Freeport CEO pushes for US incentives to expand copperĀ 

The Bagdad mine in Arizona is undergoing a £3.5-billion expansion. Credit: Freeport-McMoRan United States mining giant Freeport-McMoRan (NYSE: FCX) is calling on the Trump administration to sweeten incentives for domestic copper producers and cut permitting times to help offset weak metal grades, CEO Kathleen Quirk says.

While US-based miners enjoy lower tax rates compared with other jurisdictions, copper grades in the US make investing in new domestic operations less attractive, Quirk said in an interview. Copper mines in the US often have grades of about 0.3%, compared with 1% or more elsewhere, she said. "We have a challenge in the US because the ore grades that we mine here are very low relative to what we mine internationally," Quirk told The Northern Miner by videoconference in August. "Companies want to go where the higher grades are.

If there are things in place that can help incentivize the production in the US, that would be an advance." With annual output of about 4 billion lb. of copper and operations in countries such as the US, Indonesia, Chile and Peru, Phoenix-based Freeport is the world's largest publicly-listed producer of the red metal. Its US output, which averages about 1.4 billion lb. a year, accounts for about 70% of the refined copper that's produced in the country.

Unit costs

Operating costs vary greatly from country to country.

While its unit costs in Indonesia are "close to zero" because the presence of a gold by-product generates substantial income, Freeport spends about £3 per lb. to produce copper in the US, Quirk says. And that doesn't include the capital investments needed to start up a mine. A recent so-called Section 232 review into copper imports, which resulted in some foreign-produced goods being taxed 50%, did provide relief for US-based miners, Quirk said.

US President Donald Trump ended up excluding refined copper - the most widely imported form of the metal - from his planned import tariffs, surprising market participants and analysts alike. "When you look at our mining in the US, there are structural aspects that make it less economic than mining internationally," the executive said. "So one of the things we are hoping for is for the US to continue to look at policies that would help the domestic mining industry. The Section 232 investigation provided some tariffs and incentives for the US manufacturing of copper, and what we're hoping to see more of in the future are incentives for upstream development."

Favourable environment

Other helpful steps would include permitting reform and production tax credits, Quirk said without elaborating.

Freeport CEO pushes for US incentives to expand copper output Freeport-McMoRan CEO Kathleen Quirk.

Credit: Freeport-McMoRan

"Freeport in our view remains best positioned to benefit from 50% copper tariffs," BMO Capital Markets mining analyst Katja Jancic said in a note following the release of the company's second-quarter results in July. "Freeport's US operations have tailwinds that in our opinion should translate to improved free cash flow profile and increased shareholder returns potential." To be sure, the Trump administration has already created a "much more conducive environment" for miners, Quirk stressed. "We're thrilled that governments around the world, and our administration here in the US, are more actively looking at how they can help incentivize the mining of critical minerals like copper," she said. "There is a real desire to see the US regain its position in copper.

Freeport is in a great position, with our existing production and pipeline of growth opportunities, to be a big part of that."

Expansion projects

Those opportunities include three major expansion projects - two in the US and one in Chile - as well as a technological innovation that could lift annual output substantially. The most advanced of those projects is a potential £3.5-billion expansion of the company's Bagdad, Arizona mine that could double the concentrator's capacity, boosting copper and molybdenum production. An investment decision is expected by year-end with a potential start-up planned for 2029.

"It's ready to go. We are re-testing our economics," Quirk said of the Bagdad project, which requires copper prices to average at least £4 a lb. to provide a return on investment. "While all of us are very positive about the outlook for copper, we want to make sure that when we do the project, we have the capital cost well understood and we can execute within our budget," she added.

Joint venture

Freeport is also looking at potentially increasing capacity at its Lone Star copper mine in Arizona and at Chile's El Abra mine, a joint venture with Chilean state miner Codelco.

At Lone Star, a pre-feasibility study, now under way, is expected to be completed next year, with production possibly starting early next decade. The timeline for the proposed £7.5-billion expansion of El Abra is longer, with a potential 2033 target date. "Eventually all these projects are going to be required," Quirk said. "It's just that they don't happen overnight."

El Abra, in particular, "is not an if project, it's a when project," she said. "We've done an enormous amount of work on it. Chile, like other countries is saying they want to produce more. They are going through a process to streamline permitting.

What would have taken three or four years in the past to permit, we may be able to compress to under three years. That's what we will be working on. Then it will be a three- or four-year construction period."

Improved recovery

Quirk also has high hopes for a considerably cheaper initiative - extracting copper from material previously considered waste by injecting a water- and sulphuric acid-based solution.

Freeport estimates its facilities hold about 39 billion lb. of stockpiled copper that can't be recovered with traditional leaching methods. About half of that amount sits at the company's Morenci mine in Arizona. "With data analysts and sensors, we can see within the stockpile that certain areas aren't wet - they aren't getting the benefit of having the solution access the rock," Quirk said. "With these sensors, we can drill into the stockpile and inject the solution directly into the areas that need then.

We can have targeted injections." Last year, Freeport's so-called "leaching initiatives" generated about 214 million lb. of extra copper. By the end of the decade, the goal is to hit 800 million lb. annually, Quirk said.

New additives, which the company is developing, could potentially improve recovery rates even more. "In mining, you have to mine the material and you have to process it. In this case with the leach innovation, it's already been mined so a lot of the costs have been incurred," the CEO said.

"This is an incredible opportunity - the likes of which I've never seen in my 35 years of working for Freeport. It has risks, it still has some things to prove but as we've gone through it, we've gotten more and more excited about the potential. When we see that the world needs more copper, we feel really challenged to supply it to the customers and the societies that rely on us.

This is something we think that Freeport can do."