Freeport-McMoRan Copper & Gold's CEO Discusses Q2 2012 Results - Earnings Call Transcript

| About: Freeport-McMoRan Inc. (FCX)

Freeport-McMoRan Copper & Gold Inc. (NYSE:FCX)

Q2 2012 Earnings Call

July 19, 2012 10:00 am ET

Executives

Kathleen L. Quirk – Executive Vice President, Chief Financial Officer and Treasurer

Richard C. Adkerson – President and Chief Executive Officer

Red Conger – President, Freeport-McMoRan Americas

David H. Thornton – President, Climax Molybdenum Company

Analysts

David Gagliano – Barclays Capital

Sal Tharani – Goldman Sachs

Brian Yu – Citigroup Inc.

Oscar Cabrera – Bank of America/Merrill Lynch

Richard Garchitorena – Credit Suisse Securities

Tony B. Rizzuto – Dahlman Rose & Co. LLC

John Charles Tumazos – John Tumazos Very Independent Research, LLC

Brian MacArthur – UBS Securities

Jorge Beristain – Deutsche Bank Securities

Paul Massoud – Stifel Nicolaus & Company, Inc.

Charles A. Bradford – Bradford Research, Inc.

R. Wayne Atwell – Global Hunter Securities LLC

Operator

Ladies and gentlemen, thank you for standing by. Welcome to the Freeport-McMoRan Copper & Gold Second Quarter Earnings Conference Call. At this time, all participants are in a listen-only mode. Later we will conduct a question-and-answer session. (Operator Instructions) I would now like to turn the conference over to Ms. Kathleen Quirk, Executive Vice President and Chief Financial Officer. Please go ahead, ma'am.

Kathleen L. Quirk

Thank you. Good morning everyone, and welcome to the Freeport-McMoRan Copper & Gold Second Quarter 2012 Earnings Conference Call. Our results were released earlier this morning, and a copy of the press release is available on our website at fcx.com. Our conference call today is being broadcast live on the Internet. And anyone may listen to the call by accessing our website homepage and clicking on the webcast link for the conference call.

We have several slides to supplement our comments this morning, and we’ll be referring to the slides during the call. The slides are also accessible on the webcast link at fcx.com. In addition to analysts and investors, the financial press has been invited to listen to today's call, and a replay of the webcast will be available on our website later today.

Before we begin our comments today, we’d like to remind everyone that today's press release and certain of our comments on this call include forward-looking statements. We’d like to refer everyone to the cautionary language included in our press release and 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, our Chief Executive Officer; we also have several of our senior operating executives here today, Mark Johnson, Red Conger, and Dave Thornton.

I'll start by briefly summarizing our quarterly financial results, and then turn the call over to Richard, who will be going through the materials on our website. As usual, we'll open the call for questions, following our prepared remarks.

Today, FCX reported second quarter 2012 net income attributable to common stock of $710 million or $0.74 per share compared with $1.4 billion or $1.43 per share for the second quarter of 2011. Our second quarter 2012 results included charges for adjustments to environmental obligations and related litigation reserves, which affected net income by $53 million or $0.06 per share.

Our second quarter 2012 consolidated sales of 927 million pounds of copper and 266,000 ounces of gold were higher than the April 2012 estimates of 895 million pounds of copper and 235,000 ounces of gold. This primarily reflected how our copper volumes in North America and how our gold sales volumes in Indonesia, which were principally timing related.

Our second quarter 2012 consolidated sales as anticipated were lower than the second quarter of 2011 sales of 1 billion pounds of copper, and 356,000 ounces of gold, primarily reflecting lower ore grades and production rates in Indonesia. The lower copper sales volumes also reflected lower ore grades in South America partly offset by increased production in North America and Africa.

The operations in productivity at PT Freeport Indonesia have continued to improve following the first quarter 2012 work interruption, the milling rates in the second quarter of 2012, our average just under 180,000 metric tons of ore per day, that compared with the first quarter average of 115,000 metric tons of ore per day.

The mining operations in the Grasberg open pit are approaching normal levels and the undergoing mining operations at the Deep Ore Zone or DOZ underground mines continue to be ramped up, and we expect to reach 80,000 tons per day in the fourth quarter. Mining rates at DOZ average 45,000 metric tons of ore per day in the second quarter.

Our molybdenum sales during the second quarter totaled 20 million pounds, and that was in line with our April 2000 estimate and the year ago period. Our realized copper price of $3.53 per pound in the second quarter compared with the realized price of $4.22 in the year ago period.

We realized just under $1600 per ounce of gold in the second quarter that compared to just over $1500 per ounce in the second quarter 2011. Our realized molybdenum price was $15.44 per pound in the second quarter of 2012 compared with just over $18 per pound in the year ago period.

As anticipated, our consolidated average unit net cash cost of $1.49 per pound in the second quarter were higher than the unit net cash cost of $0.93 in the second quarter of 2011, primarily because of lower volumes in Indonesia, and higher mining rates in North America, and lower byproduct credit.

We generated operating cash flows of $1.2 billion in the second quarter of 2012, which exceeded our capital expenditures, which totaled $840 million during the second quarter. We ended the quarter at June 30, with more cash than debt. Our consolidated cash at the end of the period approximated $4.5 billion, and our total debt approximated $3.5 billion.

In May 2012, we paid a quarterly common stock dividend of $31.25 per share, and that followed the February 2012 authorization by our Board of Directors increase the annual dividend rate to $1.25 per share. We have about $949 million common shares outstanding.

I'd now like to turn the call over to Richard who’ll be covering the materials in our slide presentation.

Richard C. Adkerson

Good morning, everyone. We’re pleased again to be able to report a solid operating performance by our organization and as Kathleen indicated, the financial performance was in line with our plans. Some important things happened during this quarter. We made further progress by improving productivity at Grasberg; it was about this time last year that we began to see the issues with our PTFI union that led to the strike in the second half of the year. And our relationships with our workforce has improved significantly, and we're taking some steps to help build positive relationship there in terms of being responsive to some of the aspirations of the workers.

Outside of Grasberg, we had some important developments. As you know, our strategy is focused on our significant resources of copper, and we have a number of brownfield development projects, which we’re currently engaged in, which we’re focused on for the future.

At Tenke, we have achieved our first copper, we’ll be completing this expansion project by the end of the year, this is the first expansion at Tenke following the initial development of the mine in 2009.

