Quarter 1
Q2 2026 Earnings Call — July 23, 2026
Analyst Lawson Winder (Bank of America Securities): 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...
Executive Richard (Title): Thank you, Lawson, and thanks for your question. 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 nail 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 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.
Analyst Kasia Yancic (BMO Capital Markets): Hi. Thank you for taking my question. When I look at the Grasberg mine plan, it shows that in 2028 there's a bit of a reduction to copper and gold production. Can you talk a bit about what is driving that?
Executive Kathleen (Title): 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 were some sequencing timing changes in the 2028 timeframe.
Analyst Carlos D'Alba (Morgan Stanley): 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.
Executive Richard (Title): 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 refined 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 on 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. I 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 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.
Analyst Timna Tanners (Wells Fargo): 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?
Executive Kathleen (Title): 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. 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 Cerro Verde and would be interested in owning more if the opportunities arise.
Analyst Nick Cash (Goldman Sachs): Hi, team. Thank you so much for taking my question. Just wondering on Freeport and the ramp of Grasberg 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?
Executive Kathleen (Title): 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 Grasberg Block Cave, and 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 Grasberg. 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 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.
Executive Mark (Title): 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, we'll 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.
Analyst Richard Garciaterina (Barclays): 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.
Executive Kathleen (Title): 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.
Analyst: 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?
Executive Maree (Title): 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 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 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.
Analyst Liam Fitzpatrick (Deutsche Bank): 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?
Executive Kathleen (Title): 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 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 leach innovation opportunity.
Executive Corey (Title): 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 Alabra, 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 Marenzi 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.
Analyst Bill Peterson (JPMorgan): 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?
Executive Kathleen (Title): 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.
Analyst Bob Brackett (Bernstein Research): 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?
Executive Kathleen (Title): 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?
Executive Corey (Title): 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 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’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.
Analyst: 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?
Executive Kathleen (Title): 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.
Quarter 2
Q1 2026 Earnings Call — April 23, 2026
Carlos de Alba (Morgan Stanley): Yeah, thank you very much. Good morning, everyone. So maybe I wanted to explore a little bit on the level of confidence that you have on the new guidance for Grantsburg. Well, obviously a surprise on the latest revisions, but as you see, as you move forward, are there any specific points or areas where you think that there might be a higher risk or further potential reductions to production or ramp up that maybe we should be aware of that might realize or not, but if you could maybe Kathleen highlight for us what those would be, that would be great. Thank you.
Kathleen (Executive): Thank you, Carlos. The main thing that we are doing to resolve the issue is to install these regulators into the chute galleries. Right now, we have the capacity to mine the material, but we're limited because of the need to have a certain type of consistency to go through the chutes. And so when we think about what the risks to the ramp up are at this point, it is really a construction schedule and a delivery schedule from our vendor who we're already working with. We've got some of the equipment is already on site. It'll be installed on a phased basis. And we have over the coming months additional equipment that will be coming to us so that we can install these, we call them spilminators, onto the chutes. So really it's a situation where the bottlenecks will be addressed by the installation of this equipment. We have equipment on site now. We've got equipment on order. And it's a matter of meeting that execution timetable. I want to go back to this team and what this team accomplishes in terms of the ability to construct things at Glassburg. This is not a lot different than a lot of the things that the team has done in the past.
The work that they did to prepare for restart was a really busy schedule, a lot of moving pieces, and the team did an excellent job with the support from our centralized team to execute the plan, and we'll approach this in the very same way. It's got one of the highest Net present values in the business right now to get this up and running. And our team is all over it. We have confidence in the ability to meet the plan. Now, the risks are that there could be delays in getting the materials. There could be construction delays. But that has been, we've managed that through this plan that we put forward. And we'll stay on top of it until it's done. Mark Johnson is on the call as well. And Mark, if you want to add any color to what we're doing there, please go ahead.
