Freeport-McMoRan (FCX) Q4 2024 Earnings Call Transcript

Freeport-McMoRan (FCX)
Q4 2024 Earnings Call
Jan 23, 2025, 10:00 a.m. ET

Contents:

• Prepared Remarks
• Questions and Answers
• Call Participants

Prepared Remarks:

Operator

Ladies and gentlemen, thank you for standing by. 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.

David P. Joint — Vice President, Investor Relations

Good morning, everyone, and welcome to the Freeport conference call. Earlier this morning, FCX reported its fourth-quarter and full-year 2024 operating and financial results. A copy of today’s 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 our website home page and clicking on the webcast link for the conference call. In addition to analysts and investors, the financial press has been invited to listen to today’s call. A replay of the webcast will be available on our website later today. Before we begin our comments, we’d like to remind everyone that today’s press release and certain of our comments on the call include non-GAAP measures and forward-looking statements, and actual results may differ materially.

Please refer to the cautionary language included in our press release and slides and to the risk factors described in our SEC filings, all of which are available on our website. Also on the call with me today are Richard Adkerson, chairman of the board; Kathleen Quirk, president and chief executive officer; Maree Robertson, executive vice president and CFO; and other senior members of our management team. Richard will make some opening remarks. Kathleen and Maree will review our slide materials and then we’ll open up the call for questions.

Richard?

Richard C. Adkerson — Chairman of the Board

Good morning, everyone. Thank you all for joining us. Kathleen will review our continuing strong operating performance, our strong financial position, and our significant organic growth opportunities. Maree will review our financial outlook.

It goes without saying we’re living in a very interesting world today. We have new presidents in the United States and in Indonesia. At Freeport, we will support their administrations as we do in all the countries where we operate. Our first work with Prabowo Subianto in Indonesia in the late 1990s when he was general in Kopassus.

At that time, he helped us resolve social unrest in our operating area in Papua. Kathleen and I met with him recently in Jakarta, again in Washington, and then Lima at APAC. I was very impressed by his knowledge of global affairs and his candid engagement on issues important to investors. We’re now working with his government on several issues important to our company, including obtaining permission to continue exporting fiber concentrates in 2025 as we complete repairs from the unfortunate fire at our massive new smelter and as we work on an extension of our license to operate beyond 2041.

I’m confident we will find common ground on these and other issues as we have done over the almost 60 years of our operating in Indonesia. I’ll turn the call over to Kathleen and look forward to your comments.

Kathleen L. Quirk — President and Chief Executive Officer

Thank you, Richard. Thanks, everyone, for being on the call. I’m pleased to report on our fourth-quarter results, review our 2024 performance, and update you on our projects and outlook for the future. We look back on our performance in 2024 and I’m on Slide 3 here.

Our team executed our plans in solid fashion. We enhanced our strong foundation to support a positive long-term future centered on value creation. We show on Slide 3 the annual information on our copper sales, unit costs, and financial metrics for the year 2024 compared to 2023. Our team delivered on our plan.

We essentially met our sales targets developed at the start of 2024, and we slightly improved on net unit cash costs compared with 2023 and our plan going into the year. We’re proud of Freeport’s long track record for successful execution, and we don’t take this as a given. It requires that we stay disciplined each day on managing the many underlying metrics which drive our results, requires that we manage risk and stay on top of what matters, both for the short term and the long term. It also requires that we find solutions to overcome unforeseen challenges, which, as we all know, are inevitable, given the nature of our business.

Strong operational execution combined with improved pricing allowed us to achieve $10 billion in EBITDA for the year 2024. That was 14% above 2023 EBITDA, and our operating cash flows in 2024 of over $7 billion or 35% improved from the prior year. This was on an average copper realization during 2024 of $4.21 per pound, and our realization for gold was slightly above $2,400 per ounce. As we go forward, our team is focused on opportunities to continuously improve and drive value in our existing operations and through our organic growth portfolio.

We look at our priorities for 2025, our team is very focused on a number of initiatives and I’m going to outline the key ones here. The first one, and this is a theme at Freeport every day, it’s execution. Our team is committed to strong execution of our plans again this year, doing what we say, delivering on our plan, volumes, cost targets, and capital projects safely and efficiently while seeking opportunities to capture upside. A second focus area is scaling our leach opportunity.

We set a target to reach a run rate of 300 million pounds by the end of 2025 and to build on that with additional scale in 2026 on our path to 800 million pounds of incremental copper per annum by 2030. A third focus area is the PT-FI smelter. Our team has executed this complex project well and has stepped up to respond to the recent fire incident. We have a plan, a solid recovery plan that we’re executing on, and that will enable us to deliver this project during 2025.

It’s important for us not only to be fully integrated and get the smelter up and running but also important as we seek to extend our operating rights beyond 2041 in Indonesia. You’ll see us talking more about innovation. Innovation is a major priority as we go forward. Our work to date indicates a significant untapped potential value in this area, and we’ve got a team working on it to drive that value.

Equally important, we’re continuing to build optionality in our growth portfolio. We have a number of key milestones identified in 2025, and we’ve got three major projects that we’re currently working on for future growth. I’m going to review markets on Slide 5, and you can see where copper prices have been, they traded in a broad range during the year 2024 between $3.67 per pound and $4.92 per pound, averaging $4.15 per pound on the LME. On the U.S.

COMEX exchange, prices were slightly higher than the LME, and year to date, the differential has grown and is now — has averaged about $0.17 per pound through the first part of 2025. During 2024, copper prices mostly followed macro sentiment, which weighed favorable to U.S. economic data, rate cuts in the U.S., and the potential for economic stimulus in China against ongoing economic pressures in China, a strong U.S. dollar and uncertainties on U.S.

tariff and trade policies that the markets have been focused on from late last year. At a micro level, demand continues to grow, and that’s supported by secular demand trends associated with electrification, which has offset some of the impact of weakness that we’ve seen in certain more cyclical sectors. In the U.S., our customers are reporting solid demand for power cable and building wire associated with substantial investment in electrical infrastructure and AI data centers. Growth in the power sector is offsetting weakness in traditional demand sectors currently coming from residential construction weakness and the auto sector.

