Kathleen L. Quirk
President at Freeport-McMoRan
Thanks, Richard. We'll start on Slide 3, which summarizes our performance for the full-year 2022. And just a couple of notes on the fourth quarter from our press release, we finished the year with a strong fourth quarter. Copper and gold, gold sales exceeded our October guidance and our consolidated unit net cash costs of $1.53 per pound in the quarter were better than our estimates going into the quarter. With average copper realizations in the fourth quarter of $3.77 per pound, we generated strong margins with fourth quarter adjusted EBITDA at approximately $2.25 billion. Looking at the year, we're proud of the performance of our team, stayed focused on effective execution, and on driving results in a volatile macroeconomic environment. After successfully growing our volumes in 2021 by 19% for copper and 59% for gold compared with 2020, we achieved another year of growth in 2022 with 11% higher copper sales volumes and a 34% increase in gold volumes.
Our team in Indonesia has successfully and materially grown production levels and a sustaining large-scale, low-cost production at the world's largest underground mining complex. In the Americas, our teams in Peru and Chile proved resilient in restoring production during 2022 that had been impacted by the pandemic. And our teams in the U.S. maintain production at 2021 levels despite ongoing labor shortages, and we also made significant advances on new technologies to enhance value. For the year, we generated $9.5 billion in adjusted EBITDA, and that was a year of dramatic swings in commodity prices and cost drivers. Our operating cash flows for the year, which were net of $1.5 million in working capital requirements, was in excess of our capital investments in our operations, and we nearly tripled our cash returns to shareholders pursuant to our performance-based payout policy. We ended the year with net debt excluding the debt associated with our smelter of $1.3 billion, and that's substantially below the level of mid-2021 when we initiated our performance-based payout policy.
On Slide 4, you'll see we've listed notable accomplishments during the year in addition to driving value in our operating and financial areas of achievement. We're very proud of our work with third parties to validate all of our operations under the Copper Mark standards. The measurable progress we're making on our climate initiatives and the expanded disclosures we've developed to enhance transparency and accountability.
We'll talk about markets next, and we've got a slide on Page 5. We experienced significant volatility, as many of you have seen during 2022, with copper prices trading from a high of $4.87 per pound earlier in the year, falling to $3.18 per pound mid-year, and partially recovering to $3.80 per pound by year end. Prices continued to move higher in early 2023 to a level currently approximating $4.25 per pound as several of the macroeconomic clouds began to lift. We've discussed on prior calls that the dramatic moves in 2022 have been largely been based on sentiment rather than fundamentals. The facts are that the physical markets for copper have remained tight even during a period of weaker economic data coming out of China. And that's evidenced by the low levels of available copper inventories throughout the year. At the same time, copper's importance in the economy continues to grow as a result of the intensity of use in clean-energy applications and the global acceleration of electrification. We believe we're still in the early innings of a broad-based secular driver of long-term demand. The ability of the industry to meet this multi-year period of growing demand continues to be challenged leading the large market deficits in the future. You read about these challenges every day and it's getting harder, not easier. Higher long-term prices are needed to incentivize new supplies. We've lived through the ups and downs in the copper market, we've effectively managed our operations and balance sheet during periods of volatility, and we're prepared for this, but we believe the long-term fundamentals point to a real step change in how copper is valued in the economy.
Turning to our reserve position on Slide 6. We benefited from a geographically diverse, high-quality portfolio of copper mines with significant exposure to gold and molybdenum. Our strategy, as Richard discussed, is centered around being foremost in copper. And we benefited from a portfolio of assets with characteristics that are very difficult to replicate. We show our reserve position at the end of 2022 with over 100 billion pounds of proved and probable reserves. We have an average reserve life of over 25 years. We added twice the amount of reserves we produced in 2022, principally, at our U.S. mines in the Morenci and Safford Lone Star districts where we're focused on future growth. In addition to proved and probable reserves, we have enormous mineral resources of 235 billion pounds of copper. Over half of this is located in the U.S. where we have established operations, a great track record, and a valuable franchise. We'll continue to work as we go forward to convert these resources into viable mine plans and future productions. It's an extraordinarily valuable resource position in a world that's going to need more copper in the future.
