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Freeport-McMoRan Copper & Gold Inc. (FCX)

Q4 2009 Earnings Call

January 21, 2010 10:00 a.m. ET

Executives

Kathleen Quirk - EVP, CFO

Richard Adkerson - President and CEO

Jim Bob Moffett - Chairman

Red Conger

Dave Thornton

Mark Johnson

Analysts

David Gagliano - Credit Suisse

Mark Liinamaa - Morgan Stanley

Tony Rizzuto - Dahlman Rose

Sal Tharani - Goldman Sachs

Kuni Chen - Bank of America-Merrill Lynch

Jorge Beristain - Deutsche Bank

John Redstone - Desjardins

Paul Mathoud - Stifel Nicolaus

Brian MacArthur - UBS Securities

Charles Bradford - Affiliated New York

Dave Katz - JP Morgan

Brett Levy - Jeffries & Company

Presentation

Operator

Welcome to the Freeport-McMoRan Copper & Gold fourth quarter earnings conference call. (Operator Instructions). I would now like to turn the conference over to Ms. Kathleen Quirk, Executive Vice President and Chief Financial Officer.

Kathleen Quirk

Thank you and good morning everyone and welcome to the Freeport-McMoran Copper & Gold fourth quarter 2009 earnings conference call. Our press release was made earlier this morning and a copy of the release is available on our website at fcx.com.

Our conference call today is being broadcast live on the Internet. We have several slides to supplement our comments this morning and we’ll be referring to the slides during the call. The slides are accessible using the webcast link on our fcx.com website home page. In vision to analysts and investors the financial press has also been invited to listen to today's call and a replay will be available by accessing the webcast link on our Internet homepage later today.

Before we began today's comments, I'd like to remind everyone that today's press release and certain of our comments on this call include forward-looking statements. Please refer to the cautionary language included in our press release and slide presentation materials and to the risk factors described in our SEC filings.

On the call today is, Jim Bob Moffett, our Chairman of the Board; Richard Adkerson, President and Chief Executive Officer. We also have Red Conger with us today, Dave Thornton and Mark Johnson.

I'll briefly summarize our financial results and then turn the call over to Richard who will be referring to the slide materials on our website to discuss our operations and outlook. We'll then follow-up with questions.

Today FCX reported fourth quarter 2009 net income attributable to common stock of $971 million and $2.15 per share compared with the net loss of $13.9 billion or $36.78 per share for the fourth quarter of 2008. After adjusting for special items totaling $14 billion in the prior year quarter, our adjusted net income totaled $23 million or $0.06 a share for the fourth quarter of 2008. For the year ended 2009 we reported net income attributable to common stock of $2.5 billion $5.86 per share compare with the net loss of $11.3 billion were $29.72 per share for 2008.

Our fourth quarter copper sales of 989 million pounds were higher than our previous estimate of 915 million pounds as we gained access to higher grade material in the Grasberg mine, but they were lower than last year's fourth quarter 2008 sales of 1.2 billion pounds when we were mining in a relatively higher grade section at Grasberg.

Our gold sales for the fourth quarter of 2009 totaled 551,000 ounces, those again were higher than our estimate of 425,000 ounces and higher than last year's fourth quarter of 462,000 ounces. Molybdenum sales during the fourth quarter totaled 16 million pounds that was higher than last year's fourth of 12 million pounds in our prior estimates because of improved sales to Asia.

Our recorded copper prices during the fourth quarter of 2009 averaged $3.20 per pound that was more than double the average of the fourth quarter of 2008. And our realized gold prices averaged $1,115 per ounce during the quarter compared with $818 in the year ago period. We realized $13.45 per pound for molybdenum sales during the fourth quarter that compared to $24.55 in the fourth quarter of 2008.

I think you’ll see from our results that they reflect our continued strong operating performance and execution across all our operations. This is also shown in our unit net cash costs, net of byproduct credits, which averaged $0.62 per pound for the fourth quarter of 2009 significantly lower than last year's $4 per pound. We averaged $0.55 per pound for the year 2009 compared to $116 for 2008.

We generated strong cash flows during the quarter totaling $1.5 billion, for the year we generated $4.4 billion of operating cash flows and that was net of a $770 million reduction in cash flow for working capital uses. Our capital expenditures for the fourth quarter totaled $449 million that included a $200 million property acquisition that we made during the quarter that's adjacent to our Sierrita mine and our capital expenditures for the year totaled $1.6 billion.

We ended the year in a strong financial position. Our total debt approximated $6.3 billion at the end of the year. We had reduced debt during the year, total of $1 billion including just under $300 million in the fourth quarter. We ended the year with cash balance of $2.7 billion.

At the end of the year, we had 430 million common shares outstanding assuming conversion of our mandatory convertible preferred stock which automatically converts on May 1, 2010. We would have between 459 million and 477 million common shares outstanding depending on the applicable market price of FCX's common stock at the time of conversion.

Now I’d like to turn the call over to Richard who will be converging materials in our slide presentation.

Richard Adkerson

Good morning, everyone. In preparing for today’s call, last evening I went back and reread our conference call from a year-ago and it’s quite a start comparison. Two things really jumped out from comparing what we said last to what we are reporting to you today. First of all is, we set out an aggressive plan to deal with very low commodity prices during our call last year. And during 2009, we executed on that plan in remarkable fashion. Second thing of course is we have much higher prices of copper and molybdenum today and adding those things together resulted in what you’re seeing for the quarter fourth quarter and for the year 2009, is a very strong operating and financing performance.

The cash flows that we’ve generated have allowed us to strengthen our balance sheet, this gives us the enhanced financial and liquidity position that positions are company well to take advantage of what we believe is going to be a very positive long-term outlook for the commodity businesses that were in. Then in looking at 2009 we successfully started up our Tenke operations in the Democratic Republic of Congo. Even though we reduced our exploration spending during 2009, we were able to continue our long term experience of adding to our proved and probable mineral reserves and we have confidence that we’ll be able to continue that in the future even though we have high levels of current production.

While we curtailed high cost production at some of our mines, we maintained all of the future growth opportunities that we had in our portfolio going into the year. Because of the nature of the ownership rights of our ore bodies we didn’t lose anything by deferring and curtailing operations. While we had eliminated our dividend at the end of 2008 in response to the times we were moving in then we have now taken actions to restate our annual cash dividend to shareholders and when we look forward with the amount of cash that we generate, we look forward to an increasing ability with the current cash to shareholders.

Turning to slide four, the strong volume performance that we had during 2009, first of all can be attributable to the fact that we were mining during the year and the highest grade section that we have available to us in the Grasberg Open Pit mine. For those of you who have followed Freeport over the years, you know that our mine sequencing allow us to have access to this high grade ore from time-to-time to anywhere we are in the pit. And when we have access to that ore, by taking advantage when we can from a prudent standpoint in terms of maintaining the integrity of the mine and maintaining our long-term mine plans by accessing a limited amount of material we can add significant volumes to copper and gold and that’s what you saw happen to us in the fourth quarter and characterize 2009. Of course having the access to the high-grade gold volumes at Grasberg was very beneficial to us during these times of high gold prices.

But stepping back from Grasberg which we’ve always know would be our bedrock asset during times of low commodity prices, particularly proud of the performance by Red Conger’s team and by Dave Thornton’s team with them living in the business because we had very solid results of our mines in the Americas in these are mines because of their grades are challenged when the commodity prices are low, which you see by the results we setout an aggressive plan we achieved it. And then of course to have the successful start up at Tenke in a country that has such a challenges in terms of infrastructure development is a significant accomplishment.

We significantly reduced our cost structure and this was a challenge we faced and met. We revised our operating plans prior to mid third quarter of 2008, we have had a strategy of pushing incremental volumes, because get our margins on them when price is changed we starting scaling back those operation where we had high gross incremental volumes and that we were able to drive our cost down benefiting by lower input cost with Grasberg of course with its high gold grades proved our cost structure, but this aggressive cost management along with lower input cost allowed us to push our cost down by 26% before by product credit.

