additional additives, and those show even greater promise. We have projects in 2026 in our pipeline for the leach project to test injection of heated solutions and our stockpiles, which together with the additives have potential for significant recovery gains.

2026, we're looking at as a pivotal year for us in this initiative as we work to scale to 400 million pounds in 2027 and to 800 million pounds by 2030. Our expansion opportunity at Bagdad is advancing toward an investment decision. During the first half of the year, we're planning to advance engineering, retest the economics and work with our vendors to secure fixed pricing on major components. We're also continuing to advance our work on tailings infrastructure to further enhance the optionality on timing.

We're continuing our studies on separate Lone Star district, as we mentioned, to evaluate optimal development options. And then at El Abra, we have a great opportunity with our partner CODELCO to develop a large-scale expansion. Our total reserves at El Abra are getting close to the large position we have at Cerro Verde. This is a terrific opportunity for us, and we're looking forward to working with regulators as we commence the permitting process this year.

Progress at Kucing Liar is also continuing in Indonesia, and this will allow us to sustain a low-cost, long-term production profile in the Grasberg district. Before we get into our forecast for sales guidance and cost and cash flow, we want to highlight Freeport on Slide 14 as America's Copper Champion. 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 back to the late 1800s.

Our operations in the U.S. are fully integrated with smelting and refining facilities and leach processing that efficiently produce refined cathode. Freeport supplies 70% of the refined copper produced in the U.S. And as we pointed out, a large portion of our reserves, resources and future growth are in the U.S. We're driving a series of initiatives to enhance our U.S. business through innovation, automation and investment in expanded facilities. These initiatives are designed to add production at a low incremental cost and improve profitability and resiliency of our U.S. business.

In an industry where development lead times can span more than a decade, our business in the U.S. is strongly positioned with a potential for an over 50% increase in copper production as we go through the next 4 to 5 years. We're very excited about these opportunities, and they -- most of all, they represent a significant value driver for Freeport. Maree is going to cover our outlook and then we'll circle back and open up the call for questions.

Maree?

Thanks, Kathleen. If you turn to Slide 15, we show our 3-year outlook for sales volumes of copper, gold and molybdenum. The plans are very similar to our last update in November. Our 2026 copper sales have been adjusted slightly to address the timing of sales between 2025 and 2026. As indicated, we expect growing volumes in 2027 and 2028 as we reach full recovery at Grasberg. We provide quarterly estimates on Page 27 of the reference materials.

We expect to be at a quarterly run rate of approximately 1 billion pounds per quarter in the second half of 2026. The unit net cash costs are expected to average $1.75 per pound for 2026 assuming byproduct credits priced at $4,000 per ounce of gold and $20 per pound for molybdenum. With growing volumes, our first half costs are expected to be above the average for the year, with second half costs approximating $1.25 per pound, which is more reflective of a normalized run rate.

Flipping to Slide 16, putting together our projected volumes and cost estimates, we show modeled results on Slide 16 for EBITDA and cash flow at various copper prices ranging from $4 to $6 per pound of copper. These are [ modeled results ] using the average of 2027 and 2028 with current volume and cost estimates and holding gold flat at $4,000 per ounce and moly flat at $20 per pound.

Annual EBITDA would range from approximately $11 billion per annum at $4 per pound copper to over $19 billion per annum at $6 copper, with operating cash flows ranging from approximately $8 billion per year at $4 to over $14 billion per year at $6 copper. The dotted line shows the 2026 estimates, which reflects the phased ramp-up at Grasberg. These amounts exclude potential recovery under our property and business interruption insurance coverage.

The policy provides coverage for up to $700 million for underground losses. We show sensitivities to various commodities on the rise. You will note, we are highly leveraged to copper prices with each $0.10 per pound change equating to approximately [ $415 million ] in annual EBITDA in the 2027/2028 periods. We'll also benefit from improving gold prices with each $100 per ounce change in price approximating $120 million in annual EBITDA.

With our long-lived reserves and large-scale production, we are well positioned to generate substantial cash flow to fund future organic growth and cash returns under our performance-based payout framework.

Slide 17 shows our current forecast for capital expenditures in 2026 and 2027. Capital expenditures for 2025 totaled $3.9 billion, $0.5 billion below our plan going into 2025 and are expected to approximate $4.3 billion to $4.5 billion in 2026 and 2027. We have added $150 million in capital in 2026 to advance engineering and early works at Bagdad to enhance optionality as we work towards an investment decision targeted in the second half of the year.

The discretionary projects approximated $1.4 billion in 2025 and are expected to approximate $1.6 billion to $1.7 billion per year in 2026 and 2027, with roughly 50% related to the continual 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 during 2026 and capitalized interest.

The discretionary category reflects the capital investments we are making in new projects that under our financial policy are funded with the 50% of available cash that is not distributed. These projects are value-enhancing initiatives detailed on Slide 37 in our reference material. We continue to carefully manage capital expenditure and we'll continue to deploy capital strategically to projects with the best return and risk reward profile.

And finally, on Slide 18, we reiterate the financial policy priorities centered on a strong balance sheet, cash returns to shareholders and investments in value-enhancing growth projects. Our balance sheet is solid with investment-grade ratings, solid credit metrics and flexibility within our debt targets to execute on our projects. We have no significant debt maturities during 2026 and have substantial flexibility for funding the 2027 maturities. We have distributed $5.7 billion to shareholders through dividends and share purchases and have an attractive future long-term portfolio that will enable us to continue to build long-term value for shareholders.

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 returning cash to shareholders. Thank you for your attention. We'll now take your questions.

[Operator Instructions] Our first question will come from the line of Carlos De Lba with Morgan Stanley.

Great to see progress in Indonesia. Just wanted to understand maybe a little bit the guidance for the outer years, considering the opportunity in leaching that you have in North America. Does the numbers, your guidance include the leaching reaching around 800 million pounds in 2028 or it is not included in that official guidance?

Carlos, we've included in our outlook between 250 million and 300 million in 2026 and have not included anything beyond that for expansion. So it's around the long term, we've got around 250 million pounds in these numbers, and have the opportunity we expect to be at 300 million this year with an opportunity to scale to 400 million in '27 so there's some upside in our numbers, obviously. The slide where we're showing what the potential is getting to 2 billion pounds in the U.S. is -- includes the Bagdad expansion and getting the incremental volumes out of the leach program. So we have the potential to get to roughly 2 billion pounds in the U.S. but those aren't included in the '27/'28 guidance at this point.

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

The unit cash cost in South America are moving higher. Can you maybe elaborate what's going on there? And how we should think about costs there over the next few years?

Yes. Katja, in South America, we're forecasting net cash cost in the [ $2.58 ] range on average for 2026. Those are very similar to what we experienced during the fourth quarter of $2.57 per pound. When you look at the comparison to 2025, the increase relates mostly to labor and energy, power costs as well as labor.

You've got also a weaker dollar as well. So that's reflective, but it's very similar to what we experienced in the fourth quarter, and we'll carry that run rate forward.

Our next question comes from the line of Alex Hacking with Citi.

Yes. Thanks, Kathleen, and team. The 2027 target to get cost in the U.S. down to $2.50 a pound. Could you maybe elaborate on how you plan to get there? Because cost last year was around $3.10, you're guiding for around $3 next year -- sorry, $3 this year, even with a nice increase in U.S. production. Like how is -- how are you getting another $0.50 out by 2027?

It's really a target, and it assumes that we are successful with scaling our leach opportunity as well as continuing to drive efficiencies within the U.S. business. So it's really coming from adding volumes at a low incremental cost. We have a number of initiatives, not only in the leach initiative, but we have a number of initiatives really as we look at our U.S. operations focused on minimizing downtime, improving and just improving all of the efficiencies. And so we have really an opportunity to increase our volumes, basically with the same operating rates that we have today. So that's the target that we have and bringing in lower cost volumes will bring down the average.

Our next question comes from the line of Bob Brackett with Bernstein Research.