We wanted to focus a little bit on molybdenum on this call. And on Slide 7, we've got some information about our molybdenum business. We're a leader in that industry with the world's largest producer by a significant margin. And with the price move over the last couple of months of over 50% in molybdenum, we thought you'd be interested in learning more about our business. We produced 85 million pounds of molybdenum in 2022, and that's comprised about 60% from copper mines as a byproduct and the balance from two primary molybdenum mines that we operate in Colorado. And these are the only primary molybdenum mines that are currently operated in the United States. We also operate downstream processing facilities to produce products that are used in a broad range of metallurgical specialty steel and chemical applications. The price move from $18 per pound at the start of the fourth quarter to over $30 per pound currently has been driven by some of the same supply issues that have impacted copper. In an addition, demand drivers continue to be supported from the oil and gas, aerospace, and power generation sectors. So, we note on this slide the impact of a $5 change in molybdenum prices it's material at $400 million annually and $375 million in cash flow. And the recent move of over $10 per pound, if sustained at a higher price, it's additional leverage to our results.
Looking at our operating stats for 2022 on Slide 8, you'll see our sales for the year were about 35% from the U.S., 28% from South America, and 37% from Indonesia. In the U.S., our sales for similar to 2021 levels, and we grew sales volumes by 10% in South America, and by 20% in Indonesia. In the U.S., we're continuing our focus on productivity given the current limitations on adding to our workforce. We're taking advantage of technology advancements and opportunities to expand production from leaching at low incremental cost. And we're planning our next phase of growth as we'll talk about in a few minutes. As discussed, the biggest resource position and source of long-term growth we have is a real opportunity in the United States. In South America, both Cerro Verde and El Abra group production in 2022 in a complex social and political environment.
After successfully recovering from the pandemic-related interruptions in 2022, our team in Peru is now dealing with challenges associated with civil unrest as you've all read about. We're prioritizing the safety and security of our workforce. We're navigating disruptions to transportation routes and supply chains. To date, the impacts have not been significant, but the situation is dynamic day-by-day and we're watching it very carefully. The bottom of the chart shows the 2022 cost performance. As we've talked about on prior calls, we experienced significant inflation pressures across the business during 2022, particularly for energy and other commodity-related consumables. And in the second half of the year, starting to see inflation from the rising cost of materials, supplies, and services. The situation started to improve in 2022 with a number of the commodity-related consumables, but we're still dealing with costs in excess of historical levels. If you look at the average cost for the year at Grasberg of $0.09 per pound, it's remarkable, particularly in the context of this cost environment.
Richard talked about the significant success story of the Grasberg transition, and we've got some details on Slide 9. It was significant success for not only Freeport, but also something for the global mining industry to be proud of and the country of Indonesia. We started planning for this transition over 25 years ago and the team has just done an outstanding job. We benefit from the fact that several from the team who were involved in the planning of this project, including Mark Johnson who is on this call, stayed with it over this period. And over the years, we've added great talent to our team with experts from around the world. The success of this project, the mutual respect built over the years between Freeport, the Government of Indonesia, and local communities has established a really strong foundation for the future. We've got the opportunity with this resource to plan a new phase of development longer-term and are continuing to discuss with the government the opportunity to extend our long-term partnership beyond 2041.
If you go to Slide 10, we've got an update on our smelter project. And this is a key feature of our commitment to the Indonesian government, was to expand domestic copper smelting and refining capacity in Indonesia. We're making really good progress on constructing the new smelter in Eastern Java. It's near our existing smelter of PT Smelting at Gresik. You can see from the pictures that construction is advancing. We've got thousands of workers now on site. We're working very closely with our EPC contractor to try as much as possible to make up delays that were caused by the pandemic. We reached a milestone of over 50% completion recently and we are expecting to begin commissioning the smelter during 2024. As you recall, the capital investments for this project are being funded from a successful bond offering that PTFI completed during 2022, and so, we have the funding between the bond offering and our revolver at PTFI to fund this project.