Kathleen went over our financial results that are summarized on slide five. We went into the year telling you we were projecting to have 3.9 billion pounds of copper sales, we exceeded that 4.1. Our copper price a year ago was in the $1.40 range, we averaged $2.60 for the year $3.20 in the fourth quarter that generated a lot of cash for us with our reduced cost structure.

And then at Grasberg we went into the year with an outlook of 2.2 million ounces of gold sales, we produced 400,000 ounces more than that because of our ability of access high grade gold and this is gold that was there. It would have been on our future plans, but by following our philosophy of trying to move forward metal when we can safely do so, we were able to have the kind of year that we have and this has been the characterization of the Grasberg mine ever since we started mining in the early 1990s. That resulted in the very strong financial performance that we are reporting to you today.

In the fourth quarter, slide six shows that our company wide cash cost net of byproduct credits was a very positive $0.62 a pound, you can see that at Grasberg our gold revenues more than offset our total cost of operations so that we had a negative cost on a unit basis of $0.67 a pound, but very strong performance in North America and South America. And then the chart at the bottom of page six shows how our sales are distributed between North America, South America and Indonesia where we have the geographical diversification that the Phelps Dodge transaction brought to us. This was a record quarter in terms of unit cost performance for Grasberg came at a very positive time for us.

Our reserve situation is presented on page seven. As I said, we took advantage this year of what a core-hole drilling and exploration work that we had done during 2007 and 2008 with less core drilling this year, but with the information that we had we were able to replace 150% of our copper production, three times our molybdenum production and you can see that when you look at proforma of our company over a 10 year basis, we’ve had a long history of being able to add reserves through extensions of our existing ore bodies and through our exploration program and this is going to be a key objective and one that we have a lot of confidence and been able to continue in the future.

Our reserves by area are shown on page eight. We have significant reserves in all areas of the world that we operate in North America, South America, Africa and Indonesia and the ability to add reserves in each of those areas. We will continue to work to do that.

Page nine shows that $1.60 copper which we use this year for our proved and probable reserve analysis we have over 100 billion pounds of recoverable payable copper in our properties. In those properties based on drilling an exploration analysis that we done to date, we have an incremental 100 billion pounds of in-place copper that’s not yet defined and qualified to be proved and probable reserves, but at $2 copper we have that material that gives us the chance to work over time to take the steps that are necessary to define those as proved and probable reserve and the end to develop.

Cash flow generating projects out of those that’s within our existing set of assets and what’s really points to such a favorable position for our company going forward. We don’t have to acquire properties or acquire companies to give ourselves a growth profile in the future.

Besides our strong operating performance of course the thing that is positive from 2009 has been the strong performance of copper in the market place going from lows in late 2008 to early 2009 the price has now risen to where it is today of roughly $3.40 which is a price that was not expected by any consensus outlook going into this year. Lot of uncertainties in the world, but the strength in China because of the growth of its internal economy, the spending that China has done in its infrastructure development and stimulus programs, renewed investor interest in copper has resulted in a strong pricing as we’re just seeing the reports that are coming out currently on Chinese economic growth in the fourth quarter.

Their economy continues to do very well and the beginning of seeing positive signs in economic data in the U.S. is encouraging for the outlook for copper although we recognized that there is risk in the market place and we are going to run our business to manage the possibility of lower prices while positioning our self to take advantage of what we believe going to be a very, very positive view of copper in the long run.

Molybdenum had a recovery from its lows of about $8 a pound during this spring of 2009, there was a spike in mid-year and prices dropped and went to $18 to approximately $11 and now molybdenum prices are moving back up to $15 and we’re the world largest producer of this strategic metal and it’s very positive future of our company. Of course gold prices continue to reflect the attractiveness of gold during economic times and time of weak dollar.

As we look forward into 2010, we are positioned to continue our strong operating performance. We are looking to have copper sales of 3.8 billon pounds a bit lower then this year, because of mine sequencing at Grasberg, principally the effects of curtailed operations in North America. The Grasberg sequencing leads us and the fact that we access gold earlier in 2009 to a gold sales outlook of 1.8 million ounces with 16 million pounds of Molybdenum, that would result on a modeled basis in a unit net cash cost of an attractive $0.86 a pound with prices of gold at $1100 an ounce and molybdenum $12 a pound. That model results would generate a $5.3 billion of operating cash flows $3.25 copper and we have a revised capital expenditure outlook of $1.7 billion.

Because of the positive market situations, we are taking some steps not to go back to the kind of expenditure strategy that we had in 2007, 2008, but we are taking some steps to move forward on some projects that we had temporarily deferred during 2009, that includes restart of mining into historical Miami globe district here in Arizona where we’re spending money on reclamation activities we are now going forward to begin producing some copper from those operations, this is a project that we had planned earlier.

At Morenci we had suspended the concentrator mill as part of our plans last year. We are mining sulfide ore, which is available to feed that mill as part of our operations there, so we are planning to restart that mill or we’re taking steps to restart that mill now, which will enhance our profitability at Morenci. In Chile we had deferred for a year, project at our El Abra mine to begin mining a large sulfide mineral deposit, which was available to us as we deplete the current oxide pit. This project extends mine life, continues El Abra as a major mine with significant volumes going forward. We have now restarted that project and we are continuing study other expansion opportunities at El Abra with our partner CODELCO.

In Peru at Cerro Verde we are taking a step now to incrementally increase its mill rate based on existing mining and mill facility configuration, this will be a very positive incremental addition, a very large reserve base which is growing at Cerro Verde continues to gives us an opportunity to study and we are engaged in those studies now to look at a large scale expansion at that project where we have a [quick] ground in the ability to expand, and we will be reporting to you on that.

At Grasberg operations in Indonesia, we have continued during 2009 and forward the development of our very large underground projects to develop the reserves that are there these are 40 billion pounds plus of copper, 35 million ounces of gold enormous reverse with very large life we’ve continued to develop the access to the reserves that directly underlie the existing pit, which will be available to us as the pit depletes, which is currently scheduled for 2015. We’re continuing to study exactly how we will mine the Grasberg as we approach depletion of the pit.

Our DOZ mine, which is an adjacent ore body in a continuation of Block A mining that we began there during the early 1980s is now up to a sustained rate of 80,000 tons per day world class in every respect and very profitable. We continue the development of the small high grade Big Gossan mine and we will start production late this year ramping that up to provide profitable volumes there. We’re continuing to study the extension of the DOZ mine at depth what we call the Deep MLZ mine. So Grasberg continues to produce well currently and to provide a great future for our company.

In Africa at the Tenke Fungurume mine we completed construction activities during the first half of the year. We have now achieved design production rates on copper. We are dealing with startup issues on the cobalt circuit and with logistical issues associated with getting product to market at [fall] rates this initial phase will have aggregate annual metal of 250 million pounds a year and 18 million pounds of cobalt although we may expect to produce higher levels of cobalt during the initial years. We continue to explore this large 600 square mile plus concession we’ve added reserves this year, we will continue to add reserves as we go forward. We have initiated in the fourth quarter of ’09 a second phase to that project which is an optimization of the current plan and initially we are looking at potentially increasing current capacity by 50%.

As I mentioned, we had reduced our exploration spending in 2009 as part of our cost containment project we are increasing it to the $100 million level in 2010 and we will be looking at all of our major mineral districts in the regions around the world and expect that to continue to be positive in terms of adding reserves in future development project.

The sales profile for looking forward 2010, 2011 as shown on page 17 you see the goal chart in the upper right shows the impact of sequencing at Grasberg where we were in the low grade section in 2008 moving to the high grade section in 2009 and then we will be sequencing the lower grades early in 2010 returning the higher grades by the end of the year. We are currently looking at 3.8 billion pounds of copper consolidated worldwide for 2010 and 2011. This impact of sequencing at Grasberg is really shown on page 18 where we show you our quarterly outlook for copper and gold sales.