We’ve initiated construction of Morenci our flagship mine in North America, Red Conger’s group there is really focused on taking advantage of the resources we’ve been able to identify through our exploration and drilling. And this is the first project, but not the last, and we’re really excited about that.

At Cerro Verde, where we are developing that mine to be the world's largest concentrated milling operation, we are progressing with the planning and permitting, we have some important steps to accomplish with the government, government intrude on a non-controversial supported basis. And so we’re looking to move forward with construction there.

At our molybdenum operations, Dave Thornton is here, the Climax mine restart, we completed construction, we produced our first commercial molybdenum there. We’re ramping that up, ramping that up in a way to take advantage of the resource and be responsive to the market needs for molybdenum.

We paid our dividend, increased dividend of $1.25 per share annually. We have a very strong balance sheet, which is good to have in this world with cash exceeding debt by $1 billion. The financial highlights, that Kathleen reviewed on page 4, as I said, it was a quarter in which we basically met our plan. There is always ups and downs in that, but we basically met slightly exceeded our production volume guidance and cost, we’re inline with expectations.

Page 5, shows what our cost structure was; consolidated unit net cost, net of byproduct credits were $1.49, that reflects unusually high cost and characteristically high cost out of Indonesia because of the grades and you will see that as we look at our volume productions going forward with typical grades, typical production volumes at Grasberg, Indonesia those costs will come down significantly.

Obviously even these levels at a $1.49 consolidated with copper today being in the 350 range and shows just what a high margin business we have. And you can see our production is divided among the North America, South America, Indonesia and the growing African production.

Today copper markets certainly reflect the global economy and despite that inventories have dropped globally, and in many places even in Europe with weak economic demand, copper markets remain relatively tight. And with all of the negative comments about the world’s economic situation to have copper at $3.50, I think is notable. And the outlook for copper we believe is very positive supported by the continuing challenges of the industry in terms of supply, mine disruptions, falling grades of existing mines, delays in constructing new mines really a very supportive of the marketplaces, you’ve heard us talk about for a long periods of time.

China remains the important demand driver and China’s economy has slowed, it’s still growing at a substantial rate and the base of that growth is larger as it reflects the significant growth that is occurred over the last 10 years. China has expressed commitment to support its economy through fiscal policy and also through infrastructure spending, which is obviously very key to copper and our commodity there.

In the U.S our market has been supported by the automobile industry, which is now returning to pre-2008 financial crisis levels. Housing has picked up as you can see, read about in the news and that’s provided markets for copper. Overall in the U.S, copper demand is stronger than the overall performance of the U.S economy, and it certainly reflects the weakness in the economy of the U.S. but their pockets that are making the business stronger than the overall economy.

Europe of course is weak, but these global inventories even in the phase of the global weakness in economy, inventories are low historically and it had been dropping and is – I’ll mention again, this is the business that is supported by supply. And even though we’ve had, a long periods of time with very high copper prices, high in relation to historical levels. The industry has not responded as we did in the past. The supplies just have been slow to develop and lower than expectations and that is very supportive of the market, and we think that will be supportive in the long run.

Now that’s what leaves us to our strategy. Our strategy is not built on acquisitions. It’s not built on major new greenfield development projects. We have the benefit as a result of the transaction we did five years ago by combining FCX with Grasberg and [self storage] operations of having a series of geographically diverse assets, which have very large reserves and we’ve added significant reserves and very large resources beyond reserves, which we are continuing to qualify as reserves and develop new project. These are greenfield projects; they have a lot lower level of challenge and accomplishments, and execution, a lot less risk and a lot of certainty and the ability to perform them and to manage them in times of varying price levels. So we are – I couldn’t be more pleased about what we’re doing and where we stand with our set of assets.

We’ll start with Climax. Molybdenum prices have weakened slightly, but the market outlook longer run was good. We are the world’s largest lowest costs molybdenum producer. We’re very active in the high value chemical sector of that marketplace. With our Henderson mine, and now our Climax mine being primary, molybdenum mines, the byproducts that we get out of our copper mines, it’s a great business.

The Climax mine is the world's most attractive new mine development opportunity. And we have completed the construction of that mine, we're ramping it up. We had our first shipment of moly in the second quarter. The current capacity, which we expect to reach in 2013 depending on market conditions is 20 million pounds a year, the resource would allow us to go to 30 million pounds a year, and with the combination of Henderson and Climax, we’re going to be in a position to flex production to meet market demands, the markets strong will be producing all out, if it's weak, we have the ability without restoring our cost structure to adjust production.

Then when we turn to the copper business, you follow this as we have returned our existing mines to their levels of production prior to the 2008, 2009 financial crisis. We deferred some projects that have been restarted; all of those have gone well.

Now looking forward, we have near-term expansion projects. We have longer-term expansion projects, but the near-term major projects that we have, as I mentioned are the Cerro Verde expansion, the mill expansion, and mine expansion at Morenci, and the Tenke 14000 K expansion. Together these projects, which we can see completing in the next three, four years or so, will add about a 1 billion pounds of incremental copper at $6 billion of capital which is attractive in today’s world.

And beyond that, for example at Morenci, we have this current expansion underway that we expect to add 225 million pounds of copper annually. We have sulfide resources that will give us the chance to execute potential plans, which we are now engaged in studying to have significantly additional incremental production out of Morenci here in North America.

The expansion at Cerro Verde is going very well. There has been lot of issues with communities for expansion in Peru. We found a way of having a really good relationship with the adjacent community and the government and the communities are supportive of us there. Always some – this hasn’t commenced, but basically the way we are approaching this is the way that we get support for.

Beyond that, we have a significant resource in Chile at our El Abra mine, which gives us an opportunity and I will say, at this point it's an opportunity to have a major expansion. At Tenke, where we began construction on our project in early 2008, completed 15 months later, we’re operating effectively, the logistic system is working, production is going in a reasonable way. We are in a area, the Congo that’s far away from the difficulties in the eastern part of the country and we’ve had peace in our area. We are now engaged in our expansion project and it is going very well and beyond that we have a very significant resource of mixed ores, sulfide ores that we’re studying that we believe will allow us to openly develop this to a world class mine.

And at Grasberg, we are actively engaged in developing our underground resources. Kathleen mentioned that the DOZ mine is in the process of returning to its established capacity where we were operating before the labor issues occurred and then beyond that we are advancing work on the development of the block-cave underground reserves that we have underneath the pit. We’re now with inside of the completion of mining in the pit, which will occur in 2016, 2017 timeframe. and at that point, we will have the infrastructure, mine development to begin mining underground and continue the Grasberg for many years forward as a high-volume, low-cost profitable operation.

