Freeport-McMoRan Aktie

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.

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

[Operator Instructions]

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

Good morning, everyone, and welcome to the Freeport conference call. Earlier this morning, FCX reported its second quarter 2025 operating and financial results. A copy of today's release with supplemental schedules and slides is available on our website, fcx.com. Today's conference call is being broadcast live on the Internet and anyone may listen to the call by accessing our website homepage and clicking on the webcast link.

In addition to analysts and investors, the financial press has been invited to listen to today's call. A replay of the webcast will be available on our website later today. Before we begin our comments, we'd like to remind everyone that today's press release and certain of our comments on the call include non-GAAP measures and forward-looking statements. and actual results may differ materially. Please refer to the cautionary language included in our press release and slides and to the risk factors described in our SEC filings, all of which are available on our website.

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

Thank you, David, and thank you all for joining us. Copper is currently in the spotlight, of course, COMEX prices are hitting all-time highs. LME prices are strong, uses are growing, electricity means copper, and the world is increasingly electric. This results in high demand, and the industry continues to be challenged to find the supplies to meet this demand and future demand. Governments are focused on critical minerals, including copper.

Our company is strongly positioned, 1/3 of our copper is in the U.S., roughly 1/3 in Indonesia and 1/3 in Peru and Chile. We are the dominant producer in the U.S. producing over 70% of the country's refined copper, we're fully integrated. We have substantial organic growth to the U.S., and we're committed to that growth Freeport committed to its strategy to copper over 20 years ago, our tagline has been foremost in copper, and that's what we're striving to be. The start-up of the Indonesian smelter is a big accomplishment. Congratulations to the team at Freeport. We will now be effectively fully integrated producer globally. We are pleased to see the trade agreement between Indonesia and the United States productive discussions with President Probowo and President Trump, we convey to the Indonesia leaders negotiating the deal to note that Freeport, a widely held public company in the U.S. with almost a 60-year history of operating in Indonesia is the operator of the world's second largest copper mine located there.

Grasberg operations and district is our cornerstone asset. Second largest copper mine in the world. In this most recent quarter, we had a net credit for operating costs of $1 a pound. This asset has enabled us to create the modern Freeport. With the smelter nearing completion, we are progressing our discussions with the Indonesian government by extending our operating rights beyond 2041. Doing so, we create great value for FCX shareholders, but it also would be very positive for all stakeholders in the operation. With those comments, I'll turn the call over to Kathleen and Maree and to report on our quarter and our outlook.

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

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

And as we look ahead to 2026 and 2027, volume growth and lower cost set us up nicely to expand margins and cash flows as we go forward. We achieved a major milestone in the quarter with the start-up of our new copper smelter in Indonesia, a project we've been working on for the past 10 years. We started up about a month ahead of schedule and have progressed start-up activities to the stage of producing our first cathodes which we expect by the end of this month. We remain focused on ramping up to reach design capacity by the end of the year. Another real exciting development during the quarter was the start of a field trial at our U.S. Morenci mine using an internally developed leach additive. Our team of scientists have been working on this for some time, and we are progressing work on additional options which are showing very impressive lab results.

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

Turning to the next slide on 4 is a summary of our 2025 priorities. We've covered these on previous calls and these are the areas that are defining our everyday pursuit of value creation. First, execution, mastering the basics and making every day count our key objectives. We're focused on delivering our plans safely and efficiently and driving our costs lower, particularly in the U.S. Galinleach opportunity is a major value driver for Freeport. We continue to target a 40% increase in our run rate to achieve $300 million by the end of the year on our path to 800 million pounds per annum -- delivering the smelter a safe and efficient ramp-up of the PTFI smelter is strategically important. It will derisk our plans and position us for extension of our long-term operating rights in Indonesia. With the early start-up, we're well on our way.

We posted a video this morning of the progress on our website, and we hope to have the chance to review it. We're very proud of what our team is accomplishing there. Innovation is an increasingly important value driver for our business. Our operating teams are embracing technologies and new tools to enable better productivity and cost performance. And we're continuing to build optionality in our growth portfolio. We have 3 major project opportunities being advanced in the Americas, which we'll talk more about. Turning to copper markets on Slide 5. Copper has been actively covered in the media recently with widespread recognition of the rising strategic importance of this essential metal and a broad use of applications.