Mark (Executive): Yeah, Kathleen, we've had one of these filminators. It was a prototype about a year ago that we called version one. What we're installing now is a re-engineered version of that, version 1.5. We've got the first one installed last week, you know, independent of some of this recent realization on the shift in material types. So we're testing that starting this weekend. As you mentioned, we've got a number more at site. Our fabrication is taking place in Indonesia. And the group that's doing it has been very responsive to our needs. We're looking at wrapping up the capacity of that plant in Indonesia. And then also the team is looking at other ways to shorten the construction cycle on the chutes. So what we've taken and what we put into the plan is what we know we can do from the past. And then, like you mentioned, we'll continue to look for things to do that we could optimize and improve, make that installation just that much more simple and quick. Thank you. Carlos, one other thing, and Mark can add to this, but we want to reiterate that we're in the very early stages of the ramp-up.
And so the sampling that we did of all of the draw points is, as of the present time, we have a process where we sample and inspect the draw points on a regular basis. As we continue to mine, it could be that some of this bottleneck gets resolved and our traditional blending systems can accommodate the material. We have not counted on that in this forecast. We've counted on using this more robustly of regulating the flow in the chutes. But we could have a situation where the material becomes drier as material is mined. And Mark, you can add to that if you'd like.
Mark (Executive): Yeah, it was kind of the unfortunate timing of ramping up just as we were doing the forecast process. Really, at the beginning of March, I think our forecasts based on the knowledge at that time would have been very similar to the previous estimates. So what we've done, as Kathleen's mentioned, as we started mucking, we had a higher incident of spills occurring. Some of the material that we began mucking shifted to a wetter material. So what we've done is implemented what we know today and used that as our basis. What we do know is as we muck, the porosity of the material above will improve. And that's the sort of upside we might have is that as we get a broader footprint, as we begin mining, more draw points, more panels, that some of these could convert back to where they were. You know, it's a process where we, as we're mucking, we do a very frequent assessment. So it's a very dynamic process. We already mine each panel, as Kathleen mentioned, remotely. It only takes one draw point within a panel to be wet that we do the remote mining. So we were set up to do that from the onset. And now it's just a matter of that ratio within each panel.
There's also implications from panels adjacent to a wet panel. The team's also been very innovative on being able to remotely manage other aspects within the panel like rock breakage and hung up panels. So it's more than just the remote mucking. There's a number of other initiatives that we're pursuing that'll increase the availability of the draw points. Thank you.
Carlos de Alba (Morgan Stanley): A very, very quick follow up. Can the regulators handle a drier material if the ratio improves over time?
Mark (Executive): Yes, yes. It's really about being able to shut off the flow if it gets very sloppy. And it's a very innovative design where the gate and the hydraulic rams actually, as the material starts to flow, it assists in us being able to shut off the flow if we need to. So it's a matter of preventing spills from happening on our haulage level onto the trains. But it'll also handle the dry material. It's a very flexible robot system, and as we mentioned, we had planned over the long term to install it, and now we're accelerating that to make the system more flexible and robust to handle any type of material. Thank you.
Alex Hacking (Citi): Yeah, morning Kathleen and team. Not to Monday morning quarterback, but, you know, you've got a very experienced team there at Grasberg. You know, how is this issue missed in the initial assessment? You know, that water would start to build up as mining was halted. And then maybe in layman's terms, like why not add more drainage to the mine? Thanks.
Mark (Executive): In terms of the first part of that, Alex, you know, we have monitoring of the water coming in and out of the cave, and so there was nothing that was detected of any significance or any significant concern. It's just a matter of getting access to each of these draw points and to be able to inspect them, and we couldn't do that until we got access in this March timeframe. It doesn't take a lot for something to move from dry to wet, and it's just a small amount of moisture. So this isn't like a lot of water or some big overwhelming situation. It's just the nature of what's wet or moist versus what's completely dry. But we do have a number of initiatives, and that's what I wanted Mark to cover, a number of initiatives that we started after the incident last September to address a more robust drainage system. But the one we have now within the block cave in terms of the gravity drainage is very good. The one that we are pursuing is additional drainage from the surface. But Mark, why don't we cover through that? And we've got some information and the supplemental thoughts on it as well.
