管理層發言
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. I would now like to turn the conference over to Mr. David Joint, Vice President, Investor Relations. Please go ahead, sir.
Thank you, Regina, and good morning, everyone. Welcome to the Freeport conference call. Earlier this morning, FCX reported its second quarter 2026 operating and financial results. A copy of today's press release with supplemental schedules and slides are available on our website at fcx.com. Today's conference call is being broadcast live on the Internet. Anyone may listen to the call by accessing our website homepage and clicking on the webcast link for the conference call. In addition to analysts and investors, the financial press has been invited to listen to today's call. A replay of the webcast will be available on our website later today. Before we begin our comments, we would 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 E. 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 will open up the call for questions. Richard?
Thanks, David, and thanks, everyone, for joining us today. We are pleased to release FCX's second quarter results. They can be described in a single word: progress. Freeport and our shareholders continue to benefit from our long-standing strategy centered on our leadership position in copper, and from our portfolio of long-life assets with established track records for operational excellence, project development, and capital allocation. Electricity means copper. As the world continues to electrify, it will need what we produce more than ever. Freeport is particularly well positioned to grow as the market grows in the future. Our team today will talk with you about the great progress we have achieved in the second quarter across our global business. Notably, the positive execution of the Grasberg ramp-up and the strong operational execution and financial performance achieved in the Americas. Our large-scale, long-life production with our attractive growth pipeline positions Freeport exceptionally well. Our aspiration continues to be foremost in copper. Kathleen and I visited Jakarta and a mine site in Papua in June. I have been traveling to Indonesia regularly since 1999. Each time I visit, I am 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 personally experienced and been part of this growth and progress. Our Freeport Global family is proud of the commitment and significant progress achieved by our team in Papua in the ramp-up of the Grasberg Block Cave Mine. The Grasberg team has great morale and enthusiasm as it continues to execute exceptionally well. We look forward to ongoing progress with the Grasberg recovery and to completing our mine 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 the Americas team through the application of modern and innovative technology to increase production and lower cost to generate increasing profits from our mature mines. It is truly impressive, and again, the best lies ahead. Our CEO, Kathleen Quirk, will now lead our discussion.
Great. Thank you, Richard, and thank all of you for participating on our call today where we will review our second quarter performance and update you on our initiatives, projects, and attractive future outlook. You will hear today about the work our teams are doing across our global business to drive value, the progress we have made to restore large-scale production at Grasberg safely and sustainably, the advancement of operational excellence and new technology initiatives in the U.S., and progress on opportunities for an exciting new phase of organic growth. Starting with slide 3, we provide the highlights of our second quarter. Our sales of copper and unit cash costs were better than our forecast. We made steady progress on the Grasberg ramp-up, and combined with the favorable metal price backdrop, we generated significant margins, cash flows, and earnings. The strength and diversity of our portfolio comes through in the results with our U.S. Mining operations contributing 2.4x more operating income in the first half of 2026 compared with last year's first half, with strong conversion to the bottom line. This is further demonstrated by a 65% increase in our consolidated net income for the first half of 2026 compared with last year's first half. Our Grasberg ramp-up plans are on track, and together with ongoing initiatives, increased production in the Americas, we are positioned for future volume and margin growth. We are advancing our future growth options with a series of projects in progress to scale production from our innovative leach initiatives. We are nearing an investment decision for a major expansion of our Baghdad mine in Arizona and advancing our regulatory work in Chile for a significant expansion at our El Abra mine. During the quarter, we increased our ownership in Cerro Verde through the opportunistic purchase of Cerro Verde shares in the open market, bringing total purchases over an approximate two-year time frame to over $300 million, increasing our ownership by 2% to over 55%. In addition, we returned $600 million to shareholders in the first half, including roughly $200 million in share repurchases. Our financial position remains strong and markets for our products are positive, providing a solid foundation to invest in value-enhancing growth while returning cash to shareholders. On slide 4, we reiterate our ongoing priorities, which are centered on our drive for increasing shareholder value. Disciplined execution of our plans, including our ramp-up progress at Grasberg, crystallizing the value of our Americas Leach opportunity, adopting new technologies to improve performance, and investing in profitable growth will enable us to build significant value in our business. Our team is committed to the success of these initiatives, dedicated to overcoming challenges along the way, and steadfast in our drive for excellence in all that we do. Turning to the copper markets, on slide 5: as a leading global supplier of copper, Freeport is strategically well positioned and benefits from copper's essential, 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 multiyear lows, and exchange inventories located outside of China are exceptionally tight. As we look forward, it is clear the market will require additional copper supplies to meet growing demand. At Freeport, we have a valuable, geographically