Market fundamentals remain positive, underpinned by Copper's increasing use in the global economy and is an important driver of electrification, global energy requirements and defense systems. Copper prices averaged 4.32 on the London Metals Exchange during the quarter and $4.72 on the U.S. COMEX Exchange. Following the July 8 U.S. tariff announcement, U.S. prices rose significantly. While tariff policies have dominated headlines and resulted in rising inventories in the U.S. global exchange inventories remain at low levels, particularly in relation to consumption trends. Copper demand globally continues to benefit from the secular trends and major new investments in AI technology, power infrastructure, decarbonization and transportation.

In the U.S., demand continues to be supported by the secular drivers, and we are seeing improving trends in Europe. China continues to be a major driver of copper demand and India represents an important growth market in the future. As we've talked about in the past, the fundamentals of the copper markets are highly attractive with the outlook for demand growth to outpace available supplies as we go forward. Here at Freeport, we're in a great position to increase volumes in the coming years to supply a world with growing requirements. Moving to Slide 6. We talk about the regional premiums and the market differentials between the U.S. pricing benchmarks and international benchmarks.

For background, the reference price for Freeport's copper sales contracts is based on geography. Our international sales are based on the London Metals Exchange price and our U.S. sales are based on the U.S. COMEX reference price. These 2 benchmarks have been closely correlated in the past -- but as you can see, differential emerged earlier this year after the U.S. opened the Section 232 investigation. And the differential widened significantly earlier in July following the U.S. announcement of a 50% tariff on copper imports with an expected implementation date on August 1. We're still waiting on additional details on implementation of the tariff announcement. The U.S. currently imports approximately half of its copper cathode requirements and the current domestic supply of pathos, the rest of it are majority produced by Freeport.

As indicated in the charts, as of yesterday's close, the U.S. premium approximates per pound or about 28% above the LME price. This implies an approximate $1.7 billion annual financial benefit on Freeport's U.S. sales. Longer range, the differential will be determined by market factors, including how the tariff structure is applied to various copper products, available domestic supplies and requirements for imported copper and other factors. We're actively working to boost domestic supplies of copper with a special emphasis on growing our refined production in a cost-effective manner through our innovative leach initiative and we're focused on supporting the growing requirement for our U.S. customer base.

Freeport is an important American copper producer and is by far the largest contributor to the U.S. copper market with an established and successful franchise dating to the late 1800s. As America's Copper Champion, we appreciate the administration's recognition of copper as a critical mineral and the efforts underway by the U.S. government to boost domestic production. Our operations in the U.S. supply approximately 70% of the refined copper produced here. Our operations in the U.S. are fully integrated with mines and smelting and refining facilities and innovative leach processes that efficiently produce for fine cathode. About 60% of our U.S. production is sourced through leaching processes and the balance through our smelter. We employ a large workforce in the U.S. And importantly, we've earned the trust of communities in the Southwest U.S., where we operate and with our U.S. copper customers.

In talking about our global refined metal on Slide 8, Freeport is a significant producer. With the completion of our new smelter in Indonesia, Freeport will essentially be fully integrated globally with internal processing facilities for its mine production. This is important because countries are becoming more and more focused on critical mineral supply chain resilience, national security issues and global trade. Freeport's positioning as a major producer of refined copper is a strategic significance for the long term. As indicated, we produced a substantial amount of refined copper from leach processing, which does not require a smelter process. and we're going to continue to pursue innovative opportunities to add refined copper on a cost-effective basis.

Moving to operations on Slide 9. We'll talk about the operating highlights by geographic region, starting in the U.S., where we continue to drive operating disciplines to enhance efficiencies and improve cost and margins, making progress as indicated by the improved performance compared with the year ago quarter. With several initiatives underway, there's more opportunity ahead. Our operating teams are benefiting from new tools and data analytics to drive value. We continue to rebuild skills within our workforce to reduce reliance on more costly contractors. As we look forward, we expect production in the U.S. to increase in 2025 and 2026 compared with 2024 levels. Absent changes in commodity-based input costs, we're talking unit cost to trend to the $2.50 per pound range in 2027.