Mark (Executive): Right, yeah. The slide that you're referring to is 41. But Alex, what we have right now and what we've had in place for years is that we have a very comprehensive drainage plan from the surface in the open pit where the pit has not been impacted. You're aware that as we blockade that there's a subsidence zone where the rock breaks and where we have the wet muck coming from is the rainfall that falls onto that broken material. Our drainage system both for groundwater and for the surface area that's been unimpacted is very robust, it's been in place, functioning. But what the wet muck generation comes from, the daily rainfall, it falls onto that rock. It works its way down through the cave. And as it gets to a draw point, that draw point turns into somewhat of a funnel where it concentrates some of that flow that's within that broken rock. And as Kathleen mentioned, it's only a couple percent difference in moisture content that can convert material from a dry material that we can handle easily to a wetter material that we need to manage much more significantly.
So it's not a matter really of drainage, but what we are doing as a result of the external mud rush, the other incident obviously that's put us into the situation and the PB1 area is that we're looking to be able to drain the water away that collects within the cave, essentially in that shape of the old pit. And so we're drilling into some of that broken rock above PB1. We're seeing some initial indications, even with the smaller diameter drill holes, that we've been able to access some of that water. That's encouraging. We're getting some other drills that'll drill those sort of holes much quicker in a bigger diameter. Those are on schedule. They're coming in, should be drilling by the end of June. And then we've got some other initiatives that are more focused on the PB1 reopening of taking away that surface water that ponds or pools and any mud-like material, any liquefiable material that might gather in the pit bottom. Thanks for the call. And I do appreciate all the hard work that the team is doing.
Alex Hacking (Citi): Thank you.
Chris LaFemina (Jefferies): Hi, thanks, operator. Hi, Kathleen and team. Just a couple of follow-up questions on Grassberg and kind of following up on what Alex just asked. So if we look at the portion of wet draw points before the mud rush incident, I think you say it was 30%, and it's 45% now. So my first question is, what sort of variability is there around that number? In other words... Was it 30%, but sometimes 35, sometimes 25? What level of competence do you have in the ratio of dry to wet today? And that's the first question. The second question is, when did you identify that there were too many wet draw points? I think there was a media report a couple of weeks ago that indicated that Freeport was actually ahead of schedule on the Black Cave ramp, and maybe that was just an incorrect media report, but I'm wondering if this is something that you just learned very recently and was not an obvious problem just a few weeks ago. Thank you.
Kathleen (Executive): Chris, on the diagram we show on slide nine, the number of draw points dry to wet comparison, the important thing to look at here is also the panel. So in September, we had only one panel within PB2 and 3 that didn't meet the ratio. And so we were dealing with that with lending. And so that was the only one that we were addressing. Now, you've got 10 out of the 23 that don't meet the one-to-ones. So what it ends up doing is derating the production of the whole panel because you can only produce at the level of the one-to-one until we get these enhanced material handling systems installed. So that's an important factor, what's going on within each panel. In terms of the variability, Mark can comment further on this, but we wouldn't have had significant variability in the past, but we do have ongoing monitoring that looks to see for our processes to monitor these draw points for planning and management systems. But since we started mining, you know, we have had some draw points that were wet initially in March go to dry and vice versa. So it is a little bit of a dynamic situation right now in the very early days of the ramp up.
As Mark talked about earlier, you know, the timing of all this is we had just really commenced the ramp-up, and so there was, you know, new information that we were getting along the way in April as we were going through the forecasting process. Freeport, you know, we did not modify any of our guidance. You know, the actual progress we were making on the ramp up in terms of, or the progress we were making on the restart was very good. As I mentioned, we got that done ahead of schedule. Some of the media reports that you may be referencing relate to some of the discussions in Indonesia where there could be government people that are asking questions about the plan or media asking about the plan. And those would have been based on our original plan because we had not formalized our forecast until recently. Again, the recovery and the preparedness to get to the ramp up was going very, very well. And it's only this new information that has been unfolding in recent weeks where we had to address the forecast. Again, it's very early days, and things can move from here, but we do have a solution.
We're going to execute against that solution, and it's a positive long-term solution to giving us flexibility to deal with these sorts of things as we go forward over the long term.