Our sales are going to be back-end loaded this year because of Grasberg sequencing both for copper and particularly for gold where substantially all of our gold comes out of Grasberg. You can see mid-year will be down to lower grade sections retiring the higher-grade sections by 2010. These are grades that are shown to be there by our exploration and our reserve model over time our reserve model at Grasberg, which is supported by thousands of core holes and exploration analysis has historically shown to be very accurate over time and giving us guidance as to where we are going to go. So it's not a question of having a mine with diminishing grades, it's just when we can physically access the higher grades.

Our sales by region for 2009, 2010 are shown on page 19. Essentially we have our copper sales shared by North America, South America, and Indonesia and molybdenum comes out of North America and the gold comes out Grasberg. Production costs for the year are shown on page 20; 2009 experience shown earlier year ago, we had a plan to show that we would work to achieve unit cost at $0.71 a pound for the year our actual experience with a higher volumes Grasberg and higher gold prices has resulted in $0.55, but the performance at North America, South America were both consistent with the plan that we had set out at the beginning of the year.

As we look forward to 2010, some of our input costs like copper cost have resin and we will have an impact on our cost performance. The lowered volumes at Grasberg will have an impact, but when you added all up, we end up with a very attractive, consolidated cost picture going forward particularly in relation to our copper market today where we have $3.40 for copper. The reconciliation of 2009 and 2010 are shown on page 21 showing the impact of Grasberg principally because of its lower volumes.

The nature of our side operating cost are shown on page 22 where you can see that energy is roughly 20% of our cost, manpower and materials are about a third each. When you add all this together and look at varying copper prices are projected or modeled cash flows and cash earnings are presented on page 23. When you look at a range of copper from $2.50 to $3.50 you see that our EBITDA could range from just under $6 billion to just under $10 billion over that price range at $3 copper we would have roughly $5 billion of operating cash flows, which excludes working capital changes, but it is net of cash taxes and cash interest.

So very strong outlook at these prices for cash generation and the sensitivities to commodity prices and certain input costs are shown on page 24 for your information. Capital spending dropped off significantly in 2010, as we deferred projects on 2009, 2010 we've increased our outlook for capital spending because of the projects I mentioned earlier by about $300 million and we'll continually review that as we study the market and study our growth opportunities.

Balance sheet is very strong for our company and it's growing stronger. Page 26 shows where we are in March 2007 (Inaudible) deal with over $17.5 billion of debt. We reduced that during 2007, 2008 by about $10 billion and today we have gross debt of $6.3 billion and cash of $2.7 billion. So very strong situation in terms of total debt, but particularly with our debt maturities schedule which is outlined on page 27, we have a very small amounts of debt that are maturing until 2015 and we're looking at opportunities now to use some of our cash to opportunistically reduce that debt in 2015 and after.

Financial policy is to focus on having a strong balance sheet and liquidity position. We made great progress this year in managing cost and we believe that we weren’t alike during this year that will allow us to sustain effective cost management as we go forward. We will invest in attractive gold projects as economic conditions warrant. As I mentioned, we're going to look for ways to reduce our debt on an economic basis. Board has restated the dividend and with this kind of cash generation capacity we're going to have the opportunity to discuss with our Board the opportunity to return cash to shareholders as we look forward in the future.

So, we are real pleased with our teams performance this year, encouraged by were the market is today, but as we’ve mentioned a year ago even in the face of very low prices we continue to be very optimistic about the future of copper. The industry is supported by supply challenges first of all challenges from ageing mines, the inability of the industry to fund new projects of the quality that historical projects have been. When you look at the fundamental requirements the world has for copper in the developing economies and in the developed world, as those economies recover and the physical nature of copper or its commodity that's difficult to substitute for its basic uses we have a very positive outlook for copper over the longer term and we're very pleased about where our company is positioned to take advantage of that market place.

So with that operator, we'd like to open the line for questions.

Question-and-Answer Session

Operator

(Operator Instructions). Our first question comes from the line of David Gagliano with Credit Suisse.

David Gagliano - Credit Suisse

Hi, my question is regarding actually the logic by the restarts at various projects. It sounded to me like in terms of your comments, Richard, and also in the press release that improving market conditions were the reason behind the restarts. So my question is, is that primarily a copper price driven improvement or an underlying demand driven improvement and if it is demand driven, if you could just give us the main areas of demand improvement that you're seeing?

Richard Adkerson

First of all these are relatively modest steps in the overall picture. We’re doing something that we can do that have some short-term incremental benefits and we're deferring those major projects, we continue to defer the major projects that will require very large amounts of capital and require confidence about the long term demand situation. So the fact that the copper prices high makes these projects or higher than it was year ago gives these projects very, very high rates of returns and very quick pay backs.

And so in this environment it didn't take a lot of analysis to say you want to go ahead and do these and in $1.40 copper environment we didn’t, but just the current copper price to answer your question drove these decisions. Your second question about fundamental demand, we’re seeing some more positive numbers about the economy in the U.S. and Western Europe and Japan, but still there is great uncertainties about that and so before we undertake the expenditures of the very large amounts of capital and the longer return characteristics of big projects would involve, we're not today starting to invest in those types of projects.

Operator

Our next question comes from the line of Mark Liinamaa with Morgan Stanley.

Mark Liinamaa - Morgan Stanley

Richard, with regard to your comments on the potential for expansion at Tenke, can you comment a little more, does your study include expansion of infrastructure for shipping is it covered under the existing agreement you have with the government and further in Africa would you consider other opportunities to grow production in that region other than drawing the Tenke property itself.

Richard Adkerson

First of all this is more in the nature of an incremental improvement of our initial project. So it would be optimizing what we have now it would involve shipping on the same basis that we're currently shipping product and that's by truck to South Africa to get to marketplace. Longer range to develop this project to what we believe will be its ultimate potential will require other infrastructure to allow rail shipment and access to different ports, but this an optimization of the existing project.

Our contract with the government covers this and our longer term projects, we are continuing our discussions with the government in its contract review process. We’re continuing with positive discussions with those, those discussions have not yet been concluded. But we want to note that we do have a contact, which does cover this potential project as well as future expansion projects is like that [Montai] contracts. So we are currently focused on this optimization project or work in Africa is focused on Tenke Fungurume because of its size and potential growth opportunities, we have a expiration projects that’s nearby there, that is a separate contract situation, but for the present time we are focused on Tenke Fungurume because of its size and its potential growth opportunities.

Mark Liinamaa - Morgan Stanley

With the number of companies that are there, are there any moves to get together some sort of consortium to expand infrastructures at the region to live up to its promise. Thanks that will be from me.

Richard Adkerson

Over time we have worked with other companies on infrastructure development. For example on the national road that goes from [Quasi] down to the border, we have worked cooperatively with companies over now. The situation of other companies changed dramatically during late 2008, when the prices of copper, molybdenum and cobalt dropped so much, so at different times we’ve had consortiums and we are now studying together with other companies that future of rail access there and we will work cooperative with other companies, but our projects is such a size that you know we are driven by what make sense for us.

Operator

Your next question comes from the line of Tony Rizzuto with Dahlman Rose.

Tony Rizzuto - Dahlman Rose

I have got a question here on Cerro Verde and when I visited Cerro Verde last year, you certainly have tremendous capacities in terms of water availability, the resource itself et cetera and the electricity of availability in the region. What besides the market being on a more stable footing, where would that sit in terms of your packing order Richard and Jim, Bob as you see it, as you look forward in terms of the growth plans for the company?

