Freeport-McMoRan Inc
NYSE:FCX
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Freeport-McMoRan Inc
Earnings Call Analysis
Q1-2024 Analysis
Freeport-McMoRan Inc
Richard Adkerson began the earnings call by announcing the seamless transition of leadership to Kathleen Quirk, who brings 35 years of experience with the company. Richard will continue contributing as Chairman, ensuring a smooth handover. The company remains committed to its strategic focus on copper, backed by a strong independent board and a seasoned management team.
The first quarter of 2024 saw strong results for Freeport-McMoRan. The company exceeded its guidance for copper sales, with gold sales meeting expectations and consolidated unit net cash costs performing better than forecast. Key financial highlights included generating $2.5 billion in adjusted EBITDA and $1.9 billion in operating cash flows, driven by an average copper price of $3.94 per pound.
During the first quarter, capital expenditures totaled $800 million, excluding $0.5 billion for the Indonesian smelter project, and net debt was reduced. The estimated consolidated net unit cash costs are expected to approximate $1.57 per pound, slightly below the previous guidance. Projections for capital expenditures are $3.6 billion for 2024 and $3.9 billion for 2025.
Freeport-McMoRan highlighted the increasing demand for copper driven by secular trends, particularly in electrification. Factors such as investment in power grids and renewable energy are significantly boosting copper demand. Tight supply conditions, combined with rising prices, are expected to result in a sustained period of higher copper prices, boosting Freeport's long-life, large-scale production assets.
Key growth projects include advancements in the leaching initiatives and the Indonesian smelter project. The smelter is on schedule to start in June, enhancing the company’s capacity. Freeport also outlined various projects across different time horizons that could significantly boost copper production, including the Kucing Liar project in Indonesia and the Bagdad expansion in Arizona.
The company's innovative leach initiatives are making significant progress, aimed at mitigating the impact of lower ore grades. In Indonesia, higher copper and gold production, along with efficient operations, have kept net unit cash costs low. Freeport is also exploring potential acquisitions and leveraging existing resources for future growth.
Freeport's financial policy centers on maintaining a strong balance sheet, offering cash returns to shareholders, and investing in growth projects. Approximately $4 billion has been distributed to shareholders via dividends and share buybacks, with higher cash returns expected in the future as copper prices remain elevated.
Despite facing challenges like low ore grades and labor shortages in the U.S., the company remains focused on operational efficiency and cost control. Inflationary pressures are moderating, and the company is training its workforce to reduce reliance on contractors. Freeport is also investing in new technologies and automation to enhance productivity.
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Ladies and gentlemen, thank you for standing by, and welcome to the Freeport-McMoRan First 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.
Thank you, Regina, and good morning, everyone. Welcome to the Freeport-McMoRan conference call. Earlier this morning, Freeport reported its first quarter 2024 operating and financial results. A copy of our press release with supplemental schedules and slides are available on our website, fcx.com. Today's conference call is being broadcast live on the Internet. Anyone may listen to the conference call by accessing our website home page and clicking on the webcast link.
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. We'll begin today's -- our comments, we'd like to remind everyone that our press release and certain of our comments on the call include non-GAAP measures and forward-looking statements, and actual results may differ materially.
Please refer to our cautionary language included in our press release and slides and to 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 and Chief Executive Officer; Kathleen Quirk, President; Maree Robertson, Senior Vice President and CFO; and other senior members of our management team.
Richard will make some opening comments, Kathleen will review our slide materials and then we'll open up the call for questions.
I would now like to call -- turn the call over to Richard.
Thank you, David, and thank you all for joining us. We're really pleased today to report our first quarter results. They reflect a continuation of Freeport's long-running success in executing our business plans. Kathleen will present our results, as David said, and then we'll answer your questions. Kathleen will become Freeport's CEO, effective with our Annual Shareholders Meeting on June 11. I will continue as Chairman and support Kathleen and our management team on important strategic issues and external relations.
This will be the most seamless management transition in history. There's been a 20-year transition, in fact. Coincidentally, Kathleen joined Freeport shortly after I did 35 years ago. And I've been an adviser to the company for the previous 2 decades. She advanced through our finance group to become CFO when I became CEO 20 years ago. And since then, she's been integral to the management of the company.
When I became Chairman 3 years ago, I made a personal commitment to build a sustainable Board and a sustainable management team. And since that time, we've added 6 high-quality independent directors, new directors, which together with our continuing directors comprise a very strong independent Board to represent our shareholders. We bolstered our staff with internal promotions and external hires.
Freeport is strongly positioned for the future, and I'm personally proud to be able to say that at this point. 20 years ago, we made a strategic commitment to copper based on the fundamentals of supply and demand for the commodity. The validity of that commitment has never been more evident, and the best is yet to come. My personal enthusiasm for Freeport's future has never been stronger. I cannot be more pleased with our Board and with our management team under Kathleen's leadership.