The autonomous haul truck conversion at our Bagdad mine in the U.S. will allow us to test this potential of applying this technology for use at other locations. At Bagdad, we have half of the autonomous trucks and service and expect to complete the balance over the next few months. We have several initiatives in progress to achieve further scaling in our innovative leach program. This is a high priority. Our teams are now much better equipped with new data and analytic tools, expanded areas under leach and precision leasing processes to achieve higher recoveries in material previously considered ways. Achieving our targeted run rate to 300 million pounds per annum will benefit 2026 production.

We are planning projects to use heat in our injection process to further enhance recoveries and we're advancing internally developed leach additives to provide additional volumes toward our ultimate target of 800 million pounds per annum. As I mentioned, a field trial is underway at Morenci with our first internal generated additives, and we've recently identified a potential second additive with initial lab testing indicating superior performance compared with anything we've seen to date. In addition, we're advancing new technology and automation and our basic mining processes to optimize performance. Our work to date indicates a significant opportunity for value creation through meaningful cost reduction and reserve expansion within our existing operations.

We're also continuing to advocate for U.S. legislation to recognize copper as formally as of critical mineral and eligibility for incentives to promote domestic production. Moving to South America. The team at our Cerro Verde operation posted another solid quarter with volumes and costs in line with our expectations. As anticipated, volumes at Cerro Verde were below the year-ago quarter because of lower ore grades. At El Abra, we have advanced plans to test heated, [indiscernible] injections in our leach stockpile there expected in 2026, and that is targeted to increase copper recovery and metal volumes. We continue to plan for a major expansion at El Abra, which would capitalize on the large resource we have there and bring substantial scale and operating efficiencies to the mine.

In Indonesia, during the second quarter, copper sales, copper and gold sales were boosted significantly by a reduction in concentrate and in-process inventory following the mid-March approval of our export permit and good performance at the newly commissioned Precious Metals refinery, which processed all of the anode [indiscernible] produced at PT smelting during the quarter. Milling rates improved in the second quarter compared with first quarter levels, and that reflected a restart of our SAG 3 mill in the second quarter. In April, we commenced a large planned maintenance project on our SAG 2 mill, which is expected to be completed by the end of the third quarter. This will set us up for a return to mill rates in the 220,000 ton per day range in the fourth quarter and beyond.

Notably, during the second quarter, net unit cash cost at Grasberg were actually a net credit of $0.99 per pound. As indicated, the smelter start-up in the second quarter was a meaningful accomplishment and we're working to ramp up in the balance of the year. We have revised our near-term outlook for goal to incorporate adjustments to our drawpoint flow model in the Grasberg Block Cave. This resulted in an approximate 15% reduction in expected 2025 gold production, but did not significantly impact long-range plans as indicated on the next slide. We provided some information on Grasberg ore grades on Slide 10. And for background, the Grasberg Block Cave is 1 of 3 currently producing block cave mines in the Grasberg District. It's the same ore body we earned from the surface for over 25 years prior to transitioning to underground mining in the 2020 time frame.

For those of you who have followed us over time, you'll recall there are sections within the Grasberg ore body with significant grade variation, especially for gold. This results in large swings in gold grades depending on where the material is coming from within the ore body. At the Grasberg Block Cave, is a massive block cave. We extract ore from 5 production blocks and have over 900 draw points currently producing within these 5 production blocks. We have a practice across the company of updating our forecast quarterly, taking into account all available information. For our block cave mines, we use industry-proven software to model K flows and ore grades. And during the second quarter, we experienced lower grades for gold than our scheduling model estimated and undertook a process to review our ore grade models.

We recalibrated the model on a draw point by drawpoint basis to better reflect the timing of various ore grades flowing through the draw points. Importantly, the changes are timing related and not expected to impact the ultimate recoveries over the life of deposits. In looking at the updated model, we were able to replicate historical results with better precision than the prior ore grade distribution model. With mining, there are always learnings throughout the life of a mine, but the management systems and data tools we use today, particularly in our underground are much improved from the historical open pit era. You can see from the revised multiyear production forecast that the impact is limited to 2025, gold production.

