Q2 2024 Freeport-McMoRan Inc Earnings Call

Participants

David Joint; Vice President - Investor Relations; Freeport-McMoRan Inc

Richard Adkerson; Chairman of the Board, Chief Executive Officer; Freeport-McMoRan Inc

Kathleen Quirk; Executive VP & CFO; Freeport-McMoRan Inc

Cory Stevens; SVP, President; Freeport-McMoRan Inc

Mark Johnson; President, COO & EVP; Freeport-McMoRan Inc

Alan Spence; Analyst; BNP Paribas Exane

Carlos De Alba; Analyst; Morgan Stanley

Liam Fitzpatrick; Analyst; Deutsche Bank AG

Bob Brackett; Analyst; Bernstein

Orest Wowkodaw; Analyst; Scotiabank

Michael Dudas; Analyst; Vertical Research Partners LLC

Lawson Winder; Analyst; BofA Securities

Brian MacArthur; Analyst; Raymond James

Bill Peterson; Analyst; JP Morgan

Presentation

Operator

Ladies and gentlemen for standing by and welcome to the Freeport-McMoRan second quarter conference call. (Operator Instructions)
I would now like to turn the conference over to Mr. David Joint, Vice President Investor Relations. Please go ahead, sir.

David Joint

Thank you, Regina. Good morning, everyone, welcome to the Freeport conference call. Earlier this morning, FCX reported its second quarter 2024 operating and financial results. A copy of today's release and supplemental schedules and for us is available on our website at fcx.com. Today's conference call is being broadcast live on the Internet, anyone may listen to the call by accessing our website homepage and clicking on the webcast link. In addition to analysts and investors, the financial press has been invited to listen to today's call. A replay of the webcast will be available on our website later today.
Before we begin our comments, we'd like to remind everyone that today's press release and certain of our comments in the call include non-GAAP measures and forward-looking statements and actual results may differ materially. Please refer to the cautionary language in our press release and slides into the risk factors described in our SEC filings. All of which are available on our website.
Also on the call with me today are Richard Adkerson, Chairman of the Board; Kathleen Quirk, President and Chief Executive Officer; Maree Robertson, Executive Vice President and CFO, and other senior members of our management team. Rich will make a few opening remarks, Kathleen will review our slide materials, and then we will open up the call for questions. Richard?

Richard Adkerson

Thank you, David, and thank you all for joining us today. Well, we're seeing quite a couple of months volatility in the markets. I was on CNBC, right, when comprehensive $5 for the first time ever. And I had big smiles on my face now the reality of the copper markets have shown. I just wanted to say a couple of comments about it. Many of you heard me say for a long time, the copper moved from a critical metal that it had been in years past to one that's been driven more by episodic events. In China it's demand had been growing recently and set records even in the face of poor performance in certain sectors, most notably the property segment.
Recently, demand has been softening in other sectors of credit markets in China have been solved. The high prices were to just the destocking. There's been a very tight concentrate market, which persists, TCs and RCs are record low levels. That's brought a lot of scrap to the marketplace the government incentivize ground for a period of time.
And as a result was a destocking softening demand global inventories have risen and that has triggered macro trading and commodities, particularly after the disappointments that the third plenum didn't result in a clear statement of incentivizing the economy in China. This simply won't last, there's limits to the stocking of China will respond to its economy. There's underlying strength there, and we're very confident that this will improve over time.
In fact, they've taken the first step with the recent interest rate cut. Underlying all of this is really the fundamentals of the global copper marketplace. The world is getting more and more electrified with connectivity with dealing with carbon emissions challenges there. But that's a fact that the world has to deal with A1. And you know, Jeff Curry recent talked about the importance of increased defense spending that creased another element of demand, supply changes -- supply challenges continue in certain cases are growing.
And so as we look forward, our strategy is based on a fundamentally positive outlook about long-term copper demand and the reality of developing new supplies to meet that demand. You know, it was really something to see copper at $5. And I'll tell you, we're going to see it again.
I want to make one quick comment to recognize our team for the great work we've done in reaching the commissioning of our new smelter in Indonesia. This was a major project. The world's largest single line smelter construction is essentially complete. We posted a new video on our website last evening. I encourage you all to watch it just to see the size and scale of this new world-class facility is really something to visit and see just this the extent of the facility.
This was a key committee we made to the government of Indonesia in 2018, who resolved to reach a global resolution of the issues that had been under discussion for so many years. It's a strategic importance for our business interest in Indonesia for the long term by becoming a fully integrated producer there with our mining operations, PT-FI will now be able to apply for extension of its operations for the long term, which will really enhance the benefits of all stakeholders, the government to people [who follow] our employees, Freeport and all shareholders.
And our partner, MIND ID, the state-owned company project has been in work for several years in a world that was challenged during this period of time by COVID and inflationary factors that have been evident in so many projects around our copper industry is really accomplishment by our team to bring this in on time and with reasonable budget spending on it. It's quite facility, take a look at the video. We are looking-forward to getting our extension and in developing our plans to maximize the value of this resource over its life and not have any time limit of 2041 facing this. So we're really encouraged by. And again, our team just did a tremendous job there.
Kathleen, I'll turn it over to you.

