Freeport-McMoRan Copper & Gold Class B Earnings Call Nuggets: 2015 Copper Production and Presidential Election Timing

Freeport-McMoRan Copper & Gold Class B (NYSE:FCX) recently reported its fourth quarter earnings and discussed the following topics in its earnings conference call.

2015 Copper Production

Sal Tharani – Goldman Sachs: Just quick question on the couple of questions. First on the slide about the 2015 copper production. Does that include Morenci’s full production rate of 600 million pounds in there?

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Kathleen L. Quirk – EVP, CFO and Treasurer: Yes, it does, Sal. We expect to get to full rates at Morenci in 2014.

Sal Tharani – Goldman Sachs: So, you expect that to be – because I think you said that the growth will come in by – the project will finish by 2016, but do you think it will be ready by 2014 in terms of production?

Kathleen L. Quirk – EVP, CFO and Treasurer: Morenci will be 2014. The Cerro Verde will be…

Sal Tharani – Goldman Sachs: I’m sorry, I meant Cerro Verde, I’m sorry.

Kathleen L. Quirk – EVP, CFO and Treasurer: It’s got some in Cerro Verde in 2015, but it reaches full production in 2016.

Sal Tharani – Goldman Sachs: The smartest change in your CapEx outlook in between the major mining projects and other projects, a couple of hundred million dollars, anything particular to note here? The mix is different than what was in Q3.

Kathleen L. Quirk – EVP, CFO and Treasurer: Yeah. It’s slightly different. We had some carryover sustaining projects that we didn’t spend in 2012. Our CapEx in 2012 was slightly below what we thought we carried over some projects into 2013, but no material changes, just some slight timing variations.

Presidential Election Timing

Anthony Rizzuto – Dahlman Rose & Co: I have got a couple of questions here. I was wondering if you could update us a little bit with the contract of work review and just the process there and the timing again of the presidential election.

Richard C. Adkerson – President and CEO: The presidential election occurs in 2014 and the first round as midyear in 2014. This month begins the process also of electing a new governor in Papua and so Tony ’13 and 2014 – in 2013 a number of provincial elections will be held in Indonesia and the presidential and the parliamentary elections will occur in 2014. We began the process in a formal way a little over a year ago and talking with the government about our getting our extension for our contract for those of you who don’t follow us that closely. We operate under contract of work in Indonesia. We signed the most recent contract in 1991. It has a 30-year primary term and the contract itself provides us the right to extend it for two 10-year periods through 2041 and we have to apply for that. The government cannot unreasonably withhold our delay granting that extension. The Indonesia passed a new mining law and the country has undertaken review of all contracts of works including ours. And what our discussions involved is a discussion around this review of contracts, obtaining extension for our existing contract and we are working cooperatively with the government to find ways of being responsive to certain of the aspirations of people and government and the population in Indonesia and protecting the interest of our shareholder by getting our extensions on a way that protects the values of our operations there. Confident we will be able to get that. The election and political situation in Indonesia requires time to go through the process and that’s what we are doing now. We have made what I feel is good progress and we will be able to resolve this in a way that our shareholders will be happy with and that the government of Indonesia will also find acceptable.

James R. Moffett – Chairman: As an example I want to add to that. Under normal circumstances if we didn’t have this massive underground projects – the same bid projects some in government which say that we should only ask for an extension two years before our contract expires which should be 2019. But with our spending as you’ve seen from our spending charts $15 billion over the next number of years to get to full production with the underground. We went with the idea that you have to have certainty and the government agreed. So that’s just another wrinkle that has caused us to have to deal with this in a business where we are going to get support from the government, but under normal circumstances there is a — some in the new government would say you should wait until two years before your contract expires. So that’s just a wrinkle that we need to be sure in point here.

Anthony Rizzuto – Dahlman Rose & Co: Has it changed in any way the dialogue that you guys are having with the government there given the plans to acquire these energy companies?

Richard C. Adkerson – President and CEO: No, no.

James R. Moffett – Chairman: I’m not actually aware of it Tony. We are focused on our business in the area.

Richard C. Adkerson – President and CEO: I have discussions with a number of – they read the new releases and the papers and so forth. But it was like when we acquired Phelps Dodge, you know they were interested in it, we made the point that they gave us a lot more global resources that we acquire to bear in running our business of course, Indonesia, it’s a significant ore producer and so, but it’s not a factor in our discussions.

Anthony Rizzuto – Dahlman Rose & Co: The other question I have is one on the copper market, Richard you made some comments, but there’s always uncertainty surrounding Chinese inventories and I was wondering if you did have any more specific thoughts on the level on bonded warehouse stocks there and how you think this may potentially impact Chinese imports in 2013, obviously Chinese imports have been so substantial to the market and just wondering, any additional thoughts you may have there?

Richard C. Adkerson – President and CEO: Well I wanted to comment on it because it is a fact and I didn’t – while we see these emerging more positive views about the markets and certainly today as I talk to people, to our commercial people, to others involved in China, the view about China is more positive than it was say at LME week last fall. But the copper market, Tony, as you know more, better than anybody is a really pretty visible global marketplace. The one aspect that has less visibility of this issue about – of exchange inventories in China, and there is currently different views about the level of those inventories. Our people tend to believe that those inventories are not liquid like exchange inventories, but we have seen instances in the past of where the Chinese have adjusted buying patterns and that’s the factor that could occur. When that happens, I’ve always looked underneath that to see what’s going on in the fundamental economy because actions on buying patterns tend to be temporary and the underlying economy is really what’s going to drive the copper price long run, but I felt that I needed to mention that because those inventories are significant and the question is the degree of liquidity and how they come into play and affecting imports.

Anthony Rizzuto – Dahlman Rose & Co: That’s great. I appreciate Richard and, Jim Bob too for your insight as well.

James R. Moffett – Chairman: Tony, on the double edge sort of copper prices that Rich was talking about I think it’s important to bring at this point the extensive list of projects that are either being delayed or cancelled in all the mine basins, and of course this is because the commodity prices have gone up so rapidly. But unfortunately, as these mines are developed, the cost of development, whether you’re talking about mining equipment trucks, all the (matter) this is, the greenfield projects you’ve seen all of you’re aware that some of these cost is going up double and triple and people are just walking away from the projects, delaying them (indiscernible) wherever you go. Essentially there is 30 to 40 of these. What does that mean? That means that those projects have been put into people’s long-term projections of supply/demand for copper. Those projects are not going to happen. That’s exactly why our greenfield projects are being looked at harder than the brownfield and brownfield, as Richard said, we already have the existing infrastructure. So, we have a whole way to look at that cost and have an idea of what it’s going to cost to make the expansion, but going into a greenfield area, new country, and new infrastructure or maybe lack of infrastructure. So, those projects are not going to get finished if people were hanging on for supply/demand are going to have a huge impact on price of copper. So, that’s why we – our long-term view to look at copper has been very positive because the lack of new projects coming on will drive the price of copper higher, which benefits our very active program over the last six years, seven years since the acquisition of Phelps Dodge.

A Closer Look: Freeport-McMoRan Copper & Gold Earnings Cheat Sheet>>