Freeport-McMoRan Copper & Gold, Inc. Q2 F2026 Earnings Call Transcript

Ladies and gentlemen, thank you for standing by and welcome to the Freeport-McMoRan Second Quarter Conference Call. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session. If you wish to ask a question during the Q&A session, press star 1 on your touchtone phone. If you require assistance during the conference, please press star 0. I'd now like to turn the conference over to Mr. David Joint, Vice President, Investor Relations. Please go ahead, sir.

Thank you, Regina, and good morning, everyone. Welcome to the Freeport conference call. Earlier this morning, FCX reported its second quarter of 2026 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 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 into 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 Atterson, Chairman of the Board, Kathleen Quirk, President and Chief Executive Officer, Maree Robertson, Executive Vice President and Chief Financial Officer, and other senior members of our management team. Richard will make some opening remarks. Kathleen and Maree will review our slide materials and then we'll open up the call for questions. Richard.

Thanks, David, and thanks everyone for joining us today. We're pleased to release FCX's second quarter results. They can be described in a single word, progress. Freeport and our shareholders continue to benefit from our longstanding strategy centered on our leadership position in copper and from our portfolio of long-lived assets with established track records for operational excellence, project development, and capital allocation. Electricity means copper. As the world continues to electrify, it will need what we produce more than ever. Freeport is particularly well-positioned to grow as the market grows in the future. Our team today will talk with you about the great progress we have achieved in the second quarter across our global business. Notably, the positive execution of the Grassberg ramp-up and the strong operational execution and financial performance achieved in the Americas. Our large-scale, long-life production with our attractive growth pipeline positions Freeport exceptionally well My aspiration continues to be foremost in copper. Kathleen and I visited Jakarta and Amman site in Papua in June. I've been traveling to Indonesia regularly since 1988. And each time I visit, I'm inspired both by Freeport's accomplishments in Papua and in Gresik and by how the Republic of Indonesia has developed and progressed over the years. The best lies ahead for Indonesia and for PT Freeport Indonesia. I am blessed and proud to have been personally experienced and been part of this growth and progress. Our Freeport-Goldberg family is proud of the commitment and significant progress achieved by our team in Papua in the ramp of the Grassberg Block Cave Mine. The Grassberg team has great morale and enthusiasm as it continues to execute exceptionally well. We look forward to ongoing progress with the Grassberg recovery. and to completing our mine rights extension with the government of Indonesia so that Freeport can continue to generate benefits for all stakeholders in the decades to come. We are also proud of the demonstrable progress being achieved by America's team through the application of modern and innovative technology to increase production and lower costs to generate increasing profits from our mature mines. It's truly impressive, and again, the best lies ahead. Our CEO, Kathleen Quirk, will now lead our discussion.