Turning to China. Demand from China continues to be supported by significant investments in the electrical grid and continued growth in China’s production of electric vehicles. We’ve seen highly publicized reports of weakness in China’s property sector and that’s influenced sentiment. But the reality is China’s demand for copper continues to grow, albeit it had modest growth in demand in 2024.

We’re seeing recent data points out of China that indicate a number of sectors are poised for better growth in 2025. And together with potential stimulus actions to support economic growth targets, their support for potentially higher growth in demand from China as we move through 2025. We want to highlight copper’s superior conductivity and that makes it the metal when it comes to electrification. New massive investment in the power grid, renewable generation, technology infrastructure, and transportation are driving increased demand for copper and forecasts call for above-trend growth in demand for the foreseeable future.

As we match this up with supply, we continue to see a balanced market near term and significant deficit conditions longer run. This is going to require significant investment by the industry as well as innovative technologies to build supplies longer term. And at Freeport, we’re driven the supply type reliably and responsibly to this growing market. We’ll move into the fourth-quarter results on Slide 6, where we provide a summary of the results.

Our operating performance in the fourth quarter was solid. Our sales and net unit costs were slightly better than our guidance going into the quarter. We’ve made a lot of progress since our last update call in October at our Indonesian smelter refinery project. The smelter recovery activities are in progress.

Long lead items are expected to arise in the March-April time frame, and we expect to recommence production by middle of this year. The precious metals refinery, which was designed to refine precious metals from our existing smelter in Indonesia as well as the new smelter was not impacted by the fire, and we produced our first gold bar in late 2024. Product operations at the refinery have gone very well. And following completion of the smelter ramp-up, our Indonesian mine and smelting operations will be fully integrated.

In parallel with working on the smelter recovery, we’ve made great progress with the Indonesian government to allow us exports during the period of the smelter repairs. We did receive approval in late 2024 to update our quota for the year 2024, and that allowed us to make some additional shipments in December. We’re currently working with the government on 2025 exports, and we expect to receive approval in the first quarter. We’re also working very hard to progress initiatives to build value from organic growth.

We benefited Freeport from a large reserve and resource position with near-term, medium-term, and long-term embedded growth options. We’re challenging ourselves to take advantage of innovation to improve efficiencies, reduce costs and capital intensity, and shorten lead times for our projects. The high potential innovative leach initiative is a great example of this. We achieved an approximate 50% in copper production from this initiative in 2024 at a very low cost, and there are projects in motion to target an annual run rate of 300 million pounds by the end of this year.

And that’s 40% higher than what we achieved in 2024, with opportunity for further gains in the future. We’re also advancing our brownfield expansion opportunities to position the business for longer-term growth to supply a market with increased requirements for copper. We ended the quarter in a strong position financially. As we look forward, we see great value in our business, supported by our leadership role in copper, a market with highly attractive fundamental outlook matched up with our portfolio of high-quality assets and future prospects for strong cash flow generation to support investments in value-enhancing projects and returns to shareholders.

I’ll go through on Slide 7, our operations update across our geographic regions. And I’ll start with the U.S. where we’re making good progress with our initiatives to improve efficiencies and cost performance despite a decline in ore grades in recent history. Data we monitor regularly regarding our asset efficiencies and other key indicators have trended more favorably over the last several months.

As we look forward, we expect production in the U.S. to increase by 8% in 2025, with opportunities for further increases in 2026 and 2027. Absent changes in commodity-based input costs, we’re targeting unit costs to trend lower each year over this three-year period. With 2024 behind us, our goal was to make 2024 the low watermark year for our U.S.

business. Structurally, we deal with lower grades in the U.S. and hauls are getting longer. The autonomous haul truck conversion being deployed in 2025 at Bagdad will allow us to test the potential for this application on a broader scale at other operations.

The incremental leach pounds at scale will also benefit our cost position as we go forward. We also initiated a new project during 2024 centered on integrating new technology and automation to optimize performance in our basic mining functions. We believe there is significant opportunity here for value creation through meaningful cost reduction, which would enhance margins and also expand reserves from known mineralization, which is currently economically limited under our current reserve pricing. Many of you have been following this.

We’re following it very closely. U.S. legislation considering copper as a critical mineral for integrated producers. If this is enacted, this will give us a further benefit of potentially being eligible for a tax credit of 10% of our operating cost in the U.S.

In South America, the team at our Cerro Verde operation posted another solid quarter with strong operating rates and mill recoveries. The team is doing a really good job with cost management as evidenced by a 13% improvement in South America unit cost over the year-ago fourth quarter. As you’ll see in our guidance, Cerro Verde grades are expected to be slightly lower in 2025 compared with 2024. We expect long-term averages to recover to the 900 million pound per annum range at Cerro Verde.

At El Abra, we’re positive about the opportunity to test an initiative to add heat to our leach process, and that has a lot of promise to provide incremental near-term production there. Turning to Indonesia with another solid quarter, and the team achieved multiple new operating records again in 2024. Our team is consistently delivering strong volumes of both copper and gold from our large-scale underground ore bodies and has demonstrated this consistently over the last several years. During late 2024, we successfully completed construction of a project, a $500 million range project to install a copper cleaner circuit to enhance mill performance at Grasberg.

And as you’ll see in the reference slide on Slide 26, the outlook for Grasberg is positive with a strong multiyear outlook for significant copper and gold production. For 2025, our guidance at Grasberg reflects downtime associated with two major mill repair projects scheduled during the year. This is expected to result in lower volumes in the first quarter compared with the balance of 2025. We also wanted to comment, we’ve received some questions about recent press reports coming out of Indonesia regarding the potential change in requirements for retention of export proceeds.