Kathleen, I'll turn the call over to you for your slides.
Great. Thank you, Richard. And a special thank you to you for your outstanding and visionary leadership during your long tender as our -- tenure as our CEO. As I prepare to become CEO in June, I'm focused on our copper-leading strategy centered on reliable execution of our plans, disciplined cost and capital management and continuing our drive for profitable growth.
Our seasoned team knows this business has a proven ability to navigate challenges and a passion for finding value in our assets. I look forward to building on our past success and to leading our company to new highs in the future.
Starting on Page 3, Slide 3, we have a new annual report out with this year's theme being the value of copper. The report is available on our website. It highlights our performance, our copper-focused strategy and our strength as a premier copper producer. We'll also be publishing our annual sustainability report, which will be available on our website later this week.
This report, which we've been doing for some time now, details our environmental and social performance, which we take very seriously as part of our commitment to responsible production.
On Slide 4, we present our key focus areas of -- for 2024. These are the same items we discussed in our January call and we thought it would be good to show these again for reference so you can track our progress against these areas as we go through the year.
On Slide 5, turning to the first quarter highlights. We're off to a really good start so far in 2024. As summarized, we exceeded our guidance for first quarter copper sales. Gold sales were in line with our estimates and consolidated unit net cash costs were better than forecast. We generated strong margins and cash flows during the quarter with $2.5 billion in adjusted EBITDA and $1.9 billion in operating cash flows, and that was at an average copper price of $3.94 per pound.
Capital expenditures, excluding $0.5 billion for the Indonesian smelter project totaled $800 million in the quarter, and we reduced our net debt. We made great progress on several important initiatives, including on the Indonesian smelter, which is scheduled to start up in June, building momentum in our innovative copper leach initiative and continuing to build optionality in our organic growth pipeline.
Market conditions are increasingly positive. They're growing recognition of factors driving favorable fundamentals in copper and we've also seen a rise in gold prices year-to-date. Recall that Grasberg is one of the world's largest mines in terms of both copper and gold production.
Moving to copper markets, starting on Slide 6. The growing intensity of use of copper in the global economy is supported by secular trends, particularly in electrification. Copper is a foundational essential metal when it comes to electrification, and the world is becoming more and more focused on copper-intensive energy applications.
New massive investment in the power grid, renewable generation, technology infrastructure and transportation are driving increased demand for copper and forecasts call for above-trend growth and demand for the foreseeable future. This is occurring at a time when there are constraints on existing supplies, an absence of major new copper development projects and extended multiyear lead times for supply development pointing to tight market conditions for an extended period of time.
Copper producers, including us, at Freeport have been citing physical market tightness for some time. And in the last several weeks, the copper price has risen to reflect the reality of the market situation. Based on historical periods of above trend growth in demand, we may be in the early stages of a repricing for long-term copper prices.
And we illustrate this on Slide 7, where we show how copper prices responded 20 years ago when China emerged as a major consumer of copper. You can see on this chart that within 12 months, the copper price increased by 40% and was up nearly 4x within a 3-year period. During 2023, the secular drivers for copper demand provide a growth in demand despite weakness in some of the more cyclical drivers of copper demand.
In the fourth quarter of last year, industry announcements of sizable supply disruptions tightened the market significantly. This is clearly evident when you look at the physical concentrate markets where smelters drop TC, treatment charges sharply as a result of the shortage of concentrate supply. Notably, recent manufacturing data points also indicate that the global economy is recovering.
Recently improved macroeconomic sentiment, combined with physical market conditions have driven prices higher -- copper prices higher year-to-date, and many analysts are now projecting significantly higher copper prices in the future. At Freeport, our financial performance is highly levered to copper prices, as you'll see from our sensitivities, we'll review later in the presentation. We're not predicting where prices will go from here, and recognize there will be volatility. But clearly, the fundamentals point to an extended period of deficits and significantly higher copper prices over the long term. That's very positive for a company like ours with large-scale, long-life producing assets and organic development opportunities.
Now I'll cover the operating highlights from the quarter. This is presented on Slide 8. We're summarizing the key operating highlights by geographic region. In the U.S., we continue to work to mitigate the impact of lower ore grades by focusing on initiatives to improve efficiency and reliability of our equipment, the productivity of our workforce and sharpening our focus on cost reduction. We're making progress in these areas, but we still have work to do to regain our goal of being at the top of the industry in terms of efficiency and productivity.