Richard Adkerson

Because of all the reason you said is at the top of the list and we have this chance you know to spend a relatively small amount of capital. They are too optimized what we have, but in terms of a major growth project for the very reasons you’ve said, it’s really at the top of our list.

Tony Rizzuto - Dahlman Rose

And what would cause you to attack more quickly on this. Is the matter of the economy just being on sounder footing?

Richard Adkerson

Exactly. As soon as some of the current uncertainties related to the economy in the U.S. and the western world are resolved and we can see that the world globally requires that copper than we are going to be prepared to go forward. We are as we speak, engaged in studies at assessing the size of that expansion exactly how we would approach it. We are looking at capital cost estimates there has been a huge fluctuation over time and the cost of construction, but we are studying that right now so that when we gain the confidence that these economic uncertainties facing the western world are resolved and you will see us going forward at Cerro Verde because it’s a great resource, got the great footprint and the great access to all the things that you need to justify expansion.

James Moffett

Tony as you recall, our comments have been on progressive basis, as we drill this additional core holes and continue to reanalyze the old core holes that have been drilled in the past, I think long time before in all of our properties was been whole lot of production, the ore that had been oxidized by natural weathering and that ore goes to be late leached. The big (Inaudible) that have to be milled and then smelted are all in place and so that Cerro Verde, as Richard just said and you pointed too is a great opportunity for us. We have just about everyone of our major ore bodies, we have this huge sulfide ore that has not been expanded and those projects will all be on our watch list as we see the demand for copper and we see the depletion of other mine.

Tony Rizzuto - Dahlman Rose

Thank you, Jim Bob. We applied your discipline that you guys are showing in the market place. Thank you.

Operator

Your next question comes from the line of Sal Tharani with Goldman Sachs.

Sal Tharani - Goldman Sachs

Just wanted to understand the use of cash flow you certainly will have a strong flow as you have projected the CapEx numbers you have given and absent that you are not going to purchasing any large properties looks like there will be a opportunity to do something, you have mentioned buying back little bit better opportunities based with that. Have you any other ways of turning cash flow to the shareholders in the terms of share buy back or additional dividends?

Richard Adkerson

Exactly. I mean we are going to first look for the opportunity to reduce debt. And we have some opportunities that we are analyzing right now to do that then as the market goes forward we’ll be assessing when is the time to invest in new projects, we just referred to and other than that we are going to have the opportunity to look at both the increased dividends and share buybacks.

Sal Tharani - Goldman Sachs

Okay. So that will be you sort of --

Richard Adkerson

And of course you can look at our long-standing track record of the Freeport-McMoRan Board and companies to see that that’s been not just something we say we do, but we have a track record of doing that over a long period of time.

Sal Tharani - Goldman Sachs

The last question is on the demand side, you made some comments earlier, but we are also seeing while you are bringing capacity of that we are seeing some build up in inventory and some concerns about China trying to slow the economy over there, is that concerning to you or have you putting that in your projection of expansion?

Richard Adkerson

Well, obviously, I mean the key to it is really the restoration of economic of operating economy in the U.S. and the west. Concerns about China have been things that have been expressed since China merged in 2003 and a year ago there was a lot of skepticism about China because of the impact of the global recession, the potential impact of the global recession on its export economy and there was talk about its property values being over inflated and yet we’ve seen China have this remarkable economic performance during 2009. When you talk about inventories, exchange stocks have risen during the second half of 2009 as a consequence of weak demand in the U.S. and Europe and yet, when we talk with our customers in the U.S. and in Europe their inventories are very low.

And when you look at exchange stocks in relation to an expanded market because of China, the relative amount of stock on exchanges is as much lower today than it was for example in 2001 when we had the last recession. The markets are going to be what the markets are going to be, we run our business to be responsive to the near-term conditions, but we really focus on what’s the opportunities available to us long run. Last year we didn’t want to get into corner because of liquidity issues we structured our business that would have avoided that if we have to live through a year of low prices, we fortunately didn’t have to do that, we made a lot of money that allowed us to take steps to improve our financial situation and our liquidity.

So we’re very well positioned going forward and I think a real key when you look back at last year questions was, which I heard a lot at the time of the Phelps Dodge-Freeport deal can the new Freeport manage low commodity prices? We had developed plans to show that we could, now we’ve executed those plans and demonstrated that we could and we’re positioned to do extraordinarily well in a positive commodity price environment.

Operator

Your next question comes from the line of Kuni Chen with Bank of America-Merrill Lynch.

Kuni Chen - Bank of America-Merrill Lynch

I guess just first off, obviously the mix issue is pretty clear for the year ahead and what that does to your cost mix as well. If we just focus on the site production costs, particularly for North America, the outlook for 2010 has cost up relatively higher versus the other regions, if you compare the 2010 outlook versus your cost performance in the fourth quarter. Can you just speak to what’s driving that in North America?

Richard Adkerson

Yes, it’s input cost. I mean compared with where we are? North America has really operated extraordinarily well with the plan we set out last year and that was when we faced our big challenges. Kuni, you remember that in the third quarter of 2008 Morenci’s cost where we have no by-product credits at all was at $2 and that was our flagship mine. And now we’ve taken steps through effectively managing our workforce, effectively managing our equipment utilization to drive the cost of Morenci down towards it’s a very, very profit operation today.

So what you’re seeing is a continuation of operating using these cost containment approaches that we did and then having the input a year-ago sulfuric acid was free. I mean we had a few shipments of sulfuric acid where people deliver it to us and we just took it without paying for it. Well, today sulfuric acid prices are up a bit, of course energy prices are higher and those are the things that you are seeing.

Kathleen Quirk

This is Kathleen. We also passed some lower volumes in some of our concentrating operations, which ends up bringing up their unit cost because of the fixed nature of the cost structure there.

Kuni Chen - Bank of America-Merrill Lynch

And then just a follow-up also on North America. Can you just talk a bit about the Twin Buttes purchase, kind of flush out some more on your plans for those resources and how that adds value and what kind of returns that you’ll look for there over time?

Richard Adkerson

Twin Buttes is a property that’s immediately adjacent to Sierrita and yet over time it was operated as part of the Sierrita operations under contractual relationships. It is a property that for years organization has recognized should be part of Sierrita, but this was the first time we really had the opportunity to close the deal. It has some copper resources that we’re going to study about how to develop and then the alternatives are to develop that on a standalone basis or to develop it as part of the Sierrita operations.

And we’re looking at those alternatives what it also gives us is some important material that we can use in managing the tailings of Sierrita which absent that would have been much more costly. So spending $200 million to acquire this resource, a lot of that’s going to be recaptured if we never access the resources that are there. We believe we will, because we think the copper markets will justify developing the copper resources that are there here on a standalone basis as part of the Sierrita operations. But even if that weren’t to happen this is a strategic acquisition that makes sense just in terms of the long-term management of the tailings at Sierrita. So we're very pleased that finally stars and moons are aligned to allow us and the previous owner to come together and allow us to make that acquisition.

Operator

Your next question comes from the line of Jorge Beristain with Deutsche Bank.

Jorge Beristain - Deutsche Bank

My question will just begin to holding on the dividend policy you made it very clear that the Board in your presentation has authorized a $0.60 common dividend for the year, but I wanted to understand the mechanics if this is set on a rolling quarterly basis in other words if by two or three Q in this year you decide to take your dividend to $0.25 in this quarter would that then imply an annualized dividend policy of $1 if that’s how we should interpret it or should we interpret as you said that your first order of priority is pay down some debt then funds some more growth and a dividend policy review will be more in the second half of the year. And my follow-up questions for that is, what further improvements would you want to see in the balance sheet to trigger potential dividend of policy review?