Over the 5-year period, the actual -- the aggregate production of gold is close to our prior estimates, and there was no significant impact on copper production. With the completion of major mill maintenance in 2025, we're set out to increase mill operating rates in the future. Also in our 2025 forecast, we've incorporated an increase in copper concentrate consumption at the new smelter in Indonesia because of the earlier-than-forecast startup. This results in more in-process inventory than previously forecast and is a timing item. We want to point out that as we transition from an exporter of concentrate to a fully integrated producer in Indonesia, there will be timing differences between production and sales by quarter.

The sale of concentrates historically were recognized immediately on loading of ships at our mine site. And with the smelter sales will be recognized after processing and sale of refined metal. So this is really a timing match between production and sales. As we look forward and moving now to our project pipeline, it's clear that additional copper supplies are required to support energy infrastructure, new technologies and more advanced societies. We have an extensive copper resource position and a broad range of projects in various stages of development. These initiatives totaled 2.5 billion pounds of copper which can be developed from Freeport's known resources in jurisdictions where we have established history and experience.

Our projects in Indonesia also have the benefit of high gold content that go along with the copper. Because these projects are brownfield in nature, we benefit from leveraging existing infrastructure, our experienced workforces and relationships with key stakeholders to move more quickly with less risk than a greenfield project. As we mentioned, we're also looking at innovation and really feel this can bring improvements to the capital intensity of developing new projects. In the U.S., the projects have the potential to increase production by over 1 billion pounds per annum, with a large portion of that coming from low cost and low capital-intensive incremental leach volumes. In addition, we have an actionable expansion opportunity at our Bagdad mine and are also studying the potential to expand and double production in the Safford/Lone Star District.

In South America, we and our partner, Codelco, are planning a major expansion at Labra through the addition of a new concentrator, which would provide 750 million pounds of incremental copper per annum. We're completing our permit application. We expect to file that in early 2026, and we're encouraged by the Chilean government's initiatives to expedite the permitting process broadly in Chile. In Indonesia, our [indiscernible] development continues, and we expect to commence production by 2030. We are conducting additional exploration below our deep MLZ ore body and expect that with an extension of our operating rights beyond 2041, will be set up for additional long-term development options in the highly attractive Grasberg District.

We'll continue to be disciplined in our approach, targeting opportunities that enhance long-term value. And we've got some additional details on these projects covered on Slide 26 of the reference materials. Maree is going to cover our financial outlook on the next few slides, and then we'll open up the call for your questions. Maree?

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

We provide quarterly estimates on Slide 23 of the reference material. As you can see, copper sales in the second half of the year are nearly 10% higher than the first half. Our current estimate for net unit costs for the year 2025 using $3,300 for gold and $22 per [indiscernible] is approximately $1.55 per pound. About $0.05 per pound above the April estimate principally reflecting the impact of lower gold volumes, partly offset by higher prices of gold and molybdenum. The current unit net cash cost estimate is better than our estimate going into the year of $1.60 per pound. We are continuing initiatives to drive costs lower as we go forward. The details of costs by region are presented on Slide 22 in the reference materials.

Moving to Slide 13. Putting together our projected volumes and cost estimates, we show modeled results for EBITDA and cash flow at various copper prices ranging from $4 to $5 copper. These are modeled results using the average of 2026 and 2027 with current volume and cost estimates and holding gold flat at $3,300 per ounce and molybdenum $22 per pound. Annual EBITDA would range from over $11.5 billion per annum at $4 copper to over $15.5 billion per annum at $5 copper, with operating cash flows ranging from $8.5 billion per year at $4 to over $11.5 billion at $5. These estimates assume the U.S. price is the same as the international benchmark price. If we incorporate a 25% premium to our U.S. sales, which is similar to current levels, annual EBITDA would increase by approximately 10%, and operating cash flows would increase by approximately 15%.

A 50% premium would increase EBITDA by over 20% and operating cash flows by almost 30%. We show sensitivities to various commodities on the right side of the slide. You will note, we are highly leveraged to copper prices with each $0.10 per pound change equating to approximately $425 million in annual EBITDA. We'll also benefit from improving gold prices with each $100 per ounce change in price approximating $150 million in annual EBITDA. Moving on to Slide 14. This shows our current forecast for capital expenditure in 2025 and 2026. Total capital expenditures over the 2-year period are similar to our previous guidance with some timing variances which has deferred approximately $100 million of spend from 2025 to 2026.