Our innovative leach initiative is providing incremental volumes and has helped us mitigate the impact of lower ore grades. As we previously reported, we reached over our 200 million per annum run rate, we've got several initiatives in progress to scale this to the 300 million to 400 million-pound per annum range over the next 2 years. We're also continuing to take advantage of new technologies and automation across the portfolio, which we believe have a lot of potential to move the needle as we go forward.
In South America, we -- our ore milled was slightly below 400,000 metric tonnes of ore per day at Cerro Verde. Team worked through several challenges during the quarter associated with material types, which required optimizing mill throughput to address recoveries. And the team was successful in achieving copper volume targets by increasing mine rates and accessing higher than planned grades.
Our [ moly ] byproduct volumes were impacted, however, by low recoveries associated with the material types and progress is being made to address this. At our El Abra mine in Chile, we had a good quarter, and we met expectations. We're also pleased to report that Cerro Verde recently finalized an agreement for a new 4-year labor agreement with its workforce.
In Indonesia, we had another exceptional quarter of performance. Both copper and gold production exceeded our forecast with higher mill rates, higher ore grades and recoveries. Our net unit cash costs for the quarter in Indonesia was a net credit of $0.12 per pound. That means our gold byproduct credits more than offset all of the cash production costs. Our underground ore mine, which is the largest block cave mine district in the world averaged 220,000 tonnes per day that was above the fourth quarter of 2023 and significantly above last year's first quarter.
The Grasberg Block Cave mine is our largest in the district, and it continues to achieve strong performance. We've also increased our rates at the extra high-grade smaller mine at Big Gossan by nearly 30%. Our new [ SAG ] mill, which we installed at the end of last year is performing very well. We're nearing completion of a mill recovery project, and that will enable higher mill recoveries in the future. And our team there is just doing outstanding work in sustaining and optimizing value from this large resource position. Topping it off the PT-FI team recently finalized a new 2-year labor agreement with our workforce.
Give a report on Slide 9 of where we stand with our smelter project and the completion of this new smelter in Indonesia is a very important catalyst for us, as we work to secure an extension of our long-term operating rights in Indonesia. We made substantial progress in the first quarter and now we're focused on the remaining critical path in transitioning to commissioning and start-up activities.
We're on track to begin hitting the furnaces during June, followed by concentrate process in August and first cathode in October. We're working closely with the Indonesian government to continue to export concentrates and anode lines until the smelter and precious metals are finally -- fully operational, and we expect that by year-end when we will become a PT-FI, a fully integrated metals producer.
Discussions with the government to date are positive and that's supported by the project status and the start-up plans. In terms of our startup, we have a very talented local team who will be supported by a large team of free porters from around the globe, including from our Spanish operations and our U.S. smelting operations to support an efficient startup.
We're very focused on our growth and optionality in our growth pipeline, and we've got a summary on Slide 10, where we go through where we stand on the various projects. We have dedicated teams working on advancing opportunities to grow production in the future. And here, you'll see the update for each of the major initiatives underway, starting with the innovative leach initiative where our team has several work streams in progress to take our initial success and build substantial scale.
This project has the highest net present value potential of any project we have seen historically because of low capital intensity, low incremental operating costs. And at Freeport, we're uniquely positioned to capture this value with our sizable existing footprint, technical know-how and new technologies available to us.
At our Bagdad operation in Northwest Arizona, we talked about it on our last call. And now we're continuing to take steps to derisk the brownfield expansion project by converting the existing haul truck fleet to fully autonomous, expanding housing infrastructure at the site and expanding our tailings facilities. We're also continuing to monitor labor market conditions in Arizona and hope to be in a position to make an investment decision by the end of next year. From there, the project would take about 3 to 4 years to construct.
At our Lone Star, Safford brownfield project in Eastern Arizona, we're commencing a pre-feasibility study this year to define and frame a major expansion. As we've been talking about over many quarters, we have a sizable resource here and expect this district will become a major cornerstone asset for us in Arizona during the next decade. At El Abra, in Chile, we have a large resource that can support a new concentrator of scale and we're looking at a concentrator similar to the size of the Cerro Verde concentrator expansion we installed nearly 10 years ago.
We've done substantial work to define the project, and we're currently in the process of retesting the economics and taking a hard look at capital costs in light of the recent industry experience in Chile. We're working to be in a position to file an environmental impact statement by the end of next year, and this project would require 7 to 8 years of lead time because of permitting requirements.
In Indonesia, we're continuing to advance our large-scale Kucing Liar development to commence production by 2030. We also have several additional exploration targets in the district and expect to have additional long-term development options that would become available with an extension of our operating rights beyond 2041.
We're going to continue to be disciplined in our approach, targeting opportunities that can be executed efficiently and profitably and where we think we can create value for our shareholders. We wanted to take you through a little bit of our leach history on Slide 11 that provides history of what we've achieved to date on this innovative project.
