Freeport-McMoRan Inc. 3Q 2026 Conference Call - FREEPORT-MCMORAN INC

Financial Performance:

• Consolidated net income increased over 80% year-over-year in Q3 2026 driven by operational execution and favorable metal prices.
• Operating income for U.S. mining operations more than doubled compared to Q3 2025.
• Net unit cash costs maintained at full-year 2026 guidance of $1.90 per pound, with molybdenum byproducts offsetting higher input costs.
• Energy costs, specifically diesel, increased by approximately $500 million in 2026 compared to 2025 due to global inflation and Middle East conflicts.
• Capital expenditures for 2026 estimated at $4.4 billion (2% increase), with 2027 guidance raised to $5.2 billion (40% increase from July estimate) due to equipment investments and inflation.
• Modeled EBITDA for 2027-2028 ranges from $12 billion at $5 copper to $19.5 billion at $7 copper; operating cash flows range from $9 billion to $15 billion respectively.
• Full-year 2026 capital expenditure includes ~$1.6 billion in discretionary spending, with $2 billion projected for 2027.

Guidance and Future Outlook:

• 2026 copper sales volume trimmed by ~2% to ~3 billion pounds due to weather impacts in the U.S. and Chile.
• 2027 copper sales volume guidance adjusted downward by 2.5% to reflect mine plan updates, though annual growth over 20% is still expected relative to 2026.
• 2028 copper sales volumes remain consistent with previous estimates; gold and molybdenum sales unchanged across the three-year outlook.
• Q4 2026 is projected to be the strongest quarter of the year with copper sales up 17% and gold sales nearly tripling from Q3 levels.
• Long-term aspiration: Become a 4.5 to 5 billion-pound copper producer by the 2030s.
• 2027 copper sales target of 3.7 billion pounds driven by Grassberg ramp-up and improved U.S. production; 2028 target exceeds 4 billion pounds.
• Investment decision on the $4.5 billion Baghdad expansion in Arizona expected in Q4 2026, with commissioning estimated 3.5 years post-approval.

Business Segments and Product Lines:

• Grassberg (Indonesia): Achieved 67% ramp-up of mine capacity in Q3; smelter restarted with both units operational. Targeting 80% rate by mid-2027 and full capacity by end of 2027; Block 1 South restart scheduled for mid-2027.
• Americas (U.S. & Chile): U.S. production impacted by extreme weather but mining rates improved; deploying ultra-class trucks and new remote operating centers. Chile's El Abra operating rates affected by mine sequencing; commissioning new facilities to enhance leach pad temperatures.
• Leaching Initiative: Developing next-generation (Gen 2) proprietary additives showing >4x incremental recoveries vs. initial additives in lab tests; field deployment scheduled for 2027. Targeting 300 million pounds of leach production in 2027, with aspirational 800 million pounds by 2030 if additives succeed.
• Baghdad Expansion: Proposed transformation into the second-largest copper mine in the U.S. (approx. 200-250 million pounds annual addition) utilizing autonomous trucks and economies of scale; project includes ~$4.5 billion capital cost.
• Molybdenum: Freeport is the world's largest molybdenum producer; primary expansion opportunities at Climax under review.

Market and Competitive Landscape:

• Copper identified as the "metal of electrification" with accelerating global demand from power grids, data centers, and EVs.
• LME copper prices averaged $6.09/lb YTD 2026, currently near $6.58/lb (+16% YTD); market conditions described as tight outside the U.S.
• Structural supply deficit expected globally, contrasting with Freeport's large, low-risk brownfield expansion portfolio.
• Industry-wide underinvestment and 15-20 year greenfield lead times favor Freeport's existing asset base and brownfield strategy.
• Inflationary pressures in capital and operating costs (diesel, sulfuric acid, labor) affect the broader mining sector, though Freeport is insulated from sulfuric acid price spikes due to integrated smelting.

Risks and Challenges:

• Operational Risks: Extreme weather events in the U.S. and dry weather conditions in Indonesia impacting water availability and mill rates.
• Geopolitical/Regulatory: Ongoing efforts to secure operating rights extension beyond 2041 in Indonesia under the MOU with the government; environmental impact studies in Chile for El Abra expansion.
• Cost Inflation: Escalating capital and operating costs, particularly diesel and labor, impacting margins; $500 million energy cost increase in 2026.
• Technical Uncertainty: Success of the new leaching additives is not guaranteed in field conditions before 2027; recovery rates at U.S. mines vary based on ore types.
• Idle Costs: Significant idle facility costs (~$240M in Q3) associated with Grassberg restoration are being reclassified from separate line items to unit costs starting 2027.

Management Commentary and Tone:

• Tone is highly confident and optimistic regarding the multi-year demand growth for copper and the company's strategic positioning.
• Management emphasizes the "set is set" narrative for growth, highlighting strong balance sheets, experienced teams, and a clear path to volume expansion without new capital for near-term growth.
• Leadership expresses strong excitement over proprietary leaching technology and the potential for a "major breakthrough" that could rival mill recoveries.
• Commitment to shareholder returns continues with a policy of distributing 50% of free cash flow, having returned nearly $1 billion YTD 2026 via buybacks and dividends.

Analyst Questions and Answers:

• Grassberg Cadence: Production ramp in 2027 expected to be higher in H2 than H1; Q1 2028 likely lowest.
• Idle Costs: Clarified that Grassberg restoration costs are accounting reclassifications and will remain in unit costs but will be diluted by higher volumes in 2027.
• U.S. Recovery Rates: Lower recovery rates linked to ore type and volume catch-up; new additives and higher temperatures expected to drive improvements in 2027.
• CapEx Guidance: 2027 increase primarily due to additional mining equipment (ultra-class trucks) and project inflation; $4.5B Baghdad cost estimate remains unchanged despite Arizona inflation.
• Additive Timeline: Commercial testing of Gen 2 additives starts in 2027; significant data on efficacy expected by 2028. Not currently included in forecasts but could drive upside beyond 300M lbs/2027 and 800M lbs/2030.
• M&A: M&A not excluded from base case but organic growth is the primary driver; readiness to act on opportunities like Fels Dodge is maintained.

Other Key Points:

• Peru (Cerro Verde): Demonstrating solid productivity with successful deployment of ultra-class trucks; serves as a model for U.S. efficiency.
• Baghdad Technology: First deployment of fully autonomous trucks at a Freeport mine to mitigate labor constraints and enable scaling.
• Safford/Lone Star: Future development options dependent on leaching success; capital intensity estimated at ~$35k/ton on a copper-equivalent basis, offset by low U.S. royalties.
• Financial Policy: Balance sheet remains investment grade; liquidity is robust to fund 2027 maturities and growth projects.
• Indonesia Government Relations: Government expressed support for operating extension beyond 2041; application formally submitted in June.