diverse portfolio of copper assets and are strategically well situated for the long term with large-scale production, long-life reserves and resources, and a portfolio of low-risk brownfield expansion opportunities to serve a growing market. I am going to move to the operating highlights by geographic region on slide 6. Starting with the U.S., we are making important and tangible progress in increasing mining and processing rates. Our equipment reliability metrics are improving with a key example at Morenci where second-quarter mining rates were 30% higher than the average achieved over the last 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 are planning to field test two additional high-potential additives in the coming quarters. Pilot testing at Morenci is underway where we are testing heated leaching solutions in our existing stockpiles. Increasing temperatures in our stockpiles will enhance recoveries and our work is focused on finding the most effective engineering and cost solutions 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 team effectively navigated mine and mill constraints. Despite the challenges, mining and milling rates during the quarter exceeded expectations and sales and cost performance was slightly better than estimates going into the quarter. At El Abra, our operation in Chile in partnership with Codelco, there is significant activity currently with a leach pad extension and plans to conduct testing in the back half of 2026 of heated stockpile injections to enhance leach recoveries. We are pleased with the engagement with the Chilean government following the submittal in March of our environmental impact study for a major expansion at El Abra, and we continue to advance this process. We are very pleased to report steady progress with the ramp-up of the Grasberg Block Cave mine during the second quarter. As you will see from the chart, production rates at the Grasberg Block Cave doubled during the quarter from an April average of 34 thousand tons per day to an average of 69 thousand 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 in Block 1 South in 2027, and are progressing a series of risk mitigation initiatives. Consistent with our April 8 update, we continue to target overall rates in the district approximating 65% of full capacity in the district by mid-2027, and to 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 deliver durable benefits to Freeport Indonesia's many stakeholders. Turning to growth on slide 7: as we talked about, market fundamentals point to requirements for additional copper supply and Freeport is 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 are entering a period of growth in our Americas business with near- and medium-term opportunities to scale our leach initiatives and more than double production at our Baghdad mine in Arizona. We have longer-term growth in the Safford/Lone Star District, and an exciting project at El Abra in Chile. As we discussed, the extension of rights at Grasberg will open up additional opportunities longer term. These projects are all brownfield in nature and leverage our existing infrastructure, experienced workforces, and relationships with key stakeholders and communities to move more quickly with less risk than a greenfield project. We are using innovative approaches to improve efficiencies, reduce cost and capital intensity, and shorten lead times for our projects. The high-potential, low-capital-intensive leach initiative is an excellent example of using new technologies to maximize value from our existing resources. The 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 are testing, and we expect additional results to come in coming quarters from both new additives that we are 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 are finalizing the investment case for a major expansion at our Baghdad mine in northwest Arizona and expect to be in a position to move toward 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 have studied the project extensively, and it would make Baghdad the second largest copper mine in the U.S. behind our flagship Morenci mine. We have taken a number of steps to de-risk the project execution. We are continuing to finalize our capital cost estimates. We are working closely with vendors and contractors as we advance engineering to get firm bids and update economic evaluations. 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 have 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 to evaluate the optimal expansion and development options. We have continued to work to capitalize on the large undeveloped resource we have in an established U.S. mining district near the Morenci Mine. At El Abra, we have a great opportunity with our partner Codelco to develop a large-scale expansion. This is a significant resource with total copper reserves at El Abra approaching the size of the large position we have at Cerro Verde. The Chilean government is enthusiastic about the project and is working with us to achieve a timely review of the application. The project positions us extremely well to transform El Abra from a relatively small current producer to a significant contributor in Freeport's portfolio. Again, the theme is an established mining operation located in a low-risk jurisdiction. In Indonesia, we also benefit from a large resource position and have a long history and successful track record. We continue to progress the Kucing Liar project in Indonesia to sustain a low-cost long-term production profile in the Grasberg district and a life-of-mine extension opens up additional future growth options. Moving to slide 8, where we talk about Freeport as America's copper champion: 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 are aggressively pursuing a series of initiatives to enhance our U.S. business through innovation, automation, and investment in expanded facilities. We are 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 potential for a 60% increase in copper production over the coming years. Our team is very positive about these opportunities; 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. to favorable copper markets and the strength of Freeport's diversified portfolio under a broad range of market conditions. I will now turn the call over to Maree E., who will review the financial outlook and then we will take your questions.