There were new regulations issued in 2023, and that required PT-FI to deposit 30% of its U.S. dollar export proceeds in a domestic cash bearing account for 90 days. The government is currently considering potential changes to this regulation, which would increase the requirement but also allow withdrawals from the balances to fund business requirements. The details of the potential modifications have not been finalized, and Freeport and other companies in Indonesia are discussing the proposals with the government in an effort to avoid requirements that could have a negative impact on our business.

We’ll move to our growth and innovative leach opportunity, where we continue to be encouraged by the significant value potential from this initiative. The chart on the left side of Slide 8 shows our progress over the last few years. We’ve been successful in deploying a new series of operating practices to recover incremental copper previously thought to be waste. Our recent gains have been in the areas of adding scale to our targeted solution injection wells, innovative approaches to areas in the leach stockpile previously inaccessible, and expanding thermal covers on top of the stockpiles and optimizing our solution chemistry.

We have several additional projects underway in 2025, and we’re targeting reaching the annual run rate of 300 million pounds by the end of this year, with the potential to produce 300 million to 400 million pounds during 2026 from these initiatives. We’re really excited about projects being planned to add heat to the stockpiles and field testing of additives. Ultimately, our goal is to achieve 800 million pounds per annum from this value-enhancing growth initiative, the size of a major new mine that’s got very low capital investment required, very low incremental operating costs, which will significantly enhance the value and competitive position of our Americas production. Just to comment on the cost of this innovative leach, to date, it’s been well below $1 incrementally per pound.

And what’s so exciting about it is we’re bringing on production of product that was considered waste in the past. We’ve already incurred the mining cost, so we’re spending incremental dollars to get more copper and it’s had really a lot of value potential and that’s why we’re pursuing it so aggressively. We’ve got an extensive inventory of substantial residual copper from material already mined. We’ve got industry-leading technical expertise and a strong multi-disciplined innovation team dedicated to the initiative.

On Slide 9 is a brief update on our organic growth projects, all of which are brownfield opportunities where we can leverage existing assets and establish operations. We talked about the leach opportunity. In addition, we also have opportunities for expansion at Bagdad and our Lone Star operations in the U.S. At Bagdad, we’re continuing to make investments in site infrastructure and tailings expansion to position us to execute the project more efficiently when the time is right.

We expect to have the majority or most of the autonomous trucks deployed in the field this year. That will provide the ability to be more efficient with labor at this remote location. In parallel, we’re also continuing to pursue opportunities to reduce the capital intensity of the project. We’re monitoring markets and site-specific factors and hope to be in a position to make a decision on the path forward by the year-end.

In the Lone Star District where we already have existing operations, it’s our newest mine in the U.S. We’re engaged in studies to define a major brownfield expansion. We’re targeting opportunities there that could double the current production levels of 300 million pounds per annum. We’ve got a very large resource at this location and expect this district will become a significant asset for Freeport in Arizona in the next decade.

In El Abra in Chile, we’ve talked about this in the past. We’re preparing an environmental impact statement. We expect to be complete and submitted by the end of this year. The project involves investment in a new concentrator of scale similar to the size of the Cerro Verde concentrator we installed 10 years ago.

We’ve got plans for investments and a desalinization plant and also a pipeline system to support our water requirements. The opportunity from the project is to provide 750 million pounds of annual copper production, it’s very large scale, and 9 million pounds of molybdenum per annum. It’s got a long lead time to it. It requires seven to eight years of lead time, but we’re currently advancing it to provide options for the future and value-driven options to boost our production in the future as the world needs more copper.

In Indonesia, we’re continuing to develop the Kucing Liar ore body within the Grasberg district. That development continues toward a targeted commencement of production by 2030. We’re also very excited about additional exploration opportunities below the Deep MLZ ore body. And extension of our operating rights will set us up for additional long-term development options in this highly attractive and valuable district.

Our overall objective is to move quickly to define the opportunities across the portfolio, rank them on value potential, and allocate capital on a risk-reward basis to provide profitable growth options for the future. We’re going to be disciplined in our approach, targeting opportunities that enhance long-term value and where we believe we can create that value at a manageable risk. We’re moving to our outlook on Slide 10, where we show a three-year outlook for sales volumes of copper, gold, and molybdenum. Our copper guidance for 2025, as you’ll note, has been adjusted by approximately 5%.

That incorporates updated estimates for the mill maintenance projects planned in 2025 in Indonesia. Our gold estimates for 2025 are about 7% higher than the prior estimates, and that’s benefiting from inventory drawdowns during 2025 and also slightly higher ore grades for gold. We provide quarterly estimates on Slide 25 of the reference materials. The first quarter volumes are expected to be the lowest of the year because of mill maintenance and timing associated with the expected export approvals, but you’ll see we get back to large-scale production as we move through the year.

Our 2026 guidance is for copper is unchanged, and our gold for 2026 is up about 100,000 ounces compared with our prior guidance. We’ve added 2027 to our outlook, which is similar to the outlook for 2026. For Slide 11, we show our cost estimates for 2025 and we show the geographic mix, which has an impact on the overall average. When you look at our cash cost estimate currently for 2025 of $1.60 per pound, that compares to $1.56 per pound in 2024.

The two results are similar but the weighting of volumes between the region’s results in a slight increase. The important point we want to get across on this slide is that we expect U.S. costs to be lower in 2025, and we’re focused on driving these costs lower as we go forward. You can see the cost by region presented on Slide 24 in the reference material, which will show you the makeup of the cost.

I’ll now turn the call over to Maree who is going to review our cash flow outlook, and then we’ll come back and take your questions. Turning to you, Maree.

Maree Robertson — Executive Vice President, Chief Financial Officer

Thanks, Kathleen. Just turning to Slide 12. Putting together our projected volumes and cost projections, we show modeled results on Slide 12 for our EBITDA and cash flow at various copper prices, ranking from $4 per pound to $5 per pound. These are modeled results using the average of 2026 and 2027 with current volume and cost estimates and holding gold flat at $2,700 per ounce and molybdenum flat at $20 per pound.