Thank you, Richard, and thank all of you for participating on our call today, where we will review our second quarter performance and update you on our initiatives, projects, and attractive future outlook. You'll hear today about the work our teams are doing across our global business to drive value. The progress we've made to restore large-scale production at Grassberg safely and sustainably, the advancement of operational excellence and new technology initiatives in the U.S., and progress on opportunities for an exciting new phase of organic growth. Starting with slide three, we provide the highlights of our second quarter. Our sales of copper and unit cash costs were better than our forecast We made steady progress on the Grasberg ramp-up, and combined with a favorable metal price backdrop, we generated significant margins, cash flows, and earnings. The strength and diversity of our portfolio comes through in the results, with our U.S. mining operations contributing 2.4 times more operating income in the first half of 2026 compared with last year's first half, with strong conversion to the bottom line. This is further demonstrated by a 65% increase in our consolidated net income for the first half of 2026 compared with last year's first half. Our Grassburg ramp-up plans are on track, and together with ongoing initiatives to increase production in Americas, we are positioned for future volume and margin growth. We are advancing our future growth options with a series of projects in progress to scale production from our innovative leach initiatives. We are nearing an investment decision for a major expansion of our Baghdad mine in Arizona and advancing our regulatory work in Chile for a significant expansion at our Elabra mine. During the quarter, we increased our ownership in Cerro Verde. through the opportunistic purchase of Cerro Verde shares in the open market, bringing total purchases over an approximate two-year timeframe to over $300 million, increasing our ownership by 2% to over 55%. In addition, we returned $600 million to shareholders in the first half, including roughly $200 million in share repurchases. Our financial position remains strong and markets for our products are positive, providing a solid foundation to invest in the value-enhancing growth while returning cash to shareholders. On slide four, we reiterate our ongoing priorities, which are centered on our drive for increasing shareholder value. Disciplined execution of our plans, including our ramp-up progress at Grassburg, Crystalizing the value of our America's Leach opportunity, adopting new technologies to improve performance, and investing in profitable growth will enable us to build significant value in our business. Our team is committed to the success of these initiatives, dedicated to overcoming challenges along the way, and steadfast in our drive for excellence in all that we do. Turning to the copper markets, On slide five, as a leading global supplier of copper, Freeport is strategically well positioned and benefits from copper's essential and increasingly important role in the global economy. Copper's superior thermal conductivity makes it the metal of electrification, and the world is quickly becoming more electrified. Globally, copper demand is expected to rise in a number of applications, including the massive requirements for the power grid to support new technologies. LME copper prices averaged $5.93 per pound year-to-date through June and closed yesterday at $6.30 per pound on the LME, an increase of about 12% since the start of the year. In the U.S., COMEX copper is currently trading at an approximate 2% premium to LME pricing. As we speak with our customers across the U.S., they continue to report robust copper demand and order books associated with AI data centers and related energy infrastructure and improved demand from the auto sector, which is more than offsetting weakness in private construction. Recent reports out of China, the world's major consumer of copper, reflect continued strength in copper demand associated with power grid and electrical infrastructure and significant exports of Chinese manufactured copper-containing goods. Visible inventories in China continue to draw to multi-year lows, and exchange inventories located outside of the U.S. are exceptionally tight. As we look forward, it is clear the market will require additional copper supplies to meet growing demand. and at Freeport we have a valuable, geographically diverse portfolio of copper assets and are strategically well situated for the long term with large scale production, long live reserves and resources and a portfolio of low risk brownfield expansion opportunities to serve a growing market. I'm going to move to the operating highlights by geographic region and that's on slide six. Starting with the U.S., we are making important and tangible progress in increasing mining and processing rates. Our equipment reliability metrics are improving with a key example at Marinci where second quarter mining rates were 30% higher than the average achieved over the last five years, a great accomplishment. Sustaining the higher mining rates will translate into improved copper production over time and we expect copper production to grow in the coming quarters. Our innovative leach initiative continues to show promise and a number of projects are in motion targeting meaningful potential to scale. The deployment of our first internally developed additive is producing results and we're planning to field test two additional high potential additives in the coming quarters. Pilot testing at Morenci is underway where we are testing heated solution, leaching solution in our existing stockpiles. We know that increasing temperatures in our stockpiles will enhance recoveries and our work is focused on finding the most effective engineering and cost solution to achieve this. We remain encouraged with the ability to achieve further scale in the near term and unlock our long-term path to 800 million pounds per annum from this initiative. We are also continuing to incorporate innovation into our basic mining practices and see significant value in using emerging technologies to enhance operating performance. In South America, performance was positive as the Cerro Verde team effectively navigated mine and mill constraints. Despite the challenges, Mining and milling rates during the quarter exceeded expectations and sales and cost performance was slightly better than estimates going into the quarter. At Alabra, our operation in Chile, in partnership with Codelco, there is significant activity currently with a leach pad extension and plans to conduct testing in the back half of 2026 of heated stockpile injections to enhance leach recoveries. We are pleased with the engagement with the Chilean government following the submittal in March of our environmental impact study for a major expansion at Alabra, and we continue to advance this process. We're very pleased to report steady progress with the ramp-up of the Grassberg Block Cave mine during the second quarter. As you'll see from the chart, production rates at the Grassberg Block Cave doubled during the quarter. from an April average of 34,000 tons per day to an average of 69,000 tons per day in June. Upgrades to the material handling system for our automated rail system are progressing on schedule, and we continue to advance work for a restart of production block one south in 2027 and are progressing a series of risk mitigation initiatives. Consistent with our April update, We continue to target overall rates in the district, approximating 65% of full capacity in the second half of this year, reach 80% by mid-2027, and approach full capacity by the end of 2027. The team is doing excellent work executing the phased ramp-up safely and efficiently, and we continue to de-risk the plans and increase confidence in the long-term outlook. After reaching a memorandum of understanding with the Indonesian government earlier this year to extend our operating rights for the life of the resource, we submitted a formal extension application in June in accordance with agreed MOU terms. Formal license approval would provide continuity of large-scale operations, enhance future growth options, and durable benefits to Freeport Indonesia's many stakeholders. Turning to growth on slide seven, as we talked about, market fundamentals point to requirements for additional copper supply, and Freeport is really well positioned to grow supply with a robust organic growth pipeline. We benefit from a portfolio of projects which can be developed from Freeport's known resources in jurisdictions where we have established history and experience. We have progressed a number of these projects to where we now have line of sight to more advanced stages. We're entering a period of growth in our America's business with near and medium term opportunities to scale our leach initiatives and more than double production at our Baghdad mine in Arizona. We have longer term growth in the Safford Lone Star District and an exciting project at Elabra in Chile. As we talked about, the extension of rights at Grassburg will open up additional opportunities longer term. These projects are all brownfield in nature and leverage our existing infrastructure, our experienced workforces, and relationships with key stakeholders and communities to move more quickly with less risk than a greenfield project.

We're using innovative approaches to improve efficiencies, reduce costs and capital intensity,