Kathleen Quirk

Okay. Thank you, Richard. And I'm going to start on slide 3, with the information reflecting the results of our second quarter and first half of 2024. Our team continues to focus on what matters and driving value in our business focused on executing our plans, reliably and responsibly enhancing efficiencies, managing costs aggressively and building optionality and value and our organic growth portfolio.
During the second quarter, we generated strong margins and cash flows with $2.7 billion and EBITDA and $2 billion and operating cash flows. Our production volumes were largely in line with our estimates going into the period. But as we reported in early July, our shipments of copper and gold were impacted in June as a result of obtaining our export license in Indonesia, which has now been secured. I want to highlight two important items of significance and momentum for the future.
The first side, how much I talked about it, it's the Indonesian smelter project advancing to the commissioning phase. As Richard discussed, our team has managed this large and complex project, an exemplary manner, and we're now focused on further de-risking through a successful startup in the months ahead. Solid project execution is a hallmark of our Freeport team who stepped up once again to deliver in a challenging environment for major capital projects. The successful completion of this strategic investment is of significance and positions us to secure a long-term extension of our operating rights in Indonesia.
The second value driver I want to highlight is the ongoing momentum in our innovative leach project to build additional scale and low cost incremental production. Continued scaling of this initiative is a major value driver and differentiator for Freeport. As you'll see our second quarter and first half incremental production from this initiative doubled from the comparable periods in 2023, as we set our sights on scaling this initiative further, we see the opportunity to lower our unit costs in the US meaningfully.
We can to execute our established shareholder return framework with a $0.5 billion in dividends and share purchases here to date. We ended the quarter and a strong position financially with a favorable future outlook as we head into the second half of this year.
Turning to copper markets on slide 4, which I just talked about this copper prices traded in a broad range between 367 per pound and 492 per pound on the LME exchange and are a wider range on the US COMEX exchange. That's been during 2024, we have discussed on prior calls impact of macro sentiment and investor positioning that can drive large moves in pricing. As you refer to the domestic economic challenges in China, the ongoing weakness in the Chinese property market, destocking and working capital management and increase in copper exchange inventories and delays and actions to stimulate economic growth, which have all weighed on the market.
In the US we're seeing continuing to see strong demand for copper from a broad range of sectors. And globally, we see favorable demand drivers for the future associated with coppers increasingly important role in the global economy. Copper is a foundational essential metal when it comes to electrification, and the world is becoming more and more focused on capital-intensive energy applications.
FXR, its physical characteristics and superior conductivity make it the metal of electrification. New massive investment in the power grid, renewable generation, technology infrastructure and transportation driving increased demand for copper and forecasts call for above trend growth in demand for the foreseeable future.
As we review the fundamentals and match the demand side up with supply, we look at the limitations of existing supply growth, the challenges and extended the time frames required to build new supplies and projections for peak mine supply over the next couple of years. These factors, combined with secular demand trends point to tight market conditions as we go forward. With Freeport's leading position in the industry, large-scale current operations, and future growth pipeline, we're very well positioned to benefit from this fundamental outlook and future.
Turning to our operations on slide 5, we summarize the quarterly operating results by geographic region. In the US we continue to focus our efforts on mitigating the impact of lower ore grade phases currently being mine. You'll see in our operational details provided in our press release at the lower grades processed through our Mill leach facilities in the US had more than a 10% decrease in all rates compared to a year ago period. All else being equal this results in higher costs on a per unit basis. We're very focused on mitigating the impacts and to mitigate it. We're focused on initiatives to improve productivity, equipment reliability, take advantage of automation and new technologies.
And importantly add low-cost incremental volumes are innovative leach initiative, and we think this can have an impact as we go forward. In South America, our team, and our large sales share of already operation posted a solid second quarter. You can see the mill throughput exceeded 425,000 tonnes of ore per day. This is a strong recovery from the first quarter with higher throughput and recoveries contributed to higher copper and molybdenum volumes. You had net cash costs improved sequentially from the first quarter and South America, even after giving effect to a $0.22 per pound non-recurring charge for a new labor agreement reached during the quarter.
In Indonesia, despite delays in shipping during the month of June, the results were strong and you'll see net unit cash credit of $0.21 per pound. Our quarterly no rates for lower than what we achieved in the first quarter as we advance maintenance in June and to manage inventory during the shipping delays. We also announced previously a change in mine sequencing that will affect gold volumes for the year. During the second quarter, we modified our mine plans for 2024 to address some disrupt disruption from certain wet draw points in the Grasberg Block Cave are currently maintaining our mining rates, but have shifted to areas with slightly lower gold grades as we implement operating solutions to regain access to the higher grade material.
This is the timing matter and not a significant issue for our long-term plans. I want to talk some more about our innovative leach initiative, and we've got some information on slide 6, we're continuing to build momentum with this initiative. Given the low incremental cost and low capital intensity associated with these activities, which is essentially involve recovering incremental copper from material has already been mine. The returns and value proposition this opportunity is significant and a major catalyst for us. You can see the significant growth and incremental volumes from these initiatives over the last several quarters.
As a refresher, we have achieved our initial targeted run rate of GBP200 million of copper per annum and now have our sights on scaling this to GBP400 million per annum in the next couple of years. Ultimately, our goal is to achieve GBP800 million per annum from this exciting initiative. This is the size of a major new mine with low capital investment required low incremental operating costs, which will greatly enhance the value and competitive position of our Americas production.
I wanted to go over how we're doing this. The results to date have been achieved by enhancing hypotension and leach stockpiles by using data from sensors analytics, which help us identify where the opportunities are located within these massive stockpiles and deploying new operational tactics to bring our catalyst solution to areas that were previously inaccessible.
We're now building on the successful initiatives and have a high degree of confidence and boosting the run rate to GBP300 million to GBP400 million during 2026. Some examples of new initiatives include expanding our surface area under leach by using drone technology and helicopters to install [irrigations] in areas previously inaccessible on the conventional techniques and scaling our solution injection wells. With this experience for drilling more efficiently getting more injection wells placed and our testing techniques to expand the impact of injection wells have a broader area.