Richard Adkerson

Jorge, all these things are not mutually exclusive. In other words we're pleased that we have an investment grade credit rating from S&P and Fitch we're one step below that with Moody's and we have the debt obligations that are there. So to the extent we have cash and we can retire that debt it makes sense for us as a company to do it. We're not a company that’s facing refinancing obligations that you have to do that. It something that’s part of a long-term financial strategy and as part of that long-term financial strategy we want to invest during the time when it makes sense to invest and as we look forward when you make these major investments that we were talking about in terms of a new mills at Cerro Verde and new mills at Morenci and potentially Sierrita and idea of continue expansion at Tenke and what opportunities might come to us at Grasberg or in our expiration areas that we don’t know about, we'll look at the best way to finance those. We want to have an appropriative amount of leverage within our company and so its an interactive process of looking at how these things fit together and then as we generate this excess cash and review our investment opportunities we will talk with our Board if the Board does decide to increase the regular dividend, which we did as recently as mid 2008 that would set a new dividend policy for some period of time going forward. Historically we have bought stock back when we had excess cash or Freeport paid special one-time dividends, in fact we had policies of doing that regularly over time. So all those things are available to us and I think you can look at our history and get a sense of what our philosophy is and look at the market conditions and get a sense of where the Board might go, but ultimately it is a decision that our Board will make and we review that with them at every meeting we have.

Operator

Our next question comes from the line of John Redstone with Desjardins.

John Redstone - Desjardins

I wondered if you could give us an update on the Climax Molybdenum project?

Richard Adkerson

Well, that project is one of the projects that we deferred we were in the midst of construction it is an extraordinarily good project, it’s just exactly what a mining company wants to have. It's a project that has long live reserves very attractive cost structure and a reasonable capital cost. When the Molybdenum market changed and its small market place and we’re the largest producer, we have this byproduct molybdenum that's going to come regardless of what the prices. We have the ability of flex our Henderson mine, which is our standalone Molybdenum mine, the underground mine that's in Colorado, it made since to defer that projects. So we're continuing to do some work there to complete the project basically requires two summers, this project is located at 10,000 feet on the continental divide and do construction during the spring summer fall months. So, we have it available, we have a lot of the equipment that’s onsite, we pulled the trigger 18 months later we can start producing 30 million pounds of molybdenum a year with opportunity grow that significantly at a very attractive cost structure $4 a pound. So, it’s there we look at that continually, Dave Thornton and his team reviews overall marketplace and I can tell you that to win the market needs that molybdenum, this project is coming I mean it’s going to be there.

John Redstone - Desjardins

Okay, but just be absolutely clear than your projection for 65 million pounds in 2011 doesn’t include anything from Climax?

Richard Adkerson

No, it does not. And we will report to you, as we do on all things we’ll be very transparent about where we stand with our decision to go forward.

Operator

Our next question comes from the line of Paul Mathoud with Stifel Nicolaus.

Paul Mathoud - Stifel Nicolaus

My question about your ability at Grasberg in particular to accelerate copper and gold production compared to the plans that you put out, I mean if continue to see gold price for example stay high, would you be able to sort of follow through as we saw in 2009, pull some production forward?

Richard Adkerson

Not to the extent that we had in 2009 and I’ll just refer you to our supplemental slides that are on our website that shows our sequencing and I think that will clearly indicate why we had this opportunity during 2009 to grab some additional high-grade material and we are always on the lookout, Mark Johnson working with our team there at Grasberg for those opportunities to do that when we can maintain the geotechnical integrity of the pit and where we can do so in a way that doesn’t disrupt our long-term mine plans, over time we’ll continue to do that, but in 2009 when we were in the very highest grade section we could do that and as I said, accessing a relatively small amount of material because of the very high grades allows you to get more metal. Now as in 2010 as we move to the higher elevations of the Grasberg you don’t have that same kind of opportunity, we will continue to do that, but it wont have the same impact now by the end of 2010 we’ll be back in higher grade material, you could see that with our fourth quarter projections and you know our team will continue to look for opportunity to do that. Mark is there anything you want to?

Mark Johnson

Yeah, Richard, like you said, in 2009 we accelerated about 1.5 million tons at (Inaudible) and as Richard said that was very impassive. We will continue to look in 2010, 80s to be our source for the high grade. We feel we have an appropriate plan for our mine grade in 80s. And as Richard said, we also have to keep in mind striping phases both nine north, nine south and we look at where we are relative to that in our stripping and our ability to accelerate mine grades in 80s. And like Richard said, it would be in the fourth quarter if we had an opportunity to really access on impassive tons.

Richard Adkerson

And put 1.5 million tons of material in contacts on an average day we are mining over 700,000 tons of waste and ore at the Grasberg. So, 700,000 tons to 1.5 million tons have that kind of impact on metal.

Paul Mathoud - Stifel Nicolaus

And I guess…

Richard Adkerson

Fabulous ore volume.

Paul Mathoud - Stifel Nicolaus

I guess as a follow-up to some of the commentary that you made on costs, you said the past that you try not to engage in any hedging of production, I was curious of there was any input costs or currency hedging that you might have engaged in 2010 costs?

Richard Adkerson

No, there is not. No, we look at the correlation between our input cost and the copper price and because we have fixed costs, our equipment fleet our personnel complement, the infrastructure support, but when we look at the variable input cost like fuel, they are correlated to the copper price, so when copper price goes up typically fuel prices and some other input costs, steel cost and so forth go up and our philosophy is that correlation is such that we don’t look at hedging cost.

Operator

Our next question comes from the line of Brian MacArthur with UBS Securities.

Brian MacArthur - UBS Securities

I have a couple of questions. Just quickly in South America you’ve comment about productions down year-over-year mostly due to El Abra, but if I look at this, it looks like Cerro Verde should be up to sort of some of the year of that expansion. So looks like El Abra is down a bit of 100 million pounds a year. Is that kind of right in a way I should think about El Abra 250 going forward until the new expansion comes in?

Richard Adkerson

First of all the benefits at Cerro Verde are principally very late in the year in 2011. So we’re not going to see much of an impact during 2010 from that and at El Abra, Brian you recall we were going to start on the Sulfolix project in 2009 and we deferred a year. And what we’re facing there is a depletion of the availability of the oxide ore, so there is a drop of oxide ore that’s just inevitable and that will ultimately replace by the sulfide ore, but we deferred it year so you are seeing the impact of those two things coming together. And then we have great changes in Candelaria that are plus or minus. But that’s the big thing is the decision that we made to defer Sulfolix a year has an impact on our volumes at El Abra.

Brian MacArthur - UBS Securities

Okay. My second question is kind of on the same line that North America which I kind of talked about earlier, but again we have sales down year-over-year, but perusing the royalties coming back up, is there something going on an easy, other operations are they just great or down a 100 pounds there with a little bump back or they just an inventory issue sales versus production?

Richard Adkerson

Well, there is a couple of things going on here as always there is different deals, but the fact that we curtail mining rates at Morenci has an impact that a tail impact, in other words we benefited during 2009 because of mining rates at high levels in 2008 and earlier years, because you’re putting material on the leach pads and it takes time to draw that copper off the leach pads. And so the consequence of cutting back on the mining rate putting less material on the leach pads is going to be an effect, we’re going to see for several years going forward. And that means even if we were to say at Morenci which we’re not, but if we would to say we’re going to restore mine rates to over 1 million tons a year, million tons a day you wouldn’t see the impact on copper production overtime, because it would take time lag in getting the copper out of leach pads and that’s just a fundamental difference in concentrating operations and leaching operations. So you have that, we also have some grade issues at Sierrita that’s affecting us and so the combination is Safford, Morenci, grade issues at Sierrita, which is up and down that’s what ends up with variations to see.

Kathleen Quirk

And Brian in terms of Morenci’s productions, we’re bringing back the milling operations, but in terms of the mining rate which is what we cut so much in early 2009, we’re still operating at roughly 500,000 tons a day. And at one point we’re operated as Rich has said it over million tons a day. So we’re still looking at scenarios from Morenci in terms of the mine rates, but right now we’re still operating at curtailed rates.