I'd like to talk about Slide 14 where you highlight America's copper champion. We think rough numbers, the U.S. consumes 4 billion pounds of copper, 2 billion of which is imported. In that context, if you look at your targets, you'd be adding -- rounding up 0.8 billion of that 2 billion of imports, which is a significant amount of those imports. And I'll highlight that leach initiatives deliver refined copper, not concentrate. So I guess the question would be, can you do more, but also the question is, how do you focus on this target in light of what copper tariffs could be going forward? Is that driving this production or just the unit economics in any world driving this production target?

Thanks for those comments and to highlight the leach initiatives. The exciting thing about these opportunities for us is that we're able to -- with success, and we've got to have success on our additive work and with the heat injections that we're trialing this year. With success, the incremental cost of these pounds of copper that we're bringing on are very low cost relative to the cost of what you'd have to do to actually mine the material and take it all the way through a smelter. So these are very low incremental cost pounds.

They do not require significant capital. We already have the material that's been mined and it's really the processing piece and sending some incremental dollars to improve recoveries is what we're targeting. So that is really a very exciting value creation opportunity for us when you're talking about adding these kinds of volumes in a relatively short period of time.

When you think about copper projects taking 10 years or more, if we're successful here, we can be adding a new mine with very, very low operating cost and very insignificant capital expenditures. So that's a real opportunity for us. The Bagdad project is more of a conventional opportunity. As we've talked about, we've got a very significant reserve there. And what we have been talking about for a number of years now is the opportunity to build new processing facilities and bring that value forward, and we've been doing work on enhancing the optionality of that project.

And as we look at that project today, it requires roughly a $4 average copper price to justify the investment. And of course, copper prices are higher, much higher than that today and support the project, we look at a broad range of projects of copper prices when we qualify a project. But this is one we want to put our infrastructure where we have big reserve positions, and this is one where we believe should be developed and can be developed within a short time frame. And so we're working to make sure that we have our arms around the capital and that we can execute the project efficiently. But that will be a nice addition also to domestic production in the U.S.

We're not really looking at tariffs to support this investment. We're -- because it's hard to predict what those are. We're just really looking at a broad range of absolute prices and how we can deliver a low operating cost mine and improve resiliency in the U.S.

Great. A quick follow-up would be, in the past, you've talked about the next phase of leaching as being a Phase 3. In today's presentation, you're starting to take that Phase 3 and tell us specifically how you're going to achieve it. Should I interpret that to mean that your level of conviction in the 600 million-pound target has increased over the last year or so?

Certainly, with the additive work that we've done, prior to this past year, we were doing mostly lab testing. Now we're doing more work in the field where we're actually deploying additives on stockpiles in the field. We're going to be doing that on a broader basis during 2026, and we've advanced these heat projects where essentially, we're taking the solutions that we apply on the stockpiles and heating those solutions as injecting heat into the stockpiles.

And so the -- what I say is 2026 is a pivotal year for us because we should have results on how heat and additives combined, and that really will set us up for scaling the opportunity. But you're right, we've made really good progress, particularly on the additives. We're excited to test this heat opportunity both at Morenci and El Abra this year, and that's going to be very informative to us on our path.

But we've made a lot of progress in converting some of the R&D work to early positive results. So the additive we end up with will likely be a little different than the additive we're using today. Additive we're using today is performing well. It is giving us incremental production. But we do believe, based on what we've been seeing in the lab that we'll use a variety of additives depending on the stockpiles to drive the best recoveries that we can get. And we really think we're on to something. We've got a little work to do, but this is a huge value creator for Freeport, particularly in our U.S. business.

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

Thank you very much, operator. And Kathleen, thank you for today's update. If I could just pick up on some of the comments you made on Bagdad 2x, can you maybe give us a sense of a more precise timing this year for the update that would be one. And then thinking about the CapEx, I mean, the slides highlight that the CapEx is still under review.

What we've been seeing in the industry over the past several years is typical CapEx inflates at about 5% per year versus the 2023 [ $3.5 billion ], is that like a reasonable way to think about what's the level of CapEx inflation. And then are there any changes to the plan being contemplated with this latest updated study that could potentially change the approach of the overall mine plan for the CapEx? And then just finally, I mean, you highlight the attractiveness of this project at the current copper price given that it works at $4.

I mean outside of the copper price, I mean, what other factors will you consider when thinking about approving this project potentially later this year? So I know that's sort of 4 questions, but really just about Bagdad 2x and a few more details on that project.

Okay. So as you pointed out, we -- the $3.5 billion for the project was based on work that we had done at the end of 2023. And what we're doing in the first half of this year is continuing our engineering work and actually getting to a point where we can have enough of the engineering done to go out to our vendors to actually get fixed pricing. So that's really where we want to put ourselves as we go through the next 6 months, so that we have more concrete bids on what the project will cost.

And so we're looking to make a decision on the project in -- when we had this information at midyear. And so we don't know the answer to your question yet about this 5% per annum. We know there is cost inflation. We've been trying to assess whether the tariffs will have any impact on some of the components that are involved here. And we'll continue to do value engineering to try to keep the capital intensity of the project as low as possible.

But we want to do enough front-end work so that when we qualify the project for investment, we can deliver and execute on that plan. And that's what we're working on in the first part of this year. We're also doing some work on the power infrastructure and making some deposits there. So we've added $150 million in capital associated with this project that will put us in a position to make a decision.

In terms of the factors that we are looking at in addition to copper price, and we want to look at the long term and the range of prices and how this project would perform, we also want to make sure that we have the right workforce setup, and we've been investing in infrastructure. Labor has been -- Labor's been a challenge in the U.S., and that's what's partially what drove us to go into autonomous during 2025 to set up better optionality for Bagdad for expansion in the future.

We want to optimize the performance of the autonomous fleet. We're not getting exactly what we expected to get from the performance of the autonomous fleet, but we've got progress in ongoing to get us to a point where we're comfortable that the autonomous fleet is capable of running at these higher rates. So we've got some other things going on to derisk the plan as we go through the first half.

But those are the major factors is confidence in our ability to execute the capital plan, confidence in our ability to operate efficiently. Part of the goal here in addition to bring on additional volumes is to bring on those volumes at a lower incremental cost than our current cost and take advantage of efficiency. So that work we're going to be doing as well over the next several months as we get to an investment decision. But this is a project that is pretty straightforward. It's a relatively short lead time.

And we just want to make sure that we can deliver on the economics that we set up at the start Cory Stevens is on the call. And Cory, anything that you want to add there either on the Bagdad expansion, the leach initiative or our focus on bringing down our unit cost in the U.S. We'd be happy to see if you have any insights that you want to add to that?

No, I appreciate that, Kathleen. And yes, just to comment on the Bagdad work, team is super energized. We're working through a lot of the incoming infrastructure requirements and designs and long lead items from like power upgrades and so forth. So -- and then in parallel, like we talked about, the autonomous work very inspiring. It's still early days there. We really only went full autonomous late in the summer. So there's a bit of a learning curve there, but we're on a good track, and the team is going to figure that out as we go forward.

On the lead side, the ramp-up is really based on a lot of the initiatives that are coming to pass this year. Heat, we talked about at Morenci, at El Abra, those are big demonstration activities going on there. And then yesterday, as a matter of fact, we started another leach stockpile at our New Mexico operation at Chino. And there, we're using chemical heat. So we turned that one of the perfect pile, it's an engineered heat that we've built confidence around our lab work there that's really giving us a lot of excitement there that really can facilitate not only a benefit to Chino but could change the way that we design future stockpiles going forward to enhance the ultimate activity that's coming out of those. So lots of moving parts, lots of activities, more to come this year.

Our next question will come from the line of Bill Peterson with JPMorgan.

It sounds like Indonesia is on track with the timing guidance from last year. I was wondering if you can add any incremental lessons learned at Grasberg since the November update. You called PB 2 and 3 as scheduled for 2Q of '26. Any further granularity you could provide on timing where it could land in the quarter. what would make it come in faster versus extended?