The details of the Morenci mill expansion represented on page 11, is expanding our mill to 115,000 tons per day, increasing the mining rate, attractive capital cost, significant new production. and this gives the detail permits are going well, we don’t see foresee any permitting issues, and we’re progressing engineering and long-lead time items. we expect to have this expansion project at full rates in 2014 as reflected in our numbers. You can see some of the details to just about how significant this property has been and continues to be, and we are excited – we’re really excited about a much larger expansion down the road for Morenci. Cerro Verde, at the time we acquired Phelps Dodge, we were just getting to operate the last expansion, which brought capacity to 120,000 tons per day to the mill.

Now, we’re talking about tripling that for 360,000 tons per day at significantly higher mining rate, $4 billion of capital, but this is building at a site that’s established with footprint there, water and power issues, we believe we have been identified. this is a proven technology, proven approach to development. We came up with a water supply that benefits Arequipa, the second largest city in Peru by developing that community a much, much needed wastewater treatment facility, which community is very exited about. And that facility will give us the water source that we’re not directly competing with agriculture interest. We filed our environmental impact statement, the government has recently improved our fiscal stability agreement, which will kick in 2014, we’re going to start construction next year and expect to complete it by 2016.

At Tenke, this is a project that we had a lot of conversation about in the past, and it’s really a gratifying to see just how well that operation is going. We have today, including construction workers about 85,000 workers in Katanga at our project. Of those more than 85% are Congo lease, our contractors are working with this in a much more effective way and we did own our initial project. The initial project has operated itself above design capacity, we’ll be significantly increasing our mining rate there, we’ll increase productions significantly, construction as I said is going well, and is targeted to be completed in 2013. We continue to advance exploration and metallurgical analysis to determine where we’re going for that and remain very excited about it.

The Grasberg block cave and the extension of the DOZ mines, what we call the DMLZ mine underground development has been restarted, advanced following our labor issues. Significant development has been done. We are working with all four systems, and the block cave shaft development. It’s a significant development cost. Our share of development expenditures are expected to average $550 million over the next five years, Rio Tinto will have the funding, an addition amount. We have been operating with block caving operations at Grasberg, and I don’t think many people focus on this, just because of how big and exciting the pit has been, but our team has been block caving at Grasberg since early 1980s. And we have continual development of new mines at lower elevations and it’s been a very successful part of our operation. It’s an extension with the Grasberg block cave of the same ore body we’ve been mining, and we’re very confident about our ability to operate that at levels where we’ll have mill rates well above 2,000 tons per day, which we make it in all likelihood the largest underground mining operation in the world.

With respect to Indonesia, as I said, we’ve advanced productivity during the second quarter. Still some issues to deal with, we’ve had some contractor issues recently, and those will be ongoing. Our team is working cooperatively to try to address these or to address them, and it will be something that we’ll be focused on from here on out and we are focused on quality of life improvements for our workers being involved in dialog with them, and with the government authorities to make sure that we have a harmonious workplace.

As we speak today, our open-pit mining is approaching normal levels. We’re ramping up the DOZ. By year-end, we believe we will be back to normal capacity there. We’ve had some – we’ve had to do some panels that were affected by work stoppages and so forth that we are doing there.

We are engaged in discussions with the government of Indonesia, which is conducting reviews with contract of work including ours. We’re talking with them about a contract extension. Our existing contract provides for extension from 2021 to 2041, and those discussions are in place. So, there’s going to be limited amounts of what we can say on today’s call about specifics related to that.

I can tell you that the discussions are on a cooperative basis. We are committed to working with the government as we have for years in a way that’s responsive to the government aspirations, at the same time, we’re representing our shareholders. And I’m confident we’ll find a way of coming forward with the completion of this review and extension of our contract in a way that we will be well received both by the government and people of Indonesia and by our shareholders.

Now, the exciting thing about our company is growth. If you look on page 16, you’ll see what copper production in the Americas with our mines in North America and South America is planned on. And these are projects that we are now actively engaged and have confidence that we can execute. We’re again very sensitive with that, managing cost escalation, making sure we get good rates return on it, and that we’re managing the risk of development.

But we see, now that we could reach 3.5 billion pounds of copper out of Americas by 2016. That’s been the ballpark of our existing company today, excluding Indonesia and excluding Africa. So it’s a great success story particularly in North America where you don't have to go back for many years when they were talking about the Southwest copper region being dead in the water, and that these assets that we’re making so much money at of and getting such growth of assets were low grade, low quality assets. These are very profitable, we’re really excited about it and thinking the world that we foresee in the future, they’re going to continue to be growing, continue to be profitable for our company.

And then in Africa, when we first began to look at the Tenke opportunity in 2007, we could see a resource that have never been developed, had not being fully understood, we still don’t fully understand it, we still got a lot of work to do with exploration and metallurgical analysis. But one, which in today's world is extremely attractive, provided we can manage all the challenges of doing business in the Democratic Republic of Congo. We’ve made great progress there. We had a recent review with the governor of the province and I could not have been more positive about Tenke Fungurume been an example for mining success in the country.

The mines Minister spoke recently about it. We feel very good about the relationships we’ve established with the government. And as a government that faces major challenges because of the economy of the country and the social unrest, but we can be a major contributed to that, very supportive of the government, employment, community development, health, education, all the things that mining can do for a community, and we're doing it, and we’re proud of it.

So page 18, just gives a global map, shows where our major operations are. Jim Bob said on one call at one time – one of those Jim Bob comments that I’ll always remember and refer to is small amounts get smaller and big amounts get bigger. Well, we have now five mines that we are operating, expanding and so forth that can be ranked in the millions. They have the potential. We are not there yet, in all cases to be producing 1 billion pounds of copper a year.

Grasberg is there, Morenci and Cerro Verde are in development. El Abra and Tenke have the potential to get there. And there just haven’t been that many mines in the history of the world or currently today that have that kind of opportunity, and gives us a portfolio with geographic diversity, and the ability to have significant production.

We spending money on exploration as part of our heritage and we’ll continue to do that. Our budget this year is $275 million, over half of it’s in the Americas, principally focused in major part on brownfield exploration. So that we can take advantage of these reserves and resources that we have available. We’ve added since the Phelps Dodge deal, 46 billion pounds of new reserves in the last five years of copper, 46 billion pounds and we see the ongoing capability of adding to our reserves.