The discretionary projects are expected to approximate $1.6 billion to $1.7 billion per year in 2025 and 2026, with roughly 50% related to the Kitchener development and the LNG project at Grasberg. The balance includes acceleration of tailings and other infrastructure to support the Bagdad expansion, the Atlantic Copper circular project which is expected to be completed by mid 2026 and capitalized interest. The discretionary category reflects the capital investments we're making in new value-enhancing projects that under our financial policy are funded with the 50% of available cash that is not distributed. These projects, which are detailed on Slide 31, will benefit our results in the future.

We will continue to be disciplined in allocating capital to projects that enhance our position and generate attractive returns. This is consistent with our track record of efficient capital allocation and value-driven approach. On Slide 15, we reiterate the financial policy priorities centered on a strong balance sheet, cash returns to shareholders and investments in value-enhancing projects. Our balance sheet is solid with investment-grade ratings, strong credit metrics and flexibility within our debt targets to execute on our projects. We don't have any significant debt maturities until 2027.

In addition to paying our first quarter base in variable dividend, we have repurchased $107 million of FCX common stock in the open market year-to-date. In total, we have distributed over $5 billion to shareholders through dividends and share purchases in adopting our financial policy of returning 50% of excess cash flow in 2021. And we have an attractive future long-term portfolio that will enable us to continue to build long-term value for shareholders with the remaining 50%. We actively monitor current market conditions and carefully manage the timing of our projects, to ensure our financial flexibility remains strong. Our global team is focused on driving value in our business committed to strong execution of our plans, providing cash to invest in profitable growth and return cash to shareholders.

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

[Operator Instructions]

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

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

Yes. Thanks for the question. And Mark Johnson is here on the call if we need to fill in anything. But -- we updated our quarterly forecast, as I mentioned, we updated our multiyear forecast every quarter. And Grasberg, we go through a process for each of the ore bodies and look at what the expected rates are in determining the grades we use an established software package that the industry uses for modeling block caves. And we did detect starting in the first half of the year, some differentials between what we were actually getting out of the recovery of ore grades versus what the model suggested.

Historically, it's been pretty close match. We did recalibrate it once before in -- at the end of 2023. It didn't have material impacts. But we took on a process to look at the various settings within the scheduling model and we're able to develop an update to the calibration that replicated very, very closely, the match that we've historically we're realizing. And so we have updated that. You need to consider just the background of the variation of grade within this ore body. And we have 900 draw points that we're collecting ore through, and there could be changes in the timing of how that ore flows through the draw points from which sections it's coming from, particularly below the pit, where you remember in the open pit area, we had a very high-grade core of gold at the bottom of the pit.

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

No. I think you handled it very well Kathleen, one thing I just might want to mention is what we're seeing is that we start mining from a draw point. We're very confident because the material is just directly above the area that we're mining as these -- as we continue to pull through this column of rock, some of it is up to 500 meters above us. This estimation becomes a bit more complex. Not all the material makes its way through that column at an equal rate, the smaller material tends to work its way through the column of rock quicker. And then also, we have material that shifts laterally and can end up in other draw points. So it becomes a bit more of a big mixing as you get further up.

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

Thank you, Mark.

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

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

We're monitoring very closely the impact of tariffs -- in terms of what Freeport brings in as the importer of record, it's not a significant impact so far. The bigger impact that we're working with our suppliers on is what they are seeing and what various inputs they have into their costs. And so we're working very closely to monitor that. We've got a task force set up monitor it so that we don't have suppliers that are just trying to pass along -- use the opportunity to pass along price increases, but we're really getting down into the data to understand what it could mean.

The tariffs to date, and I know there's some negotiations that are ongoing. But we're currently estimating potential to have a 5% impact on our costs. But that's something we're monitoring. We're going to look for ways modify our supply chains if possible, and work closely with our vendors to make sure that we're sourcing the material as much as possible that's tariff-free. So -- but things like the steel and aluminum tariffs, that's hitting us to a degree as well.

So we benefit on the one hand to a much larger extent on the copper situation, which we talked about but the tariff is impacting our operating cost, but not to a significant degree. Well, really, the cost savings that we're talking about, really the efforts underway to drive better efficiencies through our innovation that we're doing, focusing on the basics, rationalizing contractors like we talked about, reducing unplanned downtime, getting better asset efficiencies, our asset health is in much better situation in the U.S. than it has been in recent years. And so we're really now that inflation is somewhat moderated. We're now in a position where we're really driving what we can do to bring costs lower. We've got a lot of automation projects underway.