We started on this journey 2 years ago with data analytics and new operating practices to tap into our large stockpiles to recover copper from material that was previously mined through a combination of actions to achieve greater heat retention in the stockpiles, gaining access to areas of the stockpiles that had not been optimal leached historically, and through the use of better identification of trap potential, we've been successful in adding incremental copper previously thought to be unrecoverable.
This initiative has grown now to be a major value driver for our Americas business, particularly for our largest U.S. mine in Morenci. As we mentioned, we achieved our initial target for an annual run rate of 200 million pounds per annum, now focused on doubling this or scaling what we've learned to date. To date, the success has largely been operationally driven, complemented by new data and technology. At the same time, in parallel, we're advancing studies on new additives that could boost recoveries and we're exploring options for adding heat to existing stockpiles to generate incremental copper.
In the aggregate, these initiatives have the potential to reach 800 million pounds per annum and that's the equivalent of a large-scale copper mine with low capital intensity, low cost and a low carbon footprint. About half of this can be achieved through further scaling, as we mentioned, and the other half relates to technology under development.
The value potential is very attractive, particularly for Freeport given our large quantities of suitable materially -- material that we previously mined.
In terms of our timing of all this on Slide 12, we summarized potential growth and that we frame it in near-term, medium-term and longer-term horizons. We've outlined identified projects in the Americas, totaling 1.7 billion pounds and the Kucing Liar project currently in development in Indonesia, and that's expected to continue to support long-term production profiles in the Grasberg District.
In the 2- to 3-year category, we set our focus on incremental production, on scaling our leach initiatives and operational improvement projects. Together, the potential from these opportunities total 400 million pounds and do not require significant investment or long lead times.
In 3- to 5-year category, we've got the Bagdad expansion opportunity and the additional potential from our leach initiatives. El Abra is reflected in the 7- to 8-year category and Lone Star is not on here, but it's also a major opportunity, which we're currently defining. It's likely a bit further out, but we feel it will be a major new opportunity for us as we go forward.
The KL development in Indonesia is proceeding on schedule. We expect to commence production before 2030 and ramp up to over 500 million pounds of copper and 500,000 ounces of gold, which is meaningful operation. In Indonesia, an extension of our rights beyond 2041 would open substantial opportunity for reserve and resource expansion and continuation of large-scale mining in one of the world's largest and highest grade copper and gold mining districts. We're in a strong position, as you see here, to continue our leadership role in supplying copper to a world with growing requirements.
On Slide 13, as we usually do, we show our 3-year outlook for sales volume of copper, gold and molybdenum. We've increased our 2024 copper sales by about 1.5%, reflecting the first quarter outperformance. The rest of the guidance is similar to our outlook at the start of the year. We're also estimating consolidated net unit cash costs to approximate $1.57 per pound on a consolidated basis that's slightly below our previous guidance of $1.60 per pound. We've got some details of the makeup of this average presented on Slide 25 in the restaurants materials.
With a strong cash flow generator, as you can see on Slide 14, where we show modeled results for our EBITDA and cash flows at various copper prices ranging from $4 per pound to $5 per pound for the average of '25 and '26. We're using our current volume estimates for '25 and '26, our cost estimates and we're holding gold flat here at $2,300 per ounce and molybdenum at $20 an ounce for illustration.
Under this scenario, annual EBITDA would range from almost $11 billion per annum at $4 copper to in excess of $15 billion per annum at $5 copper and our operating cash flows would range from over $7.5 billion per year at $4 copper and over $11 billion per year at $5 per pound copper. We've got sensitivities to the various commodities on the right with long life reserves, large-scale production, we're extremely well positioned to benefit from improved pricing, providing substantial cash flow for investments in our organic growth and cash returns to shareholders on our performance-based payout framework.
On Slide 15, we show our current estimates for capital expenditures for '24 and '25. Not much has changed since our last update. $3.6 billion is projected for 2024, which is consistent with our prior guidance. And in 2025, we estimate CapEx will total about $3.9 billion. That's about $100 million higher than the January estimate and reflects timing changes for our Kucing Liar project spend for 2025.
During this period -- during this 2-year period, discretionary projects totaled $2.5 billion. This is -- this category reflects the capital investments we're making in new projects that under our financial policy, are funded with the half of available cash that is not distributed. And these projects are all value-enhancing initiatives, and we've got some details in the back -- in the reference materials.
Finally, getting to financial policy on Slide 16. We reiterate the policy priorities centered on a strong balance sheet, cash returns to shareholders and investments and value-enhancing growth projects. Balance sheet continues to be very strong. We've got great metrics -- credit metrics and significant flexibility within our debt targets to execute on our projects.