Now 2012 outlook; this is very consistent with what we gave you last quarter. We’ve made some adjustments principally from a – slight adjustment at Grasberg, because we made a decision to pull out of the bottom of the pit in the second half of the year, that always still going to be there. You can see in the supplemental slides that we’ll have a plan of taking Grasberg’s down to it’s ultimate pit limits over the next five years and getting into very high grades as we go forward.

Unit cost, we’ve got some benefits from lower energy costs in certain cases. Unit costs are affected by the volumes, but they remain under control in today’s world. At $3.50 copper we will see operating cash flows of $4 billion this year, it’s net of some working capital changes, an CapEx in that same category. So that’s our outlook.

Now looking on page 21, you can see how that outlook for 2012 as we look forward will be much better, but those volumes will be increasing. You see for copper that 3.6 grows to 4.3, 4.5 to 5 within site in 2016 or so. This is a low gold here at Grasberg because of who we are at the – in terms of our mine sequencing and gold volumes return to more normal levels as we look forward to 2013 and 2014.

All of that translates depending on copper prices, gold prices and molybdenum prices, all that translates into higher levels of operating cash flows than we see in outlook for this year and we have a bright future.

With respect to this year, on slide 22, you see that volumes will be down because of mine sequencing, some in the third quarter returning to higher levels in the fourth quarter.

And on page 23, that would result in consolidated cash – consolidated net unit cost of roughly the levels we had in the second quarter, and you can see sales by region. With respect to the net unit cash cost in sort of historically where we’ve been, we’ve prepared this slide on page 24 to show the impact of what Grasberg would be is that we’re more at its traditional or characteristic volume levels, and that has an impact of about $0.30 this year and so with more normal Grasberg our cash cost would be substantially lowered to $1.16.

Our EBITDA and cash flow models are shown on page 25. EBITDA between $3 and $4, $7 billion to $11 billion cash flows or $5 billion to over $8 billion, this is based on average 2013, 2014 production levels, and it’s also based on $1,200 gold and $12 molybdenum. And sensitivities are presented on page 26, and it shows just how leveraged we are, corporate prices instinct translates into $218 million of variations in cash flows.

Our capital expenditures reflect some timing adjustments basically $300 million has been pushed from 2012 to 2013. It covers the projects that we’ve talked about, and then our financial policy remains focused on strong balance sheet, investing in attractive growth projects in a disciplined way, returning cash to shareholders and that’s been our philosophy for a long time.

So as we – close out my comments and open the lines for questions.

We had a couple of investor conferences this quarter, and heard a lot about the concerns of investors about the near-term economic outlook situation in Europe, slowing growth in U.S., concerns about China. And then, when I look at our business and our assets, we had a great visit with Red’s operating group here recently, you can just see the excitement of what our people feel about the opportunities that we have.

We feel like the future for our commodities is very bright, because of the world’s need form and growing needs in different places, the challenges the industry faces in developing, new projects, and new resources, and then seeing what we already have in our company. And with the technical expertise, the morale of our people, we couldn't be more excited about where we’re placed right now.

So with that, we’ll open up the lines and respond to your questions.

Question-and-Answer Session

Operator

(Operator Instructions) The first question comes from the line of David Gagliano with Barclays.

David Gagliano – Barclays Capital

Hi, thanks for taking my questions. I just have two quick ones, on the contract extension discussions, are there any particular milestones or dates that we should be looking in terms of either deadlines or potential resolutions? That's my first question.

Richard C. Adkerson

Well, Dave, it’s a process that we just can’t. We can’t identify those things, we’ve been thorough things like this in the past, it’s not something that’s set with a specific regulatory timeframe. Both government representatives that we’re speaking with and our team really wants to get this done as quickly as possible. And then, we’re certainly going to be responsive as we can. We hope that the government can meet it’s targets of completing these reviews by the end of 2013, and we’re going to continue to work to do that in advance of it. So but, it’s not something that has any sort of set timeframe that we can say, here is the milestone.

David Gagliano – Barclays Capital

Okay, all right. Fair enough. Just switching gears, you mentioned in the prepared remarks the strategies not built on acquisitions. My question is, are acquisitions essentially off the table or if not, where does that sit in the packing orders internal project development versus returning cash to shareholders versus acquisitions?

Unidentified Company Representative

Well, it’s certainly not off the table. We are always looking at opportunities; we’re monitoring internally opportunities in the resource business around the world. Our friendly investment bankers are constantly knocking on our doors, suggesting thing to us. We’re thinking ourselves about what we might do in talking about things with our Board. So it’s not off the table by any means, and we have – we’re fortunate that we are not pushed to do anything. We have the ability to grow and return cash to shareholders, if something doesn’t work out, but if an opportunity came to us that was attractive we have the financial wherewithal, the capabilities to take an advantage of it.

So I want to be clear about that. We have a good strategy; if an opportunity came to us we can take advantage of it. If the opportunities don’t work out we have got a great future without them.

David Gagliano – Barclays Capital

Okay fair enough, thanks.

Operator

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

Sal Tharani – Goldman Sachs

Thanks. And Richard if I look at last two years inflation and the cost excluding the byproduct credits, it’s running about 20% average, I was just wondering, how should we think about it over the next couple of years, you think that kind of inflation rate will remain in the cost side?

Richard C. Adkerson

Well Sal, let me just say one thing that I think is really important in looking at those inflation rate, a lot of our significant elements in our costs are correlated to copper prices. So when energy cost or when steel cost or certain other input cost increase, it’s in a world where the scenario is the copper prices were increasing and we are able to maintain or increase our margins, because when you look at those other cost elements, it’s hard to picture a commodity that’s better situated from a price standpoint than copper, because of the supply challenge.

So we fight costs, we try to take advantage of whom we can reduce them. Our guys, when we have our meetings, the first thing we talk about is safety. The second thing is production volume. The third thing is cost. And even though we’ve the straight margins, we all recognize we’re in a commodity business and we’ve got to do what we can to reduce costs. We worked very closely with our suppliers. And can’t say enough about how supportive our major suppliers are to our business. We’re big customers of theirs; we’re at the cutting-edge of operations and development activities. So, it’s in their interest and we all work together to find out ways of extending to our lives, and getting the right trucks fleet in place.

