Kathleen L. Quirk
President and Chief Executive Officer at Freeport-McMoRan
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 in driving value in our business, focused on executing our plans reliably and responsibly, enhancing efficiencies, managing costs aggressively, and building optionality and value in our organic growth portfolio.
During the second quarter, we generated strong margins and cash flows with $2.7 billion in EBITDA and $2 billion in 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 item Richard 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 in an exempling -- exemplary manner and we're now focused on further derisking 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 in low-cost incremental production. Continued scaling of this initiative is a major value driver and a 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 U.S. meaningfully.
We continue to execute our established shareholder return framework with $0.5 billion in dividends and share purchases year-to-date. We ended the quarter in 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, Richard just talked about this. Copper prices traded in a broad range of between $3.67 per pound and $4.92 per pound on the LME exchange and a wider range on the U.S. COMEX exchange. That's been during 2024. We've discussed on prior calls the impact of macro sentiment and investor positioning that can drive large moves in pricing. Richard referred to the domestic economic challenges in China, the ongoing weakness in the Chinese property market, destocking and working capital management, an increase in copper exchange inventories, and delays in actions to stimulate economic growth, which have all weighed on the market.
In the U.S., 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 copper's 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 copper-intensive energy applications. The facts are 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 are 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 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 in the future.
Now turning to our operations on Slide 5. We summarize the quarterly operating results by geographic region. In the U.S., we continue to focus our efforts on mitigating the impact of lower ore grade phases currently being mined. You'll see in our operational details provided in our press release that the ore grades processed through our mill and leach facilities in the U.S. had more than a 10% decrease in ore grades compared to the year-ago period. All else being equal, this results in higher costs on a per-unit basis. So we're very focused on mitigating these 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 for our innovative leach initiative. And we think this can have an impact as we go forward.
In South America, our team and our large scale Cerro Verde operation posted a solid second quarter. You can see the mill throughput exceeded 425,000 tons 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. Our unit net cash costs improved sequentially from the first quarter in South America even after giving effect to a $0.22 per pound nonrecurring charge for the 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 a net unit cash credit of $0.21 per pound. Our quarterly mill rates were lower than what we achieved in the first quarter as we advanced maintenance in June 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 disruption from certain wet draw points in the Grasberg Block Cave. We're 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 a 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 costs and low capital intensity associated with these activities, which essentially involve recovering incremental copper from material that has already been mined, the returns and value proposition of this opportunity are significant and a major catalyst for us. You can see the significant growth in incremental volumes from these initiatives over the last several quarters. As a refresher, we have achieved our initial targeted run rate of 200 million pounds of copper per annum, and now have our sights on scaling this to 400 million pounds per annum in the next couple of years. Ultimately, our goal is to achieve 800 million pounds per annum from this exciting initiative. This is the size of a major new mine with low capital investment required and low incremental operating costs, which will greatly enhance the value and competitive position of our Americas production.
I want to go over how we're doing this. The results to date have been achieved by enhancing heat retention in the leach stockpiles by using data from sensors and 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 these successful initiatives and have a high degree of confidence in boosting the run rate to 300 million pounds to 400 million pounds 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 under conventional techniques, and scaling our solution injection wells. With this experience, we're drilling more efficiently, getting more injection wells placed, and are testing techniques to expand the impact of injection wells over broader areas.
In parallel, we're working on innovation-driven initiatives, which would really move the needle to our ultimate objective of reaching 800 million pounds per annum. These include adding direct heat to the stockpiles from renewable or other sources, taking advantage of pyrite hosted ore to generate additional heat, and testing new additives that we've been developing. At Freeport, we're really well-positioned to capture this value with an extensive inventory of substantial residual copper from material already mined, industry-leading technical expertise in leeching technology, and a strong multidisciplined and focused innovation team dedicated to this initiative.
Turning to our other areas of growth of project pipeline on Slide 7. We discussed earlier the extended time frames required for the industry to develop new 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 initiative is our best opportunity to grow in the near term, and we're pursuing this aggressively as we talked about. But beyond that, in the U.S., we have a brownfield expansion at our Bagdad mine in Arizona where we have an extensive reserve position. We've already reported, we've completed our studies, we're now advancing investments in automation, tailings, and energy infrastructure, and expanded employee housing in this remote location to position us to execute the project 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. We're 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. As most of you know, this is our newest operation in the U.S. and we're really just getting started here. We have our sights on more than doubling current production levels in the 300 million pounds per annum range. This is an enormous resource, and we expect this district will become a generational cornerstone asset for Freeport in 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 similar to the size of the Cerro Verde concentrator we installed nearly 10 years ago, investments in desalinization and a pipeline system to support our water requirements. The preliminary estimate for incremental capital costs for the new concentrator project and related infrastructure, which continue to be reviewed approximate $7.5 billion and would provide 750 million pounds of annual copper production and 9 million pounds of molybdenum per annum over a very long life. This project would require about seven years to eight years of lead time because of permitting requirements, but we're advancing. So we have optionality, and we're going to continue to review the economics in the context of market condition, 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 rights beyond 2041. We'll set up for additional long-term exploration and development options in this highly-attractive district.
We're advancing all these initiatives to build optionality for growth and we'll 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 benefits 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 we're in 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 the long lead times required for investment. It's a really positive development for PT-FI and its stakeholders, and we look forward to making our application and be in a position to extend our rights 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 U.S. and Indonesia. And as previously discussed, our gold volumes for 2024 now reflect a change in the mine sequencing, which we discussed earlier. And this is really timing in nature. The rest of the guidance is very similar to our previous outlook. For 2024, we currently estimate consolidated unit cash cost to approximate $1.63 per pound, slightly above the April estimate of $1.57, and similar to our guidance of $1.60 per pound at the start of the year. The details of this are presented in the back on Slide 20 in our reference materials.
Slide 10 shows the cash flow-generating capacity of 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 to $5 per pound copper. And with these modeled results for '25 and '26 and current volume and cost estimates holding gold 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 billion 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 at $5 copper. And we show some sensitivities for your reference on the right of this chart. We've got 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 are forecast to 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 sustainable -- sustaining capital program and long-term projects in the Grasberg District. We're going to continue to be disciplined in deploying capital, really making sure that the capital we're deploying pays off and builds initiatives to enhance value. The 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 not distributed. We've got some details in the back on Slide 23 in 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 in 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 repurchases. We've got an attractive future long-term portfolio that will allow us to continue to build value and follow our 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.
Our global team is 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.