Brian MacArthur - UBS Securities

Okay, that’s very helpful. And just on Sierrita with a grade going large, is that on the Moly side too and that’s kind of why you see Moly go up, but maybe not much of that’s going back to 80% at Henderson as Sierrita the Moly is coming down too?

Richard Adkerson

It’s a little bit, it’s not a major factor.

Brian MacArthur - UBS Securities

Okay. My final question is something totally unrelated, but with gold continuing to do well, what’s the update of (Inaudible), I mean you probably got 5 million ounces there which versus lot of other publicly traded companies right now that’s ahead of what they have in the gold sector, is there any update on that or where is that stand now?

Richard Adkerson

Well, actually as we’ve evaluated (Inaudible) and access issues and the cost issues are developing it’s not a project that makes sense for us. It may make sense for someone else overtime but in terms of the issues associated with access the amount of resources that we've been able to identify the nature of processing that would be required and so forth it's not a project that we're planning on going forward with.

Operator

Your next question comes from the line of Charles Bradford with Affiliated New York.

Charles Bradford - Affiliated New York

Just a question on the $54 million litigation that you mentioned as ongoing litigation, what does this entail?

Richard Adkerson

This had to do with an issue that we disclose and extensively in our financial statements as part of the acquisition of Phelps Dodge we stepped into a number of historical situations that had legal exposure. This has to do with the fact that Phelps Dodge represented an amalgamation of its historical operations in about 1800s Cyprus Minerals MX and across the country there were operation, some of which have not operated for 50 or 75 years which had historical environmental clean up issues that had to do with operations that occurred at times when people weren’t aware of the environmental impacts or there were no regulations. And this was a settlement of one of those situations it is part of our ongoing cost we have a significant amounts reserved for other cost with projects that we deal with and its important part of our business and what we look at over just part of the cost that we incurred in terms of putting these companies together and realizing all these great things we're realizing result of it.

Charles Bradford - Affiliated New York

Is there anything else you can tell us about the negotiations in the Congo?

Richard Adkerson

Well, there’s not really much to report other than we are having positive discussions as we speak and we are listening to concerns that the government is expressing and working to be responsive towards, we are continue to discuss with the government the benefits that our project has for the country that region the work force and the population in general and the tremendous opportunity that we and the country together have to expand this to be a world class operation. And what we think we'll hopefully mutually work towards is to reach a basis for us to approach the expansion opportunities that we have in the partnership fashion that we can go forward and its clearly the country that has its challenges economically and politically and socially and rush just for the resources, but we're committed to working together in a positive fashion to reach a mutually agreeable way to go forward.

Operator

Our next question comes from the line of (Inaudible) [Barry Independent Research].

Unidentified Analyst

Congratulations on the spectacular performance of the share as past year. Couple of specific questions on how much is Safford’s slated to produce next year and as the asset plant moving forward at Safford and for the underground projects in Indonesia what were the tons per day throughput at Big Gossan in 2013 and it’s a mid level zone beneath DOZ.

Kathleen Quirk

[John], the Safford numbers for 2010 are roughly 130 to 140 million pounds. In terms of the underground ramp up Big Gossan is going to ramp up to 7000 tons a day you remember this is a relatively small, but very high grade mine, where we've got the Deep MLZ project which Mark can talk more about that we're targeting getting to 80,000 tons a day eventually with that underground mine as you know we’re at 80,000 tons a day currently at DOZ and then our deep Grasberg block cave mine, which we’ve been advancing is targeting to get 150,000 tons a day.

Unidentified Analyst

The MLZ 80,000 is within the DOZ?

Richard Adkerson

It's an extension of the DOZ, at depth and laterally.

Unidentified Analyst

But the volume is part of the 80,000 tons or is it 80,000 further tons?

Unidentified Company representative

DOZ start ramping down in 2015 and 2016 and at that time what we bringing up the deep MLZ which is its approximately 500 meters below the DOZ and we’ll start ramping up the deep MLZ just as the deep MLZ, just as the DOZ is to depleting and it will be a similarly sized mine, the deep MLZ we have some very good grades in the early parts of the early sections in the deep MLZ that are going to be very impactive for our metal production during that that period when the Grasberg pit is depleted we’ll also be bringing up the Grasberg block cave during that same time and that will be our long term both those mines will be our main stage long-term post pit.

Richard Adkerson

And John you’ve been around looking it is long enough to remember that strategic challenge that we face one time of how to fill up our mill wants to pit to fleet it and I mean for several years as it was looking like 100, 120,000 tons per day now we’ve just shown you that we have proved in probable reserves and a mine plan that allows us to be 240,000 tons a day and we’re continuing to drill that resource and the drilling data that we got may will change our plans to enhance that so as I said before Grasberg such a grade ore body that now we’re looking at even without the pit having this to be just a fabulous ore body in terms of throughput volumes and cost structure and long reserve life. So that’s a great story. We are continuing to study the sulfur burner at Safford we deferred we institute those studies we expect to complete those and reach the decision later this year the sulfur burner would allow us to increase Safford’s production it is ore body that quite lot of sulfur and that’s what leading us to do the study, but we haven’t approved it yet, it’s not in the capital yet.

Operator

Our next question comes from the line of [Daniel Arora] with Morningstar.

Unidentified Analyst

Thanks for taking my question, excluding bi product credit consolidating cost were up $0.10 sequentially in the quarter. Could you give us a sense of how much of that increase was attributable to rising material of energy prices as opposed to other factors like say, ore grade changes or differences in the proportion of contribution across your mine portfolio?

Richard Adkerson

Let's see, it is all those things. It’s not like that with one anyone factor that’s a huge increase, but clearly the increase in energy cost some increase in steel cost and so forth have affected it, let us see if we can come out with some comment on that as we go through our background material views.

Kathleen Quirk

Yeah most of the sequential numbers came out of – for site cost came out of South America and we are seeing particularly in Chile we are seeing increased labor cost associated with the foreign exchanges where the pay service strengthen significantly just $1.

0x01 graphic

Now we’ve also had successful negotiations of labor contracts couple of operations there they would some incremental cost that we will be very pleased with that the way those went

Operator

Our next question comes from Dave Katz with JP Morgan.

Dave Katz - JP Morgan

I was hoping that you guys could discuss the ongoing discussions with Indonesia regarding the possible sell back to the government of 9.6% interest in Grasberg?

Richard Adkerson

As we previously reported we have had discussion now with a province of Papua for potential transaction that would be based on the market value of that interest. We believe strategically having the province and the people of Papua as owners of their interest would be beneficial to us and further on line our mutual interest there we have a great relationship with the province led by the governor Barnabas Suebu. They have a strong interest in having an ownership interest we’ve got. We’ve had discussions about how we might do that on a basis that is represents the interest of our shareholders and we’re continuing to have those discussions. But it would be on that basis on a basis that would be strategically positive and a transaction that would be fair to our shareholders.

Dave Katz - JP Morgan

Giving that the discussion have being going on for sometime, has there been any recent advancement or it seems like there maybe a long term type sale?

Richard Adkerson

Well the discussions have gone on for a long time, Indonesia just went through elections and that was something that the country was focused on for a number of months, but we continue to have very positive discussions. It was also impacted by the fact that we had such incredible market volatility. We saw the value of assets including FCX stock and going this roller coaster rides so that’s made it more complicated to get to find a basis for going forward. What I can report to you is we have great relationships with the province and we’ll continue those discussions and work towards finding a way what works to them and works for us.

Operator

Our next question comes from the line of Brett Levy with Jeffries & Company.

Brett Levy - Jeffries & Company

Hi, guys. I know you guys do not hedge, but given that you are buying back your six and eight years notes that yield under 6% and the bulk of the EBITDA right now is coming from Indonesia. The Indonesian sovereign is yielding of near 9%. Is any of your cash being put in some of the sovereigns or the longer paper of the sovereigns where you guys are doing business?