In parallel, we're working on innovation driven initiatives, which would really move the needle to our ultimate objective of reaching GBP800 million per annum. These included adding direct heat to the stockpiles from renewable or other sources, taking advantage of pyrite hosted or to generate additional heat and testing new additive that we've been developing. At Freeport we really well positioned to capture this value with an extensive inventory of substantial residual copper from material already mined industry leading technical expertise and leaching technology and a strong multi discipline and focused innovation team dedicated to this initiative.
Turning to our other areas of growth of our project pipeline on slide 7, we discussed earlier the extended time frames required for the industry to develop these supplies. At Freeport, we have the advantage of leveraging existing infrastructure to develop new supplies and have a series of projects we are advancing. Our leach is our best opportunity to grow in the near term and will pursue this aggressively as we talked about.
But beyond that in the US, we have a Brownfield expansion at our Baghdad mine and Aaron Arizona where we have an extensive reserve position. We've already reported with completed our studies, we're now advancing investments and automation, tailings and energy infrastructure and expanded employee housing in this remote location to position us to execute projects more efficiently when the time is right.
This project, unlike other things that you see around the industry, it does not have major permitting hurdles and it represents a straightforward option or monitoring conditions and progress with our derisking initiatives and expect to be in a position to make a decision on our investment next year.
We've also commenced pre-feasibility studies to define a brownfield expansion in the Lone Star Safford district. Most of you know, this is our newest operation in the US and we're really just getting started here. We have our sights on more than doubling current production levels in the GBP300 million per annum range. This is an enormous resource, and we expect this district will become a generational cornerstone asset for Freeport and Arizona in the next decade. At El Abra in Chile, where we are in partnership with Codelco, we have completed pre-feasibility studies and we're now preparing an environmental impact statement expected to be completed by the end of next year.
The project involves that we're considering involves an investment in a new concentrator of scale, so much of the size of the share of already constant trader we installed nearly 10 years ago investments and desalinization and a pipeline system to support our water requirements. The preliminary estimates for incremental capital costs for the new concentrator project and related infrastructure, which continued to be revealed approximate $7.5 billion and would put the dollars and we provide GBP750 million of annual copper production and GBP9 million of molybdenum per annum over a very long life.
This project would require about seven to eight years of lead time because of permitting requirements. But we're advancing as we have optionality and we're going to continue to review the economics in the context of market conditions, but believe this is a project that will be required in the future to support long-term copper demand trends. In Indonesia we're making great progress on our large scale, Kucing Liar development scheduled to commence production prior to 2030.
We're also conducting additional exploration below our Deep MLZ ore body and expect an extension of our operating rise beyond 2041 will set up for additional long-term exploration development option in this highly attractive district. We're advancing all these initiatives to build optionality for growth and will continue to be disciplined in our approach, targeting opportunities that can be executed efficiently, profitably and value enhancing. Richard talked about the PT-FI extension beyond 2041 and the key role that the smelter plays in that process.
We've reviewed in the past, our discussions with the Indonesian government to extend our rights to provide continuity of the significant benefit of this operation to the people of Papua and Republic of Indonesia. During the second quarter, the government enacted a regulation applicable to a broad range of license holders in Indonesia. We've highlighted the applicable provisions for IUPK license holders such as PT-FI and these are the requirements for the conditions which need to be met to for approval for an extension. These conditions are in line with our expectations. And when the process of completing an application to be in a position to file the application during 2024. The previous requirement for extensions could only be requested five years before expiry.
So these new regulations allow us to apply now reflecting the government's recognition of a long lead times required for investment. This is really positive to that development for PT-FI and its stakeholders we look forward to make in our application and be in a position to extend our right, so that we can continue our long range planning and maximize the value of this great resource.
Slide 9 shows our three-year outlook for sales volumes of copper, gold and molybdenum made some modest changes to 2024 copper sales, reflecting small revisions in the US and Indonesia. And as previously discussed, our goal volumes for 2024 now reflect the change in the mine sequencing, which we discussed earlier, and this is really timing and nature the rest of the guidance is very similar to our previous outlook. For 2024 we currently estimate consolidated unit cash costs to approximate $1.63 per pound, slightly above the April estimate of $1.57 and similar to our guidance of [160] per pound at the start of the year.
The details of this are presented in the back and on slide 20 in our and reference materials. Slide 10 shows the cash flow generating capacity you get this business. Putting together our projected volumes and cost projections. We show a modeled result for our EBITDA and cash flow at various copper prices ranging from $4 a pound of $5 per pound copper. With these modeled results for '25 and '26 and current volume and cost estimates holding goes flat at 2,300 per ounce and molybdenum flat at $20 a pound EBITDA on an annual basis would range from nearly $11 billion per annum at $4 copper to [$15 million] per annum at $5 copper.
And our operating cash flows under these price cases would range from $7.5 billion per year to $11 billion of $5 copper. And we show some sensitivities for your reference on the right of this chart that long life reserves, large-scale production, we're really well positioned to benefit from a better fundamental picture as we go forward.
On slide 11 we show, as we have in the past, our current forecast for capital expenditures in '24 and '25. Capital expenditures for '24, a forecast of approximate $3.7 billion and $4.1 billion in 2025. It's a relatively small increase over two years and principally relates to revisions and estimates for our sustaining capital program and long-term projects in the glass for district. We're going to continue to be disciplined in deploying capital really making sure that the capital we're deploying pays off in and builds initiatives to enhanced value.
Discretionary projects over this two year period totaled $2.5 billion. This is the category that reflects the capital investments we're making in new projects that under our financial policy are funded with the 50% of available cash that is now distributed. We've got some details in the back on slide 23 and our reference materials that provide some more information about these projects, which are value enhancing and will help us as we look to build value in the future.
On slide 12, in conclusion, we reiterate the financial policy priorities centered on a strong balance sheet, cash returns to shareholders and investments and value-enhancing growth projects. Our balance sheet is solid. We've got strong credit metrics and flexibility within our debt targets to execute on our strategy. During the quarter, our credit rating was upgraded by S&P, and now we're investment grade rating by all three major rating agencies.
As indicated on the slide, we've distributed $4.3 billion to shareholders year to date through dividends and share purchases. We've got a attractive future long-term portfolio that allows continuing to build value and follow up policy of investing in projects that build long-term value and returning cash to shareholders. We actively monitor market conditions and carefully manage the timing of our projects to make sure our financial flexibility remains strong. A global team has driven by value. We're focused on our clear strategy to execute our plans, invest in our future and return cash to shareholders.
And thank you for your attention, and we'll now take your questions.