As indicated here, we've distributed about $4 billion to shareholders through dividends and share purchases since starting this new financial policy and we've got a very attractive future long-term portfolio that will enable us to continue to build long-term value for shareholders. A sustained higher price for copper will drive higher cash returns to shareholders while allowing us to invest in future value-oriented growth.
We're going to continue to actively monitor the market conditions. We'll carefully manage the timing of our projects and make sure that our financial flexibility remains strong.
In closing, our global team is driven by value, and we continue to focus on what matters in our business by executing our plans responsibly, safely and efficiently and maximizing the value of our vast resources. We thank you all for your attention, and we'll now open up the call for questions.
[Operator Instructions] The first question comes from the line of Liam Fitzpatrick of Deutsche Bank.
Fitzpatrick from Deutsche Bank. The first question is just on your U.S. assets. You've been talking about for some time, the productivity improvements that you're targeting. Could you give us a bit more color on when we should expect some of this to be visible in the numbers? And what sort of change are you hoping for? Is this just to do better than inflation? Or could there be more of a step change at some stage?
And then the second question, 2 parts to it really is just on your projects. Firstly, on Bagdad, I think the timing you give in the presentation suggests you could make an investment decision next year. I just wanted to check that's the right timing to think about. And then at El Abra, if you do nothing at that mine, when will it be facing a more material drop off in grades?
Thanks, Liam. In terms of the U.S. operations, what we're faced with right now is very low ore grades, the lowest ore grades we've had in -- since 2010. So that is structurally a challenge for us. Over the last couple of years, we've also been dealing with labor shortages in the U.S. and needing to make sure that our people are trained and can gain the efficiencies that we've had in 2019 before COVID.
We're making really good progress with the work that we're doing. It's not easy work. It's hard work every single day, but we know what the work is. And we've got to make sure that our equipment is operating that we're getting the asset efficiencies in our equipment that we should be getting. If we look back over the last couple of years, we haven't gotten the asset efficiencies that we've had historically. And so we've been working on that. We've been working on maintenance to make sure that our equipment health is strong, we're working on training of a workforce that's less experienced.
And it's just basic blocking and tackling, but the headwind is the ore grades. And we're really happy with the results of the leach initiative, and that's provided us with some benefits as we've gone through these lower ore grades. But we still think we have a lot of potential. And we're making the progress. We've got detailed scorecards of what we're doing every day in all the drivers of what makes us efficient. Everybody is focused on it. We're also focused on technology advancements.
You read about the advancements we have at Bagdad, where we're looking to convert the haul truck fleet there to fully autonomous. We've got all kinds of technology initiatives available to us that we haven't had historically. And I think that is a key driver for us also as we look at improving our North American operations. But we think we do have opportunities within the portfolio, within the North American portfolio to increase production as we gain productivity, and that's the 200 million-pound a year range. And that's a focus of ours. And I think we're on the path. It doesn't happen overnight, but it takes working every day and discipline around it, but we know what to focus on.
Regarding your question at Bagdad, we've got the study done. What we're focused on there is really this workforce situation where we want to make sure that when we go forward with the project, that we can do it efficiently and that we can deliver the project within the capital cost estimates and within the time frames. And so we want to take our time in doing additional work, derisking the plan as we go forward over the next 18 months.
And then once we get this autonomous fleet converted, we'll be in a position to reassess the situation and be in a position to move forward. It's not a -- in an ordinary environment. It's not a complex project. It's a brownfield project where we have a substantial history in the district. The issue really gets to the labor market conditions. And also, we want to continue to monitor the copper markets, et cetera, as we always do. But this is a very executable plan if we can deal with the workforce challenges that we have in Arizona, which is a very competitive place right now given all the activity in the state.
With respect to El Abra, we're looking at the current operation, which is very small relative to the size of Freeport, has got life to it over the next several years and will start to decline, probably give us another 10 years, but we have some water. We've got to get some water extensions and things that we're working on there. But the El Abra project is very exciting from the standpoint of the resource. It's very large. It's not in our current reserves. And so we have the ability to add reserves of scale.
In terms of the overall project, like I mentioned, we've done a lot of work on it. We feel very good about being able to execute it. But the things that we're working on there are really going back and looking at our capital cost estimates really stress testing those, understanding what happened at other projects in Chile and figuring out, make sure we're comfortable that the economics of the project are as good as they look initially. And that's what we're testing now.
The long lead time in Chile is because of the permitting requirements. It takes an extended period of time to get the data necessary to file the application. And then as you know, there's a review period that can span 2 to 3 years. And I know Chile is working to streamline its permitting that would be helpful for us as well. But really, what we're focused on there is getting to a point where we can file the environmental impact statement and then that will give us additional optionality. But there's good value in that project for us.