and shorten lead times for our projects. The high potential low cost innovative leach initiative is an excellent example of using new technologies to maximize value from our existing resources. Our low capital intensity associated with the leach initiative makes it one of the more attractive investment return projects within our industry. We talked about the results from the existing additive that we're testing and we expect additional results to come in coming quarters from both new additives that we're deploying and heated leach solutions to provide support to achieve our near-term scaling objectives and to define the pathway to significantly higher leach production over time. We're finalizing the investment case for a major expansion at our Baghdad mine in northwest Arizona, and expect to be in a position to move towards a final decision in the second half of this year. The project benefits from a large resource in an established operating environment, opportunities to capture economies of scale, and an attractive fiscal regime in the U.S. We've studied the project extensively, and it would make Baghdad the second largest copper mine in the U.S. behind our flagship Marenzi mine and we've taken a number of steps to de-risk the project execution. We're continuing to finalize our capital cost estimates. We're working closely with vendors and contractors as we advance engineering to retest our capital cost estimates and update economic evaluation. While our review is ongoing, preliminary indications based on current market conditions indicate capital in the $4.5 billion range, which is approximately 30% above the estimate prepared in 2023. The increase reflects commodity and labor escalation, revisions to project scope, and updated estimates associated with additional engineering. With enhancements to the operating model, the project still remains supported at a $4 per pound price of copper, well below current markets, with significant long-term exposure to favorable copper markets. As a reminder, there are no major permitting hurdles. We've done a significant amount of planning and early work and can complete the project within a three- to four-year time frame. Studies are continuing in the Safford Lone Star District, very excited about this, to evaluate the optimal expansion and development options. We continue to work to capitalize on the large undeveloped resource we have in an established U.S. mining district, which is near the Marinci Mine. At ALABRA, 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 Elabra approaching the size of the large position we have at Cerro Verde. The Chilean government is enthusiastic about the project and is working with us to achieve a timely review of the application. The project positions us extremely well to transform Elabra from a relatively small current producer to a significant contributor in Freeport's portfolio. Again, the theme of this is an established mining operation located in a low risk jurisdiction. In Indonesia, we also benefit from our large resource position and have a long history and successful track record. We continue to progress the Kuching Liar project in Indonesia to sustain a low cost, long term production profile in the Grassburg District, and a Life of Mine extension opens up additional future growth options. Moving to slide eight, where we talk about Freeport as America's copper champion, where a significant portion of our reserves, resources, and future growth are located in the U.S. Freeport is an important American copper producer and is by far the largest contributor to the U.S. copper market with an established and successful franchise dating back to the late 1800s. We're aggressively pursuing a series of initiatives to enhance our U.S. business through innovation, automation and investment in expanded facilities. We're targeting adding production with low incremental costs to improve profitability and resiliency of our U.S. business. In an industry where development lead times can span more than a decade, our U.S. business is strongly positioned with a potential for a 60% increase in copper production over the coming years. Our team is very positive about these opportunities, and they represent a value driver of significance for Freeport. In addition to an impressive outlook for growth, recent performance in our U.S. business is notably positive. coming in as our highest earnings contributor across the portfolio year to date. This highlights the exposure of our business in the U.S., the favorable copper markets, and the strength of Freeport's diversified portfolio under a broad range of market conditions. I'll now turn the call over to Maree, who will review the financial outlook, and then we'll take your questions.

Thanks, Kathleen. On slide nine, we show our three-year outlook for sales volumes of copper, gold, and molybdenum, which remains broadly consistent with our April estimates. And as we move through 2026, we expect a large increase in second-half sales volumes driven by higher volumes at Grassberg and our U.S. operations. As you'll see in the reference materials on slide 20, Our second half copper sales are expected to be over 20% higher than the first half and gold sales more than 65% higher. To 2027, we expect annual copper sales to increase by more than 20% compared with 2026 and gold volumes to increase by more than 50%, with additional growth projected in 2028 for both copper and gold. Our teams remain focused on disciplined execution of our plans globally, including the phase ramp-up progress at Grassberg, which is well underway, and growth volumes in the US. On last quarter's call, we discussed the cost pressures impacting our business in connection with the conflict in the Middle East and the volatility in oil and related products, as well as sulphur and acid. Whilst markets remain volatile, Our current estimate for 2026 average unit net cash cost approximates $1.90 per pound, slightly below the April estimate of $1.95 per pound, with higher by-product credits more than offsetting other unit cost increases. Putting together our projected volumes and cost estimates, we show modelled results on slide 10 for EBITDA and cash flow at various copper prices. ranging from $5 to $7 copper. These are modeled results using the average of 2027 and 2028 with current volume and cost estimates and holding gold flat at $4,000 per ounce and molybdenum flat at $30 per pound. Annual EBITDA would range from approximately $13 billion per annum at $5 copper to $20 billion at $7 copper, with operating cash flows ranging from approximately $9.5 billion per year at $5 and $15.5 billion at $7 copper. We show sensitivities to various commodities on the rise. You will note we are highly leveraged to copper prices. with each 10 cents per pound change equating to approximately $390 million in annual EBITDA in the 2027-2028 periods. We also have exposure to gold prices with each $100 per ounce change in price, approximating $105 million in annual EBITDA. And to molybdenum, which has shown significant price strength in recent months, Each $1 per pound change in molybdenum approximates $85 million per annum. With our long-lived reserves and large-scale production, we are well positioned to generate substantial cash flow to fund future organic growth and cash returns under our performance-based payout framework. Slide 11 shows our current forecast for capital expenditures in 2026 and 2027. Our 2026 capital remains consistent with our prior forecast and 2027 capital expenditures are estimated at $4.8 billion, approximately $300 million above the April estimate, reflecting investments in upgraded mining equipment and revised cost estimates. The discretionary projects are expected to approximate $1.6 billion in 2026 and $1.9 billion in 2027, with roughly 50% related to the Kitchingley Yard development and the LNG project at Grasberg. The balance includes acceleration of tailings and other infrastructure to support the Baghdad expansion, upgraded mining equipment and capitalized interest. The discretionary category reflects the capital investments we are making in new projects that under our financial policy are funded with the 50% of available cash that is not distributed. These projects are value-enhancing initiatives and are detailed on slide 27 in our reference materials. These estimates exclude projects that remain subject to completion of final studies and board approvals, including the Baghdad 2X expansion project. We continue to carefully manage capital expenditures and will continue to deploy capital strategically to projects with the best return and risk reward profiles. Finally, on slide 12, we reiterate the financial policy priorities centered on a strong balance sheet, cash returns to shareholders and investments in value-enhancing growth projects. Our balance sheet is solid with investment-grade ratings, robust credit metrics, and flexibility within our debt targets to execute on our projects. We have no significant debt maturities during 2026 and have substantial flexibility for funding the 2027 maturities. With our strong balance sheet and significant cash flow generation, we have substantial resources to invest in future growth projects in a prudent manner whilst returning cash to shareholders Since adopting our financial policy in 2021, we have distributed $6.3 billion to shareholders through dividends and share purchases and have an attractive future long-term portfolio that will enable us to continue to build long-term value for shareholders. Our global team is focused on disciplined execution, profitable growth, and long-term value creation. Thank you for your attention. We'll now turn to questions.