Thank you. And Mark Johnson's on the line, and he can add to these comments, but we did an update in mid-November on the investigation and we have learned a lot. And as I mentioned, we are adopting the recommendations from the investigation. The plan in terms of what we laid out in that time frame in November is very much the same. We've been executing on that plan. We've been achieving the results.

As we mentioned, the mud removal in the -- within the mine workings has gone well, and we're 97% of what we need to be to start up production Blocks 2 and 3. We've just completed a cement pour at one of these protective barriers that we talked about that's needed to restart production Block 2 and 3. And so the work that we're doing between now and start-up really is related mostly to infrastructure. Now that we have these plugs in, we'll be able to [ advance that pour ]. But we haven't given a specific date within the first -- within the second quarter, but we would expect it would be in the first half of the second quarter at this point, and we're on track to do that. And Mark, I don't know if you want to add anything about that and also add maybe any comments about the overall risk management we're doing on mud removal from the surface.

Yes. The plan, as you stated, that we came up in November, the team's done a great job of executing that. It's primarily driven at first, with the cleanup of the mud. That is essentially complete for the PB 2 PB 3 start-up. Obviously, there were some challenges there that a lot of -- it's not -- it's kind of a unique work environment. We dealt with some localized training issues required pumping and the team was quick to respond.

Very happy also with the response from some of our key suppliers. A lot of this infrastructure that we're building is the communication systems that allow us to do the remote mining. So our suppliers on that end have risen to the challenge, so we don't see any problem with the supply chain side of things. We continue to work with our consultants and verify our plan, make it more robust. We're looking at some new tools for our cave management that will also play into how we look and mitigate risk and all of that's progressing quite well.

Really, I don't see any any real hurdles at this point to be able to start up as we planned, any variation, I think, will be relatively minor plus and minuses. I think it's a very solid plan to start up. The ramp up is something that we've spent time looking at as well. We have good history on that as to how how we'll reopen some of these draw points, do it in a very cautious and safe manner, step-by-step and observe and adjust as we go.

So anyway, I'm very happy with the overall progress and where we are today. So PB 2 and PB 3 is the lion's share of our production. And then obviously, we're also working towards the PB 1 area restart.

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

Just a couple of follow-up questions on the GBC profile. It sounds like the initial start-up for 2026 are going to plan. But in terms of 2027, is it possible that PB 1S could be brought forward ahead of the mid-2027 start-up that you have? And then for PB 1C, if you conclude that you can't restart production from that block, do you have the flexibility to open up other areas and bring those into production also by late 2027?

We haven't -- with respect to our plans for PB 1, the work that we've done to lay out this plan, we're continuing to expect that production Block 1 South will be a mid-'27 start-up. And then we're going to continue to evaluate the PB 1C. Our focus really is getting up and running that we're talking about during 2026. And as we go through and in parallel, we're working on.

But our focus for the current period is to get the substantial amount of production restored and then we'll look to see how to optimize and enhance it. But we're not -- at this point, not looking at advancing PB 1 south. But we'll be in a position to continue to evaluate that as we go. With the question about the PB 1C, do you want to comment on that? If we decide not to go back into PB 1C.

Yes. We have some other -- we haven't had to face this yet, but some of the other opportunities there would be to change our sequence and go to PB 1 North. We also have some options to incrementally add production from Deep MLZ. It would be at a lower grade if we did that. And the potential would be to continue to develop and ramp up PB 2, PB 3 beyond what we have in our plans. But all of those are forward looking. We don't have any -- our plan is still to proceed as we've shown.

On Slide 31, a lot of those initiatives there on the mud removal are focused on PB 1. So the execution of those and the results of those will very much drive how we look at what our options or what our future plans may look like.

Just a quick follow-up. If you wanted to do PB 1, you could bring that in around a similar time, late '27 early 2028.

Yes. We'd have to do some different development. It's a change in the sequence. It would be something that we'd have to work through. We've talked about it at a high level, but we don't have anything firm. And I'd hate to -- until I have that, I'd hate to respond on the timing, but we've got a lot of development capability. It's not -- it's adjacent to what we're already doing. We were in the process of developing all of the infrastructure around that. So that would be an option, but we don't have any firm plans.

Our next question comes from the line of Timna Tanners with Wells Fargo.

I wanted to ask in light of the [ sharp move ] in copper lately, if you have any fresh thoughts about the recycling opportunity. I know that you have that plan and program [indiscernible] copper? Are there other potential initiatives that could leverage secondary material? And then along those same lines, any thoughts on substitution, copper for silver in solar, but also aluminum for copper in other applications, it would be great to get your thoughts.

You pointed out the circular project that we're doing in Spain at our facility in Atlanta Copper, where we're completing a project to process scrap from electronics. So it's got a lot of precious metals associated with it. And so that project, we're completing the middle of this year. We do some scrap processing in the U.S. at our existing facilities. It's not -- we follow that business but it's not the core of what we do.

Our core really is around producing mining and processing what we find, but we'll look on the margin, if there's an opportunity, but it's not our -- obviously not our business. In terms of substitution, that is a topic that people have talked -- long talked about. We believe that the properties of copper because of its superior conductivity are compelling.

When you talk about data centers and that sort of thing, copper still is a very, very important component of data centers. There will be substitution and thrifting as prices rise. But when you look at the big picture, you still need a lot more copper to be able to support the demand, the secular demand trends that are ongoing. So we are very confident that copper will still be viewed as a superior metal really from conductivity, recognizing that there will be thrifting, there will be substitution that takes place as that relative value changes.

This is Richard. That's inevitable, but it will be in the context of a higher copper price.

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

Two questions on Indonesia. First, in the fourth quarter, I see there's no export duties, but when I look at your guidance going forward, [ TCs ] are up to $0.43 versus historical levels. Can you just tell me how you're accounting for that, whether there are export duties in that guidance going forward? Or what's going on or whether that's just inter-transfer of costs as you go to the new smelter as things ramp up.

And my second question has to do with KL. Obviously, it's getting bigger. Is that all additive post 2030, i.e. the higher production at KL, you still have the mill capacity. You don't have to do anything, and I see capital has gone up. Is that just inflation? Or is that given the KLR is a little more complicated and you have to do something else?

In terms of the question around export duties, we're no longer exporting concentrates. And so we don't have any export duties in our numbers. The TC number is really just the internal smelter costs, the operation of the existing smelter as well as the tolling fees that we pay the operating cost of the new smelter and the tolling fees we pay at PT smelting. So they really kind of internal costs. Of course, it doesn't include when you're comparing selling concentrate to a third party that rate reflects all of the byproducts in the free metal.

So going forward at PT-FI, you're going to have the cost of the smelter in that processing line, the [ TCRC ] line. But all the benefits that you get from the free metal, the byproducts, et cetera, will be in the revenue line. So it's a little different than historically when we've been just selling most of our concentrates. That -- and Brian, we can follow up more with you on that if I didn't fully answer it.

But on the Kucing Liar, this is actually a a positive here. We've been looking for some time at what's optimal between Grasberg Block Cave and Kucing Liar operating rates to look at what is optimal from an NPV standpoint and as you know, the footprint of KL is very big and a lot of it was carrying forward after 2041. But in looking at the Grasberg Block Cave and Kucing Liar and the need potentially to invest in pyrite handling and processing facilities for certain types of ore, we developed a plan that allowed us to defer a significant amount of pyrite processing that would have been associated with Grasberg Block Cave and actually defer that out.

And so you see rates going from where we were projecting 90,000 tons a day to 130,000. So we've added production from KL. Grasberg Block Cave is slightly smaller. All of this is just timing because with an extension, we'll get those reserves over time. But this plan allows us to defer processing [indiscernible]

Got it. So you wouldn't have to make -- I mean, the mill will be what, [ 240 ] or whatever, it's max like it used to be before. You're just substituting A for B in this process. .

Right. Exactly. And what it allows us to do is defer the time frame when we need to spend capital on the pyrite handling.

Great. And just back -- we can take the rest of it offline. But just that $0.43 for Indonesia this year for treatment charges, is that what -- is that inflated this year because we have a lower production rate and it's a ramp up, i.e., on an ongoing basis? Would it be better than that?