Thanks, Kathleen. On slide 9, we show our three-year outlook for sales volumes of copper, gold, and molybdenum, which remains broadly consistent with our April estimates. As we move through 2026, we expect a large increase in second-half sales volume driven by higher volumes at Grasberg and our U.S. operations. As you will see in the reference materials on slide 20, our second-half copper sales are expected to be over 20% higher than the first half, and gold sales more than 65% higher. For 2027, we expect annual copper sales to increase by more than 20% compared with 2026 and gold volumes to increase by more than 50%, with additional growth projected in 2028 for both copper and gold. Our teams remain focused on disciplined execution of our plans globally, including the phased ramp-up progress at Grasberg, which is well underway, and growth volumes in the U.S. On last quarter's call, we discussed the cost pressures impacting our business in connection with the conflict in the Middle East and the volatility in oil and related products, as well as sulfur and acid. While 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 byproduct credits more than offsetting other unit cost increases. Putting together our projected volumes and cost estimates, we show modeled results on slide 10 for EBITDA and cash flow at various copper prices ranging from $5 to $7 per pound. These are modeled results using the average of 2027 and 2028 with current volume and cost estimates and holding gold flat at $4,000 per ounce and molybdenum flat at $30 per pound. Annual EBITDA would range from approximately $13 billion per annum at $5 copper to $20 billion at $7 copper, with operating cash flows ranging from approximately $9.5 billion per year at $5 and $15.5 billion at $7 copper. We show sensitivities to various commodities on the right. You will note we are highly leveraged to copper prices, with each $0.10 per pound change equating to approximately $390 million in annual EBITDA in the 2027–2028 periods. We also have exposure to gold prices with each $100 per ounce change in price approximating $105 million in annual EBITDA. Molybdenum, which has shown significant price strength in recent months, has each $1 per pound change approximating $85 million per annum. With our long-life reserves and large-scale production, we are well positioned to generate substantial cash flow to fund future organic growth and cash returns under our performance-based payout framework. Slide 11 shows our current forecast for capital expenditures in 2026 and 2027. Our 2026 capital remains consistent with our prior forecast. And 2027 capital expenditures are estimated at $4.8 billion, approximately $300 million above the April estimate, reflecting investments in upgraded mining equipment and revised cost estimates. The discretionary projects are expected to approximate $1.6 billion in 2026 and $1.9 billion in 2027, with roughly 50% related to the Kucing Liar development and the LNG project at Grasberg. The balance includes acceleration of tailings and other infrastructure to support the 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 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 profile. Finally, on slide 12, we reiterate the financial policy priorities centered on a strong balance sheet, cash return 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 while 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 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 will now turn to questions.
分析師問答
Ladies and gentlemen, we will now begin the question-and-answer session. On a touch-tone phone, if your question has been answered or you wish to remove yourself from the queue, please press the pound key again. If you are using a speaker phone, 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 progress at Grasberg. If I might start with Baghdad, thank you for the additional color and the additional guidance. You have noted an upfront CapEx expected to be somewhat higher than the 2023 estimate, yet you are still looking at an incentive price of around $4 per pound. Are you seeing some offsetting operating-level benefits that would offset that higher CapEx? And then should we think about a decision on this project in 2026, or should we be thinking about that spending starting in 2027?