Ladies and gentlemen, we will now begin the question and answer session. If you wish to ask a question, press star one on your touchtone phone. If your question has been answered or you wish to remove yourself from the queue, please press star one again. If you are using a speakerphone, please pick up your handset before pressing the numbers. We ask that you please limit your questions to one. If you have additional questions, please return to the queue. One moment please for our first question. Our first question will come from the line of Lawson Winder with Bank of America Securities. Please go ahead.

Thank you, operator, and good morning, Richard and Kathleen. Thanks for the call, and Maree as well. Very nice to hear from you all. Congratulations on a solid quarter and the progress at Grasberg. If I might start with Baghdad, thank you for the additional color and the additional guidance. You described an upfront cap access expected to be Thank you, Lawson, and thanks for

We're doing a lot of work on the Baghdad project to be in a position to review it with our board and seek final approval in the second half of this year. We've been doing a lot of work, as I mentioned, with our vendors and suppliers to really nailed down the capital cost estimates. We're going and seeking firm bids. We've been working with the contract labor organizations who are going to supply the construction labor to define the rates and incentives to make sure that we get the best people to come to this operation. It's a very competitive construction labor market in this region right now with the activity from everything from semiconductors to data centers, et cetera, power generation. And so we're doing a lot of work to make sure that we've got good estimates of what labor is going to cost and what all the various components are going to cost. We've taken some approaches to to work on how we can be more efficient doing off-site labor, doing some prefab work. And so we've done a lot of extensive work on how to execute the project. In parallel with that, we've also been working on the operating plan and working hard to think about the future of Baghdad not being what A typical project would be in the past, but how we can look at the operating model and bring in new technologies. We've already put in the autonomous trucks there. This mine will be completely autonomous. But we're looking at other areas of the operating model to be more efficient. And so we've been working on that, working on our operating plans. We've also been looking at The throughput from this concentrator and how it might impact how we may be able to get more out of the existing plans for expansion. And so we've optimized the operating plans. We use the long-term markets for all the input costs and still have a very attractive project when you think about at $4 copper, which is significantly below today, covering cost of capital and having exposure to this very large resource that's going to make Baghdad a lot more resilient, a lot lower cost, and a modern facility that'll take us out for decades. As we bring down costs, that expands the resource, and so we're not just bringing the resource forward, but we're having the opportunity to expand the resources as we go forward. So there's a lot of attributes that, as we've been working on this project, we're recognizing that the operating model can bring further efficiencies, and that's helping the economics and helping offset the higher capital costs.

That's very helpful. Thank you so much.

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

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

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

Okay, thank you.

Thank you, Katja.

Our next question comes from the line of Carlos D'Alba with Morgan Stanley. Please go ahead.

Carlos D' Good morning, Richard, Kathleen, and Maree. Just on Grantsburg, congrats on submitting the formal application for the extension. Can you maybe, Kathleen or Richard, give us an update as to what the timing and the next steps would be for hopefully reaching a final agreement? and any color on potential terms that you have been discussing.

Okay. Well, the terms were agreed and negotiated as part of the memorandum of understanding. So we signed a memorandum of understanding in February with the government of Indonesia and it was witnessed by the president and those were the terms that were negotiated and approved at the time. So what we have filed in June is the formal application consistent with the terms that were agreed to in February. So the mines, we submitted it to the Energy and Mines Ministry. and they have a process that they go through to review these extension applications. There is a regulation that was passed some time ago that allows for life of resource extensions for companies that are integrated and of course now with the completion of our new smelter in Indonesia, PTFI is a fully integrated producer and supplies refine of copper in Indonesia and abroad. So it's consistent with regulations, and we expect that the MOU terms will be the terms that we ultimately have under the new license. In terms of the timing, we're working diligently to respond to any questions that the Energy and Mines Ministry has. All of us want to share the objective of getting this done on a timely basis. It's very important, and the government recognizes this, that we have sufficient time for planning the future so that we get the license extension and can begin to look at opportunities that would allow us to continue beyond 2041 to provide large-scale production with significant benefits that go to the government. The government owns 51% and will own more than that after 2041, but we also pay significant taxes and benefits to the local community. So we're all aligned of the advantages and importance of this, and so we'll work through the regulatory process as quickly as we can, but there's no prescribed time frame to getting it done, but we're working very hard to get it done this year.

Carlos, when we went to Indonesia and Jakarta and later the job site in June, there was one spectacular day of all the days that I've been going there. At the end of this day, I felt it was one of the best we ever had. had the chance to have private meetings with the president and with many of his very top advisors. The president, who I've known since the 1990s, was very positive and encouraging, totally understood the need to get this done, the issues if it did not get done, and and he's also focused on international relations in a major way and felt that getting this done would be a very positive and building good relationships between Indonesia and the United States. So all the signals are good. As Kathleen says, we have to go through this process, but everybody understands that this is something that's necessary and beneficial for all the stakeholders, not just shareholders, but for the government, the workforce, the community in Papua, which relies so heavily on ports operations for its economy. So we feel very good about the meetings, and now we just have to work through the process. And in Indonesia, sometimes that takes time.

Fair enough. Thank you very much, Richard and Kathleen.

Thanks, Carlos. Our next question comes from the line of Timna Tanners with Wells Fargo. Please go ahead.