Your next question will come from the line of Chris LaFemina with Jefferies.
First, I just wanted to say congratulations on the operating performance in Indonesia. That has been very impressive. And once again, this past quarter, pretty incredible what you've done there. So congrats on that. And then secondly, I just wanted to ask a follow-up on the trends in cost in the U.S. So if you did, what, 51 million pounds of leach -- production from that new leaching initiatives in the U.S. in the first quarter. And if we assume that's around $1 a pound, that would imply that the rest of your production in the U.S. is around $3.35, $3.40 a pound for net cash cost. And then if we add to that sustaining CapEx, it's probably something close to $4 a pound free cash flow breakeven. So my first question is, is that right? Are you at around $4 a pound free cash flow breakeven in the U.S. if you exclude the benefit of the new leaching initiatives?
In terms of the leaching initiatives, when you look at our reported cash costs, you have to consider that until we add additional pounds to the stockpiles. What we're recording as our average cost is reflective of our average cost of per unit and stockpiles. So as we gain more confidence, the denominator will drop, so we're pulling those pounds out now out of the stockpiles are reflecting like a $3 average cost. When in reality, the incremental cost is closer to $1.
So as we get more confidence and we're able to add more pounds, multiyear amounts of this leach reserve, you'll see that unit costs come down. But in terms of your analysis, it may be shy of the $4 you're talking about, but we are in a lower grade area of North America right now. And so our unit costs are relatively high compared to historical levels. We've had cost inflation as everybody has seen, but the other area where we're focused on is more on the things that we can control. And we've seen some of the inflationary pressures moderate, but the things that we want to continue to work on is to avoid unplanned maintenance, to avoid -- to reduce our maintenance costs. And also as we get more workers within our own team, and we get those workers trained up, it will reduce our reliance on contractors, which has been a big cost for us. And that's what we've had to do during this period of the labor challenges is rely more on contractors, and so right now, we're really rationalizing contractors and training up our people to be able to do this work.
So the leach opportunity, big picture, is really going to be a step change, though, as we go forward in the U.S. And if we're able to be successful in adding another 200 million pounds from the leach initiative at a very low incremental cost and improving our technology -- I mean, our productivity gains, you'll see our costs start to trend a lot lower in the U.S., and that's what we're focused on. That's what Josh and his team are focused on. Maree is very focused on it as well and her team. So we're all over this, Chris.
Right. So that $1 per pound cash cost for leaching is not what's reflected in the production cost in the first quarter and that was reflected in the 2024 full year guidance, right? You're using something like $3 a pound in the guidance as well?
Yes. It's just coming out at the average when we report it. And the way it will come down on our financial books is with an increase in estimates and future estimates because the costs are spread over what's remaining in the stockpiles. And as we add more volumes to the stockpiles, that will reduce the incremental cost and be reflective really truly of what's really occurring.
From a cash flow standpoint, it doesn't affect cash flow. So the cash flow, we really are getting the benefit of the incremental cost below $1.
So if we think about the cash flow, you have the smelter construction is nearly complete. You're going to one way or another, not be paying royalties at the smelters ramped up. Copper price is obviously higher -- duty, sorry, the copper price is obviously higher, gold price is higher, balance sheet is clean. You have your performance-based capital return policy, which you haven't really executed on in the last year. You've had a lot going on, but I'm just wondering in terms of timing of when we could see those supplemental capital returns. Is that something the Board will consider imminently? Or is it kind of -- do we have to get through certain events before you consider delivering those capital returns?
Yes. Well, we have been executing under the policy. We've distributed since we started the policy, 50% of our available cash flow. And so all the items that you cite and that excludes the smelter, but all the items that you cite are building to give us more cash that will be available for distribution. And we'll continue to file that policy of higher prices is going to be more cash flows and more cash returns to shareholders. And that is the policy.
Our next question will come from the line of Michael Dudas with Vertical Research Partners.
I think you mentioned in response to the question about operating costs and cost moderation. So maybe you can touch a little bit more on what you're seeing on the ground more specifically in your North America and South American mines on cost improvement, what your expectations are versus what it might have been a few months ago?
And how are you seeing that in some of the feasibility studies that you're working on and completed? And what kind of -- have we seen double-digit inflation continuing on the capital cost side that's going to continue to make it a little bit more challenging for Freeport and others to really follow through and provide the material of our market needs?
Yes. I think those issues have moderated a bunch, and we're getting more into a stable situation, while it's higher than it has been. It is more stable. For instance, when we were going out for bids for things a year or two ago, you might get one bidder on a project. And now things are opening up some more for us. So on that part, I think it's stabilized now. We'll continue to test it.