Richard Adkerson

No, not really and even though we are in Indonesia, the huge bulk of our cost, all of our revenues are bulk of our costs for U.S. dollars. So we’re not doing anything like that at all and in Indonesia 75% of our cost are U.S. dollar based and the remaining 25% is split between Australian dollar purchases and Indonesia rupiah. So it’s not a major factor.

Kathleen Quirk

But our cash Brett is all invested very conservatively and so the arbitrate for us on paying back debt is that we’re getting a very small return, very, very small return on the cash in our earnings on the debt we’re buying back spreads in 300 basis points plus range. So and it also reduces our debt on our balance sheet. So but we’re not investing any of our cash in other debt securities.

Brett Levy - Jeffries & Company

So you are mainly in U.S. short paper, is that what you are saying?

Kathleen Quirk

Yes, we’re in highly very, very conservative, my western policies is very strict on what we invest in, so we’re investing in very, very short term, high quality.

Richard Adkerson

And very glad, we did that during the last part of 2008. Listen, we’re going to make our money mining and running our mining business and not through our treasury activities. We’ll let Goldman Sachs make their money, those kinds of activities.

Operator

Your next question comes from the line of (Inaudible) with Sentinel Investments.

Unidentified Analyst

Thanks. Just I was wondering about the curtail capacity in North America, what percentage of that curtail capacity is coming back in 2010?

Richard Adkerson

Well, it’s not really anything significant in 2010, because as Kathleen said, the biggest adjustment we made was at Morenci where we reduced the mining rate by 50%. We’re going to restart the mill, but that’s basically going to get access to material we’re mining anywhere, the sulfide material we’re mining anyway. So we’re not yet at the point of turning the own switch for curtail capacity.

Unidentified Analyst

Any specific reason for that, because you sited that the data points coming out from the U.S. are positive. So you sounded optimistic on the copper demand beyond China.

Richard Adkerson

I'm optimistic longer term. I'm not pessimistic near term, but we still need to wait to see to the fundamental numbers improve in the US. Copper demand in the U.S. is highly correlated to industrial production. And when you see our return that sustainable to industrial production United States given all the issues that we faced with residential markets for several years copper was strongly supported in the United States by commercial real estate and that issue as yet to fully play out there are number of projects around the country today that were be in completed, but since mid September 2008 absence in government spending there's been virtually no new commercial real estate development and so we're going to need to see some fundamental industrial production growth in United States to justify going out and starting major projects or we starting for tail production.

Unidentified Analyst

Okay. On the --

Richard Adkerson

Even when we do that, that's going to take time.

Unidentified Analyst

Okay.

Richard Adkerson

For the results of that come in place now fundamentally that's all going to be supportive copper markets. Because fundamentally that's as supply availability is going to be as supportive fashion for copper prices industry wide not just for us, because consumer inventories in very low and when times, when things turn there is going to be demand for copper that's going to be there and so that's going to be fundamentally supportive with prices.

James Moffett

Let me just make sure that we haven't spoiled the investments you grew by saying we will be able to quickly make these decisions, at first three years may responsive to this downturn in the copper prices and make all of our decisions to scale back our operations. (Inaudible) it happens in click on the switch and it happens in click of a switch and it happens these things are very disruptive to operations when you're trying to make these decisions and turn down amount so that's why I think its important as Richard is trying to make a point that (Inaudible) flip a switch and turn the (Inaudible) the full production and flip a switch and it cost a lot of money and it is a big distraction to the operation. So when you get to things, operating in a cost efficient mode you want to make sure before you start pulling the switch you start back up because if you make the wrong decision then you have huge distraction haven't be in the process of the having back up and all the sudden you got to pull the switch to drop back down, it’s not that easy to do.

Unidentified Analyst

Got it. On the Moly side in the opening commentary you mentioned about the Moly demand in the fourth quarter was main to driven by Asia of course China had been India has been a big factor. But have you seen any kind of demand improvement in the develop world for Moly for it's mainly division markets?

Richard Adkerson

I’ll let Dave Thornton respond to that.

Dave Thornton

Yeah, we seen some improvement in the less, but mainly in the second half of 2009, but one of the metrics that we watch is U.S. steel capacity utilization numbers and they've increased to about the low 60% range and in the first half of '09 they were in the low 50%. So still way off the '08 range about of high 80s to 90%. So seeing some improvements but not enough.

Unidentified Analyst

Okay. But on the future will be still driven by Asia in that case, because you’re increasing your Moly production in 2010 and so?

Richard Adkerson

Yeah, we're increasing it slightly. As we mentioned we haven't made a decision to restart Climax, we have scale Henderson we've come off, we gone down to 40% reduction were down to 20% now we’ve started the Moly circuit at Cerro Verde so there's some and then our by products going to depend on grades and operations there so. That’s all you are seeing there.

Operator

Our next question comes from Dan [Cackscus] with Morgan Stanley.

Unidentified Analyst

Hi, with regards to debt repurchases I noticed in the press release that you repurchased a 24 million of the bonds at the top stage level, any chance that (Inaudible)?

Kathleen Quirk

You will be looking at all of the debt maturities.

Operator

Our next question comes from the line of [Peter Bulkner with Sansar].

Unidentified Analyst

Hi, guys not only great quarter, but great job just over the course of the last 18 months you are dealing with the (Inaudible) the market [Audio Gap] global landscape. Is that something that your open to or there opportunities there or nor they restricted if there are they restricted to primary copper projects or there other metals that you have interest in

Most of my questions have been answered in terms of specific side something just low that more broad and nature. I am wear of the Brownfield expansions then investments of potential such you have and obviously also the longer term potential at the 10K, but your balance sheet especially with the cash flow look for 2010 is about in good shape as it’s been in a long time. So, are there Greenfield opportunities out there when I am not talking about that currently in your portfolio but just survive the global landscape, is that something that’s your open to or their opportunities there and are they restricted to primary copper projects or there other metals that you have interested?

Richard Adkerson

We do have an expression team that’s very experienced and looking a global expiration opportunities and they are continuing to do that. One of the things that we are able to expand our scope with this past year was to work more we’re some junior companies that we are financially challenged and so we are looking at those the thing about the Peter is that not only we looking at it but you got this whole industry very financially strong companies, diversified medals companies and when you and look at the investor presentations of each of those companies when they talk about their strategic objectives coppers right at the top of their list. So, as a company we are prepared to do that we are on the outlook forward we have the technical skills and finance resources to develop any copper project anywhere in the world.

That again coming back, we are so positive about the marketplace is all of this effort is not generating new projects. I mean there are some new projects Brownfield expansions but the new projects that the industry is able to identify our very challenging there either deep underground with technical challenges to in places in the world we are for community acceptance of our government relations or other technical challenges their expensive and tough to develop. And so with that lead just back to the benefits of really focusing on this Brownfield expansions of our existing operations. Where we are challenges in terms of power and water and land rights and all of those things, but in comparison is what you face with having a Greenfield project there are much, much less.

Now we find the right one we are going to fail to jump on go forward with it. We do believe copper is a great business to be and so we are focused on looking at potential copper opportunities around the world but we monitor have been in the market and other markets if we found the right resources. In the resource business one thing that we – that’s in printed in all of us is the key to it is have in quality assets. It’s not just question of saying you want get an asset, it’s got be quality and same quality that means large long reserve life contract cost structure.