Thank you, Lawson, and thanks for your comments. We are 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 have been doing a lot of work, as I mentioned, with our vendors and suppliers to really nail down the capital cost estimates and are seeking firm bids. We have 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 is a very competitive construction labor market in this region right now with activity from everything from semiconductors to data centers and power generation. We have taken approaches to be more efficient by doing some off-site labor and prefabrication, and we have done extensive work on how to execute the project. In parallel, we have been working on the operating plan and thinking about the future of Baghdad not being a typical project from the past, but how we can look at the operating model and bring in new technologies. We have already put in autonomous trucks there. This mine will be highly automated. We are looking at other areas of the operating model to be more efficient. We have been working on operating plans and thinking about throughput from the concentrator and how it might impact the potential to get more out of existing plans for expansion, and we have optimized the operating plans. We use long-term markets for all input costs and still have a very attractive project at a $4 copper price, which is significantly below today, covering cost of capital and providing exposure to a very large resource that will make Baghdad more resilient, lower cost, and a modern facility that will serve us for decades. As we bring down costs, that expands the resource. We are not just bringing the resource forward; we have the opportunity to expand the resource as we go forward. There are many attributes that, as we work on this project, the operating model can bring further efficiencies and that is helping the economics and helping offset the higher capital cost.
Our next question will come from the line of Katja Jancic with BMO Capital Markets. Please go ahead.
Hi. Thank you for taking my question. When I look at the Grasberg mine plan, it shows that in 2028 there is a bit of a reduction to copper and gold production. Can you talk a bit about what is driving that?
Over the five-year outlook, it is very similar to what we presented in April. We did have some lower grades in 2028 compared to the prior estimate, but in terms of operating rates and plans they are very similar. There were some sequencing and timing changes in the 2028 timeframe.
Our next question comes from the line of Carlos de Alba with Morgan Stanley. Please go ahead.
Yeah. Thank you. Good morning. Richard, Kathleen, and Maree. Just on Grasberg, congrats on submitting the formal application for the extension. Can you maybe give us an update as to what the timing and the next steps would be for hopefully reaching a final agreement? Any color on potential terms that you have been discussing?
The terms were agreed and negotiated as part of a memorandum of understanding. We signed the memorandum of understanding in February with the government of Indonesia and it was witnessed by the president. What we filed in June is the formal application consistent with the terms agreed to in February. We submitted it to the Energy and Mineral Resources Ministry and they have a process to review extension applications. There is a regulation that allows for life-of-resource extensions for companies that are integrated. With the completion of our new smelter in Indonesia, PTFI is a fully integrated producer and supplies refined copper in Indonesia and abroad, so it is consistent with regulations and we expect the MOU terms will be the terms under the new license. In terms of timing, we are working diligently to respond to any questions the ministry has. All parties share the objective of getting this done on a timely basis. It is very important and the government recognizes the need for sufficient time for planning the future, so we can get the license extension and 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, which owns 51%, and to stakeholders. We will work through the regulatory process as quickly as we can, but there is no prescribed time frame. We are working very hard to get it done this year.
Carlos, when we went to Indonesia — Jakarta and later the job site in June — it was one spectacular day. Of all the times I have been going there, at the end of that day I felt it was one of the best we ever had. I had private meetings with the president and many of his top advisers. The president, who I have known since the 1990s, was very positive and encouraging, totally understood the need to get this done and the issues if it did not get done. He is also focused on international relations and felt that getting this done would be very positive for relations between Indonesia and the United States. All the signals are good. As Kathleen says, we have to go through the process, but everybody understands this is necessary and beneficial for all stakeholders — shareholders, the government, the workforce, the community, and Papuans who rely heavily on PTFI's operations for the economy. We feel very good about the meetings, and now we just have to work through the process. In Indonesia, sometimes that takes time.
Our next question comes from the line of Timna Tanners with Wells Fargo. Please go ahead.