Annual EBITDA would range from over $11 billion per annum at $4 copper to over $15 billion per annum at $5 copper. Operating cash flows at these ranges would be nearly $8 billion per year at $4 and over $11 billion per year at $5. We show sensitivities to various commodities on the right. You will note, we are highly leveraged to copper prices with each $0.10 per pound change equating to approximately $425 million in annual EBITDA.

We will also benefit from improving gold prices, with each $100 per ounce change in price approximating $150 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. Moving on to Slide 13. This shows our current forecast for capital expenditures in 2025 and 2026.

Capital expenditures for 2024 were $3.6 billion and are expected to approximate $4.4 billion per year in 2025 and 2026. 2025 capital expenditures are about 5% above our October estimate, which largely reflects minor revisions to project estimates and an increased allocation of capitalized interest. The discretionary projects approximated $1 billion in 2024 and are expected to approximate $1.6 billion to $1.7 billion in 2025 and 2026, with roughly 50% related to the Kucing Liar development and the LNG project at Grasberg. The balance includes acceleration of tailings and other infrastructure to support the Bagdad expansion, the Atlantic Copper Circular project, which is expected to be completed in the first half of 2026 and allocated capitalized interest.

The discretionary category reflects the capital investments we are making in new projects that under our financial policy are funded with the 50% of available cash that is not distributed. These projects are value-enhancing initiatives and are detailed on Slide 28 in our reference materials. We have a track record of managing capital in a disciplined manner, and we will continue to deploy capital in a manner that builds long-term value. And finally, on Slide 14, 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 strong with investment-grade ratings, strong credit metrics, and flexibility within our debt targets to execute on our projects. In the fourth quarter, we redeemed $730 million in maturing senior notes for cash. We have no significant debt maturities until 2027. We have distributed $4.7 billion to shareholders through dividends and share purchases since implementing the financial policy and have an attractive future long-term portfolio that will enable us to continue to build long-term value for shareholders.

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, and providing cash to invest in profitable growth and returning to shareholders. Thank you, everyone, for your attention. I’ll now hand back to Kathleen and we can take your questions.

Kathleen L. Quirk — President and Chief Executive Officer

Thank you, Maree. Operator, we’re ready to take questions.

Questions & Answers:

Operator

[Operator instructions] Our first question comes from the line of Liam Fitzpatrick with Deutsche Bank. Please go ahead.

Liam Fitzpatrick — Analyst

Good morning, Kathleen and Richard. I’ll just stick to one question, given the guidance there. Just around the approval of the — approval to export concentrate from Indonesia. You said you hope to receive it in Q1, but do you have any more visibility on when in Q1? And does there come a point in this quarter when you’ll start to run out of storage capacity, and therefore, could that start to impact your production rates and your guidance? Thank you.

Kathleen L. Quirk — President and Chief Executive Officer

Thank you, Liam. As we mentioned, we’re making really good progress with the government. We’ve reviewed with them the incident, the repairs, the lead times required. They visited the site, and they are — they’ve indicated support for allowing us to continue exports during 2025.

They’ve also encouraged us to move as quickly as we can to finish the repairs. But they’ve indicated support for this. Now it’s a matter of getting documentation for the amendment to the regulation. We understand that they’re working on the drafts of the new regulation or the amendment to the regulation to allow this, and we expect this to be approved in the near term.

We’ve got some maintenance going on at Grasberg, as I mentioned. And so our inventories are building still. We’re still shipping to our existing smelter there. But our inventories are building a little bit.

But if we get this export permit, as we expect in the coming weeks, we’ll be good to start shipping exports and also we’re bringing down those inventories.

Liam Fitzpatrick — Analyst

OK. Thank you.

Operator

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

Katja Jancic — BMO Capital Markets — Analyst

Hi. Thank you for taking my question. Kathleen, you mentioned the 10% tax credit potential. What are some of the next steps that need to happen for copper to actually qualify for that? And is there any time line? In other words, is this still possible in ’25?

Kathleen L. Quirk — President and Chief Executive Officer

It’s a matter of legislation. There was a bill that passed through the House late last year, which allow for the copper to be added to the list. And so we’ve got to get additional legislation passed through the other processes in the U.S. And so it still is possible.

We’re flagging it. We’re monitoring it. And so I can’t predict U.S. legislation timing but it is important.

There are a number of bipartisan support for this. And so we’re following it very closely, which would be very significant for us if you look something on the order of $500 million of benefit.

Operator

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

Alexander Hacking — Analyst

Yeah. Thank you. Good morning. Just digging into the discretionary capex spend for 2025.

The $400 million of Bagdad on the tailings infrastructure, is that explicitly tied to the expansion or is that something you would need to do anyway? And is that part of the $3.5 billion capex for the project? And then the $600 million at Kucing Liar, when that arrives, can you remind me, does it increase Grasberg production or it’s just going to fill the mill as other sources of ore are depleting? Thank you very much.

Kathleen L. Quirk — President and Chief Executive Officer

Thank you, Alex. With respect to Bagdad, we do need to expand tailings infrastructure long term. We don’t need to do it now and that’s why it’s discretionary. If we don’t move forward with an expansion, that — those dollars could be deferred into the future.

But what we’re doing now is advancing this tailings infrastructure that we would have to do in any case in the future so that it gives us better optionality once we decide on whether to move forward to move more quickly. So we could — if we decide not to move forward Bagdad, we could push that tailings investment out. The $3.5 billion of capital for the Bagdad expansion is really the incremental capital. The tailings would have to be done at some point in the future in any case, so we don’t include that as capital for the expansion.

But we do have flexibility on the timing of this tailings infrastructure if we don’t go forward with the expansion. And then on KL, what we’re talking about there is under our long-term plans, adding 90,000 tons a day from KL. We’re also looking at the opportunity to bring more KL production as we look at the mine plans longer term. And that will allow us to sustain a very long life at high rates at Grasberg as we go through 2041.

