Drawing from your long experience with the company, what makes Freeport-McMoRan stand out in the industry?
Freeport has distinguished itself through a steadfast commitment to copper as a commodity for the past 20 years. Our foundations go back to the 19th century, and we have a rich history grounded in our early investment in the Grasberg mine in Indonesia, an endeavor I personally have been involved with for over 30 years. Initially, Grasberg was a substantial open-pit mine, which has transitioned into the world’s largest underground mine today. The setting of this mine in Indonesia, coupled with the engagement with the indigenous population, presents both challenges and rewards, offering a fascinating backdrop to our operations.
Furthermore, Freeport orchestrated the acquisition of Phelps Dodge, a historic copper mining company in the U.S.. This acquisition not only represented a significant milestone in the mining industry but also marked the birth of modern Freeport, with a strategic focus on becoming the foremost copper producer. We believe we are entering a new era in the copper industry. This is partly driven by the surging demand for copper, particularly with its extensive application in the burgeoning field of electrification globally, which encompasses carbon reduction and artificial intelligence. The increase in copper usage is a worldwide phenomenon, and it behooves us to develop strategies that cater to this rising demand.
Given the evolving dynamics and the green transition, do you think the West is making substantial progress in strengthening the copper supply chain?
I believe the free market system should be the primary driver in encouraging companies like ours to undertake necessary initiatives. Copper deposits are not uniformly distributed globally, necessitating operations in diverse geographical locations, including emerging markets like Indonesia. Over the past few decades, we have witnessed significant transformations in these regions which have been catalyzed, to an extent, by the mining operations.
Within the U.S., we have noticed that many low-grade mines previously perceived as nonviable have become economic due to a surge in copper prices. We have significant competitive advantages operating in the U.S., including owning the lands we mine, favorable tax policies compared to other mining countries, and positive community partnerships. However, there exists an urgent need to streamline the permitting process. By avoiding overlap between federal and state permits and allocating more resources to the permitting process, we can accelerate the pace of green and brownfield developments while upholding environmental and community standards.
What do you perceive as the weak point in the current policies regarding the permitting process, and why hasn't there been a concerted effort to make it more efficient?
In contrast to China's centralized decision-making framework, the U.S. operates on a democratic system with frequent electoral cycles. This, unfortunately, impedes the adoption and implementation of long-term policies. Developing mines is a lengthy procedure; brownfield developments take many years to be commissioned and greenfield developments even longer. The sporadic focus on specific materials, like battery components, has overshadowed the more significant industry player, copper, which forms a substantial part of the green transition.
At Freeport, we are a dominant force in the U.S. copper market, accounting for over half of the copper mined in the U.S., thereby playing a pivotal role in catering to domestic demand. We advocate for a more streamlined and efficient permitting process. This not only will uphold the existing stringent environmental and community standards, but also will foster quicker responses and facilitate the development of both green and brownfield mines, thereby sustaining the copper supply chain effectively in the long term.
It's essential to note that understanding the copper industry, which operates on a global scale, is paramount in delineating strategies for future growth, and embracing its cyclic nature guided by supply and demand dynamics.
Can you give us an update on the current state of affairs between Freeport and the Indonesian government, particularly regarding the tensions around exportation permits?
In recent times, we've seen an escalation in discussions around the exportation of commodities from Indonesia for processing in other nations, a strategy Indonesia has been leveraging to retain more value within the country. The initiative, mainly taking shape around the late '80s, demanded that more processing happen domestically, significantly impacting the copper industry, given that 95% of copper's value is realized at the mining site. Freeport, caught in this whirlpool of policies, argued extensively, emphasizing the existing contract and the substantial value creation happening at the mining site.
Despite the considerable tensions leading up to 2018, we reached a landmark resolution in December 2018. The recent challenges surrounding export permits are not as significant as the issues we've surmounted in the past. Our commitment to building a smelter, a project with a capital investment of more than $3 billion, stands as a testament to our adherence to the agreement. The endeavor, currently 75% complete despite the delays due to COVID-19, symbolizes our commitment to nurturing a positive and progressive relationship with the Indonesian government.
In your interactions with policymakers, do you find there is still skepticism towards the mining industry?
Absolutely, the historical backdrop of mining does bring a level of skepticism into our interactions with policymakers. We face constant scrutiny, and there are ongoings efforts to overturn skepticism. This was notably illustrated when we justified the tailings management system at our Grasberg Mine in Papua, a decision grounded in environmental prudence given the region's specific circumstances.
The journey toward gaining trust and showcasing our commitment to responsible community engagement is an ongoing one, characterized by open dialogue and transparent operations. We're cognizant of the substantial shifts required in operational landscapes when setting up new mines and diligently work towards minimizing the disruptions it brings to communities. Essentially, our strategy revolves around sustainability and technological advancement, aiming to position ourselves favorably in a scenario of escalating copper demand and potential short supply.
What is your projection for the future of copper supply and demand, and how is Freeport strategizing to capitalize on potential market trends?
Looking ahead, the mounting difficulties in operating and developing in an industry grappling with scarce resources invariably indicate a trajectory of a tight market. The ongoing challenges also are contributing to a looming supply deficit, given the complex nature of initiating new mining projects, which significantly alter landscapes and traffic flows, necessitating meticulous planning and execution.
Despite the hurdles, our strategy is honed in to serve our customers, driven by a growing potential copper market shortage. We are leveraging advanced technology in our leaching projects to recover previously unrecoverable copper and augmenting efficiency at our mines. Our foresight into industry trends enables us to continually innovate, setting our sights on conservation, substitution, and technological advancements to adeptly navigate the foreseen supply-demand dynamics.