Hey, good morning. Could you provide a bit more information on the purchase of the stake in Cerro Verde and is there an opportunity to do a lot more of that? How do you think about those purchases balancing them with shareholder returns going forward?
There is a relatively small float that is publicly traded for Cerro Verde, and when those opportunities become available we take a hard look. The asset is spectacular, so Freeport would be interested if reasonable values arise to continue to increase ownership, but there is a limit on what is available. We will continue to be opportunistic. This is investing in an operation we already own and manage and the economics have been attractive to date on our share purchases. It does not really impact share buybacks at the FCX level. We are continuing that program which is based on our performance-based policy where we look at cash flows and return 50% of available cash to shareholders both through dividends and share purchases. We are pleased to own more of Cerro Verde and would be interested in owning more if opportunities arise.
Our next question comes from the line of Nicklaus Cash with Goldman Sachs. Please go ahead.
Hi, team. Thank you so much for taking my question. On Freeport and the ramp of Grasberg — the first-quarter guidance estimated an average of 60 thousand per day in the second half of 2026 and you guys are exiting June at about 69 thousand tons per day. What is driving that and could there be potential upside to that 60 thousand average in the back half of this year?
Thank you, Nicklaus. Mark Johnson is on the line and can supplement, but in terms of the second half, our guidance is in line with what we guided to in April. We did exit June at an average of 69 thousand tons per day from the Grasberg Block Cave, and our guidance is based on 60 to 65 thousand plus or minus in the second half. Right now we are completing work in one of the shoot galleries associated with the spilminator upgrades we are installing to allow flexibility to deal with certain types of ore. Then we will transition to another area in the second half to complete that maintenance and those upgrades. During the second half we will have some production come on as we complete the current work and some production going down to complete work. So we'll be at a steady state from June forward as we complete these projects to upgrade the material handling system. Then in 2027, that work will be complete earlier in the year and we will bring on Block 1 South which will add production in 2027. Conditions at Grasberg are good. We discussed wet and dry in April; we have had some draw points that were wet in April convert to dry as we have increased activity and movement in the cave. We have had dry weather in Indonesia during the quarter which improved the wet-to-dry ratio. The upgrades we are making will give us a more robust plan longer term to deal with any type of material. There will be some downtime associated with that investment in the second half, which is reflected in our guidance and consistent with our April target. The work is going very well. Maree and Mark can add more about risk mitigation and progress toward restarting production in Block 1 South.
Nicklaus, to add: the areas where we are currently working on these shoot galleries are to install the new technology we proved up about three months ago. One of those is in CG-44, which has nine shoots and is one of our bigger production areas for the next three years. When that work is complete, which we expect by the end of the year, we will see an increase in production associated with that area; about 25 to 30 thousand tons per day come out of CG-44, so that will be a step change once complete and then in 2027 we have ongoing construction on implementing these shoots. On mitigation, we have made progress with drill holes into the old pit bottom, and along with drier weather the pit bottom is essentially dry. We know rain will return with El Niño at some point. We have a new drill being commissioned now that should be drilling within the week; another similar drill arrives in August. With current drill technology we might get 5 to 10 meters per day with core drilling; this new drill could achieve well above 100 meters per day with a larger diameter, which will be key to addressing any collection of water in the pit bottom. We have started a new drainage gallery along the north side of the pit bottom outside the cave to give additional access for drilling and opportunities to remove any material that would gather. We are advancing other mitigation plans including surface slurry pumps toward the end of 2027. We have made good advances on all these initiatives. At the same time, we are working in PB-1 finishing cleanup and reinstalling the shoot gallery and spilminator shoots in CG-21, which services a big part of PB-1 South. That is on track.
Thank you. Our next question will come from the line of Orest Wowkodaw with Scotiabank. Please go ahead.
Thanks. Good morning, 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 is some reorganization and sequencing, maybe at some of the mines because sales are down versus prior expectations for the third quarter — 750 for the third quarter — and it looks like it is made up in the fourth quarter. Could you talk about the timing on that?