When we think about the extension beyond 2041, there’s a lot of KL material that’s still left over at the end of 2041. So an extension would essentially allow us to increase reserves without additional exploration success. So it’s part of our long-range plans. We’d always expected to have some declines in various ore bodies over time, and this will allow us to sustain long-term large-scale production at Grasberg.

Alexander Hacking — Analyst

Thank you.

Kathleen L. Quirk — President and Chief Executive Officer

Thanks, Alex.

Operator

Your next question comes from the line of Chris LaFemina with Jefferies. Please go ahead.

Chris LaFemina — Analyst

Thanks, operator. Hi, Kathleen. Hi, Richard. Thanks for taking my question.

I’m just thinking about kind of the geopolitical risk profile for Freeport. So your organic growth is mostly in the Americas but Indonesia at the end of the day, because it’s such an amazing ore body, it’s always going to be a significant contributor to earnings and a really important part of the Freeport investment case. And if we think back to the acquisition of Phelps Dodge, in hindsight, that was brilliant because it gave you geographic diversification. And when you did have challenges in Indonesia, you had other assets in the portfolio that were able to basically sustain the business as you dealt with those other challenges.

So one option now, which is an option that I sense that you’re pursuing is early stage investments in these longer lead time organic growth projects, which at the end of the day, would help diversify your earnings mix a little bit more to the Americas. But I wonder, is M&A, similar to Phelps Dodge nearly 20 years ago, is M&A a potential path to derisking the business from a geopolitical perspective? I mean, again, Grasberg, amazing ore body, always going to be near the bottom of the cost curve. But a lot of the kind of value leakage that we consistently see there, it seems like these problems don’t really ever come to an end. There’s always some new negotiation that has to happen or some new kind of source of kind of a pound to flesh out of Freeport to continue to operate there.

So just thinking about the geopolitical risk in general. Thanks.

Kathleen L. Quirk — President and Chief Executive Officer

Thank you, Chris. In terms of the investment case, of course, we’ve got a great opportunity in Indonesia. And as Richard was saying earlier, we’ve got close to a 60-year history there. And our team has always found a way to execute very positively and generate value.

So we have a lot of confidence and feel positive about the long-term outlook there. But in terms of the opportunities, we’re really excited about the investment case we have in the Americas and particularly in the U.S. And the leach initiative, when you think about getting to 800 million pounds, and I know we’re not there yet. We’ve got more work to do to get there.

But the opportunity to have 800 million pounds of incremental copper at a cash cost, which is in the — way less than the current $3 and we’ve been less than $1 right now, and really very limited capex, you’re talking about an opportunity there where some people are investing $10 billion to achieve that. And we’re not having to do that. So we have a lot of opportunity to create that value in the U.S. not only from the leach opportunity but also from these cost reduction opportunities.

And those drop right to the bottom line. We’ve got this new innovation initiative that we stood up last year, and we’ve got ambitious targets to reduce our costs meaningfully in the U.S. That will drop right to the bottom line and create a lot of value, not only from being able to have higher margins but expanding the reserves because we’ve got a lot of reserves in the U.S. that are economically limited.

So we’re very excited about the opportunity for low capital intensity opportunities in the U.S. that will generate a lot of value. And you remember that drops to the bottom line. We don’t have significant taxes we’re paying in the U.S.

We don’t have a royalty structure, etc., so we’re very, very excited about that. With regard to M&A and I’ll let Richard comment as well on his thoughts, but we do monitor opportunities across the industry on a regular basis. The Phelps Dodge opportunity that you mentioned in 2007, we were not planning to do an acquisition but the opportunity was presented, and we were able to take advantage of it because we were prepared. So we will always look, we will always be prepared for opportunities as they may come.

But we don’t see, as part of our strategy, getting involved in a competitive auction process or something on that order. We’ll look to M&A for opportunities where we can generate synergies, where we can use our technical capabilities to add value to existing operations. This leach initiative is one that may give us an opportunity in the future to consolidate more and generate more value from it. But it’s not necessary.

We don’t have to do an M&A. We look — we will be opportunistic. But we feel within our own plan, we’ve got a real opportunity to create value and don’t have to do M&A. But Richard, do you want to add to anything I said there?

Richard C. Adkerson — Chairman of the Board

Thanks, Kathleen. Thanks, Chris. And I’m going to try to be real short with this, Chris. We can talk later.

But you point out how acquiring Phelps Dodge helped diversify Freeport in Indonesia. But on the other hand, having Indonesia to support the operations in the Americas gave us the ability to be much more aggressive in the way we manage those operations and took advantage of opportunities in Phelps Dodge or any other company could have with those low-grade mines. Actually, I’ve been talking to Phelps Dodge for almost 10 years before we acquired them to get them to acquire us, and they never would do it. The world changed with China and we had that opportunity.

You look back on our industries when management teams, and this goes across many companies, when management teams, our board’s force an M&A transaction for strategic reasons, it’s almost always a bad answer. So we position ourselves to run our company without having to make acquisitions. But we’re in the market so that if an opportunity comes to us, we’re in a position to take advantage of it. I believe in our industry, M&A driven by opportunities is the way to have successful M&A.

Chris LaFemina — Analyst

Thank you for that. Good luck.

Kathleen L. Quirk — President and Chief Executive Officer

Thank you, Chris

Operator

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

Daniel Major — UBS — Analyst

Hi there. Can you hear me, OK?

Kathleen L. Quirk — President and Chief Executive Officer

Yes

Daniel Major — UBS — Analyst

Great. Thanks. A few questions. Just the first one, I noticed increase in the capex allocated to the smelter at Grasberg.

Is there any insurance coverage for the additional work to fix the fire at the smelter?

Kathleen L. Quirk — President and Chief Executive Officer

The repair cost is estimated at approximately $100 million and so that is covered by insurance. We have not increased our estimates overall for the cost of the smelter. What you’re seeing come through in 2025 for the most part is costs that we incurred in 2024 with the payables in 2025. But the incremental cost of the repairs will be covered.