Question and Answer Session

Operator

(Operator Instructions)
Alan Spence, BNP Paribas.

Alan Spence

Good morning, Kathleen and Richard. On the North American operations, your grades were lower year on year. And the leaching volumes in Q2 annualizing above the '24 target, yet copper sales guidance was decreased. I appreciate to by 1%, but do we put those together and concluded that the North American kind of the optimization targets or maybe improving a bit more challenging this year?

Kathleen Quirk

Alan, we are really focused on productivity in North America. This is a big priority of our management team. During the second quarter, we made really good progress. We've got a series of metrics were following that will drive the production higher. The one area that we're working on is we're continuing to have some unplanned maintenance some disruptions caused by that. And really the asset health and reliability programs that we're putting in place and continue to build on, which has been a hallmark of our US operations are important to make sure that we meet our production target.
So I think we feel we're turning the corner we've got a very, very sharp focus on these things. The leach production is helping us to offset these impacts of lower ore grades. And as I mentioned before, that's really going to help us bring down the average cost of our US productions as we scale this further. But we've got to get these productivity objectives met. We're making progress on it we've had some issues in the quarter with some downtime in our mill and also and some of our crushing convey facilities. But we're making progress to make sure our equipment is reliable, and we don't have unplanned outages. And that's something we're really focused on as we go forward.

Alan Spence

Thank you for that. And just quick follow-up question on the leaching. You provided some helpful additional color on it. You mentioned a high probability of getting to the GBP300 million to GBP400 million range by '26. But just to confirm, none of that would be incurred '26 guidance?

Kathleen Quirk

Right. We basically got our current rate that we're sustaining. And on the GBP200 million per annum into our forecast. And so to the extent that we build on that scale, and we have a high confidence that we will that as that provides some upside to our numbers that I would also provide upside as these productivity initiatives that I mentioned coming into play. So we know what to focus on. We've got teams working on it and we're going to get there. But this leach thing will really help with the unit costs.

Alan Spence

Thanks, Kathleen.

Operator

Carlos De Alba, Morgan Stanley.

Carlos De Alba

Thank you very much. Good morning, Kathleen, Richard. Kathleen, just continue with this question on the leaching projects and initiatives in North America. Can you remind us or give us some color as to how much lower cash cost does those initiatives or those volumes have relative to the North American overall current cash-cost?