For the third quarter, our production is expected to be significantly higher than sales, and most of that is in Indonesia where we are starting to ship concentrate from the mine site. We have been shipping to one smelter and will start shipping to the new smelter in the third quarter, and it will take some time to build up the inventory to run consistently in the new smelter. As we have reviewed operating plans for the smelter and timing of refined copper sales, we have timing adjustments between third and fourth quarters. We expect to build some inventory in the third quarter and make up some of that in the fourth quarter.
If I can ask a follow-up: in terms of cash costs, you tightened full-year guidance slightly despite gold prices coming in lower. I guess the expectation is $4,000 per ounce. But in terms of impacts from energy and diesel or the Strait of Hormuz issues, any changes versus what you had in the first quarter?
Markets continue to be volatile. We are assuming diesel and energy prices similar to what we experienced in the second quarter, so the assumption changed modestly but is pretty similar to second-quarter levels, which were elevated compared to earlier in the year. There are also some impacts from sulfur and acid. For 2026 we do not have large amounts purchased on a spot basis so that impact is not significant. We will continue to monitor the oil markets. On acid, while you see the impact of sulfur and acid in operating cost, we also benefit from Freeport's position as a fully integrated producer. In our revenues we get the benefit of selling acid as well, which provides an offset and is an advantage for us, effectively a hedge on sulfur and 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 have three, hopefully quick, questions on your U.S. business. Firstly, Baghdad — is there any possibility this could receive any kind of government grants or incentives to offset the CapEx budget? Second, on smelting and refining growth opportunities: given the growing importance of in-country processing assets, are you looking at any options to expand smelting and refining capacity beyond Baghdad and your leaching operations? Third, on leaching operations: what is the level of confidence in reaching the 300 million-pound run rate by the end of this year? Should we view this as incremental volumes or will there be offsets from lower production elsewhere in the asset base?
On incentives for Baghdad: the fiscal regime in the U.S. is very attractive relative to other countries, and that is part of the reason projects like Baghdad look strong. We do not have royalties because we own the land in fee, and our effective tax rate in the U.S. is substantially lower than in other countries. One of the things we are pursuing is the opportunity under Section 45X for a 10% production tax credit for integrated domestic production. The first step was getting copper designated as a critical mineral, which was done several months ago, and now the next step is to get it into the Treasury regulations that would allow copper to conform to the critical minerals list and be part of the 45X credit. That equates to about $500 million a year and would go a long way toward supporting our investment plans in the U.S. We are continuing to work on that with policymakers. On smelting: 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 small exports of concentrate from time to time, but essentially we process domestically. With a Baghdad expansion we could look at opportunities to expand the Miami smelter, which is running extremely well. We are taking a hard look at that. There are synergies with logistics and acid production that benefit our operations. On the leach target: we are around 200 million pounds run rate today and are working toward 300 million pounds by the end of this year. Where we are today reflects tactical execution — bringing in incremental pounds through operational processes like installing additional irrigation lines and targeted injections. The next phase, which is very exciting, comes from innovation: additive work and heated leach projects. Those will allow us to scale further and define the path to a materially higher leach production profile. Corey Stevens and his team are working on this and it is one of the most exciting things in the company.
On the leach program: the base tactics we call 'leach everywhere' have matured as we refine application techniques — installing drip lines, improving raffinate injection processes with feedback loops and analytics, recontouring certain piles to access previously unleachable areas. That foundation is strong. Our Gen-1 additives are deployed with early results better than expected; meanwhile Gen-2 additives appear multiple times more effective and we have sourcing in place with four targeted demonstration piles across the portfolio — a couple at Morenci, one in New Mexico, and one at El Abra. Pilot heat projects are in flight: a demonstration commercial unit is expected in the second half of this year and El Abra is particularly sensitive to temperature, so we expect significant learnings there. We have geothermal drilling going on at Morenci that could add substantial heat. There are tactics for smaller sites that open up options to rehandle older piles, move older piles to more convenient locations for heat or additives, and to consider below-cutoff-grade opportunities. As we consider expansions like Safford, these learnings can add incremental value or replace capital for traditional methods. All these initiatives are in flight.
Our next question will come from the line of Bill Peterson with JPMorgan. Please go ahead.