We’re doing a major test right now with the Caterpillar’s large trucks, and they’re putting money into that, we’re putting money into it, and we believe at the end of the day, we’re going to come out with a lower cost alternative for our big truck fleet, which is going to be very helpful to us as we ramp up these mine rates and mines take advantage of the resources.

So, it’s something that we fight every day. And we are – when we look at our outlooks here, we’re not projecting significant inflation. Labor rates are increasing through around the world, but if that inflation hits certain of our costs, it will we be in an environment with a much higher copper prices.

Sal Tharani – Goldman Sachs

Okay. Thank you very much.

Operator

Your next question comes from the line of Brian Yu with Citi.

Brian Yu – Citigroup Inc.

Great, thanks. Good morning, Richard and Kathleen.

Richard C. Adkerson

Hi, Brian.

Brian Yu – Citigroup Inc, Research Division

My question is on CapEx, you touched on a little bit that seems like the reduction this year is related to timing. I guess the bigger question I’ve got is, when we look at your CapEx spends going forward, you’re running at close to this $4 billion above level. In a scenario where – let’s say copper prices due correct, so I guess significantly, what’s the ability to try to lower that CapEx spend, are there leverage that can be pulled?

Richard C. Adkerson

Brian, I say this with a smile, but when you say correction, you mean it goes down right?

Brian Yu – Citigroup Inc.

Yes, sir, yes.

Richard C. Adkerson

Well, that was right at the forefront of our mind five years ago. Obviously, we had a lot of debt at that point and we were taking of – working with our new team, how we would manage that. I think we had a great track record in 2008, 2009 for what we can do. And when you look at our set of assets, our set of assets, we have an ability to do that in a way I think that’s better than many others in the industry.

We were able to adjust operations at Morenci and drive our cost down dramatically. We can defer some of these projects, if we have to without loosing them. And there is always some inefficiency of starting and restarting, but we did that at Climax. We were going out at Climax and we deferred it, and came back and completed it when the financial situation was improved.

So, and when we did that we always did it in a way, so that, one, we wouldn’t loose assets or we wouldn’t loose opportunities to grow, because we believe the longer-term view even if we do face a downward correction will ultimately be positive. So we have plans of doing that, our project economics are not built around having to have $3.50 copper. And so we can take that into account, but as we’ve shown, if we have to, we have a business it can be adjusted to take into account some period of lower prices.

Brian Yu – Citigroup Inc.

Okay. And then my second question is a clarification on Grasberg, I remember last quarter in early April you were running at close to 200,000 ton per day rate and at average 180, was there anything notable that happened in May or June?

Richard C. Adkerson

Yes.

Brian Yu – Citigroup Inc.

That changed that?

Richard C. Adkerson

In June we had a nine day scheduled maintenance for realigning SAG mill. And we made our targets, we were targeting 180, and we may have met our plan. As we look forward into the third quarter, we’re looking at 200, a little bit better than that. So we anticipate normal operations in what you’re seeing. In the second quarter numbers, it was a scheduled nine day maintenance to realign one of our big SAG mills.

Brian Yu – Citigroup Inc.

Great. Thank you.

Operator

Your next question comes from the line of Oscar Cabrera with Bank of America.

Oscar Cabrera – Bank of America/Merrill Lynch

All right, good morning everyone.

Richard C. Adkerson

Hi, Oscar.

Oscar Cabrera – Bank of America/Merrill Lynch

Richard, about two thirds of your Brownfield expansions which are very, very competitive compared to the rest of the industry. BHP and Exacta have had a tough time managing the social unrest, and I just wonder if you mentioned in your comments that the government and the locals are very supportive, but there are still some signs of opposition, could you just provide us more color on that?

Richard C. Adkerson

Okay. Well, first of all we did some ground work early on, we came in, and this is where our experience in Indonesia has proved useful, I think in creating the team we have here now, with organization we have, because we had to learn how to work with the government, government that changes rule for the local community of indigenous people and the surrounding community and we knew that it took investments and resources and people involved with it, so even before we started our expansion, we were working more aggressively with the people of Arequipa.

We committed to build a water system for them and that's a big issue for them, when I talked with President Humala and his background and his aspirations, he talked about very basic things of infrastructure for people, water, energy, education and so we focused on that before we started talking about expansion and then as we were talking about the expansion we benefited by the fact that, we had a footprint, we weren’t building a new mine in a new location, and the footprint was very conducive to what we are trying to do.

And then we started, we worked through the power situation and we were able to find sources of that. Then when it came to water, we looked at a number of different alternatives about what we might do including building new dams and things like that and then hats off to Red and this team, they came up with this idea saying, let's do this wastewater project for Arequipa, the second-largest city in Peru and a city by the way that traditionally has had a pretty radical political ban in terms of the country.

But that wastewater system is a big addition for that city and the Mayor of Arequipa, who was a early supporter of Humala, got into it, see the benefits to the community, we’ll find ourselves as many other miners do, putting head on to agriculture interest for competition for water, there is always some of that, but at the same time, it’s a way that gave us a way forward to do something on the co-operative basis. And it reflects a lot of hard work and focus on what works for the community as well as what works for us.

Oscar Cabrera – Bank of America/Merrill Lynch

That’s great. And if I may, just a quick clarification on your reconciliation of unit cash costs on slide 24. You talked about $0.31 decrease when Grasberg volumes returned to normal. What metal prices are you assuming for gold and molybdenum that’s part of that as well?

Kathleen L. Quirk

Oscar, it’s Kathleen. That reconciliation just says, what would be a 2012 average cash cost on a consolidated basis. If we were to roll in the estimated production both copper and gold from Grasberg in 2013 and ’14. And so it assumes the same $1,600 gold that we are using in the second half of this year. And this rolls through what those volumes are, and we expect Grasberg, unit net cash cost to look a lot like they did historically before this year in the outlook. And so on a consolidated basis, that has the effect of dropping our consolidated cash costs by 30 plus cents.

Oscar Cabrera – Bank of America/Merrill Lynch

Great, okay. Thank you very much.

Operator

Your next question comes from the line of Richard Garchitorena with Credit Suisse.

Richard Garchitorena – Credit Suisse Securities

Thanks, good morning.

Richard C. Adkerson

Good morning Richard.

Kathleen L. Quirk

Good morning.

Richard Garchitorena – Credit Suisse Securities

Yeah, so my question is on Tenke, and it looks like the current expansion is progressing on target and on budget. My question is, when should we expect some additional commentary on the next phase, are you – so working towards completing Phase II first before you look at Phase III and beyond?