Mark (Executive): That's very helpful. I might just add, since the start of the Grasberg, we've also had a model that predicts the future of that wet to dry ratio. And all the way through the life of PV2 and 3, that ratio is generally 2 to 1. Like that we'd have two draw points of dry to one wet. There'd be some panels that are that very, you know, the variability is more across the footprint, but broadly we had a much better ratio that we've been forecasting and using that as part of our mine plans. That's a big part of the reason that we built GBC to be able to be remotely mined from the onset. So we've been working on this for quite some time. You know, it's a bit of a complex model. It's both material characteristics from size and then managing how the water makes its way through the broken rock mass. So our indications were that we're much different over the longer term. It didn't indicate the need for the stimulators at this point of the mine. As Kathleen mentioned, we were working on that and saw certain panels that would require that. But what we've looked at now is a much more taking what we have today and just applying that, making sure that the chutes themselves are not the bottleneck. So the current plan is that we'll replace all the chutes so that we'll have that additional flexibility.
Chris LaFemina (Jefferies): Got it. Thank you very much.
Nick Cash (Goldman Sachs): Hi team, thank you very much. Just wanted to switch gears a little bit here. You mentioned deploying the first initially developed additive and working on a second additive in North America. How established are the supply chains for each of these and how quickly can you scale those additives? And how much of the 800 million guide incremental for leaching is a result from these new additives? And then lastly, given the increased diesel costs and global supply chain pressures, are there any risks to the $2.50 cent unit cost targets for North America in 27? Thank you.
Kathleen (Executive): Thank you, Nick. In terms of the additive, the one that we're deploying now, and we started with one stockpile at Marinci and are now deploying it more broadly across the stockpiles at Marinci, is readily available. And that is, we've got a supply chain for it, and it's being applied, and the results will continue to evolve as we go through the year, and that's the data that we want to see. In the lab, the additive that we're referring to, we've got two additional additives that we're focused on, and maybe more after that, but we call them our next generation additives. We've seen with these additional additives performance in the lab that is a multiplier effect of benefit above the one we're using now. So we have been working with potential suppliers on those. It's not as easy to find and we may have to, you know, have it made as the ones that we're using now. But we've been conducting some meetings in recent months with anticipation that we will commercialize one or more of those additives. And that's really showing potential.
And to answer your question about the scaling, it's the combination of additives and heat that is going to get us to the 800 million pounds. So we can, you know, at the current levels, all of the initiatives we're doing on precision leaching, all those things, all the things we're doing in Leach Everywhere, we've got helicopters that are adding irrigation lines to places that we couldn't access before. All those things are sort of operational work that we're doing and that'll allow us to be in this 250, 300 million pound range. The rest of it really comes from the additives and heat. And it's not just one by itself because the combination of using an additive on side of heat could give you a one plus one equals two and a half or three. And so that's why this heat work is very important as well to get to our ramp-up rates. We've just started at Morenci. We've got a pilot where we're heating the raffinate that will go. We just really just literally just started this to heat the raffinate to try to raise temperatures within the stockpile. We're doing that on a test basis. We have our idea to put in some modular units of heat that could be applied to all of our stockpiles.
Initially, we're using natural gas to heat, but we're very excited about potential to have geothermal heat at Morenci and we've got promise there. We're actually doing some drilling to define a geothermal resource that would be a low cost way to heat the stockpiles. We know that heat works. Raising the temperature of the stockpile will add volumes of significance. That combined with the additives, we have a path to getting to 800. We've got to solve what's the right additive for different material types, and we've got to solve the engineering of how to best get the temperatures raised in the stockpile. Corey Stevens is on. He and his team are leading this effort, and I'll ask Corey to make any, and then I'll come back to your 250 question, Nick, but Corey, if you want to add any color to what I just said, that'd be helpful.
Corey (Executive): Yeah, thanks, Kathleen. Yep, so yeah, Kathleen said it. We've got a pilot going. We're using that to calibrate our heat models and what we would expect to see at Marinci. And in parallel, we've got a bigger project going where we're going to be tripling the size of that for our elaborate operation that's going to add some volumes there. And additionally, we have a number of other targets where we're looking at a modularized version that can be deployed more readily across the portfolio, particularly in North America. We're pretty excited about where we're headed on that front. Additionally, there's options with chemical heat using pyrite and air. Here in the second quarter, we're going to be starting what we call our perfect pile in New Mexico. And that will have a next generation design on being able to leverage heat from the natural pyrite that comes with the process there.