James Moffett

Let me just add. I think this is important we’ve said it over and over. When you look at the Greenfield versus Brownfield, I am trying to describe, as Richard is trying to describe to you on numerous occasions, the kind of category ore body that we have obvious (Inaudible) the oxide ore that we‘ve been mining in most of the mines because of the grade had been leached. In the leach process was a boon to keeping the lower grade properties profitable given low copper price tags, but when you ask about Greenfield, you have to always compare to the assets that you have in the Brownfield and say, I’m a Brownfield project but in a Greenfield for all reasons that Richard stated, some of the deep ore body that are being some of the land and environmental problem associated we are trying to get those (Inaudible) talking about Alaska or the Rocky Mountain area, (Inaudible) there are so many factors that had to be considered, but for example when we look at our Greenfield opportunities, we always see by our staff and ensure that we are not going miss something but looking our Brownfield project and the enormous amount of sulfide ore as I said earlier that’s available to us by going from a leach process to mining process, always comes out for us. If there is a huge increase in demand for copper and we see (Inaudible) that we need to put more to the market.

Taking those sulfide projects and putting them to production is somewhat more profitable for us, because we already got infrastructure, et cetera, et cetera, and it’s a matter of deep in fit and the green field projects just don’t come anywhere close to matching. What we can do, you saw the slide earlier that showed the amount of mineralized material that we have. I know you understand that, they only do mineralized material and reserves, you have to have a mining plant that shows that feasibility of mining that ore and that enormous mineralized material number that you saw is why we have such a great opportunity to use the Brownfields that are literally by any of other category. The only reason why call Brownfields is because they are in association with our existing ore, anybody else would be looking at the size of the reserves that are involved in these opportunities that they have been on so far, we’d call those opportunities Greenfields, because they’re so large.

Unidentified Analyst

Right. If I could just follow-up briefly, because when I look out, I mean the production guidance that you’ve given for 2010 notwithstanding, obviously there is going to changes in grades et cetera, but when we look our over 5 years going underground in Indonesia and the change in economics after 2021 in Indonesia and then also understanding the infrastructure requirements that are largely outside of your hands, it’s necessary to take 10-K to the next level over the next five years. When I look at your longer-term production profile, are you saying that Greenfield opportunities are going to be able to basically meet whatever challenges there are over the next 10 years or there’d be opportunities outside of your existing portfolio of assets that could be accretive longer-term?

James Moffett

Let me say that we’ve looked around the world, we had great opportunities and it’s a self-dodge acquisition. Once again, look at the -- all the copper and gold belts that are available for exploration where you might have the opportunity to find a Greenfield project that’d be another Grasberg type opportunity. Initially we look around the ore, one thing you have to really look back at is, the past is always a key to the present. If you look at the top ten producing mines that are producing all the copper to meet the current copper demand, remember that you still have the profile as the Grasberg was found in 1988. Before that, the (Inaudible) all the big mines that are still in the top ten were founded to turn this century. So it’s clear that when you look at only Escondido and Grasberg being founded in recent years that are providing the copper in the market today.

As a good reminder if there hasn’t been a major Greenfields project that matches 70s in the last 20 years which you can point to and the reason for that is the opportunities just were there, that’s why you see people today stretching to go from ultra deep to environmental situation like you have because they try to get production. So you have to look at all those kind of factors when you start trying to say what’s the best opportunity for people to have a long term outlook in terms of keeping copper resources in terms of margin that still comes out of our milling as materials Greenfields operations.

Richard Adkerson

Peter, just one thing what I think is such a positive fact with our company is with our big reserve base and with our mineralized material and growth to that. That gives us a base case for a long term future, there will be ups and downs depending on mine development and other factors, but we’re not a company that has to go out and do something to replace it’s reserves or to grow with a very positive market outlook and what we have in our portfolio, we got a good long term future already laid out, then we’re going to be a --opportunities may come to us to enhance that and that may be Greenfield exploration, it could be any number of things, but it’s a great established base for a long term future with a outlook for very positive markets that will give us a chance to be on this industry and take advantage of what ever opportunities come to us.

Unidentified Analyst

So you got internal hurdles in terms of uses of cash flow, whether its dividends, share buybacks, Brownfield expansions, et cetera, but you are not restricting yourself to that if there is an external long dated opportunity with the good return profile and mutual geological requirements, I mean that would be something that you are not going to exclude?

Richard Adkerson

No question about it. As we go forward and pay dividends of our stock back or how we return cash to shareholders, good opportunities are financeable. And with our improved balance sheet and with the financing markets being where they are we have access to financing to do anything we wanted to do. So we’re not restricted, we don’t have to save cash back because we might have opportunities. We have access to financing, if there are opportunities they are financeable.

Operator

Your final question comes from the line of Tony Rizzuto with Dahlman Rose.

Tony Rizzuto - Dahlman Rose

Thank you very much. I appreciate you coming back to me. I just wanted to make sure Jim I think you were talking about this earlier. I just want to make sure I heard this correctly about Grasberg because this is critically important guys were talking about the ability to achieve no throughput rates of 200 to 240,000 tons a day. So basically similar levels to what you are doing at Grasberg and did I hear you correctly on that because I don’t think I really heard you sound as confident in the past as you did today on that. And then I’d like to also feel out if you could give us some view as what ore grades and recovery rates might do?

Richard Adkerson

All right, well the answer about confidence is yes, straightforward yes. We’re very confident about it. You know there is a transition time between them and as we ramp up that we will have an impact on production during that transition period and we’re taking steps to deal through the way we manage the DOZ, MLZ, the Big Gossan and so forth. But the numbers are very attractive once we get through that transition period and get into an operating mode of the underground mines Tony you can look at our 10-K and we have ore body by ore body of the grades that you can see the grades for the Deep Grasberg the grades for the DOZ, MLZ, you can see what kind of grades in copper and gold the ore that we have in the Deep Grasberg is similar to what we’re mining in the pit. The DRC MLC has great ore characteristics, we have a great opportunity with the Cochin layer because right now because the powder white content we’re only looking at recovering 50% of the goal. We’re looking at ways of potentially getting more of that goal. But you really touched on what is – and I mentioned this when I was talking with John Tumazos earlier. A big change over the past 10 years at Grasberg is the ongoing exploration has brought us the resources to now have this continued at a much higher level of throughput than we were 10 years ago.

James Moffett

Richard, I think it’s important when we talk about the target production levels when we go underground, the event sort of occurred since Grasberg deposit and we are able to continue to look at the underground ore body that we expanded the group of 75 up to almost 0.5 billion of MLC. All that underground work that we’ve been doing at 80,000 tons has given us a great opportunity to be in the underground mining business as far as shining etcetera, etcetera, etcetera. It would have been if we hadn’t had that adjacent ore body at the Grasberg that was a huge underground operation competing with any of these have ever produced in the world. It would have been a training camp operation as opposed to a commercial operation, trying to just be prepared to go underground. And as – when you go underground, people think about why aren’t the cost going to go up, but when if you look the terrain at the Grasberg and we have to operate where weather is such a huge impact on those big – the waste out of that ore, at a big open pit as well as the mineralized material and having to do these choice ratio, we keep this image of the pit. Once you go underground, you’re basically block cave in that mine and it reduces almost to zero and they’re stacking, how you stack that ore. The waste material has to be mined just to keep this inventory in the pit. So the number of trucks, the ability for a well operations, the vulnerability of a slide in the pit, all of the things that you see just to summarize again, having that ongoing expansion of a underground ore body be almost like it was coincidental opportunity to get prepared to go underground and the lower expansion, blockading the underground and getting away from many of the things that have been in that terrain with all the rainfall and fog and things that look in the dark, when you’re in the pit, we’ve had all that under control. But you can rest assure there is a 24-hour 365 day job to operate in these pits, without having some get away from you.

Richard Adkerson

All right. Well, we want to thank everyone for their attention and we look forward to continuing to report our progress as we move into 2010. If any of you have any follow up questions or needs some information, please contact us. David John is available to handle the direction of the questions. Thanks a lot.

Operator

Ladies and gentlemen that concludes your call for today. Thank you for your participation. You may now disconnect.

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Source: Freeport-McMoRan Copper & Gold Inc. Q4 2009 Earnings Call Transcript
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