Unidentified Company Representative

No, no Richard not at all. I mean we have a master plan of what we can see. We can see another expansion, think about whether that's one step of two step, that still focuses on the oxide ore, and that's what we're processing now. So we're looking already at additional tank house capacity as we complete Phase II. And then, we have a team that go from our wells exploration team, what they’re drilling to doing metallurgical work and different processing alternatives for this what appears to be a very, very large sulfide mixed ore.

That information changes continually as we go through things. I can tell you the information has become more positive recently, but we will be reporting to you as those plans go forward. The first thing we have to do is get the first expansion done and prove that we could operate in reasonable way. Logistically, operationally, administratively, and we've done that. So we're comfortable going with the second expansion, its going very well, but as we do that we’re studying for the future.

Richard Garchitorena – Credit Suisse Securities

Okay, great. And then my, just one follow-up. Announced for Grasberg that, you didn't change your volume expectations for 2013 to 2016 despite the fact that you are – you lowered 2012s. Does that mean, is the higher grade ores to be – is that going to be past 2016 or just being concerned at this point in terms of when you will access that?

Richard C. Adkerson

No, we will get back to that higher grade ore, most of what you see is just rounding differences but I would suggest, spend some time looking at our supplemental slides, and look at that outlook and I think you can get a good understanding about what we’re doing here and...

Kathleen L. Quirk

But in general, the five year plan at Grasberg and PT-FI is substantially the same as the previous plan.

Richard Garchitorena – Credit Suisse Securities

Thank you.

Operator

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

Tony B. Rizzuto – Dahlman Rose & Co. LLC

Thanks very much. Hi, Richard, Kathleen, Jim, Bob. I’ve got two questions, Richard I thought the color on Cerro Verde was excellent and how you have positioned yourself with building the relationship that was excellent. I wasn’t – and I wonder on the same lines, you mentioned about taking further steps at Grasberg to be more responsive to the workers there. And I am just wondering if you can elaborate a little bit on some of those steps that you guys are taking?

Richard C. Adkerson

Well, first of all we had a union merge in a way that was different than we ever had. They had a leadership and so forth. We’ve been there since the early 70s, we’ve had very, very few – very limited worker issues and they were in short duration. So we’ve now set up processes to more formally deal with the union leadership, to involve them in situations were there may be some disruptions in the work place. We are really focused now on dealing with some shortcomings that we identify with things like food quality, housing, recreational opportunities, like many places around the world. We did this in Congo. By the way, we sponsored the local Katanga soccer team and that just, I mean it’s amazing, our workers get by big TV, they all wear the jerseys. Well we’re sponsoring a soccer team in Papua now and it’s been received very positively. So it’s just the world changes, in Indonesia, the country where social networking is amazingly well established.

And then so we’re having the change with that. And we made investments over time in facilities, and quality-of-life issues and we got to make some more and listen and do things in a way that is responsive to where we are. You’ve been there Tony. Everybody knows it’s the challenging place to do business because of the geography and weather, and the remoteness, and so we have to deal with those.

Our workforce is changing. It’s increasingly being populated by Papuans, that’s something that begin in 1996 and as our futures are creasing in. And so culturally there are some issues we have to deal with as well. So, it is more of a question of adjusting to new circumstances and that’s just the world and it’s going to be the world there as we go forward.

Tony B. Rizzuto – Dahlman Rose & Co. LLC

It’s a great insight. I just have one follow-up on Cerro Verde, and on all the progress there, can you update us on the status of the environmental impact assessment? And are you getting any indications when that – of the next key point on the timeline there?

Richard C. Adkerson

Tony, I want Red to respond.

Tony B. Rizzuto – Dahlman Rose & Co. LLC

Thank you very much.

Red Conger

Yeah, Tony, that’s progressing well. We've done all the community input; we’re now responding to the input that we've received. We anticipate having those permits, it’s all in place early next year and commence construction to maintain that schedule that we showed you in the packet.

Tony B. Rizzuto – Dahlman Rose & Co. LLC

Excellent, good stuff. Thanks a lot Red and Richard.

Richard C. Adkerson

Thanks Tony.

Operator

Your next question comes from the line of John Tumazos.

John Charles Tumazos – John Tumazos Very Independent Research, LLC

Thank you very much. In terms of the capital spending profile going out multiple years, you have completed this phase the Tenke and you’re completing the mill next year at Morenci, and then the projects will build up at the Cerro Verde expansion or the El Abra mill and few build that one too et cetera. Will the CapEx increase as the $4 billion consolidated Cerro Verde mill starts up or will other things wind down and is there any level that we can comfortably say is the upper limit or cap on capital spending like $4.5 billion or $5 billion or $5.5 billion or $6 billion or $7 billion.

Richard C. Adkerson

Right now, it depends on – I'm want to say some qualifiers, John he knows this industry well enough that I know I'm not, did you understand this. It depends on how these studies unfold. We want it, we’d like to go faster than we can but it just takes time because of the need to drill, to do metallurgical work, engineering analysis, get permits, arrange for water and power. I mean if you could just see the effort that our team is exerting to find water resources here in Arizona for the opportunities we have. We are looking at buying ranches, we are talking with Indian tribes, we’re talking with other water users, and dealing with things.

So all those things result in a longer time period for developing these resources than we probably like. On the other hand, everybody in the industry faces these sorts of things and that’s what supportive of copper prices, because supply can’t be turned down very quickly. I would say that as we look out and what you are talking about that for purposes of investor analysis, the capital expending is shorter than the lower end of that range as you were talking about, $4 billion, $5 billion, $7 billion.

Kathleen L. Quirk

$4 billion to $5 billion.

Richard C. Adkerson

Yeah, $4 billion to $5 billion. And it will be down for a period of time as projects wind down as we startup other projects. So…

John Charles Tumazos – John Tumazos Very Independent Research, LLC

So I if could talk (inaudible) Richard, Jim Bob used to say, it’s all about buy mama a brand new dress, so when we are we going to see the brand new dress from all the expansions?

Richard C. Adkerson

That’s going to unfold over time depending on copper prices and so forth. But we are thinking about pearls and diamonds rather than dresses, John.

John Charles Tumazos – John Tumazos Very Independent Research, LLC

We just don’t want to feel subordinate to the capital expenditure vendor suppliers to shareholders and I’m a shareholder Richard and I idolize Jim Bob and you in the company.