That’s roughly $100 million will be covered by insurance.

Daniel Major — UBS — Analyst

OK, that’s clear. And then second question. Prior to the election — well, the change of government in Indonesia, you were heading toward, I guess, the conclusion of the review of the license extension, etc. Do you have a visibility on the time line for when you’ll be entering a similar process with the new government?

Kathleen L. Quirk — President and Chief Executive Officer

As Richard mentioned, we’ve met with the new government. We had the opportunity while we were in Indonesia last year as well as when the President and others have visited U.S. and Peru. And so we are discussing the benefits of this operation.

We’re reviewing with the President the financial benefits. He remembers numbers from when he was involved, as Richard said, but he’s been very impressed with the performance over the last many years. And so we’re engaged in that. There’s a regulation that was put in place last year that has an outline of how you qualify for the extension.

And with the smelter repairs, we’ll be fully integrated, which will allow us to move forward. We also have the 10% requirement to sell an additional 10% effective in 2041. And we’re having discussions with MIND ID about a sale and purchase agreement. That’s another criteria for the extension.

But it’s in everyone’s interest, and I think both Freeport and the government understand this, it’s in everyone’s interest to extend this operation, to continue to make investments so that the benefits of this wonderful operation can continue well into the future. And that’s clearly recognized within the government of Indonesia. So we’re hoping to be in a position to apply for the extension during 2025.

Daniel Major — UBS — Analyst

OK. So 2025 time line. OK, thanks. And then finally, if I could just squeeze 1 more in, just to follow up on the legislative pathway in the Senate for the critical minerals.

Do you have any visibility on when the Senate will be reviewing the bill?

Kathleen L. Quirk — President and Chief Executive Officer

We do not. There are a number of agenda items they’re working on and we do not have visibility on it. It’s on the agenda for review but we don’t have a time frame.

Daniel Major — UBS — Analyst

Great. Thanks. Thanks for taking my questions.

Operator

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

Orest Wowkodaw — Analyst

Hi. Good morning. Question about your capex guidance. I was surprised to see the increase in ’25, but probably the ’26 guide of $4.4 billion seemed high to me, just given that you haven’t approved any of the major growth projects yet.

Is there any capex associated with those new growth projects in that ’26 guidance already?

Kathleen L. Quirk — President and Chief Executive Officer

As we were talking with Alex earlier, we’ve got some capital in 2026 that if we don’t move forward with Bagdad would come out, so that assumes that we’re going to go forward. But if we don’t decide to go forward, we could spread it out beyond 2026. It also includes some LNG spend. As Maree was saying, we’ve got over 50% of the discretionary relates to Kucing Liar and LNG.

But the only other thing really in there in ’26 is this flexibility around Bagdad’s tailings expansion. I will say, though, we’re going to be very disciplined about capex. We have in the past, we’ll continue to be. We are going to have to make investments in this business to slow production in the future.

We’re going to be very focused on bringing down capital intensity, working where we can to defer items that we don’t need to spend. And so we review it very carefully and will do it in a prudent fashion as we have in the past.

Orest Wowkodaw — Analyst

If I could just follow up, what’s a good run rate to assume for sustaining capital now for the business, say, beyond ’26?

Kathleen L. Quirk — President and Chief Executive Officer

Well, I think what you’re looking at, we separate these projects between the sustaining capital line that you see on the capital side. That’s a pretty good run rate. The planned investments relate to the — most of it relates to the underground at Grasberg. That number will not stay at $1 billion a year.

We expect over time that, that can come down. So I mean, you’re probably looking at something on the order of 2% to 2.5% run rate without major projects.

Orest Wowkodaw — Analyst

Thank you.

Operator

Our next question comes from the line of Bill Peterson with J.P. Morgan. Please go ahead.

Bill Peterson — Analyst

Yeah. Good morning and thanks for taking the questions and all the details thus far. Realizing the question is hypothetical, but how does Freeport view the potential impacts to copper markets in general and then Freeport specifically from tariffs, whether they be 10% blanket or 25% toward Mexico or Canada? I mean, I guess what is the ability of Freeport to move product from one region to another? And I guess how does having the U.S. assets help protect or even benefit Freeport relative to other copper producers?

Kathleen L. Quirk — President and Chief Executive Officer

Yeah. Well, in terms of the tariffs with respect to specifically in the U.S., Freeport does not — we basically sell all of our product in the U.S. The U.S. as a market itself does import copper, but we do not export copper from the U.S.

So the import of copper is what people are wondering about and whether those will carry a tariff. And you see the premium being built in right now to the COMEX versus the LME, and people are trying to handicap what that tariff might be for copper being imported into the U.S. But for us, we sell copper that we produce in the U.S., in the U.S. If there is a continued premium for copper in the U.S., we would capture that at Freeport because our U.S.

contracts are based on the U.S. price. In terms of globally, we produce in Indonesia, we’ll be producing copper. Those flows will generally go to Asia.

And from South America, they will go to — generally, they don’t come to the U.S., the piece from Cerro Verde. So in terms of the impact on our situation, it’s not a trade flow issue for us. The more concerning thing that we’re watching with respect to tariffs is whether or not they would impact global growth. And that’s the focus, the concern that we have.

We want to make sure that the tariffs are in place, it doesn’t impact overall global growth or create inflationary pressures in the U.S., which we’re just coming off of moderating inflation. And so those are the two things that we’re focused on is whether the tariffs will have an impact on overall global economic growth and whether they will be inflationary for our U.S. operations. Those are the two major things.

Bill Peterson — Analyst

Yeah, thanks. Thanks for those insights. And then on leaching, and I may have missed it, but we saw the step down in the quarter, but you’re targeting now 300 million pounds run rate in exiting ’25. I guess maybe in more detail, what drove the sequential decline? And on the latter, on the increase, is that driven by expanding efforts in El Abra or is this further tech advances or benefiting from, I guess, prior development that you’ve already accomplished?