Hey, good morning. I was hoping for a bit more information, please, on the purchase of the stake in Cerro Verde and, you know, is there opportunity to do a lot more of that? How do you think about those purchases, balancing them with shareholder returns going forward?

There's a relatively small float that's publicly traded for Cerro Verde, and so when those opportunities become available, it's something that we take a hard look at. Of course, the asset is spectacular, and so Freeport would be interested if there are opportunities that arise Thank you for joining us today. It doesn't really impact the share buybacks at the FCX level. We're continuing that program, which is based on, as Maree was talking about, the performance-based, where we look at the cash flows and return 50% of available cash to shareholders both through dividends and share purchases. But we're very pleased to own more of Sara Verde and would be interested in owning more if the opportunities arise. Okay, that's helpful.

Thank you very much.

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

Hi, team. Thank you so much for taking my question. Just wondering on Freeport and the ramp of Grassburg here, I mean, the 1Q guidance, I think, estimated an average of, you know, 60 KT per day in second half of 26, and you guys are exiting June at, you know, about 69 KT per day in June. Just wondering what's driving that as the ratio of wet-to-dry draw points improved, and could there be potential upside to that, you know, 60K average in the back half of this year?

Thank you, Nick. And Mark Johnson is on the line as well, and he can supplement my comments. But in terms of the second half of this year, it's in line with what we had guided to in April. We did exit June at an average of 69,000 tons a day from the Grassberg Block Cave, and we're Our guidance is based on a 60 to 65 plus or minus in the second half. So what's going on in the second half is that right now we are completing the work that we were doing in one of the chute galleries associated with this filminator work that we're doing, the chute regulator that we're putting in. to allow us to have flexibility to deal with certain types of ore types. And then we will transition to another area in the second half to complete that maintenance work or those upgrades. And so during the second half, we'll have some production coming on as we complete the current work and then some production going down to complete that work. So we'll kind of be at a steady state from June forward as we complete these projects to upgrade the material handling system. And then as we get into 2027, that work is completed earlier in the year and then we bring on Production Block 1 South, which will add production in 2027. In terms of the conditions, they are good at Grassburg. We talked about wet and dry in April, but we have had, as we expected, but we have had some draw points. that were wet in April convert to dry as we've had more activity and movement in the cave in terms of production. And also we've had, you know, you read a lot about the wet conditions in Chile, but we've had dry conditions in Indonesia. So our dry to wet ratio has improved throughout the quarter But these upgrades that we're making will give us a more robust plan longer term to be able to deal with any type of material. So that's a long-term investment that we're making, but we will have some downtime associated with that in the second half, which is all reflected in our guidance and consistent with where we targeted in April. And that work is going very well. While we're on the topic, Mark, you know, maybe you can add a little bit about, add to what I said, but also add about what we're doing in terms of the risk mitigation and how we're working towards being able to get back into production block one.

Sure. Nick, just to add to what Kathleen covered it really thoroughly. The areas in which we're currently working on these shoot galleries to install the new technology that we proved up about three months ago. One of those is in CG44, which has nine shoots. It's one of our bigger production areas for the next three years. So when that comes up, which we expect it to be done by the end of the year, will see an increase in production associated with that. There's about 25 to 30,000 tons a day that come out of the CG44 area. So that'll be a step change once that is complete. And then in 2027, we have some ongoing construction on implementing these chutes that'll be taking place in the future, you know, 27, 28 as well. On the mitigation, We've made progress. We've had a number of drill holes that we've been able to get into the old pit bottom. And that, along with the drier weather, the pit bottom is essentially dry. We know that the rain is going to come back at some point. It's like Kathleen said, the El Nino is dry for our part of Indonesia. We've got a new drill that I know we've talked about before. That's being commissioned right now. It's in place. and we should be drilling within the week on that. We'll have another drill of that same type coming in August. And so we have plans with this new drill that where the current drill technology, we might get five to 10 meters a day with core drilling. This new drill, we expect to get well above 100 meters a day with a larger diameter. So that's gonna be a key part of our ability to continue to address any collection of water in the pit bottom. So that's going well. We've started a new drainage gallery that will be along the north side of the pit bottom, outside of the cave, but will give us additional access for drilling and other opportunities to remove any material that would gather in the pit bottom. And then we're advancing a couple other We're looking at being able to drop in a surface slurry pump. That work's continuing to go on. That'll be something that would be more towards the end of 27. So all of these are going in parallel. We've made good advances on all those. At the same time, we're working in the PB1 area, finishing the cleanup, reinstalling the chute gallery, reinstalling the disseminator chutes, in CG21, which services a big part of the PB1 South area, so that's on track as well.

That's all very helpful. Thank you so much. Thank you.

Our next question will come from the line of Richard Garciaterina with Barclays. Please go ahead.

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

Right. Thank you, Rich. So for the third quarter, Our production is expected to be significantly higher than sales. Most of that is in Indonesia where we're starting to ship concentrate from the mine site. We have been shipping to one smelter. We'll start shipping in the third quarter to the new smelter and it'll take some time to build up that inventory to be able to run consistently in the new smelter. As we've gone through the actual operating plans of the smelter and the timing of refined copper sales, we've got some timing adjustments between third quarter and fourth quarter, but we do expect to build some inventory in the third quarter and make up some of that in the fourth quarter.

Okay, if I can ask a follow-up. In terms of cash costs, you did take the full year guidance down slightly, despite, obviously, gold prices coming in a little lower, I guess, resetting the expectation to $4,000. But in terms of the impact from the energy, diesel, straightforward moves issues, any changes to that versus what you talked about in the first quarter? Thank you.