Kathleen Quirk

Yeah. So the incremental cost per pound for the leach initiatives are under $1 per pound incrementally. And the reason why they're lower is because they're essentially the mining costs has already been incurred. So this is or that is in stockpiles where we're essentially recovering more metal than what are prior plans suggested we could do. And so we're identifying places within the stockpile where the rock has not gotten the benefit of this catalyst solution.
And we've been able to identify these areas through our censoring and data analytics. And so now we're working on operational tactics to go after it. And so essentially, you don't have the mining costs because you've already incurred that. So this is all just incremental and so that, you know, and to the extent it scales, that has the benefit of bringing down the average unit costs in the US. And so something we're really, really focused on because it'll change the competitive position of these is US operations, principally our MRMC mine, which as most of this potential.
So we're really excited about it the new technologies we're bringing in some expertise from other industries, adjacent industries that's helping us. We've got the agricultural industry that we've been taking the page from, we've got oil and gas industry, services industry. That's helping us with some of these drilling techniques where we're drilling basically putting the solution usually your corrugated through but over time, this blockage.
So we're now able to directly drill in and put solution down into areas that aren't getting the benefit of the solution. And that's giving us a boost we also call this other initiative, leach everywhere. And that's what I was referring to, where we're accessing areas that we couldn't get to before, and we're now able to get to them with withdrawal technology and helicopters where we can go places where humans couldn't go to lay these irrigation line.
So there's a lot happening here, a lot of excitement, we've got really hit of major new mine potential here without the capital intensity in low incremental operating costs. So we're all over this one Carlos and, but it does help us in terms of the incremental operating costs position in the US operations, the more we scale it.

Carlos De Alba

Thanks, Kathleen. And maybe just another one, and I understand is this might be difficult to answer precisely, but with the new regulation for IUPK in Indonesia in place and basically, as you mentioned, PT-FI imposition having made basic requirements to apply for an extension. What is the path ahead to get the approval of extension, I don't know if there's anything on timing or milestones that you can point and is this something that we have to wait until the new president, your historian?

Kathleen Quirk

While the regulation was issue that we were waiting for a while for the regulation to be finalized and the regulation was issued in at the end of May, so that's a really positive development. And the catalyst really to put us in a position to be qualified as an integrated producer, which you have to be under this regulation to apply for life of mine extension was the smelter. And so that moving this smelter into commissioning into operational phase as we move into the next few months.
I'm really positions us to be able to apply none of the conditions that are outlined in the regulation or surprises to us. It was in line with what we've been talking about what the government for some time now, we've got to actually put together the application package, which we're doing, and we can apply now and at any time. So we expect to apply the license there's not any guidelines for how long the government has to respond to that application.
But the discussions we've had previously have been that the government wants to move forward with this quickly because they understand the long lead times. And they want to really see us get started on defining new resources and mine plans that allow us to have a continuity beyond 2041. So our objective is to get this done during 2024. I think that is really doable. And whether or not it's within this administration, the current administration is in place through October.
I think there's watch spread positive reaction to the smelter and to PT-FI being an integrated producer and to continuing the long term benefits. And so whether it's this administration of the next, I think there's positive momentum for PT-FI to get this done during 2024.

Richard Adkerson

Kathleen let me just add, this is different from what we had to face in the past, we're not debating on this. It's an everyone's best interest there's widespread acceptance for and there's a clear understanding now that all shareholders -- all stakeholders benefit from us looking how to maximize value this resource. So it's for those of you follow some past. This is a different process in this very positive.

Operator

Liam Fitzpatrick, Deutsche Bank.

Liam Fitzpatrick

Good morning, everyone. I'm just a question around the new smelter in Indonesia and the ramp-up profile on the face of it, it appears fairly optimistic target to achieve full capacity by year end, just given the size and complexity of it. So can you give us some color on the some of the key ramp up milestones that you'll need to achieve through H2 to hit that target? And then separately, moving forward, do you plan to give us any separate disclosure for the smelter so that we can assess the operating performance and the profitability and so on? Thank you.

Kathleen Quirk

Liam, in terms of your first question, it is a very large complex project and smelter startups. There aren't a lot of them, hundreds scale in the Western world and in recent years. And so we recognize that for some time and have been planning for this over extensive period of time. We've brought together the expertise that Freeport has around the world in and operating smelters. We operate a smelter in the US in Arizona.
We have Fitch smelter in well, the Spain that we've operated for some time. We also have an existing smelter in Indonesia that we're in partnership with Japanese partner there that has been very successful. So we've brought to bear all of the expertise in not only looking at construction, and we've had a team and dedicated team on the construction side to have just done a great job.
But on an operational side we've been standing up this team for some time to be able to run this smelter and training people. And we've had -- we've already got the people employed. We've brought in expertise from around the world to lead this startup. And so we've planned for it. And your point is well understood by the company, we feel we're well prepared for it with any startup you're going to have issues we recognize that. But every time we've thrown issues and challenges at this team through the construction period and into the commissioning period we've been able to overcome them.
I hope you have a chance, if you haven't already to look the video showing really where this smelter is in terms of operational readiness, and we're showing all the various facilities as part of it. So we've planned for we understand it's going to be a different way of marketing our product.
You know, in the past in Indonesia, we've low to concentrate on a ship and paid TC/RC and collected our revenue. And that was pretty simple. Now it's got a more complex logistics situation and a more we've got a number of products will be marketing, but the team has been working on this. And we've got expertise in operating smelter sales and marketing, various products. And so we're well situated for it.
In terms of the reporting, it will be reported in its integrated into PT-FI will be reported as part of PT-FIs results. You'll be able to see its operating costs through the TC/RC line on our unit costs. But above that line in the revenue line of course, we're going to be able to generate higher revenues because we're marketing directly. We have the essentially the free metal come through to our benefit. We don't have to pay a smelter that payable factors, et cetera.
So it will be a piece of revenues and a piece of operating costs for we'll provide disclosures to help you through that. We won't have the duties any longer and so that's a sizable benefit as well. For our results, but just in terms of the operations and readiness, and I'm going to ask Cory Stevens to make a couple of comments. Cory is, he heads up our engineering group, our project construction group, our group that deals with operational efficiency. So he's got a big portfolio not only leading this smelter project but also the leach innovation initiative, but Cory is back from Indonesia. And then maybe Cory you can just supplement what I'm talking about in terms of the readiness for operations.