Richard C. Adkerson

Well, we appreciate that and we understand that and I can tell you that message came through loud and clear as we have these investor conferences, and that’s the world today. we will be very disciplined about our projects. We believe the investments we make will create value for shareholders and the opportunity to return cash for shareholders as we go forward. and as I said John, as you can sense, I couldn’t be more pleased with the set of assets that we have. You know our track record; you know what this Board has done and what this company has done in the past. So I hope that give you some comfort.

John Charles Tumazos – John Tumazos Very Independent Research, LLC

Thank you.

Operator

Your next question comes from the line of Melissa Hernandez with [New Burger Barmen].

Unidentified Analyst

Hi, thank you for taking my question. It’s a quick one on molybdenum and the Climax mine with our moly price that has weakened somewhat here and you mentioned that the ramp up for Climax would depend on market conditions. Could you tell us a little bit more about that? How confident are you that the market can observe the 20 million tons from Climax next year maintaining a price up about 15.

Richard C. Adkerson

Dave, you want to talk about a little bit?

David H. Thornton

Yeah. I think we're ramping up Climax right now. The market has weakened a little bit and we’re down in the 1,270 per pound range, but our outlook for molybdenum and for growth remained strong. the European economic issues of slowdown in China causing some of the softness in the global economies today, but our long-term outlook for moly, as it is for copper and other metals continue to be positive. We feel next year with just our normal growth rates in the 2013 will be able to move those 20 million tons of moly into the market. So our view hasn’t changed on that

.

Kathleen L. Quirk

The other thing Melissa, this is Kathleen. The other thing is that we’ve also got some lower byproduct production forecast as you look at our outlook for sales. We expect to go from roughly 80 million pound level, currently the 90. So we’ve got some offsets with byproduct and as Rich and Dave mentioned, we’ll have a delay to flex production with Henderson to meet market requirements.

Unidentified Analyst

Got it, thank you.

Kathleen L. Quirk

The issue at the byproduct is the sequencing issue, primarily at our U.S. mines. We have some lower grades coming in 2013 and it will ultimately get back to higher rates.

Richard C. Adkerson

Yeah, you’re seeing that in fact this year, with Climax starting up, our sales are relatively flat compared to last year and that’s the same reason.

Unidentified Company Representative

One good thing about our set of assets is we can adjust quickly. We can adjust quickly through mine rates, throughput rates, and so forth without turning our cost structure upside down. Because we – our cost are low and reduction would increase cost some, but not to the point where it’s a major decision to do that and then the nature of the operations gives us a lot of flexibility.

Unidentified Analyst

Thank you.

Richard C. Adkerson

Thank you.

Operator

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

Brian MacArthur – UBS Securities

Good morning, I had couple of questions. Just following on that last question, lower grade moly effect, in three day in 2013, does that continue like for three or four years or what sort of time horizon should we think about statics that will the effect the cost there?

Unidentified Company Representative

It’s down for a couple of years, I think is Sierrita and it picks back again and I believe the ’14 range.

Richard C. Adkerson

Yeah, 2014.

Unidentified Company Representative

2014, we see a pick up again. So it’s just the sequencing of the mines in those two places. I think that’s a little more stable on their throughput where you see more variability at Sierrita.

Brian MacArthur – UBS Securities

Great, thank you. My second…

Richard C. Adkerson

Both of those have resources that we're looking at down the road. They have great expansion opportunities to Sierrita; we have the Twin Buttes property that we acquired for couple hundred million dollars that we're looking at. So we talk about these, this pipeline of opportunities those are two mines that have resources that we're looking at very hard.

Brian MacArthur – UBS Securities

Just on that. My second question sort of follows on, and I realize you have lots of optionality in all these projects, which is a great asset to have all that optionality. But just to clarify on Morenci, we've talked about drilling the current mill to 115,000 tons per day, which will get us the 800 million pound. But you’ve also got the statement now, current expansion on page 18 could get Morenci over a billion pounds. Is that possible with the current 115,000 tons, i.e., there is some higher grade coming, or does that start to include the second sulfide expansion where you’ve talked about 800 million pound. Can you just reconcile like how all those numbers fit together and I realize there’s a lot of moving parts?

Richard C. Adkerson

Right, right, it would require that further expansion. It's that opportunity that would get us to those kinds of levels.

Brian MacArthur – UBS Securities

Right. Then it’d be kind of like, I have 800 million pound today, and then I get the other 800 million pound with major capital expenditures. That’s the way to think of it?

Richard C. Adkerson

It would be a big capital expenditure. And it would be the sort of thing that would be done, faced on the world’s need for copper. Like, which you said about optionality. Having this here, gives us the chance to generate lots of volumes, lots of profits at today's prices, lower prices the world’s needs for copper growth, I believe they will. We didn’t have a resource like this where we can go in, make an investment, take advantage of that opportunity as an option.

Brian MacArthur – UBS Securities

Great. My final question is a little bit the same, but this time at El Abra we’re obviously, at the current operation wind down we replaced whatever to 50 million pound. Again you talk about the billion is that – two questions, is that the additional 600 million that you talk about from the sell side, and if so is there a way to actually – does that make sense just in a capital allocation decision to go right from 350 million to 1.2 billion, and I realize this is the move in the future or how do you, are we talking about making like a 360,000 tons per day operation like Cerro Verde or how does that actually work at El Abra?

Richard C. Adkerson

Yeah, it’s a long-term deal. It’s separating apart from ourselves sulfalix project. We looked at what to do as we were going from the hot side into the sulfur resource. And as frankly, we weren’t aware of this resource five years ago. It was only through this process that we had tried to understand that ore bodies do a lot of drilling, and so forth that we became aware that there was a bigger opportunity yet at El Abra. It has got some challenges to overcome, some big challenges to overcome.

We decided to go forward with sulfalix and continue to work on this additional sulphide resource which would require major capital view processing, it won’t be a leach operation, it will require lot more water and power and all those things that are in short supply until it probably require us to work with our partners in the area to find ways of doing this in an efficient way. It’s an opportunity, Brian, but it’s a separate opportunity.

Brian MacArthur – UBS Securities

Great, thanks very much for all the color, Richard.

Richard C. Adkerson

All right.

Operator

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

Jorge Beristain – Deutsche Bank Securities

Hi.

Richard C. Adkerson

Hey.

Jorge Beristain – Deutsche Bank Securities

Good morning, guys. I guess my first question quickly for Kathleen, a bit of a technical one. On these recent environmental litigation charges, could you comment as to – it’s just going to be more of a recurring kind of nature charge, something that you are working towards settling, are these just lumpy and kind of would you take them as they come?

