Freeport-McMoRan Inc. Q2 FY2025 earnings call

Management Statement and Operational Highlights

• Copper Market Dynamics: Copper is in high demand due to electrification trends. Freeport is well-positioned with assets in the U.S., Indonesia, Peru, and Chile, producing over 70% of the U.S.'s refined copper.
• Indonesia Smelter: The new copper smelter in Indonesia started up ahead of schedule, with plans to produce first cathodes by the end of the month. Efforts are underway to extend operating rights beyond 2041.
• U.S. Operations: Focus on driving costs lower, with progress on the leach initiative at the Morenci mine (field trial underway) and advocacy for copper to be recognized as a critical mineral to access incentives for domestic production.
• Grasberg Mine: A grade revision in the Grasberg Block Cave led to a short-term impact on 2025 gold production but no significant effect on copper. The company is refining its modeling of ore flow and grades.
• Project Pipeline: Freeport has an extensive copper resource position with 2.5 billion pounds of copper potential from existing projects in Indonesia and the U.S., leveraging existing infrastructure and experienced workforces.

Segment Performance

• Copper: Generated strong margins and cash flows during the quarter. Second quarter copper realization was over $4.50 per pound, with quarterly EBITDA of $3.2 billion and operating cash flows of $2.2 billion. Sales volumes exceeded production, and the start-up of the Indonesian smelter was a key development.
• Gold: Second quarter gold sales were boosted by reduced inventories and the new precious metals refinery, but a grade revision in the Grasberg mine led to an approximate 15% reduction in 2025 gold production. Copper production was not significantly impacted by this grade revision.

Guidance

• 2025 Volumes: Copper sales in the second half are expected to be nearly 10% higher than the first half. Gold sales are expected to be similar to first half levels, though adjusted for Grasberg grade revisions.
• EBITDA and Cash Flows: Modeled EBITDA ranges from over $11.5 billion per annum at $4 copper to over $15.5 billion per annum at $5 copper, with operating cash flows correspondingly. A U.S. price premium could increase EBITDA and cash flows further.
• Capital Expenditures: Total capital expenditures for 2025-2026 are similar to previous guidance, with deferrals and focus on value-enhancing projects like the Kucing Liar development and Bagdad expansion.
• Shareholder Returns: Target to distribute 50% of excess cash flow to shareholders through dividends and share buybacks, with $107 million of stock repurchased year-to-date.

Risks

• Tariff Uncertainty: Impact of U.S. tariffs on costs and supply chains, with potential 5% impact on North American costs monitored.
• Mining Grade Variability: Grade fluctuations in the Grasberg Block Cave affecting short-term gold production forecasts.
• Permitting/Regulatory Challenges: Delays or issues in permitting for projects, especially in the U.S., and uncertainty around securing incentives for copper production.

Question and Answer Q: About mine plan change, A: Explanation of grade variation in Grasberg block cave and modeling adjustments, noting copper grades are stable but gold grades shift due to complex ore flow.

Q: Tariffs impact on North America costs, A: Monitoring tariffs, estimating potential 5% impact, working on supply chain modifications to mitigate effects.

Q: Discussions with U.S. administration on financing/incentives, A: Educating the U.S. government on copper as a critical mineral, working to get IRA benefits for copper, and advocating for permitting reforms.

Q: Smelter in Indonesia sales destinations, A: Near-term plans to sell copper cathode produced in Indonesia in Asia, with flexibility to sell elsewhere based on market dynamics.

Q: Buyback pace and gold guidance, A: Financial policy of distributing 50% of cash flow, confidence in gold modeling despite variability, with ongoing efforts to refine ore flow modeling for better forecasts.