Question and nice job on the quarter. I guess for Richard: expectations around any sort of change in Section 232 copper rulings — is Freeport really pushing one way or the other given there are probably pros and cons? Can you talk about how this might benefit the U.S. footprint including how much NOLs remain and then any impacts on the broader market?
We and the rest of the market are continuing to monitor and wait for decisions on Section 232. Last year, the decision was to review potential tariffs on cathodes under a phased approach beginning in 2027. There has been no decision. A lot of copper has moved to the U.S. in anticipation but no decision has been made. Inventories outside the U.S. are tight and that has created a tight market, especially in heavy consuming regions in Asia. Everyone is watching the situation closely. If there is a tariff and premium, our U.S. sales priced on COMEX could receive a higher price than international sales, but we will have to see. Our U.S. exposure is growing through improvements in mining rates and the leach initiative, so Freeport would be a significant beneficiary for our U.S. business. On NOLs, we have just under $6 billion of net operating losses we can use against U.S. income. You can see in results that we started to be subject to a minimum tax in the U.S. this year at a relatively small effective rate, in the 6%–7% range. We will pay that; NOLs cannot be used against that minimum tax. We expect to use NOLs over multiple years at current markets.
Our next question comes from the line of Bob Brackett with Bernstein Research. Please go ahead.
Good morning. I'm impressed by the Morenci mine rate being up 30% in the second quarter. Can you talk to how you are defining mine rate there? What might the implications be for copper sales going forward or lessons learned that could be applied more broadly?
We have been working on rebuilding the mine rate for a number of years after the pandemic and workforce turnover. During the pandemic, we intentionally reduced mine rate, and rebuilding has been a multi-year effort. The roughly 900 thousand tons per day of material mined is substantially higher than what we achieved in the last five years. This was accomplished through focus on equipment health and asset reliability, improved maintenance programs, and reduced unplanned downtime. It is exciting, but we must sustain it; these disciplines need to be institutionalized and maintained daily. There is a lot of hard work, leadership, coordination, and technology layered on top to support better decisions in the field so shift teams can make the right calls. Corey can add more about the journey and future expectations.
The internal focus has been on people, process, and technology. There is no single technology solution; it is a combination. We've centralized some activities around mine work to provide expertise and insights to field teams, enabling better decision-making during shifts. We are also transitioning to higher-capacity 400-ton ultra-class trucks — during the second quarter we began that transition and plan to add an additional 20-plus trucks next year. As we exhibit operating excellence and get better tooling, we expect even better results going forward.
Very clear. Thanks a lot. My follow-up: we are getting close to the official license for the Grasberg extension, which 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?
We have targets below the Deep MLZ as an extension and have done some drilling there; we will pick that back up. That is an exciting opportunity. Our resources do not end in 2041 — our existing resources can extend beyond that. The Kucing Liar project can sustain production in the Grasberg district for many years beyond 2041. This district has not been extensively explored in many years and we have been adding extensions that could make sense within a 2041 timeframe. With an extension, it opens up a broader horizon including Deep MLZ and Kucing Liar. Because existing infrastructure is already in place, the economics are compelling.
To add: because we did not have rights beyond 2041, we have not reported reserves beyond that date, even though we know existing resources will extend further. We began extension exploration work earlier as we made progress with the government. That is one of the points we keep making about the need to get this done quickly so we can understand resources that will affect future plans for processing, tailings control, and all related activities. Grasberg has historically gotten bigger than people anticipated since its discovery and we are excited to see what else lies out there; extension will give us the ability to pursue that.
Our next question will come from the line of Daniel Major with UBS. Please go ahead.
Hi. Most of my questions were asked, but two quick ones. One: you referenced some incremental increase in 2028 CapEx associated with spending at Baghdad tailings and preparation for the expansion. Is that incremental to the $4.5 billion CapEx guidance or part of it? Two: on the North American business, you previously guided to a target of $2.50 per pound operating costs in 2027. Is that still a valid estimate?