Yes.

And I will now turn the call back over to management for any closing comments.

Thanks, everyone, for participating, for your questions. And if you have any follow-ups, David Joint is available and our management team is available and we look forward to reporting on our progress as we go through the year.

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

Ladies and gentlemen, thank you for standing by, and welcome to the Freeport-McMoRan Update Conference Call. [Operator Instructions]

I'd 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, Freeport issued a press release providing an update on restart plans for the Grasberg Minerals District following the previously reported September 8 incident. A copy of today's press release and the presentation materials for today's call are available on our website, fcx.com. We also posted a video on the underground mining process at Grasberg in the incident.

Today's conference call is being broadcast live on the Internet. Anyone may listen to the conference call by accessing our website homepage and clicking on the webcast link for the conference call. In addition to analysts and investors, the financial press has been invited to listen to today's call. 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; Mark Johnson, President and Chief Operating Officer, Freeport-McMoRan, Indonesia; Maree Robertson, Executive Vice President and CFO; and other senior members of our management team. Richard will make some opening remarks. Kathleen and Mark Johnson will review our slide materials, and then we'll open up the call for questions. Richard?

Thank you all for joining us today. I want to start this call by reexpressing our grief for the 7 lost workers in this incident. At Freeport, we have a family culture. We feel responsibility for each of our people. My hardest days as the CEO is when somebody got hurt on the job. That just makes us committed to finding out how this event happened and what we're going to do about it going forward to protect our people and our operations.

It was unprecedented. We've had decades of experience in block cave mining underground. The whole operation has been a series of block cave mines since 2019, and we have a very experienced team. That team has come together to study this event and brought in outside experts to work with our own experts, all with a mission to say, how did this unexpected event happen? How can we respond to it? What are we going to do going forward?

That's the purpose of the call today. Kathleen, Mark and I have worked together for over 3 decades, and we have an excellent team of technical people working at the Grasberg District now, but we all share this common mission, find out why, what we're going to do about it, and let's go forward. And that's what you're going to hear about today.

Kathleen and Mark will lead the discussion.

Thank you, Richard. Good morning, everyone. On today's call, we'll review the background of the September 8 incident, the factors that caused the incident, how we are applying the learnings to prevent recurrence and our plans going forward. We'll also provide an update on our global business, growth initiatives and review our financial outlook. Richard, thank you for those comments, and I want to reiterate those regarding our commitment to the safety of our people.

We deeply regret the loss of our 7 coworkers, and we will honor their memories every day as we go forward. While the incident was unprecedented in our history and with no indications of human error, we are humbled by this tragedy and resolved to use the learnings to address the confluence of factors and conditions that led to the event. I'm going to start on Slide 4, where we provide a summary of the incident. We also hope that you will have an opportunity to review the approximately 9-minute video that David mentioned earlier, which describes the block cave mining process and provides a summary of the incident.

As Mark will describe later in the presentation, we have robust systems for monitoring and managing the high rainfall at Grasberg and have managed it for decades. The wet conditions are what ultimately led us to using fully autonomous loaders in the mining process underground. The causal factors associated with this incident were different from the traditional issues we have managed effectively in extracting wet material from the block cave. In this incident, a large volume of mud from the surface connected to a draw point and traveled to multiple levels of the underground mine, including the service level where our 7 coworkers were found deceased.

Our monitoring systems and sampling from the draw points in this area, leading up to the incident, did not detect the connection of the draw point to the surface. Following the incident, we formed a team comprised of internal and external experts with expertise in a broad range of relevant areas to review the causes and make recommendations for how this incident could have been prevented.

As you'll hear more about in this presentation, the causes relate to a series of contributing conditions, specifically related to a localized area in production Block 1. You'll see on Slide 5, a 3D image of the Grasberg District. Richard mentioned we mined the Grasberg ore body from the surface as an open pit for a 30-year period until 2019 when we transition to a fully underground mining operation.

The Grasberg Block Cave is a continuation of the same ore body we mined from the surface using the block cave, underground block cave mining method where the rock mass is undercut and the broken rock moves through funnel-shaped draw bells for extraction. We've used this mining method successfully in the district since the 1980s and have developed technologies for safe and efficient underground extraction over the course of many years.

We've got a pie chart here that shows the makeup of our reserves, and you can see the Grasberg ore body represents about 50% of the copper reserves and just under 50% of the gold reserves in the district.

Moving to Slide 6. For background information, there you've heard us talk about this. There are 5 currently developed production blocks in the Grasberg Block Cave. We have Production Block 1C, Production Block 1 South, Production Block 2 North, Production Block 2 South and Production Block 3. The incident was initiated in production Block 1C, and you'll hear us referring to it on this call as PB1C. PB1C is located beneath the low spot of the former Grasberg surface mine and is largely composed of a low-strength clay-rich geological domain termed soft zone.

To address the soft zone characteristics, PB1C was designed with narrow geometry consisting of 3 panels as an extension of an established production block, PB1 South, which commenced production in 2019. We began undercutting of PB1C in late 2021, and that was completed in late 2023. We started initially production from 2 panels in PB1C in 2022 and with the last panel commencing in October of 2024.

So we were in the early stages of cave development in PB1C. And the incident occurred as a result of the formation of an undetected pathway along the cave boundary, which connected one of the panels in PB1C to mud accumulation 300 meters above in the former Grasberg open pit surface mine.

The chart on the bottom right shows the number of draw points in PB1C relative to the total in the Grasberg Block Cave, equating to approximately 8% of the active draw points at the time of the incident. PB1C represents approximately 2% to 3% of PTFI's copper and gold reserves, respectively, and represented about 7% of the production in the year-to-date period prior to the incident.

In talking about the factors, the investigation team, moving to Slide 7, identified several contributing factors, which were specific to the conditions in PB1C, including the cave geometry, which is characterized by a partially unbroken overhanging and inclined shape of the cave boundary adjacent to an established area in PB1 South. The rate of production draw in PB1C in relation to the adjacent established cave area in PB1 South and the accumulation of fine rock fragmentation and mud located above PB1C.

The significance of the overhang of the cave boundary in PB1C resulted in production from the 3 panels in PB1C combining to draw in a concentrated fashion from a narrow zone rather than from across the width of the 3 panels in what was referred to as a high-velocity zone. The review determined that the effective draw under these conditions could have resulted in a 5 to tenfold increase in flow velocity when compared to average drawdown velocity of the adjacent PB1 South.

As you've seen, material moved rapidly down the high velocity zone in response to continued draw in PB1C. And this material, together with the accumulated mud was drawn towards the panel and PB1C, ultimately connecting with a draw point. This connection to the draw point led to the rapid inrush of a large volume of surface material into the mine workings.

In terms of the learnings on Slide 8, there are a number of learnings from this incident, specifically related to the unique conditions present that will allow us to strengthen and enhance our processes and operating protocols going forward. The incident highlights the need for more dynamic cave management plans tailored for varying conditions and more robust controls and operational procedures to address areas subject to risk from an external mud rush.

In addition, new innovative approaches to mud drainage solutions for the pit bottom and emerging imaging technologies to improve cave shape monitoring are being pursued. While the learnings principally apply to areas subject to risk from an external mud rush, there are also learnings that will be applied district-wide in our overall cave management plans.

On Slide 9, we talk about the assessment. We temporarily suspended all operations to prioritize the search for our coworkers. Mark is going to review the assessment that was completed in connection with the investigation to ascertain what steps needed to be taken to restart operations. As we've reported, the unaffected Big Gossan and Deep MLZ mines restarted in late October. And then at Grasberg Block Cave, we're planning a phased approach, initially restarting production in the areas of production Blocks 2 and 3, which do not have the same risk as the area in PB1C and did not sustain damage to infrastructure.

The milestones for restarting production Blocks 2 and 3, Mark will talk more about this, principally relate to the cleanup of mud and the tunnels, principally in the service area, the installation of cement plugs to isolate the PB1C panels to ensure there is no connection to the surface. and the installation of electrical and communication services damaged in the incident.