Cory Stevens

Yeah, Thanks, Kathleen. Yeah, so the commissioning work is well underway with a number of giant unit processes and the teams are collaborating between the operations. And Kathleen mentioned it, but we've got a large contingent of operating folks from around the world, we're calling boots on the ground and the rollout there together working side by side that the commission, this large project.
I mean, it's pretty, it's mentioned and just to give you an idea, I mean, there's 45,000 pieces of instrumentation and computers connections that we're verifying double checking and running the equipment through the operating ranges to be able to start up and ramp-up plan when we go to start this up and at the plant wasn't designed to run very slow.
So end up having to run it at essentially 50% capacity or a little bit better than that, right from the start. And so there's a lot of checks and safety checks going on right now. To be able to operate at that level and then double check the procedures and so forth, and then we'll be able to ramp up from there. So I think the team is energized. It's well choreographed and planned for years, and we're ready to make it happen.

Kathleen Quirk

Yeah, I'd just love him emphasize one thing at Freeport, when we do a major project, we benefit from having a centralized team that supports the operating teams. And so unlike some other companies that don't have this kind of infrastructure that can really help manage the construction period and the transition to operations, we really can bring together the best when it comes to executing a startup and not sugar coating, we're going to have things that come up.
We know that, but we really have the right people that in place to have a safe and efficient startup where, we expect in August that will get first process concentrate through the facility. And of course, of the ramp up, we expect them to move pretty quickly to go through the end of 2025. I mean 2024, we were also got a precious metal refinery that we'll be starting up in the same timeframe. So lot has gone into this project, a lot of planning and it's been executed well. And we expect that we'll continue to execute well through the ramp-up.

Liam Fitzpatrick

That's a very comprehensive answer. Thank you, both. Could I just ask a quick follow-up if there's one item along the critical path over the next few months that you'd highlight the once you get through that you'll be slipping a bit easier at night?

Kathleen Quirk

Cory, you have one on your mind?

Cory Stevens

Yeah. So we're taking extra precautions on the second stage of the smelting furnace, the flash converting furnace. There's only six of the running in the world. It's fairly specialized and we're taking extra precautions there that is at the heart of what's going to enable the smelter to operate at the levels that we want to.

Liam Fitzpatrick

Thank you.

Operator

Bob Brackett, Bernstein.

Bob Brackett

Good morning. A question around the gold sales revision. I understand what conditions in the Block Cave change your mind sequencing into maybe a lower gold grade area, but why does those ounces come back in the plan period so far? You lost 0.2 million ounces this year. Couldn't you argue that it should reappear in '25 or '26?

Kathleen Quirk

Yeah, it's 150,000 ounces, Bob, and it comes back into our plan over the next few years. And so it just didn't around enough to up our numbers, but it is purely a timing situation. And when we look at our overall five year plan, it really didn't change much. Mark Johnson on the call the issue we had in the second quarter, and we expect will continue for a period in 2024. We had some wet draw points that had spillage that we couldn't get back into to clean up. It took a typical it takes a while to clean it up. We've got a robust remote mining underground mining system, and that's working really well.
And what the teams working on is a remote pumping system that allows us to clean up these spills more quickly. And so we don't have as much distress disruption in these areas, but it really is just a timing thing. And Mark, I don't know if there's anything you want to add to those comments.

Mark Johnson

No, Kathleen, I think you touched on it. We've been managing web mark going back to the [IOZ] so roughly over 20 years. Some of the things, as you mentioned, we had some spills that traveled a bit further so that in the GBC there's some unique material characteristics that were mitigating. And the primary one, as Kathleen mentioned, is the ability to remotely place pumping equipment and pump out the water that accumulates during some of our time entry criteria.
So what we have is a period of time that we wait to get safely back in what we're seeing is that the water builds up during that period of waiting by getting the remote pumping, and we'll be able to have it pump before the wireless time is taking place and then we can sort of clean up much quicker. One of the things that we did in GBC is that was a bit unique, we -- because it's the foundation of our operation and the primary source of value we built in the additional operational flexibility by developing more draw points and then theoretically required to meet the production rate.
And that's what allowed us to shift to this other area that had very similar copper grades, but incrementally lower gold grades. And as Kathleen mentioned, over the five years that goal that you had mentioned is back in the plan. And we plan to have this mitigation measures strongly in place firmly in place in the fourth quarter. And I'm confident we can do that.

Bob Brackett

That's very clear. A quick follow-up on sort of the third condition around the IUPK application is commitment for additional exploration and increases in refining capacity. Is that a hard dollar amount that you have to put it into the application? Or is that something that you discuss was out of a softer sort of target?