So -- and of course, the leach initiative will really help us out because those incremental pounds are coming in at a very low cost. And so we're really excited about the opportunity in the U.S. to bring down costs. And at the same time, we're seeing premium. So our U.S. business should perform very, very well as we look forward. As a reminder, we -- we don't have -- we have NOLs in the U.S. net operating losses. So it can come into our margins and cash flows and drop to the bottom line through our results. And so it's a real opportunity for us, and we're very focused on driving value in our U.S. business through efficiency programs and cost reduction programs in addition to the benefit we're getting on this premium.

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

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

We've had discussions with various government authorities about Freeport. We've gone through submission of the 232 comments and we've engaged with various representatives of the U.S. government just as an education about what Freeport is doing in the U.S. as a dominant producer, we talked about supplying 70% of the refined copper that's produced in the U.S. to this market.

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

We know with the recent legislation, some of the IRA benefits are being phased out. But really, what we are hoping to accomplish. We're very happy about the attention to permitting reforms, but we're hoping to accomplish incentives that would be long term in nature and really could boost U.S. refined production. So we're educating. It's a 2-way conversation. Richard's been involved in various discussions as well. And so we're in a good position on this. Bagdad expansion is actionable. We're wanting to get our autonomous truck conversion completed. We want to understand the -- how this tariff situation will be implemented, et cetera.

But in the near term, we're really looking at our leach initiative as an opportunity to grow refined production in the U.S.

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

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

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

Indonesia as $0.27 to relates to treatment charges in cash cost guidance for 2025 into next year with [indiscernible] up and running, what do you think your internal cost to operate that sort would be on a sound basis.

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

So that will show up in revenue, something on the order of 2.5% of the revenues of the additional volumes will show up in our revenues. But net cost will be credited essentially, when you look at the impact of the smelter, you're looking at something on the order of $0.15 or $0.16 net when you consider the revenue impact. And then, of course, the export duty will go away, which was something on the order of $0.30 or more in the second quarter. So it should, at the end of the day, benefit our margins.

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

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

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

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

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

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

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

I want to emphasize though the real opportunity for us in the near term, to get more refined metal in the U.S. is continued success with our leach program. And I mentioned the additive trial we're doing. We're making some progress on additional additives. That combined with our precision leaching processes as well as we're going to introduce heated [indiscernible] into the solutions that we're injecting into stockpiles. So we're working on those things. And those -- that can happen more quickly than trying to develop a more costly greenfield smelter.

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

First one on the buyback. It was still very modest in Q2 in terms of the pace of buyback and despite net debt being well below your target now. Can you just outline what's holding you back at the moment in terms of increasing the pace of share repurchases? And if I can add one quick follow-up on Indonesia. I know you've said the 2026 guidance on copper and gold is unchanged. But given the variability you're experiencing what level of confidence do you have or can you really have in that medium-term goal guidance?

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

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

With respect to the gold volumes, we'll go through a comprehensive process every quarter. We feel confident with the modeling that we've done and that we feel that the gold grades are there. And so we'll just keep working as much as we can to get our rates up. We were impacted in the first half by 2 major projects or maintenance projects, one of the concentrators was down for the first quarter in Indonesia and the second one is down now. But those are -- the maintenance will be completed at the end of the third quarter, and we'll be able to increase our mill weights and keep the mine rates going. So we feel confident in using the best information we have today. Mining is -- does have risk, as you know well, but we're working hard with the data we have. And you can look at our historical performance, and I think we've done pretty well when it comes executing on -- and keeping our information up to date so that we don't have surprises.

The other area that's real important for us is getting the smelter up and running. In the fourth quarter, we expect not be exporting concentrates in the U.S. Our plan does not assume any exports in the fourth quarter and all of it will be coming from the new smelter. And so we're really focused on making sure that we get that smelter up and running and things are going well so far. But the nature of these smelters is such that you do have issues from time to time. We've incorporated the ramp-up curve in our estimates, but we're going to work hard to execute on these plans as we've done in the past.