Moving to our growth outlook. This is an exciting opportunity for the company, and we continue to plan our next phase of growth. We've got benefit from having multiple organic projects to develop within the portfolio over time. We operate all the mines we have interest in. We were able to share experiences, new technologies, operating synergies, and best practices across the portfolio as we develop projects. And we can direct capital across the portfolio to the highest-value opportunities. Our proven technical capacity, capabilities in management is a notable strength. And importantly, we've earned a track record and a reputation for operating sustainably and responsibly. The world, we believe, is going to need all of our projects and more. The project with the shortest lead time is our Americas leach initiative. We've talked a lot about it in recent calls. The economics are compelling, low capital intensity, low incremental operating costs, and a low carbon footprint. The new data analytics capabilities we are continuing to be applied to prioritize our work streams on the highest value. We're continuing our work to apply covers to the leach stockpiles because of the benefits that you get from heat retention in enhancing recoveries. And we've identified new areas that were not pursued historically. We're also continuing to test various additives that can further enhance recoveries. This is a really significant opportunity for us. We're continuing to target a run rate of 200 million pounds per annum by the end of this year. And success of this level -- at this level will provide opportunities to scale larger. We're in a great position to lead this innovation with our long history in leaching and large inventory to work with.
At our Bagdad mine in Northwest Arizona, we're progressing a feasibility study to double production at that site. We expect to complete the feasibility this year, and we'll be in a position to assess options on how we time the future development. We started advanced planning to commence construction of a new tailing site that would support the existing operation but would also provide flexibility for the expanded production. And as a brownfield expansion, this project could be developed more quickly, than a greenfield development. Our Lone Star opportunity is really something special. We've been successful in increasing production levels substantially above the original project. And we're really in the early stages in the development of this mine as we mine the oxide ores more quickly. We're opening up the opportunity for a major sulfide development long-term. The resource is massive. You've seen the numbers, 50 billion pounds of potential resource here. We're doing a lot of drilling. And importantly, it's located in an established mining district in the U.S.
In Chile, we've defined the opportunity for a major expansion at our El Abra mine. As we continue to monitor regulatory and fiscal matters in Chile, we're planning a project to invest in infrastructure, water infrastructure, to provide flexibility to extend existing operations and optionality to support a new concentrator. We're also planning at El Abra to test new leaching technologies in the near term to evaluate the potential for expanded leach production and possibly competing technologies to a concentrator. We're continuing our development of the Kucing Liar deposit in Indonesia. We're really gaining a lot of efficiencies from the work we did at Grasberg Block Cave. And similar to that development, this is a long-term project. We expect to have an initial production from Kucing Liar deposit towards the end of this decade.
Moving to Slide 12. We provide a three-year outlook for our sales volumes. And as we talked about, we achieved two years of growth in copper sales, and currently, our forecast reflects sales in '23 to '25 period that are similar to 2022 levels. Our mine production is actually going to be higher than our sales by about 100 million pounds in 2023 and 2024. And that is a result of our domestic processing arrangements in Indonesia where the point-of-sale has changed from selling concentrate to selling cathodes. And so, a portion of our production will be inventoried until it's processed and sold through our smelters. Previously, this inventory would have been held by third-party smelters. We've got small revisions otherwise to 2023 guidance that reflects an assumption of a continuation of tight labor markets in the U.S. that's impacted our ability to increase mining rates and success also in our leach recovery initiative could provide some upside in the U.S. as we look over the next three-year period.
In the reference materials on Slide 13, we provide information on our 2023 sales by quarter. The reason for the drop in the first quarter reflects the impact of the tolling arrangement in Indonesia. But you can see the balance of the year is fairly stable at over one billion pounds of copper sales per quarter.