Kathleen Quirk

That's something that would be approved by the Minister of Energy and Minerals we've been talking with the government, we do have plans to conduct exploration and we do and something that now in the future, we'll conduct additional exploration that will allow us to identify additional resources. And so that is it's really part of our plan for extension. In terms of the additional refining capacity has been discussion with the government. There isn't aspiration to have additional capacity in Papua a current smelter is located in Gresik.
And there's an aspiration has additional capacity and popular and that continues to be discussed with the government. But there's not a regulation doesn't have a specific number or level of investment. It really is a matter of looking at what's needed in country. And the desire is to have it located in Papua, and we'll be working to evaluate that with along with the government.

Bob Brackett

Very clear. Thanks.

Operator

Orest Wowkodaw, Scotiabank.

Orest Wowkodaw

Good morning. Just a clarification on the potential IUPK extension. The it sounds like you're moving towards giving up an extra 10% in the asset post 2021, which you receive any proceeds for that or but there's not effectively just the cost of the extension?

Kathleen Quirk

The 10% offering, a 10% interest to state owned company, we're talking with MIND ID about their objective to acquire additional 10%. The discussions we've had to date with the government have involved offering that 10%. And this is coming from FCX Shares offering that 10% at with a reimbursement of our capital costs incurred for the current period through 2041. To the extent that benefits the period beyond 2041.
So it's essentially a book value concept, and the rationale for offering the 10% and the mechanism for valuing it has been that the government is granting PT-FI with the extension and cost of the deal. And from our perspective, being able to extend beyond 2041, there's a lot of value there that if we don't move forward and make investments that we won't be able to accomplish.
So we felt it in the spirit of the partnership with we have with the government where it's one of alignment and a win at this was appropriate to give us the optionality to have value be the significant value beyond 2041.

Orest Wowkodaw

Okay, thank you. And then just a quick follow-up. It's nice to see the buyback resume here in July. It's been a two years, I think, since we've seen any shares are repurchased, should we expect that to ramp up in the second half year with the smelter a commissioning and ramp up?

Kathleen Quirk

The financial policy is basically one where we distribute through dividends and share purchases and available cash, 50% of available cash. The smelter investments were not part of that math. So we're financing the smelter separately. So the available cash definition is really just the cash flow and less the CapEx that's required for the current operation.
It doesn't include the smelter. It doesn't include our future growth that we're investing in the discretionary projects that we've labled earlier. So that will be a function of what our cash flows are. We certainly want to continue buying back stock, but it will be a function of what ultimate cash flows and will continue to follow that policy.

Orest Wowkodaw

Thank you.

Operator

(Operator Instructions)
Michael Dudas, VRP.

Michael Dudas

Thank you. You're going to go your relationship and negotiations with the Indonesian government's been going quite well as you portrayed here today. And in past calls, maybe you could update us on how things are in Peru, Chile, maybe even in North America, how relative to the amount of investments that you're going to be looking at, maybe others and your competitors as well, how that's played out, given the volatility in the upside in the copper price and any thought from those governments and those ministers of to move along with the new supplies at the market seems to be calling for?

Kathleen Quirk

I think, in South America as a strong desire to see more investment. And certainly, Peru and Chile, both want to see more investment in mining is such a big part of their economy. So that are very, very interested now you've got to make sure you've got the community and social matters done in the right way. But there's a strong desire for those to make investments Chili's going through a process now of looking at its permitting and trying to streamline permitting. We talked about a lot of projects going through a long permitting process. And we're hopeful that this process that the government's now undertaking will allow a streamlining of permits.
But I think both countries want to see more investment in mining and the US as well. You've seen that in recent times with the US prioritizing metals that are critical to the supply chain. And so I think the environment for in these countries for making investments is more positive and has been in the past. But again, I want to emphasize the social aspect of this and the community aspect. It doesn't mean that lowers the bar and what our responsibilities are, to sustainability into communities and environmental management and social good. So you've got to take all the boxes, but there is a growing recognition of a need for these metals. And copper is that at one of the leads for that.
So we are in a good position, we're particularly good position in the US with our current operations, where what we're talking about doing is building on existing operations so that the permitting requirements are not as extensive for the types of projects we're pursuing as they would be for greenfield project or a project in Chile, for example, and US is also talking about streamlining and permitting and regulatory.
So we're in a good position to Lone Star Safford opportunity that I talked about earlier. Is one that even though our studies are a little behind where we are in Chile with El Abra that project to catch up pretty quickly because we don't have the extensive permitting requirements to do that project that we have in Chile.
So we are very focused on getting that project defined. So we can look at them together and see which one is it drops the most value for our business and shareholders. And so we really have an advantage in the US with the existing operations and leveraging our current position. And of course, leaching doesn't require new permits. So we are in a good position to bring on projects more quickly than maybe others could.