Teams are working on these initiatives, and we expect to be in a position to restart PB2 and PB3 in the second quarter of 2026. For PB1 South, the repairs are expected to take longer than what is required for PB2 and PB3, principally to replace a number of damaged chutes used to transport ore to the haulage level.

We're targeting a restart of PB1 South in mid-2027. This is where the incident occurred in PB1C. We'll continue to assess the reopening plan as we monitor progress with various risk mitigation initiatives, and we defer the restart in PB1C until the end of the year 2027.

The plans contemplate a phased restart of the Grasberg Block Cave, similar to the sequence and the conceptual plan outlined in our September 24 preliminary assessment, but they're slightly different in terms of timing. The primary timing adjustment reflects an approximately -- approximate 6-month delay in restarting production Block 1 South as a result of time to complete repairs in that area.

We're confident in reestablishing large-scale production and in our ability to safely operate this great ore body over the long term.

We have a lot of work in front of us to prepare for the restart, but it's been carefully planned, and our team is focused on executing safely. In executing the restart, we'll be vigilant and steadfast in prioritizing safety above all else. I want to recognize our exceptional team at Grasberg. Richard made some comments on this. The site leadership is deeply committed to our workforce, and we're fortunate to have some of the most experienced experts working with us to manage the complex conditions at the site. The recovery team worked around the clock with determination to locate our coworkers. While we're deeply saddened by the tragedy, this team is united in their determination to restore our business safer and stronger.

Moving to Slide 10 in terms of the production outlook, and then we'll turn it to Mark for more details. We present the production outlook. This is specifically for the Grasberg District. This reflects our current estimates for remediation and for the phased restart. We expect production for the year 2026 to be similar to 2025 with significant increases in the 2027 to 2029 period as all operations are reestablished and returned to production.

As we go forward, we'll have opportunities to optimize these plans and potentially increase operating rates. We've not incorporated opportunities at this stage as our focus is on a safe and efficient restart. Mark is going to add his perspectives and additional details, starting with the slide on Page 11 -- on Slide 11.

Thank you, Kathleen. The cross-section on Slide 11 highlights the formation and accumulation of mud over production Block 1, which is one of the primary contributing factors to the incident. Also shown is the mature portion of the cave at PB1 South, which had broken through to the Grasberg pit.

In areas where cave-induced subsidence has occurred, primarily above PB2 and PB3, rainwater runoff combines with fine material to form mud, which has flowed to the lowest area on the surface. This mud accumulation was visible and monitored throughout the life of the GVC and was not considered unusual. Historically, mud would form and eventually disperse into the underlying broken cave material.

On Slide 12, what was not visible or measurable was the geometry of the caveback and the material flow characteristics within the cave. The caveback is the boundary between the uncaved and cave rock. In other areas of the mine, caveback geometry can be inferred through seismic monitoring. However, due to the very soft rock in PB1C and PB1 North, there is no seismic signature in this area.

In retrospect, the inclined caveback adjacent to the established cave allowed material from the boundary of PB1S to migrate into the PB1C draw points. The 3 panels in PB1C were pulling material from this boundary rather than from the area directly above. The review concluded that the effective draw at the boundary could have resulted in a 5 to tenfold increase in flow velocity compared to the average drawdown velocity of PB1S. The overlying mud masked any surface indicators of this taking place.

Another contributing factor was the relatively fine fragmentation of PB1S cave material, which when contacted by the mud likely reduced porosity and prevented mud dispersion as in previous periods. Over time, this high velocity zone drew mud into the boundary, forming a column of mud, which ultimately broke into the mine on September 8 via a PB1C draw point.

Slide 13 provides information that distinguishes the September external mud rush event from the wet muck -- the internal wet muck events that we have managed for -- safely managed for decades. Wet muck events are significantly smaller, involve internal cave material and are typically limited to a single drawbell.

Our GBC wet muck risk mitigation measures include 100% remote mining and rock breaker stations, exclusion zones and time-based controls, blending wet and dry material for ore flow. The automated GBC train haulage system, which was done for efficiency also mitigates wet muck risk. On the service level, barriers for ore and ventilation passes were designed for internal wet muck events and had proven effective for worker safety. However, these barriers were not engineered to withstand the external mud rush.

Slide 14 is a cross-section of the GBC surface and groundwater management system. The water management system at GBC is robust and effective. The September 8 event was not caused by any deficiency or failure in managing surface or groundwater. The system handles an average of 19,000 gallons per minute of combined ground and surface water through diversion of surface water away from the pit, collection and pumping of pit surface water from non-subsidence areas, management of water entering the cave via gravity and pumps, interception of groundwater prior to cave development and the last stage of the system to get the water to the surface uses pumps and gravity drains that combined average 15,000 gallons per minute.

The rugged topography at job site provides a unique advantage for mine water management. Water can be pumped to provide mill process water, but if the pumps are off, the water drains by gravity via the AB adit to the portal near Ridge Camp. Each block cave requires the functions achieved with the layout of GBC as shown on Slide 15. The undercut level is where the blasting of the base of the ore body establishes the cave.

On the extraction level, drawbells or funnels connect to the overlying caved ore and provide access for loaders to extract the ore. At GBC, remotely operated loaders mine the material from the draw points, carry the ore to a grizzly station for sizing before it falls to the haulage level via ore and shoot passes. The service level provides ventilation, electrical services and access to ore pass construction.

Our haulage level is where our automated trains are remotely loaded and take the ore to our underground crushers. Various drain holes throughout the mine allow water to gravity drain to the drainage level. The various levels are connected via holes, passes and raises to provide ventilation, drainage, ore handling and essential services. As shown on the right, Mud entered the mine at the extraction level, traveled down the panel drift and encountered vent raises in ore passes and drainage ways, which allowed the mud to reach the lower levels, which included the haulage and regrettably the service level where the 7 men were working.

Slide 16 highlights the entry point to the mine on the extraction level, which was captured by a camera in the panel. The mud flowed both north to our fringe drift and to the south to the mid-access drift and the PB2 mine area. Over 2 kilometers of drift was filled on the extraction level. Vent raises and ore passes allowed the mud to flow down to the service level where unfortunately, a 2-man electrical crew and a 5-man raise boring crew were working in 2 separate areas. It is estimated that the mud material made it to these work areas in a couple of minutes.

Roughly 3.4 kilometers of drift were filled on the service level. Service level mud cleanup was our sole priority during the rescue effort and 2 kilometers has been cleared from the service level to date. For PB2 restart, we need to clear another 800 meters of mud. 30% of the mud settled on the haulage level. The spill damaged PB1 ore chutes but did not affect the PB2, PB3 rail haulage.

Slide 17 provides a summary of the damage to infrastructure and equipment. Until we remove all the mud, we are assuming that the buried equipment and ore chutes will be a loss. The installed rail will just need to be cleared. The pictures on the right provide some of the insight to the extent of the damage to the equipment and the challenges associated with removing the equipment.

The timing of PB2 restart is not driven by equipment or ore flow infrastructure damage. On Slide 18, we summarize the assessment that was conducted before reopening Deep MLZ, Big Gossan and Kucing Liar. None of these mines have the same conditions that caused the September 8 incident at GVC. The big distinction at GVC is the overlying open pit, which allows for the mud formation and accumulation. Also because of the pit, the depth of the mine is much less than our other block caves.

Deep MLZ is 1,300 meters below the surface versus the GVC, which ranges between 300 to 700 meters below surface. The subsided area at Deep MLZ is very blocky and does not accumulate mud. Big Gossan is a backfilled stope mine with no in-rush risk. Kucing Liar is under development and the activity is focused on driving new tunnels. Once brought into production, it will also be a deeper mine.

After a full reopening risk review was completed, these areas are back to pre-incident activity. Slide 19 highlights key considerations for the staged reopening of GBC. As previously mentioned, the milestones for restarting PB2 and PB3 are driven by the installation of cement plugs to isolate the PB1C panels, mud cleanup primarily on the service level for ventilation and the replacement of electrical and communication services.