Moving to the cost outlook for 2023. We're providing guidance of average cost of $1.60 per pound for the year. That compares with $1.50 per pound in 2022. We show a comparison to the two years. And you'll see the site production cost line item is about 4.5% higher than the 2022 average. And that's a result of assumptions that we've made in our forecast for higher average electricity and coal costs compared with the 2022 average, and also higher power requirements principally in Indonesia, and the impact of higher cost of equipment components, supply costs, and labor cost increases. The other line items are offsetting. You'll note a decline in royalties and duties. That really is reflective of our recent reduction in our export duty in Indonesia as a result of the smelter progress. I'll also note that this assumes a molybdenum price of $20 per pound in 2023. The current price is $30 a pound, and each $2 per pound change in molybdenum is $0.02 a pound. So, if current prices hold, we'd have roughly $0.10 a pound less cash -- unit net cash costs than this reflects. In recent months, inflationary pressures have been less severe than we experienced during 2022. We're encouraged by that. And we're going to continue to focus on managing costs that we can control. We're continuing to pursue technology-driven enhancements to mitigate the impacts, particularly, in the U.S.
Getting to our cash flows, significant leverage to copper prices. We've got -- on Slide 14, we show modeled results for EBITDA and cash flow at various copper prices ranging from $3.50 per pound to $5 per pound copper. These are modeled results and we use the average of '24 and '25 with current volume and cost estimates and holding gold flat at $1,900 per ounce and molybdenum flat at $20 per pound. And you'll see here that annual EBITDA would range from nearly $9 billion per annum $3.50 copper to $15 billion per annum at $5 copper. And our operating cash flow would range over these prices from $6 billion at $3.50 copper, to $11 billion at $5 copper. And we show sensitivities to various commodities on the right and input costs. With our long-life reserves and large-scale production, we're well-positioned from -- to benefit from future metals intensive growth trends with prospects for increasing cash returns under our performance-based payout framework.
Our capital expenditure plans are summarized on Slide 15. The capital expenditures totaled $2.7 billion excluding the smelter in 2022. We'll note that this was lower than the $3.3 billion estimate we provided going into 2022. And that reflects lead times and our focus during the year to prioritize critical projects. The current forecast for 2023 totaled $3.4 billion. And that's a slight change from our previous estimate of $3.3 billion for 2023. And capital expenditures for 2024 are currently forecast to approximate $3 billion as spending on the Grasberg projects reach completion. We always are very careful in managing our capital cost to maintain flexibility in response to market condition while ensuring that our investments are sufficient to support a reliable long-term production profile.
Returning to the financial policy that we began to implement in the second half of 2021, it's really centered on three priorities. The cornerstone of the financial policy is maintaining a strong balance sheet and liquidity. And that provides significant flexibility for the future. We've been executing on this performance-based payout. It provides for 50% of our free cash flow to be allocated to shareholder returns in the form of dividends and share purchases and the balance available to invest in our projects. Since commencing the performance-based payout policy in the second half of 2021, we've returned about 60% of our free cash flow to shareholders through dividends and share purchases. And at the same time, we also further strengthened our balance sheet, providing capacity for funding new projects over time. We did not purchase shares in the second half of 2022 because of the significant change in market conditions and the resulting impact on cash flows in the second half of the year. The improved market conditions will drive increased free cash flow which will boost shareholder returns. And our future discretionary share purchases will be dependent on our cash flow and overall market conditions. We believe the three priorities of balance sheet strength, allocating cash flows to a mix of shareholder returns, and organic growth will enhance long-term value of our business.
In closing, I just want to reiterate our view about the positioning for the company. Bright long-term future, supported by our attractive portfolio of assets, supported by the fundamentals of the copper business, and the positive outlook for the markets we serve. Our team is energized. We're motivated to continue building long-term value in our business and on executing our plans responsibly, safely, and efficiently. And I want to thank you for your attention. And operator, we'll now open the call for questions.