Kathleen L. Quirk

It’s latter, we've got established reserves what we think our exposure is and when something changes from that, we review the reserves and in this quarter we had two matters that, they were things that developed that costs as too, as we look at those reserves, so it's more lumpy than it is a recurring item.

Jorge Beristain – Deutsche Bank Securities

Okay, and then maybe for Richard, my second question was, would you expect the changes in the tax code coming in 2013, namely the higher taxation of dividends, is there a thought process in Freeport that you may want to shift to a strategy of maybe more buybacks, has a more tax efficient way to return yield to share holders?

Richard C. Adkerson

We will take into account everything, but when we look at our shareholder base we have principally institutions that aren’t subject to income tax. And so it's not a – as we talk with investors it's not a major factor, investor feedback in recent years has been more positive about dividends, I must tell you as I am sure you’re hearing, I am hearing more about stock buybacks now being something that investors are attracted to, but it's not going to be tax driven.

Jorge Beristain – Deutsche Bank Securities

Okay, and then just last quick question, what would be the incremental cost at Climax to ramp from the 20 million pounds to 30 million pounds that if you choose to do that?

Kathleen L. Quirk

There is no additional capital, we designed the facilities to be able to produce at 30 million pounds per annum. We’re operating those currently at a reduced rate in light of the market situations. So there wouldn’t be additional capital and actually there would be operational cost efficiencies of doing that. But we’re really trying to wrap it up in a measured fashion. We’re managing the costs closely. So we’re – but we did design it for the 30 million pound level.

Jorge Beristain – Deutsche Bank Securities

Great. Thanks very much.

Richard C. Adkerson

Great asset, Jorge.

Jorge Beristain – Deutsche Bank Securities

It sounds good. I’m looking forward to seeing the incremental production.

Richard C. Adkerson

In regards to…

Operator

Your next question comes from the line of Paul Massoud with Stifel Nicolaus.

Paul Massoud – Stifel Nicolaus & Company, Inc.

I just have a quick question about Tenke. It sounds like Phase 2 is coming along well and you’re adding the extra tankhouse capacity. I’m not mistaken, the extra capacity is coming on in the couple of phases. One Phase, being completed later on this year, and then the entire thing probably done, it sounds like in the beginning of 2013. Is it possible, you want to see any incremental benefit from increased capacity going through later this year that isn’t being incorporated in guidance, or would you expect to see cost go up before they come back down?

Kathleen L. Quirk

We’ve got – in our outlook we’ve got improved production in the fourth quarter associated with the start up. We won’t get to the full rates until next year, but we do have some benefit in the late part of this year from the new tankhouse capacity.

Paul Massoud – Stifel Nicolaus & Company, Inc.

Okay. And I have – just as a quick follow-up. I mean has there been any more discussions about a potential cobalt refinery game plan in there?

Richard C. Adkerson

We’re looking at alternatives about how to deal with this significant amount of cobalt in the small market, in the small market of getting it to market in an efficient way. The same sort of issues conceptually that our predecessor companies faced with the molybdenum business. So we’re looking at a number of different alternatives. Right now, we’re able to market the product we produce, and it’s a good demand for it, and it’s not something we have pressure on and it’s more of a long-term view as to how we’re going to deal with a significant amount of cobalt resources there.

Paul A. Massoud – Stifel Nicolaus & Company, Inc.

Okay, thanks.

Operator

Your next question comes from the line of Charles Bradford with Bradford Research.

Charles A. Bradford – Bradford Research, Inc.

Good morning. Now that the Supreme Court has ruled on the medical constitutionality, the medical plan, a number of companies have found we are beginning to look at maybe (inaudible) their medical coverage for their U.S. employees. So I think it’s pretty mature to do that. How many U.S. employees do you have that covered by the medical and what is the cost per employee?

Richard C. Adkerson

Chuck, we don’t have a cost per employee situation here. we’re not going to (inaudible) our medical coverage for employees. We, it’s one of the important benefits that people see from working with our company. this issue about what the cost is going to be is a very complicated when that all American industry right now is trying to sort through as to what it had. it’s not going to be a game changer for us, it’s – and we’re going to find ways of dealing with whatever law comes down this hike and what we have to deal with in terms of being responsive to the needs of our employees and doing it on a cost efficient basis. Over time we made changes to our benefit plans and as other companies have, but this is not something, that’s of huge significance to our company.

Kathleen L. Quirk

We provide the coverage, we get some reimbursement through premiums from employees, but the coverage that we provide is funded by the company, it’s a self-insured program.

Charles A. Bradford – Bradford Research, Inc.

Some people are trying to take advantage of the federal or the subsidized state exchanges. And of course nobody knows that that’s going to be yet. But anyway thank you very much.

Richard C. Adkerson

I agree with that and you know, unlike everybody else read and scratch my head about it, in terms of running our business is something that’s manageable.

Operator

Your next question comes from the line of Wayne Atwell, Global Hunter.

R. Wayne Atwell – Global Hunter Securities LLC

Hey good morning and thanks for all your insights. I had just a quick question to follow-up on John’s question about capital spending and the like, you seem to have a pretty good cash flow, you have a great cash balance and we talked about dividends and buybacks, you seem to have plenty of cash available, your debts fairly low, what are your thoughts about the buyback, it seems like this might be a good time to do that?

Richard C. Adkerson

It's something our board looks at continually. I will tell you, in a world that we live in today, with the uncertainties that I mentioned earlier on in my comments, it feels great to have really a very strong balance sheet. And so, all I can say is that, our board talks about this continually and evaluates it, but in an uncertain world, having a strong balance sheet, to be in an investment grade rated company that allows us to look at opportunities, is a great benefit of our company and Wayne you’ve been around as long enough to know, it always hadn’t been that way and I guess that it’s just a great strength of our company today.

R. Wayne Atwell – Global Hunter Securities LLC

Great, thank you.

Richard C. Adkerson

Thanks for your question.

Operator

There are no further questions at this time.

Richard C. Adkerson

All right. Well, thanks to everyone for your attention. I appreciate your support, you working hard everyday. Jim, Bob, do you have any comment you like to make.

James R. Moffett

No Richard, as you’ve covered them.

Richard C. Adkerson

All right. Well, thanks everybody and we look forward to reporting our progress in the future.

Operator

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

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