Kathleen (Executive): Nick, on the 250 question, with the changes in consumable costs and energy costs, we're reviewing what all that means. And it's been a volatile situation. In terms of where we were on that, if you looked at the energy costs, acid costs, all the various consumables in place in recent quarters, together with the addition of these low-cost incremental pounds of getting to our 400 target sometime next year, that would bring us... So we had a path to get to 250. We now need to look at what the right environment is for things that we don't control, like the cost of diesel or other inputs. And so that will cause us to re-look at the 250, but the point is that with the input costs that we've had in place over the last several quarters and the addition of these very low cost incremental pounds, we see being able to get our U.S. costs down significantly closer to where we are in South America. So that is still intact. We just need to continue to monitor what impact these commodity input costs will have on our cost structure.
But the things that we can control, we're working very hard to and have confidence that our unit costs will trend lower, all other things being equal. The sulfuric acid situation, well, as Marie said, we don't have a lot of spot exposure this year. We'll have to see how that unfolds as we get into next year. And while we're hedged, naturally, because we have the smelters, the cost of the acids that we buy will be shown in the operating costs for the U.S., and we'll have an offset elsewhere with the smelters that we have where we actually produce and sell acid. So I hope that helps you, give you some color around that.
Nick Cash (Goldman Sachs): That does. Thank you very much. I'll pass it off.
Bob Brackett (Bernstein Research): Good morning. And staying on the leaching theme, you all have been on a tear in terms of getting patents. I think you've had more patents in the last three years, a couple dozen than you've had in the previous 10, many related to leaching. What's the philosophy of those patents? Are they sort of defensive to make sure you can execute on your inventory, on your resource? Or could they be potentially offensive where you could be partner and get access to additional resources with your technology.
Kathleen (Executive): I'll let Corey add to this, but it's really both. Our focus, we've got 40 billion pounds plus of copper in these stockpiles, which have been treated as waste in the past. And so there is a huge value opportunity for us. And that's our immediate priority to recover some of that copper that's sitting there in stockpiles, which needs a catalyst to produce it. So that is our first priority. The second is, yes, we could leverage any technologies that we develop to potentially partner with others, potentially having synergies in an M&A transaction, et cetera. But our first priority is to maximize the value of our own work here. The team we have working on this, we have a technology center in Tucson, and the team we have working on it is really, really strong. We've added to the team recently, added some chemists and some other disciplines to the team. So we have a multidiscipline team working not only on what's the best additive, but also what's the best way to commercialize it. Our corporate development team has been actively involved in that as well. So it's, like I said, it's a very high net present value project and would transform our U.S. business in something that we're making a lot of advances to, and we're going to crack the code as we go forward.
Corey (Executive): Yeah, Kathleen, you nailed it. Really, we're moving forward with this powerful group of innovators and filling the pipeline. The 42 billion pounds that are within our existing stockpiles don't count the other options that we have within our company for below cutoff grade material that we're currently considering waste today that could be extremely valuable for us in the future as these options materialize. It's a very competitive market, and so, you know, we're being very careful to protect our interests as we come up with these innovations.
Lawson Linder (Bank of America Securities): Thank you very much, Operator, and hello, Kathleen and Richard. Thank you for taking my question and for today's presentation. If I could, I'd like to follow up on the theme of industry cost pressures and just get a sense for what you've provided on the slides. And maybe this is best addressed by you, Murray, just in terms of the sensitivity of diesel. So it's interesting. So versus the Q4 slides, it looks like diesel sensitivity has actually increased. Can you maybe just walk through why that would happen or why there would be a larger impact on EBITDA now than there was three months ago?
Murray (Executive): The slide that Marie reviewed has our sensitivities to copper and all of our input costs, et cetera. And so what we do to calculate the sensitivities is use what's in that forecast for diesel price assumptions and then measure a plus or minus 10% change to that. So we have now incorporated a higher cost of diesel in our assumptions than what we had previously, and that's why a 10% change is more than what it was before.
Lawson Linder (Bank of America Securities): Is that the question you were asking?