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

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

Yes. So with respect to the Miami expansion, we've been looking at something on the order of 30% increase to the current concentrate treatment Miami, by the way, the Miami smelter is performing very well, and that team has been very helpful that in the Atlantic Copper team both have been very helpful with our new smelter in Indonesia and helping our team there to achieve the ramp-up. But we've been looking at something on the order of 30%.

Interestingly enough, on the Lone Star project, it will be kind of like over time, kind of like Morenci, where you have a significant portion coming -- of the production coming from the leach volume. So depending on how we do with our leach additive, we may have the option to send more to leach production as opposed to concentrating. But we do have at the Lone Star project, we do have a part of the deposit that has both copper and gold in the grade. And so that will likely require a concentrator.

But we're in a great position, Carlos, with this focus on getting refined production. We're in a great position with the smelters we have today to leverage those and also with this leach processing where Freeport has a very significant experience in that. So we're in a good position. It's not easy looking at the future of how to bring in more refined copper. But we're pleased with the portfolio we have that allows us to leverage it more quickly.

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

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

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

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

I just want to come back. I'm not sure that you've characterized exactly what we're saying about Indonesia. In the near term, our plans are based on selling our copper cathode that will be produced. We've been working on marketing plans and our near-term plans is that, that will be sold in Asia. We have flexibility. We don't have long-term contracts locked up. We do have flexibility to send it to the place that makes the most sense. I mentioned that the trade flows currently are advantage -- logistically advantaged selling it in Asia. We're very what's happened in Indonesia with respect to domestic production.

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

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

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

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

So basically, I want to ask about the market. So we have COMEX prices up more than 40% year-to-date. I'm not sure you've ever had the price rally this much in such a short period of time. from a pretty high starting point. And U.S. industrial economy isn't exactly firing on all cylinders right now. So I'm wondering demand implications of this massive price spike in the U.S. And even globally, with LME prices rising as well. Are you seeing -- do you think these sorts of these price increases can be tolerated. Demand is in elastic enough that this isn't really going to be affected by higher prices? Or are we getting to a point now with COMEX approaching $6 a pound that you could see real negative implications on demand?

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

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

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

Yes. Let me just say a couple of things, Chris. This move that you've talked about reflects the fact that there was this global exporting of copper in the United States in advance of the tariffs. Getting in a here and now before the tariffs came into place. Now there's a big question about what are the tariffs often going to be? They certainly don't reflect the -- even at these prices, they don't reflect the 50% tariff that's been floated. But we really don't know. And so once the tariffs are announced, then there will be an adjustment in flows, and there will be potentially benefit on LME prices.

Ultimately, it's going to be global supply demand that will end up driving it. And then whatever tariffs are there, how they're absorbed where they're absorbed in the U.S. marketplace. Copper is just so difficult to replace for its fundamental uses because of its inherent qualities. So it's not like -- and there will be pushes as prices rise to find ways to substitute copper to thrift it and so forth. But underlying all of that is just nothing conducts electricity like copper in the world's electric. So that demand fundamental strength and demand will be there. Steve, I don't know if you have any other thoughts?

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

Yes. I mean, I guess what I was thinking there is but I was thinking the competitiveness of kind of downstream in the U.S. And if we -- let's assume these tariffs are a permanent thing, do you start to get a mix in demand globally to other regions? And I get it that the LME price depends on global supply and demand, but for Freeport specifically, obviously, the COMEX premium matters as well. So do you start to get a shift in tons away from the U.S. to elsewhere, which means that the benefit of the tariff to U.S. producers becomes less over time.

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

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

I'm sure you all watch news commentators and you hear things that sometimes it's just astounding like people wanting to open up of the old soothers, reopening the smelters. They don't realize they're gone. The spenders that are once there are no longer here. And to try to build a new smelter in today's world where you have 0 or negative TCs and RCs is a tough deal now. They have not raised the idea of government subsidies and so forth. We've been trying, as Kathleen said, to get production credit applied to copper, but that's a challenge.

The thing that's the overhanging this that we're looking into more is the impact of scrap in the U.S. There's primary scrap and secondary scrap in the U.S. over time, it closed its secondary scrap processors because of the environmental issues and cost issues associated with it in almost all secondary scrap have been going to China or elsewhere. Now there's been some new secondary scrap facilities opened up, and that's the potential source of U.S. refined supply, but it's complicated as well for the reasons I just mentioned. And -- but that's the thing to watch is what we're watching as we look at all of these things going forward. It's just a complicated [indiscernible] world, and we just all have to focus on doing it.