As Maree talked about earlier, the situation continues to be volatile with respect to diesel prices. We are assuming prices that are pretty similar to what we experienced in the second quarter. So we changed it modestly in terms of the assumption going forward. But it's pretty similar to what we had in the second quarter. There's also some impacts of sulfur and acid that we're rolling through. But in 2026, we don't have a lot of acid that we purchase on a spot basis. So that impact is not is not significant. But we will be subject to volatility in the oil markets. I know they're up today, and we'll continue to monitor that. But the average is pretty similar to what the second quarter was, which was elevated compared to earlier this year. Just a comment on acid. While you see the impact of sulfur and acid in our operating costs, we also benefit from Freeport's position as a fully integrated producer. So in our revenues, we're getting the benefit of of selling acid as well. So that provides an offset, but you don't necessarily see it. So that's an advantage that we have where we essentially have a hedge on sulfuric acid with our significant smelter operations.

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

Good morning, Kathleen and team. I've got three, hopefully, quick questions on your US business. Firstly, on Baghdad, is there any possibility that this could receive any kind of government grants or incentives to offset the CapEx budget? Second one, just on smelting and refining growth opportunities, just given the growing importance of in-country processing assets, are you looking at any options to expand your smelting and Refining Capacity Beyond Baghdad and your leaching operations. And then the final third one, just on your leaching operations, what's the level of confidence in reaching this 300 million pound run rate at the end of this year? And should we view this as incremental volumes or will there be some offsets from lower productions elsewhere in the asset base? Thank you.

Thanks, Liam. In terms of incentives, For Baghdad, you start with the fact that the fiscal regime in the U.S. is very attractive relative to other countries. And that's part of the reason why when you look at a mine like Baghdad, we don't have royalties because we own the land and fee. and our tax position in the U.S. is attractive even after we go through the NOLs, the effective tax rate in the U.S. is substantially lower than it is in other countries. So that really does help with the economics, having less of a financial burden from royalties and taxes. In terms of incentives, One of the things that we're continuing to pursue is the opportunity for, because Freeport is an integrated producer, again, in the U.S., we have a smelter in Arizona, one of two smelters operating in the U.S. We would qualify under certain incentives under 45X for a 10% production tax credit. The first step was getting copper designated as a critical mineral, which was done several months ago, and we appreciate the administration's work on that. And now the next step would be to get it put into the Treasury regulations that would allow for copper to conform to the critical minerals list. and be part of this 45X credit, which equates to about $500 million a year. And so that would go a long way in helping us with our investment plans in the U.S. to continue to reinvest things like these production tax credits into our U.S. business. So we're continuing to work and speak with, there's some proposed bills in Congress to do this. We're continuing to work on it and that would be a really attractive way for us to make significant strategic long-term investments in the U.S. In terms of the question about smelter, today we process either through the smelter or through our leach processing all of the copper that we produce in the U.S. We have had exports from time to time of concentrate, but that's been small, and essentially we're processing either through the smelter or leach processing everything that we produce. With a Baghdad expansion, we could potentially look at opportunities, and we have been looking at opportunities potentially to expand The Miami smelter, which is running extremely well, performing extremely well. And so we'll continue to look at whether that makes sense for us. You know, there's some advantages of the smelter and logistics and having that additional asset. There's some synergies that come back, you know, to our operations. So we're taking a and a hard look at that opportunity as well. And then the third question around the target on scaling the leach opportunity, we're just around 200 plus or minus today. We are targeting getting to the run rate of 300 by the end of this year. Where we are today is a lot of the work that we've done on tactical execution and bringing in incremental pounds through the operational processes that we've been deploying. We've been installing additional irrigation lines. We've been using technologies to have targeted drilling to inject solutions. But the next phase, a very exciting phase, of opportunity comes from the innovation work that we've been doing. I mentioned the additive work and the heat work. And those two things are going to allow us to get more scale and then define the path to really a new copper mine, the way it looks. So Corey Stevens is on the line. His team is working on this. It's one of the most exciting things that we're doing in the company. And maybe, Corey, you can just maybe give a little more color on what we're doing to get scale in this really fun and attractive leech innovation opportunity.

Yeah, thanks, Kathleen. The base tactics, we call that leach everywhere. That's been more mature as we continue to, you're leaching with, you know, putting a drip line in with helicopters or refining our raffinate injection processes with feedback loops with improved censoring and analytics. We're even recontouring certain piles that allow us to access to areas that were un-leachable before that allow us to leach before. That's giving us a strong foundation. And then you've got the additive work that comes behind that. So our Gen 1 additives, are in deployment. The early results are better than we had expected to see, and we're continuing to monitor that. But we're not waiting. We've got Gen 2 additives that we believe are a multiple effectiveness than the Gen 1, and we've already got sourcing in place and four targeted Demonstration piles across the portfolio, a couple at Marenzi, one in New Mexico, and then at Alagra, an additional pile there. So we're pretty excited about that. That's giving the early results from the Gen 1. It's giving us good confidence on that front. Additionally, we talked about some of the HEAP projects, the pilot at Marenzi is going. We've got, in the final phases of construction, more of a demonstration commercial unit that's going to be starting in the second half of this year at Alabra. Alabra is particularly sensitive to temperature, so we're excited there. We're sure there's going to be learnings as we get into it, but the team's actively and dynamically thinking through all the different permutations of what could happen there and what adjustments we might make. and so that will actually set the foundation as we go forward on those fronts for the next wave of heat as we move into the next phase and so we've got geothermal drilling going on at Marinci that could add a substantial amount of additional heat as we refine those recipes. There's other tactics that we're going through with the smaller sites. This is opening up options to consider additional what we call re-handle or opportunities where we can move older piles to more convenient locations to apply heat and or additives and then below cutoff grade opportunities. So, you know, as we consider expansions or some of our major projects with Sapphire, you know, how does these new learnings come into play and add incremental value or replace the capital that you would otherwise used for more traditional methods. So all those are in flight.