Richard Adkerson

Thank you, Kathleen. Years of commitment to doing what Kathleen just said I've doing the right thing building relationships and lead us in the US to have uniform support from communities from Native American group from state governments and regulators. Same goes true in Peru for Stuart Verdi project in their key provision where Peru can be very challenging, got very challenging politics right now. But we benefit from work we've done to support the community.
That's very helpful. And in Chile or 49% partner, El Abra, Codelco. And they are very anxious for us to move forward and very supportive of both the relationship with Borick and would be on the panel will eliminate picking through this fall.
And the Tone is significantly changed from his initial election period race. Realities of the need Chili's for help most support to the mining sector. This is always such a big important part of our business. As you can see around the world, we learned a lot of listens early owns the development Grasberg and need to have good relationships with indigenous people. There are wells would central government. So proud of what our team is doing. And we're just committed to finding common ground inventories in the right way.

Michael Dudas

Very helpful, Richard, Kathleen, thank you.

Operator

Lawson Winder, Bank of America Securities.

Lawson Winder

Operator, thank you very much. And Kathleen and Richard, hello and thank you for making the time for my call -- my question and I'll just keep it brief. I wanted to ask about Kucing Liar. Usually high return project for you will effectively one topic three questions. I just wanted to get an update on when you were expecting first production and then ask as to the pace of spending. So I mean, it's a $4 billion project and you're noting a $400 million have been spent to date over a period of about two years. When do you expect that to start to pick up a little more? Thanks very, very much.

Kathleen Quirk

Lawson, you're right. It is like our other projects are long-term development. Grasberg underground Block Cave at the capital spent over a multiyear period. And we do in our projections show that will start ramping up spending and Kucing Liar, our as we go forward, the average of $400 million a year over a 10-year period was we're spending a little bit lower than that and that'll begin to ramp up. And we'll have some years where it's higher than $400 million. And there may be additional development in that $4 billion that'll occur after we start. So but we are expecting a startup KL towards the end of this decade in advance of 2030.
And it is a very large scale, 90,000 tonnes a day of or significant copper and gold production from that deposit of a real benefit of this extension beyond 2041 is the resource is much larger than what we'll mine between late '20s -- late 2020s and in 2041. So we'll have we did the economics and the economics paid at. Just a life that ends in 2041, but there's a lot of resource beyond that will come into the fold with an extension. So it's a great extension of Grasberg in that district. We're leveraging everything that we've learned from developing the Grasberg Block Cave and Deep MLZ and prior to that, our other ore bodies.
But it's basically this same kind of development that we've had in the past. And we're using all the new learnings and technologies that have benefited us in the development of Grasberg Block Cave. So we're in a good place there and feel good about our execution at this project over the next several years, leading into 2030, we will have good production coming from this operation.

Operator

Brian MacArthur, Raymond James.

Brian MacArthur

Good morning, Richard, and Kathleen. Thanks for taking my question. I just want to go back to that 10% on the IUPK, I just want to confirm a full 2041. You maintain your 48.76%. I think that's what I understand that when a 10% thereafter. But then two on the capital. You put it all in 2041 and then get it back or is this going to be more like for a while or real, whereas you develop reserve than their ownership build up that you share the cap with different ratios? On what we saw that said with the Rio Tinto stuff is for the time figure out exactly like how the cash flows are going to work on.

Kathleen Quirk

Yeah. Well, as part of the application to the government for the extension, we will submit an agreement to make the transaction. And that agreement is currently being discussed with MIND ID. The what's been discussed in over the last couple of years with respect to the sort of last year plus is that the way it will work is the 10% we'll share transfer will take place in 2041. And the price paid at that point will be a reimbursement of the capital that was incurred between now and 2041, that benefit the period beyond 2041. So to the extent it's not like the Rio Tinto deal at all is basically you just a reimbursement at book value of what's there to benefit the period beyond 2041.
So essentially look at the book value at the end of 2041 and that pro rata percentage being 10% of our shares will be transferred. And that will be the purchase price will be the reimbursement of capital. So the [camera] close between now and 2041 won't be impacted by.

Richard Adkerson

And Brian, that that transaction occurs after 2041 is not like the real deal with the transaction occurred in the mid '90s. And it was just a question how it was applied. So you know, if for whatever reason doesn't occur, then our interest will stay the same. It anticipates the government would act to require that 2% and that would be the agreement on the cost reimbursement we have triggered when that transaction occurs.

Operator

Bill Peterson, JPMorgan.

Bill Peterson

Yeah, Kathleen and team. Thanks for taking the question. Nice to see the doubling leaching and first half '24 for the first half last year. Looking ahead, how should we think about the trajectory from here? Do you expect to be in some more output in the recent quarter was GBP5 million or some of productivity items. You highlighted sake using technology, you see further upside in the back half of the year and into 2025 as you progress through the GBP300 million to GBP400 million per year targeting 2026.

Kathleen Quirk

The current run rate is what's in our numbers. We do see opportunities to build on it through these initiatives that we're pursuing to move up to this GBP300 million to GBP400 million per annum range. And so it'll come over time. It's not going to come in all at once. And so as we go through this year and next year, we'll probably have more than what we've currently got in our plans. But we haven't put forward. We're still deploying these tactics. We feel very confident about, but we haven't put those into our numbers at this stage and that'll be something that will continue to update as we go forward.

Operator

With that, I'll turn the call back over to management for any closing remarks.

Kathleen Quirk

Thank you, Regina, and thank you, everyone, for your interest and participation. And if you have any follow-ups, feel free to contact, David.

Operator

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