And whenever we run our projects and run our economics, we always look at a range of what the capital costs are and what the sensitivities. We're not encountering that right now. And in terms of commodity input costs and things. They've been more moderate and more stable than we've seen in some time. We all know that, that can change, but it has been more stable. The things that we need to work on are, particularly in the U.S. of this issue I mentioned with respect to the labor force and the experience levels and with contractors and the third thing, and one of the most important is reliable asset efficiency. And so those are the challenges that we have and we're working on them.
I feel very confident that we're turning the corner on that. We're continuing to make good progress on really driving efficiency within the U.S. operations. We haven't had the issue in South America and in Indonesia, we've got a much more stable workforce, much more experienced workforce. We've also benefited there from a stronger dollar. So many of our -- much of our labor cost is in foreign currency. So we have benefited there from a stronger dollar and have not seen -- obviously haven't seen that benefit in the U.S. But we do believe there are some things within our control that we're focused on now. And now that things have moderated some with inflation, we've got a clear focus on being as efficient as we can, recognizing that low grades becomes a challenge. But we want to do better than inflation. I mean that's what we want to make sure that we can overcome inflation in our costs with productivity gains and efficiency gains. And we've got technologies available to us that we haven't had in the past. And I think as a company, we're going to be leaning a lot more into innovation as a tool to help us with productivity.
Let me just add 1 point on the broader copper market implications of that question. Kathleen described very well the things we're doing within our company. And when you look back at our cost history in relation to general inflation, we've done a good job with our supply chain team. But the shocking amount of overruns on the major project in Chile, but elsewhere and also the political situation in Panama, as I talk with CEOs around the industry, makes us all step back and say, we have to be careful. We have to be careful because the overruns are more than just simply inflation, and we're still trying to get our arms around what's going on with these projects to cause them to be delayed and to have the kind of cost situations they have.
At the end of the day, this is just another major element for the positive outlook for copper prices. I mean if these problems were easily solved, and this is a tough business, you wouldn't have the supply shortfalls that we're having, and that's been a major factor from seeing the recent run-up in copper prices, and it's also something that's very supportive for the longer-term outlook for copper prices.
Our next question will come from the line of Bill Peterson with JPMorgan.
It's actually Bennett on for Bill, this morning. If I could, I wanted to ask what, if any, is the company's current dialogue with the new leadership in Indonesia and how you see that relationship developing over time?
Well, the transition doesn't take place until October. And we're continuing to work with the existing administration. We've got some matters that we're working together on with respect to the concentrate license that we talked about earlier as well as the IUPK extension and so we're continuing to work with the current administration on these matters.
We have a long history in Indonesia. We just celebrated 57 years of operation there. And we've worked with many governments over the years and many administrations, and we feel very confident that we'll continue to have good relations with the new administration and what we focus on, we're not -- we don't get involved in politics, so we focus on what we do there to be a good citizen of Indonesia, to provide benefits to the national government, the local government, all of our workforce, the community and stakeholder work that we do there is very important, and that's -- that lasts that survives administrations. And so we really focus on the things that make the asset good for Indonesia and good for all the stakeholders, and that's what we'll continue. Richard, I don't know if you want to add anything to those comments?
Sure. I've been going to Indonesia now for all my career with Freeport over 35 years, and our relationships have never been better. I was just in Washington Friday evening for a reception to celebrate 75 years of positive relationships between the U.S. government and the Republic of Indonesia and the finance minister, Sri Mulyani and the Central Bank Governor Perry were there. And I wish you all could just hear the positive things that were set around this table of a number of companies and a number of Indonesian government officials about the current way that Freeport is viewed and how positive they see our partnership is in building PT-FI, which is an Indonesian company and to be in such a success for all the stakeholders.
That's helpful. And if I could just squeeze in one more on the topic regarding the future mining rates in Indonesia. We saw a headline last week that these could potentially be granted as soon as this upcoming June. So I'm wondering if there's any updates you can provide there? And what additional ask maybe on the table from the government there?
Let me just say that we have gotten -- we have an agreement with the government on the structure beyond 2041. There's no controversy over that, and there's general support for it. The -- I believe the fact that the election occurred and we just went through Ramadan is having an effect on the timing. But we're very pleased.
I mean it's important to know that we currently under our existing permit, have no rights to anything beyond 2041. And it makes no sense for any stakeholder to have this operation run without having a long-term plan for it in terms of doing more drilling to understand what resources are there, doing long-term planning or how those resources will be developed. The Indonesian -- our Indonesian shareholder mines ID understands that. The Ministry of Mines understands that the President's office does as well.
So I'm confident we're going to be able to get that. As always, there's uncertainties as to when the actual formalities will be concluded to grant the regulations to allow us to continue. But there's no real controversy about the structure going forward.