Murray (Executive): Yeah, yeah. No, that's exactly right. It just seemed like it was a bit nonlinear. So that's it. I guess you're just assuming much higher diesel is a base case at this point.
Murray (Executive): Right. Yes. And we'll have to monitor that. We'll have to monitor it as we go. But in our forecasting process, we typically use the prices in effect around the, you know, it's been volatile, but the prices in effect at the time of the forecast. So those 27, 28 have higher diesel costs than we would have had three months ago.
Lawson Linder (Bank of America Securities): Okay, that makes perfect sense. And then just thinking about industry cost pressures, I mean, there's, you know, we've heard of explosive costs being higher, grinding media. You mentioned some insulation from sulfuric acid. When you think of some of the other key cost items for your business, are there other places where you feel there's some level of insulation? And then, you know, where are some of the other items where there might not be and there could be more exposure there?
Kathleen (Executive): It's been very regional, Lawson. As Marie mentioned, we've had a significant rise in diesel costs, but the most significant impact has been in Indonesia and other Asian regions have experienced that inflation more significantly. We haven't seen a lot of things in terms of what we buy being adjusted at this point, but that'll be something that lags and we'll have to see how long the situation continues and whether it'll start to flow through other components of our costs. But some of the things that trade on the spot market you can see have reacted, but a lot of our consumables are contractually negotiated. So we'll have to just continue to monitor those.
Lawson Linder (Bank of America Securities): Okay. Thank you, guys.
Unknown (BMO Capital Markets): Hi. Thank you for taking my question. Recently we saw there was a change to Section 232, tariffs impacting derivative products. Do you see any impact from that or do you expect any impact from that?
Kathleen (Executive): Not associated with what we sell. So that changed a lot of the codes for what gets tariffed. It did not change anything with respect to the refined copper cathodes at this point. And as you know, that is something that the government said they were going to be reviewing potentially by middle of this year.
Unknown (BMO Capital Markets): And then maybe just quickly, I know we mentioned the sulfuric acid, you're hedged, but can you let us know how much of it you actually do purchase in U.S. for your U.S. operations?
Kathleen (Executive): It varies, but we do purchase... Some acid in the U.S., we also have, of course, we have the smelter, which provides a base load of acid to our U.S. operations. We have the, we have actually a sulfur burner where we buy sulfur and convert that to acid at our Safford operation. And so it varies what we buy in terms of the amount of acid we buy. But we internally generate a big portion of what's needed in the U.S. And then, of course, in Spain, where we have a smelter, that's all sold externally. And then in Indonesia, we sell acid. And we'll be selling, as Grasberg ramps up, we'll be selling more acid because we will start to operate both smelters in Indonesia. So we're not long. In South America, we do buy acid. And as we said, we don't have a lot of exposure to the spot market at this point in time. But if this continues, we'll have to look at what it means for 2027.
Unknown (BMO Capital Markets): OK, thank you.
Tim the Tanners (Wells Fargo): Hey, good morning. Two questions for me. I wanted to follow up on the grass bird forecast. I know you talked about it being a timing issue, but I just noticed and it's small, but it does look like some of the revisions extend out to 2029. So just wanted some color there. And then pivoting to Peru, if I could, just would be interested in your thoughts on the upcoming political election given your presence at Cerro Verde? Thanks.
Kathleen (Executive): On the Glassburg, the real impact, the real significant impacts were in 26 and 27. We do have a small impact in 28 and 29, but those are really on the margin, there really wasn't any. We don't, we're not projecting any sort of issue related to this material handling issue as we get into those periods. That's just the normal forecasting updates and there's grounding, it's pretty close to where it was.
Tim the Tanners (Wells Fargo): Got it, okay. And then your thoughts on Peru, if I could?
Kathleen (Executive): Well, you know, politically we work with any administration. There's been, as you know, there have been many presidents in Peru in recent years. And so we're prepared to work with any administration that comes in. And we have a really good relationship, which is really important in Peru, with the local communities. We know we have to earn that every day, but that's really important at the local levels as well in Peru as we manage our risk there. Having that relationship and having the partnership that we have on water that we supply to Arequipa has been really positive for Cerro Verde. In terms of changes in administrations, we'll just continue to work, do the right things, and maintain those relationships.