For PB1S, the restart timing is driven by repairing damaged ore chutes, and we are targeting a restart in mid-2027. For PB1C, we have deferred this restart until the end of 2027. One of the key factors in this restart will be fully mitigating the risk associated with the column of mud that was formed during the mud rush event. Surface mud mitigation will play a key role in risk mitigation for both PB1S and PB1C.

On Slide 20, several key recommendations from our investigation are outlined. The cave management plan is a dynamic process that will apply change management and risk assessment processes to ensure our mining plans fully incorporate and verify risk mitigation. This will involve a committee comprised of both internal and external experts. We are pursuing several open-pit mud removal options that I will review in the next slide.

One of the challenges in caving is detecting and monitoring conditions that are not visible. PTFI has always applied and many times pioneered technology for monitoring of ground support, seismicity and material flow. We see opportunities to continue to improve and enhance our monitoring systems and processes.

Slide 21 outlines several open-pit mud mitigation options. Starting on the left, we have started diamond drilling from access drifts in the GVC with the intent of piercing the mud zone at the surface. These are smaller diameter holes that can be drilled now and with a high level of accuracy. In the hole hammer drills will use similar drilling approach as the diamond drill holes with the advantage of producing larger holes that can be drilled much more rapidly.

We may end up utilizing some of the diamond drill holes as pilot holes for the hammer drill operation.

We have ordered 2 drills from an established provider who has been very helpful in expediting the manufacturing and delivery of the 2 drills. We expect the first drill to be drilling in May. The third concept is suspending a slurry pump into the pit bottom. This approach involves the same technology, expertise and manufacturers used in our tram systems to suspend the pump. This approach would require relocating anchor points as the cave advances. As illustrated on the far right is a drainage gallery requiring 2 new drifts that would be purpose-built for accessing and gravity draining the open pit mud to our mill area. This is the most robust of the options.

All options are being actively pursued in parallel. A significant risk mitigation technology is highlighted on Slide 22. As previously mentioned, detecting what is going on in the mountain is a challenge. We are working with a group that uses cosmic-grade particles or muons that penetrate the earth and can be used to determine material density.

Knowing the density will provide information on cave shape and potentially the material flow within the cave. A trial of this technology was underway at GBC at the time of the incident. We were able to use some of the data to collaborate with investigation findings. We will provide -- this will provide a key tool for much more comprehensive cave management planning. Our team is focused on safely reopening the mine in a sequenced approach.

Slide 23 provides the key milestones for the detailed PB2 and PB3 reopening plan with good progress to date. As shown, the mud removal for PB2 will be complete by year-end and the key to restart are 3 concrete plugs that will isolate PB1C from activities in PB2. We are pouring the first of these plugs this week.

After the plugs, the ventilation and remote mining capability will be installed. PB2 and PB3 are scheduled to begin ramp-up of production in second quarter of 2026. Slide 24 summarizes the various technologies being developed and effectively used to continuously mitigate risk at PTFI. We have continued to be on the forefront of technology at the mine and throughout the operation, and we'll continue to be on the lookout for opportunities to improve.

The September 8 incident underscores the complexity and inherent risks of large-scale underground mining. While the event was unprecedented in scope, our responsible focus on a steadfast commitment to safety, innovation and continuous improvement. Throughout enhanced monitoring, robust risk management strategies and collaboration with global experts, we will ensure that all operations meet the highest standard of safety and reliability.

We do not accept personal harm as inevitable. Rather, we will fully mitigate hazards before resuming any mining activity. Our team remains focused on restoring operations safely and efficiently while reinforcing our leadership in underground mine operations. Kathleen?

Thank you, Mark, and that was a great explanation, and we tried to put it in a way that you could understand it, but this is a technical analysis. And so we're open to your questions. We're very proud of the rich and successful history during our 58 years operating at this site in Papua.

The team out there is so resilient, proven, and we've overcome complex challenges in the past. We're confident in the long-term outlook for this asset to continue to provide big benefits to many stakeholders in the years ahead. We're also progressing efforts to extend PTFI's operating rights beyond 2041 to provide long-term continuity of this important operation. The Indonesian government has expressed support for a long-term extension, and we expect to submit a formal application for extension prior to the end of the year.

We've got some additional slides in the presentation with updates on copper markets, our growth pipeline, including the high-value innovative leach initiative, information on our consolidated sales forecast, cash flow and capital expenditures. In the interest of leaving time for your questions, I'll briefly summarize these items. Freeport is well-positioned as a leading copper producer with large-scale current production and an attractive pipeline for future growth.

The demand trends for copper are positive with increasing requirements for electrification, technology and energy infrastructure. At Freeport, we're entering a period of growth in our Americas business with near- and medium-term opportunities to scale our leach initiative and double production at our Baghdad mine. We have longer-term growth in the Safford Lone Star District and a very exciting project at El Abra in Chile.

Our consolidated sales guidance for the period 2025 through 2027 is summarized on Slide 30. These estimates reflect the updates at Grasberg, the phased ramp-up plans for the Grasberg Block Cave and also the impact on timing of sales with our smelters. We're expecting significant growth in 2027 as operations are restored, and we expect further increases in 2028, which will drive significant cash flow.

At copper prices approximating $5 per pound, you can see our cash flows. EBITDA would approach $12 billion in 2026 and would have meaningful growth to over $15.5 billion on average for 2027 and 2028. Operating cash flows in 2026 during this transition period would approximate $8 billion, growing to $11.5 billion on average in '27 and '28. These amounts exclude potential recovery under our property and business interruption insurance coverage.

We have a policy that provides coverage for up to $700 million for underground losses. We're continuing to carefully manage costs and capital expenditures, particularly in the near term as we work to restore production at Grasberg. You'll see in the materials that the current estimates for capital expenditures on Slide 32 for the 2-year period for 2025 and 2026 are approximately $800 million below our July estimates.

We've deferred spend previously scheduled in '25 and '26 into 2027 and future periods to prioritize the recovery. In summary, our team is focused on executing these plans safely and efficiently and to driving value in our assets, we have huge opportunities in front of us that will benefit our stakeholders going forward.

Operator, we would now like to open the call up for questions.

[Operator Instructions] Our first question will come from the line of Bob Brackett with Bernstein Research.

My condolences to you and the team. I guess I'll ask a question around mine planning, and it's the current forecast you've given us -- has that made any adjustments to, say, the pattern by which you would bring PB1N into operations or even PB4 through 7? Or is this more the existing plan modified for adapting to this tragedy?

Thank you, Bob. Mark can comment on our development plan longer term for PB1 North and these other areas in PB1, PB2 and PB3.

Yes. And I think, Bob, you may have asked about PB4. The only area that's really been impacted by -- and it's the sequencing. And obviously, some of the techniques, our draw management, our cave management will apply -- new processes will apply throughout the mine that won't change the sequence of mining, but it will make it more robust, obviously, more safe. The primary difference in our long-term plan is just the sequencing of PB1 within PB1, PB1C and PB1 North. The other portions of the mine are progressing as previously forecast.

Okay. That's very clear. And maybe a follow-up on some of the mitigation technologies. You mentioned hammer drilling with the ability to drill 200 meters a day. If I think about the total vertical relief between sort of haulage and the pit, that's a couple of hundred meters. So some of these mitigation techniques could go pretty quickly?

Yes. The area that we're drilling from is approximately 400 meters below the pit surface, the overlying surface. Yes. So conceptually, those drills could be a real game changer. Typically, we get a hole every other day once we get going.

So that just allows us much more access to be able to get into that mud zone to drain it away. And these drills have been used in similar pit or underground dewatering techniques or approaches in the past and are well proven. So we're anxious to get the first drill running.

Our next question will come from the line of Alex Hacking with Citi.

Let me also extend my sympathies here. I guess just following up on the last question about the mud zone. I mean, how confident are you that resuming mining is safe until some of the remediation efforts around the mud zone have been put in place? How much of that mud zone can be mitigated by some of these methods that you're putting in place? And would better water management also help kind of reduce the amount of material accumulated there?