Regarding your first question: what is in our numbers for CapEx for Baghdad is the work we have been doing and will continue to complete on the new tailings facility. We accelerated that work to put us in a position to do the expansion, but it would have been required in any case to support existing assets given the reserve base. That is in our CapEx forecast. What we do not have in the forecast at this point is the capital to build the concentrator and related infrastructure for the full expansion — that would be an add to existing CapEx when a final project decision is made. We have substantial ability to fund it out of cash flow and our balance sheet is in great shape. On the U.S. cost target: we continue to have a target of $2.50 per pound. Current market conditions with energy prices and sulfur/acid prices make it more challenging in 2027, but we are continuing efforts to achieve this. We are working on automation, technology improvements, and the leach initiative with scale, which is much lower cost and will go a long way to helping us. It remains a target, and we believe it is achievable over time, but current markets make it difficult to fully achieve in 2027.
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. On the Baghdad expansion and the incentive price, have you changed your assumptions for molybdenum in these economics and if so what molybdenum price are you using? Second, on molybdenum generally — you are a big producer and moly has shown strength. Any opportunities at Climax and Henderson? Finally, on the incentive price for Baghdad, are you assuming a lot of NOLs, or if you did not have NOLs would you still do Baghdad?
For the $4 case we were using a $20 per pound molybdenum price in the analysis. Current prices are substantially higher, but our case used $20. Regarding molybdenum opportunities: we have the primary molybdenum business at Climax which could produce more moly. We also have significant byproduct moly, which goes to the bottom line and benefits operations like Sierrita, which is a lower-grade copper mine but benefits from moly production. El Abra would also have moly. So byproduct moly is a focus and adds value. On NOLs: we look at projects on both a pre-tax and after-tax basis. The project economics support execution at a $4 incentive price even without relying on NOLs; we evaluate on an after-tax basis and Baghdad still supports the economics. So it is not dependent on NOLs, but it does benefit from the attractive fiscal regime in the U.S.
Assuming all projects meet your investment hurdles, timelines suggest Baghdad could be decided this year and be producing in the early 2030s, El Abra may be later in the early–mid 2030s, and Safford/Lone Star also in the 2030s. If El Abra and Safford end up on similar timelines, would you feel comfortable building both at the same time or would you sequence them from a project management perspective?
When Freeport focuses on a project and allocates resources, our execution is strong. Doing too many projects at once increases complexity from both financial and execution standpoints. We are organizing to allocate resources to Baghdad and to El Abra. The Safford opportunity is exciting because leach learnings may allow a different flowsheet — smaller concentrator and primarily leach — so the timing and sequencing could differ. Safford's permitting process is more compressed relative to Chile, so theoretically you could have Safford around the same time as El Abra. Our focus is to define the opportunities and then sequence projects in a manner that optimizes resourcing and execution. The work we are doing today is to crystallize value and understand the best sequencing.
Our final question will come from the line of Chris LaFemina with Jefferies. Please go ahead.
Hi, Kathleen, Maree, Richard. Thanks for taking my question. 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 repairs, or is that good to go and at full capacity? Second, you explained the variability in copper sales on a quarter-by-quarter basis through 2026 and part of that is building inventories at the smelter. Have your internal projections on copper production changed since the end of last quarter, or are these changes mainly timing of sales and smelter inventory?
The smelter work is complete. We completed all necessary work on the new smelter in early 2025 and it started operations in 2025 prior to the September event. It has been operating in a standby mode since and we used the time to complete remaining work, test systems, and train teams. The smelter is ready to go. Regarding production versus sales: production levels have not materially changed relative to what we communicated in April. The changes you see in sales are largely due to a different shipping plan and operating plan for the smelter, and it takes time to pass material through the smelter and realize refined copper sales. So what you are seeing on sales timing is not a change in production fundamentals.
I will now turn the call over to management for any closing remarks.
We appreciate everyone's participation and questions. If you have any follow-ups, feel free to reach out to David, and we look forward to reporting in the future on our progress.
Thanks, everyone, for participating. Onward and upward.
Ladies and gentlemen, that concludes our call for today. Thank you all for joining. You may now disconnect.