Great. Thank you, Corey.

Thank you. Thanks for the details.

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

Yeah. Hi. Good morning. Thanks for taking the question and nice job on the quarter. I'm not sure if it's been asked, but I guess for expectations around any sort of changes in Section 232, you know, copper rulings, I don't get the impression Freeport's really pushing one way or the other, given there's probably pros and cons. But can you talk about how this might benefit the U.S. footprint, including how much NOLs remain and then any impacts in the broader market?

Thank you, Bill. So we and the rest of the market are continuing to monitor and wait for decisions on 232. As you know, Bill, the decision last year was to review it again in terms of copper cathodes, review it again for potential to add a tariff on cathodes under a phased approach beginning in 2027. There's been no decision on that situation. You've seen the situation where a lot of copper has moved to the U.S. in anticipation that something might be coming, but there hasn't been a decision yet. And as I mentioned before, when you look at inventories outside of the U.S., It's created a very tight market situation, particularly in the heavy-consuming regions in Asia. So everyone's watching the situation closely. In terms of how it would impact Freeport, if there is a tariff and if there is a premium, all of our U.S. sales are priced on the COMEX. and so, you know, we could be in a position to get a higher price for copper on our U.S. sales than we do internationally but we'll have to, you know, we'll have to see and you can see the breakout of our U.S. sales and that's an area that's growing, right? I mean, that's an area that's growing in terms of this work we're doing on mining rate improvements and also on this leach initiative. Freeport would be a big beneficiary of it for our U.S. business. In terms of the NOLs, we do have about just under $6 billion of net operating losses which we can use against our U.S. income. You can probably see in the results that we started to pay Be subject to a minimum tax in the U.S. this year, and it's a relatively small effective rate. It's somewhere in the 6-7% range, and we'll pay that. You don't take NOLs against that tax. But we do expect for the coming years for the NOLs to start to be used at current markets. but we'll have multiple years of being able to use those NOLs. Thanks, Kathleen.

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

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

Thank you, Bob. We have been working on this for a number of years. As we went through the pandemic and went through a lot of turnover in the workforce, and intentionally during the pandemic because we did have a reduced workforce and did have constraints, we intentionally took down the mine rate. But then rebuilding that mine rate has been a labor and a work in process for a number of years. And so there are a combination of factors that have come together to see this roughly 900,000 tons a day of material mined in the mine, and that is substantially higher than what we've achieved in the last five years. A great accomplishment, but it's been a lot of work, a lot of focus, and using technologies to allow us to be more efficient and get our equipment health and asset health, because it's all interconnected with shovels. and all of your equipment to get everything working to where it should be. And now we're at a point where the availabilities of the existing equipment are much higher than they have been. Our maintenance programs are performing much better. We're not having as much unplanned downtime, which is an area of focus for us. But it's really exciting, but we have to sustain it. And that's what we're emphasizing, that these are disciplines that need to be institutionalized, and we need to sustain it every single day. And so it's a constant. But, Corey, you want to add anything to that in terms of the journey and what we see as we go forward?

Yeah, Kathleen, it's been pretty exciting. The way we talk about it internally is, you know, where we're focusing on people, process, and technology, and it's not one or the other. There's no technology solution that's going to be the end-all, be-all. I mean, there's a lot of hard work. We mentioned the labor workforce is is stable, but now the team is stepping up and there's a lot of leadership and coordination that's going on. We've centralized some of the activities around the mine work so that we can have the expertise in the right location, providing the insights to the field folks so that they're able to make better decisions and not have to manage the 20, 30 things that they have to manage in the shift. They get these insights during the shift and being able to make the right calls as they go. And then we're layering on more technology on top of that to add another layer of sophistication as one piece of equipment might break down. What's the best option to go to a different area? One other thing worth probably mentioning, that's going to add some wind to the sails is during the second quarter we started transitioning a number of trucks to a higher capacity 400 ton ultra class truck. That's going to continue throughout the remainder of this year. We've got plans to add an additional 20 plus trucks next year in the same fashion. And so as we We're able to exhibit operating excellence and we get better tooling. We expect to see even better results as we go forward and work through the volumes that we want to work through.

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

Well, we have some targets that we're pursuing below the deep MLZ as an extension. And so that is exciting. We've done some drilling there. We're going to pick that back up. But that's an exciting opportunity for us. The other opportunity is our resources don't end in 2041, our existing resources. So with the Kuching Liar project as a for instance, That asset can continue to go for many years beyond 2041. That is a way for us to really leverage the existing operations beyond 2041. This is a district that has not been explored extensively in many years. and we've just been adding extensions that could make sense within the 2041 timeframe. But with an extension, it's going to open up a whole new horizon for us with extensions of existing ore bodies including deep MLZ, including Kuching Liar. And because you have that existing infrastructure, it makes it

Thank you. I think it was clear from Kathleen's comments, but because we didn't have any rights beyond 2041, we haven't reported any reserves beyond 2041, even though we know that the existing resources will extend beyond that. And then, and we've Thank you for joining us. There's one thing that's characterized this Grasberg District since it was first discovered in 1988. It's always gotten bigger than any of us working on it thought it would. And so that's why we're excited about seeing what else lies out there. And with this extension, that will give us the ability to do that.