Kathleen L. Quirk — President and Chief Executive Officer

Yeah. The fourth quarter, we’ve essentially met our plan for leach. It was roughly 50 million pounds, which was in line with our plan and reflected the projects that we were doing for this initiative in that quarter. As we look at the — what’s in our estimates right now for 2025, we’ve got just over roughly 225 million pounds of incremental copper in our current forecast.

We have a number of projects that are in progress right now with respect to deep raffinate injection, which is getting access to areas within the stockpile that need to get more solution to it. And we’re doing that through injection and through drilling. We’re scaling that initiative. We got a number of projects where we’re continuing to, we call it, leach everywhere, get access to areas that previously have not been able to get to.

And we found creative ways like using helicopters to get to these areas. And then the seat opportunity will start to test that later this year or next year. And that’s what allows us to scale from 300 million to 400 million. But we think based on the initiatives we have going on now, we should be able to get to 300 million by the end of this year, and then hopefully by the end of ’26, getting to 400 million with these additional initiatives we’ve got going on.

So it’s on track. It’s continuing to get better in terms of opportunity for us. As I was saying before, think about the opportunity to get to 800 million pounds at a very low cost and sustain that. We’ve got 39 billion pounds of copper that has previously been placed that we’ve considered waste, and we’re trying to get as much of that as we can.

If we get 20% of it, that’s a huge gain for us.

Bill Peterson — Analyst

Thanks, Kathleen. Best wishes to you and the team in ’25.

Thank you, Bill.

Operator

Our next question comes from the line of Timna Tanners with Wolfe Research. Please go ahead.

Timna Tanners — Analyst

Yea. Hey, thanks for including me. I wanted to just follow up on the — a little bit more detail, if you could, on the North American cost cutting initiatives. Like how much of that is the more favorable mine plan? How are you seeing labor challenges? How are you considering 45X when you think about growth opportunities on top of already favorable NOLs? Just a little more color there, please.

Kathleen L. Quirk — President and Chief Executive Officer

Well, the 45X would be — it’s not in our plans. It would be incremental and be beneficial, 10% reduction in cost. We are really focused on driving costs lower over the next few years and we’re doing that through just the basics. We’re really rationalizing contractors.

We’ve had the assets that over the last couple of years have underperformed expectations. We’re now starting to get better performance, better efficiencies out of the assets, better utilization, better uptime, reducing the unplanned downtime. That’s a key focus of ours. So it’s — that’s where we’re very optimistic.

In terms of the labor situation, it’s stabilized for us. We’re not having the turnover that we’ve had in the last couple of years. That stabilized things, that allows us to train people, have them be retained and become more productive. I talked about automation.

We’re doing that. We’re doing that at Bagdad. We’re going to broaden that. We’re going to work on centralizing some opportunities to reduce costs.

We’ve got a whole series of opportunities, and we’re very excited about this innovation opportunity that will allow us to bring down the cost. And I can’t overemphasize how much value that is for us as we look forward. The 45X would be 10%. Our goal is way more than that to get our costs down.

So stay tuned. It’s high on our priority list as we look forward.

Timna Tanners — Analyst

OK, we’ll do. Thanks, Kathleen for the additional color.

Operator

Our next question comes from the line of Michael Dudas with Vertical Research. Please go ahead.

Michael Dudas — Analyst

Good morning, Richard, Kathleen, Marie.

Kathleen L. Quirk — President and Chief Executive Officer

Hi, Mike.

Michael Dudas — Analyst

Looking at financial profile, Kathleen, with net debt at 0.4 times and net $1 billion, I guess, ex smelter funding. And looking — and given comfort levels that you’ve indicated $3 billion to $4 billion of range and staging of the capital spending, and you’ve got a lot of moving parts, I understand, in the next couple of years. But are you — the strategy to keep this really tight financial profile even as the — going to be much more of the capex moving forward funded internally? Or is there ability, given where market prices are and the fundamentals of the business to maybe be a little bit more opportunistic in some capital allocation?

Kathleen L. Quirk — President and Chief Executive Officer

Yeah. Well, in terms of the net debt number being around $1 billion, what the policy is, is 50% of the available cash is distributed to shareholders. And the other half is available to either reduce debt or invest in our projects. And given our profile, we want to invest in projects that have a high value and return on investment.

But since implementing the policy in late 2021, our projects have been slower so these projects take a while to get off the ground. And now you start to see this increase in discretionary spending. And we’ll be — as we talked about earlier, we’ll be careful and prudent about how we manage it. But that debt capacity of where we are at $1 billion versus $3 billion to $4 billion is really earmarked to fund these discretionary projects.

And when we look at the cash available for distribution to shareholders, that line is excluded. So you’re really looking at 50% of cash flow that is excluding the discretionary so just the $1.6 billion and the $1.1 billion for this year, excluding the discretionary. So we’ve got room on the balance sheet to fund this discretionary cash with what we’ve accumulated in the past and the other 50% that we’re generating. So we’ve learned over a long period of time that it’s prudent to have a strong balance sheet and we’ll continue to do that.

But we do have some capacity within our current financial targets to make investments that are prudent, that make sense, that drive value in our business.

Michael Dudas — Analyst

Thanks, Kathleen.

Operator

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

Bob Brackett — Analyst

Good morning. A couple U.S.-related questions. One is probably just buckets of capital, but the Lone Star oxide expansion, for example, where has that moved in terms of discretionary capital projects? And the other would be an update on Jetti Resources and sulfide leaching. I think the trial at Bagdad has been there since ’22, El Abra since ’23.

Where is your level of prudent optimism, should I say?

Kathleen L. Quirk — President and Chief Executive Officer

Yeah. With respect to the Safford project, that’s essentially done this year. We’re completing that and we’re actually — it’s actually — Safford has been performing very, very well so that’s been complete. The next phase that we’re looking at longer term is the sulfide expansion.