I'll let Mark cover the details. But the big thing that we're doing is we're putting plugs in the panels in PB1C. So cement plugs that will protect against any contact with the surface. And so that will give us assurance that there is no longer a pathway or connection with the surface. And so that's a big step, and we're going to do that before we start anything before we start PB2, we're going to put in place, and we've got a total of 5 plugs that are going in.

And those are -- we're starting with the first one now. So that will all be done before we get PB2 started up. But Mark, do you want to add anything? I mean the drainage we don't have a drainage issue of water in the pit. As Mark talked about earlier, it's very efficient drainage. The big initiative that we have is to try to intercept the mud that's at the surface. And we have good water drainage systems in the -- at the surface as well.

But as you have rainfall, the rainfall moves the material from the slopes down into the bottom of the pit and forms mud. Mark mentioned it's not a lake. It's just mud that we need to find ways and we're trying to be more innovative about ways to intercept that mud and remove it. And that's through this drilling program that we're just talking about. But Mark, do you want to add anything?

Yes. And just to add to the water management, the area where we can't collect the water is in the areas where the overlying surface has subsided. Outside of those areas, we still have good water collection and pumping systems for the surface water. As Kathleen mentioned, PB2 has really no mud risk. And after we isolate PB1C from the activities in PB2, that will be relatively straightforward. PB1C, PB1 North, PB1 South, obviously, in PB1 South, we have the adjacent mud above us.

Before we start that, we'll ensure that we have our cave management plan in place to properly address that. We don't -- when we look at this event, it was a combination of things. It was that the accumulation of mud, but also very key to that is this high velocity zone.

We don't see with PB2 already broken through the surface that, that high velocity zone won't be a factor in that area. And as we mentioned, we still have work to do on PB1C and PB1 North. And a lot of that will be very much tied to our mitigation of the mud at the surface.

And just one quick follow-up. I mean, how do you get comfortable that you're not going to get a similar high-velocity zone with PB2? And I realize I'm way out of my technically here. I don't understand this, but some more color there.

Right. The sequencing that we had, as Kathleen mentioned, this inclined caveback adjacent to a mature part of the cave is what allowed the zone to occur. That will not be the situation at PB2. Also, we'll have the muon technology in place. That's getting reinstalled shortly. And we'll use that information also to verify. We'll have time to watch and verify that all the conditions required for safe reopening are in place.

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

The first question is just on the restart plans and whether these are approved by the government and whether you can sort of detail any ongoing investigations or similar that are being done by the government and how they could potentially impact the guidance that you've outlined today?

Thank you. The government's mine inspecting team has been involved with us alongside of us since the first day of the incident. And they had a team there that was there around the clock with us working arm and arm in understanding what happened, how it could have been prevented, what actions we need to take for the future.

And so it's been a very collaborative, transparent working relationship with the government on our investigation, and they have been conducting their own investigation. As you probably have seen, they have approved the plan for the restart of Deep MLZ and Big Gossan, and they have conceptually approved of what our path forward is. We'll keep them informed as we go.

We have regular updates that we're providing. I want to remind everyone that the government through the state-owned enterprise owns 51% of this operation and has a deep knowledge of the operation. And so it's been -- and actually, some of the people from the government were on our own investigation team. So it's been a collaborative process. We'll keep them informed. We both have the right alignment of interest. We both want to start up as soon as possible, but we will not start up until we're all assured that it's safe.

So I think there's good alignment there. In terms of other investigations, you'll have normal -- the police normally does an investigation to make sure there's no criminal activity or anything like that. But the large part of the investigation is behind us at this point.

And if I could just ask a quick follow-up on the CapEx. The $4.1 billion for 2026, does that include all of the replacement and repair costs? Or GBC...

Yes. We went through a process both for 2025 and 2026 really across the business, but most of the deferrals were in Indonesia, but we have deferred a number of projects. We did add -- we have a placeholder of roughly $250 million of assumed damage for equipment and replacements. That we don't -- at this point in time, we've assumed that all of the affected equipment is lost.

So we should have room within that placeholder. Again, we haven't assumed anything in here for insurance. We'll have $700 million potentially of reimbursement as well. But we have assumed that in those capitals that we'll have to replace the things that Mark listed on his impacted damage slide.

Our next question comes from the line of Katya Yansic with BMO Capital Markets.

Maybe given that you're going to be making incremental mitigating factors or steps, can you talk a bit about how could this impact the production cost profile over the next few years at Grasberg?

So given the still high grades of copper and gold in this ore body, Grasberg will still have a very attractive cash cost as we go forward. We do have some costs, and you can look at our disclosures, but some costs that are idle facilities, basically some of the fixed costs where we're not at full operations will get charged to expense directly.

And we've disclosed that in our 10-Q. But as we ramp up, those costs will be reflected back in normal net unit costs and production costs. But Grasberg will still be, as we look forward in these plans, a very low-cost operation. As we're ramping up, our average, our consolidated average across the business will be higher because you've got a lower contribution from Indonesia relative to the U.S. and South America. But we're not expecting any long-term impacts on costs, and we're working very hard to reduce what we can in terms of our operating costs and capital costs as we go through the ramp-up.

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

I'm curious about the new Indonesian gold tax policies. And if you can comment on that, where they're going to be having some sort of escalated gold tax -- sorry, tax on gold exports and how that might impact your production costs in Indonesia? And then I have a follow-up as well.

Okay. On the gold, we saw information about that just this week. But we have a stabilized terms within our license, our IUPK that fix the royalties. The other -- and we'll have to look at how this -- it's just been announced, so we don't know the details of it.

But the other real important point is we now have a precious metals refinery in Indonesia. And actually, essentially all of our -- all but a small portion of our gold is sold domestically to a subsidiary of [indiscernible]. So we have most of our gold contracted for at market prices locally. So that's a real positive of having the smelter and the downstream precious metals refinery.

That's helpful. And just secondly, on the Kucing Liar project. I understand that it's deeper and the risk of a mud rush incident there is much lower. But are there risk mitigation factors that you need to consider there that could result in longer development timeline or more capital cost to build that project? Or is that really unaffected by what happened in the GBC?

Yes. Chris, it's unaffected. It's -- we're driving tunnels. We still have the same risk that we've always had with ground support systems, seismicity, fire management, pedestrian equipment interaction. All of those things will continue to be -- will play a bigger role in KL.

Obviously, any lessons learned on cave management and processes and risk management will just make KL that much more robust. With KL, we've been able to apply a lot of our learnings over the years and in our design and how we're approaching it. So it's got some enhancements, not really one that would play any factor in what happened at GBC. But the KL will be our latest version, our latest and greatest design application. So we feel comfortable in our KL approach.

Our next question comes from the line of Bill Peterson with JPMorgan.

So offering my condolences as well. Lots of questions on Indonesia, but actually, there's some interesting information here on the U.S. operations. I was hoping you could help us understand the significant improvement in the net cash cost by 2027 and as well as the leaching, which you now expect to be around 300 million pounds in '26 versus prior $300 million to $400 million. So any sort of update and color there would be helpful.

Okay. Thank you. In terms of the U.S. cash costs, this has been a project we have been working on over the last several quarters to drive greater efficiencies despite the fact that we have low grades. As we look forward over the next few years, we don't have the same issue that we've been fighting over the last few years, which is we've been in a declining grade profile and we've been in an inflationary environment.

Now as inflation has moderated and our grades have stabilized, we're now in a position with a more experienced workforce, more technology to drive efficiencies throughout the U.S. operation. This comes in the form of better run times. Our asset health is now better than it was, reducing unplanned maintenance activities, a big focus on maintenance and reliability. And those will all produce very high returns on investment. You mentioned the leach opportunity.

That leach opportunity also is helpful because it brings down the average cost of production. The leach pounds that we're producing because the material has already been mined, we have an incremental an incremental operating cost that's very low of less than $1 per pound currently to produce incremental pounds of leach.