And delivery of the smelter is an important part of that. And the government is very pleased with the progress we've made in getting the smelter to a point where it can be commissioned next quarter -- this quarter.
Your next question will come from the line of Lawson Winder with Bank of America Securities.
Maybe just on Cerro Verde, if I could. Is there still a pathway to consistently exceeding well over 400,000 tonnes per day at that asset?
Absolutely.
I can't tell you what a great job our team down there has done. I visited recently and I mean, just the spirit, the relationships with the local community. And as you all know, Peru is a very complicated country and has a lot of issues politically and economically to deal with, but it is just an uplifting experience to see what our team has done down there.
I had some friends with me and to see an operation where we're moving 400,000 -- over 400,000 metric tonnes of material a day, that's the equivalent of 80,000 street dump trucks moving material in a single day. And so it's an inspiration quite frank, for me to see it. The community supports us. We've got a great workforce. We're actually bringing some of our Peruvian operating people to work in Arizona and New Mexico to support our operations there, but it's an uplifting place to go for me.
Lawson, it's not without challenges this team has demonstrated, as Richard said, that they can -- they're very resilient team and can deal with a lot of different challenges. But water is something that is always a concern. We did with our expansion almost 10 years ago to put in a water treatment facility, and we provide clean water to the community, and it also supports our own operations. But particularly during this time where we've been through El Nino and droughts and there's always a focus on water, but the ore is there, the resource is there, and the team has got -- we've got the assets there and the team has got really good work practices. And as Richard said, the relationship with the community is top-notch.
Our next question will come from the line of John Tumazos from John Tumazos Very Independent Research.
In the first quarter, the minority interest was $69 and the income to shareholders was $473. Can we interpret from that, that the U.S. lines made about $200 million less profit than the overhead or the U.S. operations are losing money. And what are the short-term remedies, for example, how quickly can you convert to autonomous trucks and mitigate wage inflation, et cetera.
One thing, John. Kathleen, let me say one thing to John before you asked the question, Kathleen. I've seen some of your writings, John. And the minority ownership in PT-FI came about from the Rio Tinto deal in the mid-1990s. And that really hasn't changed. That just was transferred to the Government of Indonesia and that joint venture interest was converted to shares, but in 2018, Freeport, through the agreement that we reached, maintained virtually the same economic interest in the mine that we've had all along. So this wasn't something that happened because of the government, but because of a deal that was cut back in the mid-1990s.
And when you look through it and I talk with our Americas people and our people in the U.S. about it, because even though our mines in the U.S. are low grade, because of the fact we have a very favorable income tax situation in the U.S. bolstered by net operating loss carryforwards, we own our lands in fees, so there's no royalties. We get community support for schools and hospitals in our workers. We don't have to provide for the same things we do overseas that we do overseas and so the profitability of those mines is really very attractive, and that's what makes these growth opportunities in the U.S., so attractive for Freeport.
You and I both remember a time when people thought the Southwest copper district was dead. And right now, it's a big part of the future for our country in terms of providing the copper resource needed for the energy transition and electrification broadly, but also it's a great opportunity for our shareholders to create value -- for Freeport to create value for our shareholders.
John, I was just going to point you to the press release. There's some -- there's -- in the back of the press release, there's some segment analysis, and you can look at the segments that we show how much the U.S. mines contributed, et cetera. And if that doesn't answer your question, just follow up with us afterwards.
Our last question will come from the line of Martin Malloy with Johnson Rice & Company.
I wanted to ask, with your leaching technology, does that give you a competitive advantage and maybe looking at acquisition opportunities?
Well, we're focused on -- I mean, we've got almost 40 billion pounds in our own in our inventory. And that doesn't include some really old areas where we're not active. But yes, I mean, to answer your question, it does give us some interest in some things that may have this opportunity to be able to apply our know-how to it. But we're really focused on our own organic situation.
If an opportunity came available that had this, we would be interested in seeing what we could make out of it. But we've got a lot within our portfolio to be able to get substantial value for our shareholders from.
Yes. And a lot is [ understating ] it. It is massive, what we have the opportunity to develop from what's already owned by Freeport from our existing stockpiles and Kathleen mentioned our historical stockpiles. So yes, an opportunity came along, but I'm not expecting it. I think that we're going to be able to grow tremendous amounts of value doing with what we have, which now the company really has, others have opportunities. No one else has it in this kind of scale that we do.
With that, we'll turn the call over to management for any closing remarks.
Thanks, everyone, for all your good questions today and your interest in Freeport, and we look forward to reporting in the future on our progress.
Thank you, all.
That concludes our call for today. Thank you all for joining, and you may now disconnect.