But the outside expansion has gone well, and you’ll start to Safford rates and volumes increasing. We’ve got that in our forecast for this year. With respect to Jetti and Cory Stevens is on the line and he works a lot on this leach initiative and works a lot with other third parties, including Jetti, I’ll let him comment on it. But we are continuing to work internally.

We have our own team that is testing additives. We have our own team that’s driving these operational tactics that we’ve been so successful with over the years. But we’re also partnering with third parties to share experiences and understand what the art possible is with respect to this leaching technology with respect to Jetti. We did do a trial at Bagdad.

This was — were not a major deal for us. It was a stockpile that we didn’t expect to use in the future, and it had mixed results. But we’re continuing to have dialogue with Jetti about what they may be able to bring to the table. But we’re really focused on trying to figure out ways that we can build this on our own because that allows us to retain the economics as much as possible.

But we are using relationships that we have with industry participants that will allow us to enhance our understanding and share the results that others have experienced and share some of our techniques as well. Cory, you want to add anything on third-party discussions versus our own?

Cory Stevens — Senior Vice President and President, Freeport-McMoran Technical Services

Yes. Kathleen, we’re pretty excited about the additives that we have in play. In fact, we’re using an AI model actually to generate candidates, and we have a pretty sophisticated and rapid test method where we go through and qualify candidates for additives and then work those through the system for commercial deployment in a way that we’re actually going to go in the next few months and have our first deployment at Morenci at a commercial scale. So we’re pretty excited so much so that we’ve got other candidates in the pipeline, but we’re going at a pace to move forward with a pilot but also scale it across Morenci with the infrastructure.

So we’re betting on the that, that’s going to work and then go big very quickly. So that’s what’s going on, on that front.

Kathleen L. Quirk — President and Chief Executive Officer

Thank you, Cory.

Bob Brackett — Analyst

Great. Thank you so much.

Operator

Our next question comes from the line of Lawson Winder with BofA. Please go ahead.

Lawson Winder — Analyst

Yeah. Thanks, operator, and thanks for fitting me in guys. I appreciate it Just wanted to quickly ask on El Abra. So, Richard, you spoke about submitting permits in 2025 back in December or early — actually, early November, I think it was.

Just curious when you think about that project, what do you think about the right copper price for that to work? And what’s the right IRR to justify that investment? And then can we expect a stability agreement as part of the board approval for that full funds decision? Thanks so much.

Kathleen L. Quirk — President and Chief Executive Officer

Well, in terms of the overall economics, and we’ve done a lot of work, given the experience that others have had with recent projects in Chile, we’ve done a lot of work to test our capital and understand what happened in the other situation to make sure that our economics are robust. And I look at the capital spend here, it’s a large number. It will be shared between Freeport and CODELCO, but it is below a $4 price. And if you use the same discount rate in the U.S., it’s well below $4.

But getting the price at $4 would give us a higher rate of return to adjust for the risk that we have at Bagdad in the U.S. In terms of stability agreements in Chile, we’ll look at the landscape there, where we currently do not have an agreement for El Abra, but we will look at whether that would make sense for this project long term. But we have a while to decide because we’ll submit the EIS by the end of this year. And then we’ll go through a permitting process for a few years with the government, and we’ll be in a position after that to make a decision.

But what getting the permit does is gives us a lot of optionality to have a shovel-ready project, which are few and far between in this world. So having a large-scale project like this permitted will bring great value for Freeport.

Lawson Winder — Analyst

OK. Very well said. Thank you.

Operator

Our final question comes from the line of Brian MacArthur with Raymond James. Please go ahead.

Brian MacArthur — Analyst

Hi. Good morning and thank you for taking my question. Can I just get a clarification on the 7.5% export tax? You talked about the smelter being repaired by midyear, but you also mentioned you’re probably going to pay the 7.5% export tax all through 2025. Is that going to happen even if you get the smelter up and running? Or is it still working the way it used to work where ultimately, when the smelter is running, that export tax goes away? Or has something changed in all the negotiations as you work to get your concentrate exports?

Kathleen L. Quirk — President and Chief Executive Officer

Yeah. Well, the current regulation in Indonesia is 7.5% on exports. So we’re expecting that the smelter will be started up in — by the end of June, but then there’ll be a ramp-up period. So we’ll continue to have some exports in the second half of the year but they will decline significantly as we go through and begin ramping up.

So we’ve got — in our cost guidance, we have export duties built in on anything we’re exporting, which is in line with the current regulation.

Brian MacArthur — Analyst

But then in 2026, it would still change, assuming the smelter is up and running at full capacity by year-end, right?

Kathleen L. Quirk — President and Chief Executive Officer

2026 is zero. Yes, I mean, assuming we have capacity, full capacity and we don’t have exports, it would be zero.

Brian MacArthur — Analyst

Great. Thanks very much.

Kathleen L. Quirk — President and Chief Executive Officer

Thank you, Brian.

Operator

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

Kathleen L. Quirk — President and Chief Executive Officer

Well, thank you, everyone, for your participation, your interest, your good questions. And if you have any follow-ups, David Joint is available. We look forward to keeping you updated on our progress.

Operator

[Operator signoff]

Duration: 0 minutes

Call participants:

David P. Joint — Vice President, Investor Relations

Richard C. Adkerson — Chairman of the Board

Kathleen L. Quirk — President and Chief Executive Officer

Maree Robertson — Executive Vice President, Chief Financial Officer

Kathleen Quirk — President and Chief Executive Officer

Liam Fitzpatrick — Analyst

Katja Jancic — BMO Capital Markets — Analyst

Alexander Hacking — Analyst

Alex Hacking — Analyst

Chris LaFemina — Analyst

Richard Adkerson — Chairman of the Board

Daniel Major — UBS — Analyst

Orest Wowkodaw — Analyst

Bill Peterson — Analyst

Timna Tanners — Analyst

Michael Dudas — Analyst

Mike Dudas — Analyst

Bob Brackett — Analyst

Cory Stevens — Senior Vice President and President, Freeport-McMoran Technical Services

Lawson Winder — Analyst

Brian MacArthur — Analyst

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