And over the next couple of years, as we bring on new leach pounds through these additives that we've been trialing and more importantly, through adding heat to the equation, we're going to be able to scale the leach from 300 million -- roughly 200 million now to 300 million next year and up from there to approach our target within the 2030 time frame of 800 million pounds.

We have an enormous opportunity to do that. It's some of the most attractive copper units out there in terms of low capital intensity, low cost and Freeport has made incredible progress, both in technologies to develop additives as well as to pursue the heat trials. In terms of our expectations, we thought we could get to maybe 300 million to 400 million pounds next year.

We're now targeting 300 million, which doesn't mean we're not going to shoot for closer to 4 or in between 3 to 4. We've got a number of projects underway. Some of them have taken longer to get going with respect to the planning and engineering, but this is coming. And we're very, very, very excited about the opportunity, the value creation opportunity to scale the leach initiative.

Cory Stevens is on the call, and you've probably seen the announcement. Josh is also on this call where Cory will step in, expand his role as our Chief Operating Officer for the Americas. Cory has been integrally involved in our leach initiative. And Cory, if you wouldn't mind just making a couple of comments to add to what we just talked about.

Yes. Thanks, Kathleen. So what we're doing is really building on the past prior success with a lot of the same initiatives. So there's this cumulative buildup, and we continue to build confidence around the leach everywhere or the deep raf injection type activities. And then we've got the bigger additive-type opportunities that are coming into play.

I think we announced earlier this year where we added a large-scale trial at Morenci. We can definitely say that, that is being successful on the stockpile that we're adding this additive, we're producing 50% more than we would have expected otherwise. And so we're still trying to understand, okay, what does that mean in the long run, what's the longevity of that? But in parallel, we're looking at, okay, how do we scale that across Morenci now to really leverage the opportunity as we go forward.

And then additionally, on the heat side, we've got activities both at Morenci, where we're coming up with a pilot that's going to really give us some platform to scale from there and build out our knowledge base around what heat is going to provide. And then there's a larger project at El Abra that's going to be in operation in the second half of 2026. So those are bigger levers. We're really excited, but those are going to add to the ramp-up curve as we go.

Thank you, Cory. So in summary, the target of getting to 250 is a combination of being more efficient with the base business, more automated and secondly, adding incremental pounds at a very low cost for the leach initiative. And so it's a really, really positive opportunity for us not only to reduce costs but to add volumes and add reserves in the future.

Our next question comes from the line of Lawson Winder with BofA Global Research.

I'd like to go back to Grasberg and ask about PB1C and the guidance you provided for '27, '28 and '29. The slides show a step-up from about 1.5 billion pounds of copper production in 2027 to about 1.7 billion pounds in 2028 and '29. Does that include PB1C? Or is PB1C additional upside from that guidance?

So in our production volumes for '28 and '29, PB1C is 2% to 3% of those numbers and for copper and 3% to 5% for gold. So relatively small amount. Before the incident, we provided the year-to-date numbers, it was closer to 7 but a relatively small amount.

Okay. Fantastic. That clarification is very helpful. And then you spoke to some of the surface work that's being done, including the idea of intercepting mud at Grasberg.

And just thinking about additional work and potentially higher short-term operating costs, is there any consideration for hardening the flow of the material perhaps through cemented tailings or cemented backfill? And could there be any other measures that you just -- you haven't mentioned today that could contribute to any sort of higher OpEx in the near term? And I'm thinking on a cost per tonne basis.

We'll take that one.

Yes. Unfortunately, we really don't have great access to the mud from the surface. It's at the bottom of the pit. So the idea of being able to add some sort of additive would be -- we've discussed it, but so far, we've discounted it. We'll continue to look at it. I believe the other approaches that we're pursuing will be more effective on removing it rather than trying to treat it.

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

Just a clarification on the operating costs at Grasberg. In the Q3, there was $171 million of what you call idle facility costs and recovery expenses associated with the mud rush incident. Should we expect a similar amount that's excluded from cash costs in Q4? And I'm wondering also what that amount could be in 2026, assuming it's -- these costs are excluded from the CapEx guidance?

Yes. So in terms of -- as we were talking about before, in terms of how we account for the fact that we're operating at minimal capacity in the fourth quarter, and then we'll be ramping up in 2026, a portion of our costs will be charged directly to expense. These aren't new costs. These are just costs that will be charged -- won't go through inventory and be charged directly to expense.

So in terms of what we're estimating for the fourth quarter, the number was -- we had $170 million roughly in the third quarter plus the $25 million, $24 million or so that went through depreciation. That you can kind of figure out the run rate will be similar to that in the fourth quarter as this was really just for the month of September. So we're looking at somewhere in the range of $450 million or so in the fourth quarter that will go directly to production costs and not through inventories.

And then depreciation, there will be a component in depreciation, which we'll separately disclose. But that number will ramp down during the course of 2026 and be reflected in our net unit cash cost. At the end of the day, these are costs -- this is just an accounting, but these are costs and how they're treated on -- for accounting purposes.

Right. But just to clarify, so the approximate $450 million of cost in Q4 that's currently, if I understand, excluded from your C1 cash guidance. Okay. So that's -- okay. And then that will be lower -- start to wind down in '26, but there will be some portion excluded.

Yes, there's going to -- we're going to have some in the first quarter because the PB2 will start up in the second quarter. So yes, we'll have some of this. And again, this is not -- this isn't any kind of new costs or anything. Well, as soon as it's really just -- and it's included in the operating cash flows and things that we've disclosed. So it's really just an accounting matter.

Okay. But excluded from your C1 guidance.

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

The practice of installing a plug and much greater pumping capacity appears to be an excellent safeguard. In your plan for the 2 mining zones beneath the mud rush incident, you're waiting until mid-'27 or end of '27 potentially to restart them. Is the engineering and safety decision that you want to wait for at least a 12-month seasonal precipitation cycle to be sure that the plug and pumps work exactly as intended?

John, the -- obviously, the safety factors will be paramount. The timing of mid-2027 is really for PB1 South is primarily driven by the repair of the chute gallery that got impacted on the haulage level. And then during that period between now and then, we'll be implementing these various mud mitigation -- surface mud mitigation techniques that we described.

So it will be a matter of assessment of the effectiveness of that, along with the ongoing repair, which needs to take place, which is really driving the schedule right now for PB1 South. PB1C, we have additional concerns, additional items to mitigate. And primarily, it would be the -- we'd be back into the area where the incident took place. We got to address the 300-meter column of mud that was formed that initiated the incident. So all of those considerations will go into PB1C.

Will you put a cement plug into that 300-meter column to stabilize it?

That's essentially what we're doing with the plugs that we're putting in. We're putting in these 15-meter reinforced concrete plugs in our drifts that are designed to hold back the hydrostatic pressure of 300 meters of mud. So they're holding that...

That is exactly safety, correct.

Yes, with a considerable factor of safety built in. And for us to mine PB1C, we would need to remove those plugs. So we need to make sure that we can safely manage that column. And then we would conceptually mine through the plug and reaccess the PB1C mining area.

And I'll now turn the call back over to management for any closing remarks.

Yes. And I think this is clear, just to follow on to John's comment, there is nothing -- no production in our numbers for PB1C area in '26 or '27. And so we've got essentially a 2-year period where we're going to be assessing to make sure when we go back to that area that it's safe. And even after that, it's a relatively small part of our overall production. But we want to thank everyone for your attention. I think Richard has some closing comments to make.

Just one. At Freeport, we've had a firm and long-standing commitment to transparency. That was the real reason we delayed this conference call until we could complete this process that we've just gone through. And I want to compliment Kathleen and Mark and the full team for how hard they work to pull this together.

I hope that it educates you on the process that we're facing. It's complicated in certain respects. We have confidence in our organization that we can achieve this. There are some uncertainties as always. But I would all encourage each of you as you work with your team and your experts in studying this to call us and call us so that we can respond to your questions. We think the more this difficult situation gets understood, the better you'll feel about our future. Thank you for participating.

Ladies and gentlemen, that will conclude our call for today. Thank you for participating, and you may now disconnect.