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

Hi. Yeah, most of my questions have been asked, but two quick ones. One, you referenced some of the incremental increase in the 2028 capex associated with spending at Baghdad tailings and preparation for the expansion. with respect to the first question

What is in our numbers for CAPEX for Baghdad is the work that we've been doing and we're going to continue to complete on the new tailings facility. And this is work that we accelerated to put us in a position to be able to do the expansion, but was going to be required in any case with the existing assets because We've got so much reserves there, it would be required in the future. So that is in our CapEx forecast. What we don't have in the forecast at this point is, and it's pending final decision, is the CapEx for the project in terms of building the concentrator and related infrastructure. And so that would be an add. to the existing projects, you know, to the existing CapEx when the project's approved. We have substantial ability to fund it out of cash flow, we expect, and we've been kind of planning for this for some time, and our balance sheet's in great shape as well. In terms of the target in the U.S., we continue to have a target of $250,000. for a pound. The current market conditions with energy prices and sulfur and acid prices are taking that opportunity a little bit away from us in 27, but we're continuing to work on that. We've got, Corey talked about some of the work we're doing on automation and technology improvements to improve our basic mining practices, build more efficiency. The Leach Initiative with scale will go a long way to helping us because that is much lower cost than our roughly $3 average in the U.S. So it's still a target. It's still something we believe is achievable. At this point in time, it's not something with current markets that we can achieve in 27. But we're continuing to work on things within our control that will allow us to bring the cost down, and that incremental leach is one that will be a big driver for us.

Great, thank you.

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

Hi, good morning, and thank you for taking my questions. A lot of them have been asked. If we can just go back to the Baghdad expansion and all this discussion about the incentive price, have you changed your assumptions for molybdenum in these economics? And if so, what molybdenum price are you using? Second question, just on molybdenum, you are a big producer of this and there's a lot more interest in it. It looks like the primary operations are producing a little more. Can you maybe talk about any opportunities there? And the other incentive price question, you talked a bit about the NOLs. In that new incentive price for bag debt, are we assuming a lot of NOLs? Or maybe another way to ask the question is if you didn't have NOLs, all else being equal, would you still do bag debt?

I'll start with the last part of the question. And we look at it on a pre-tax and an after-tax basis. and so really at the end of the day we're looking at on an after-tax basis not including the NOLs. And so the project still supports at a $4 incentive price supports the economics. So it's not relying on the NOLs but it does benefit from The favorable fiscal regime that we have in the U.S. So the effective tax rate in the U.S. for mining is relatively low relative to the rest of the places where we operate. In terms of the MOLLE price, we always run ranges, but in terms of that $4 case, we were using the $20 MOLLE. Price, which, you know, the price now is substantially higher than that, but we're using the $20 Moly. What was the second part, Brian, of the question?

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

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

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

One of the things, Brian, that we know is that within the Freeport organization, when we focus on a project and put resources on it, our execution is extremely positive. Some of the lessons learned over time is doing too many at one time, not just from a financial standpoint, but just from an execution standpoint, makes it more challenging. But we're organizing right now in terms of allocating resources to Baghdad, allocating resources to Elabra. The Safford opportunity, as Corey pointed out, is really exciting because we're going to be able to use some of the learnings for it from this leech work. and so the flow sheet on Safford may look different than the others. You may have a smaller concentrator and do primarily leach. So we're excited about what it might do, but we're still in the throes of studying it. The permitting process for the Safford opportunity is compressed relative to what we have in Chile. So you could theoretically have an opportunity at Safford around the same time as Alabra, but our focus really is on defining the opportunity and then look at what makes sense, how to sequence these things, how we're resourcing it, how we execute it most efficiently. But the work we're doing today is to really crystallize the value and the option opportunity and better understand that.

Great. Thanks very much for all that, caller. It's very helpful. Thanks, Brian.

Our final question will come from the line of Chris Lefimina with Jefferies. Please go ahead.

Hi, Kathleen, Maree Richards. Thanks for taking my question here at the end. So actually, I have two quick ones. First, on the new smelter in Indonesia, I know you received the insurance proceeds last quarter, but is there any outstanding work that needs to be done there to complete the repairs? Or is that good to go and get to full capacity? That's my first question. And secondly, just on Kathleen, you explained earlier the variability in copper sales on a quarter-by-quarter basis through 2026. And part of that is a function of building inventories of the smelter. So you've changed your guidance quite a bit on a quarter-by-quarter basis. But I'm wondering if your internal projections on copper production rather than sales on a quarter-by-quarter basis have changed since the end of last quarter? In other words, have your production forecasts been unchanged, but it's about building more inventory at the smelter, and that's why the sales are being pushed back? Is there something happening on the production side as well? Thank you.

Okay. With respect to the smelter, all the work that we need to do with the new smelter is complete and actually had started operating last year. We completed all that work in the first part of 2025 and it started operations during 2025 before the September event. So it has been operating in a standby mode to date. We've been taking advantage of the time to to really go through and complete any work that was left over from the main project, test things, train our teams. And so that smelter has been ready to go and ready to go. I can't wait to get started. In terms of the production, there's really no... No pluses and minuses, but in terms of Grasper, really no changes in production, but we've got a different shipping plan and operating plan for the smelter, and it takes time to get through the smelter and to be able to sell the refined sales. So what you're seeing on the sales is actual refined copper sales. and our production is very similar to what we talked about in April.

Perfect. Thank you.

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

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

Thanks everyone for participating, homeward and upward.

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