And listen, I'm really proud of what our team is doing. I mean, we've been through history at Freeport of having to dig our way out of some real tough problems over the years. Now we've got a lot of those past problems behind us and [indiscernible] leading the team and focusing on technology, get more copper out of what we have there, reducing costs, there are ways of doing that. And that's what we're really focused on as we wait for this political situation to clear and to see where we're going from here.

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

Could you explain some of the hurdles in engineering the Bagdad expansion. Clearly, you've been mining a long time, you know about the reliability of the ore grades, the combination character. It explains just how it takes a year or so to get to definitive fees. And concerning Lone Star, is the expansion in consideration, increasing the mining and stacking rate 120,000 tonnes a day oxide -- or is it also bringing forward the sulfide mill. Just looking forward to all the good progress.

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

And really, from a Bagdad [ debt ] standpoint, we're going to be able to produce these reserves regardless of whether we expand. The expansion, obviously, would give us more near-term production, near-term cash flows, but it's really a question of when the right time is to start it and we've been taking the time why we've been considering to advance some things and derisk the project with this autonomous truck conversion that we're doing is going to reduce reliance employment. We will have to expand our employment there, but not to the degree if we had the trucks that were all they were all operated with people. So we've been doing that. We've been dealing with housing at Bagdad.

We've been advancing some of the tailings work, which we would ultimately have to do long term, but we've been advancing it so that when we're ready to go, we can just move forward with construction. So we've been creating optionality with the project, but the main the caution that we've had with it is just wanting to make sure that we convince ourselves that we can execute the project efficiently within our capital budget. Now we've got -- we want to monitor what's happening tariffs and how that might be affecting capital costs. And so we wanted some more clarity there while we continue to advance the autonomous truck fleet.

So that's where we stand at Bagdad. Lone Star, we're advancing a study to look at what the next phase of expansion could be. We've got the dose [indiscernible] deposit at Safford, which I mentioned earlier, is high grade and also has gold in it. So that would be a concentrator project. But with respect to Lone Star sell sides, where we're going to look at the right mix of leach versus concentrating. If we put the concentrator in for those [indiscernible] deposit, that will help the economics ultimately of putting sending some through the mill. But the vision big-picture vision, this is an enormous resource in this district. Big picture vision is to have a cornerstone asset like Morenci, that'll be a leach and concentrate producer of scale over a very long period of time.

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

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

Can I just go back to Grasberg to make sure I understand this. you sort of lost 200,000 ounces over your 5-year plan. And again, that just different flow through draw point. But if I look at to 5 years, is there anything different I should worry about there? And is there anything you've learned through this whole process that would change your thinking on KL, just given it is a lot higher gold grade going forward?

Yes. Nothing has changed with respect to our long-range Grasberg Block Cave plans. We are, to your point about looking at what is the best NPV when we're developing KL, but what's the best NPV. And we always look at the interplay between grades coming from various ore bodies that could maximize the net present value. So we'll have that opportunity. The development of Kucing Liar adds additional optionality within the portfolio. And you've pointed out, we've got high grades there both copper and gold currently, the recovery assumptions in our reserves are lower than what we're getting in the mill recoveries, what we're getting in Grasberg Block Cave, but that's a real opportunity for us.

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

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

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

Great. Thanks very much for answering my questions.

Brian, this is Richard. Let me add just one quick thing on this because observed some things about this great issue with the Grasberg Block Cave. I just want to point out a couple of things. One, when you look at the shortfall, don't forget to take into account the tax effect of that and also the noncontrolling interest effect. The government of Indonesia has 51% of that, and there's a tax effect to it. So I've observed some people overstating the impact of it.

And as Kathleen and Mark said, this is not a fundamental change that the resource is requiring us to make operating changes in the way we operate. What we're talking about here is getting a better handle on when that gold in the ore is going to be processed. And we're learning more about it. We're using better models. It's not a resource question. It's a timing question and we want to give the market as we always do our best effort in giving you guidance as to when that goal is coming. It's going to be there. It's going to come. It's a question of when.

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

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

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