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Freeport-McMoRan Inc (FCX 0.68%)
Q4Â 2018 Earnings Conference Call
Jan. 24, 2019, 10:00 a.m. ET
Contents:
- Prepared Remarks
- Questions and Answers
- Call Participants
See all our earnings call transcripts.
Prepared Remarks:
Operator
Ladies and gentlemen, thank you for standing by. Welcome to the Freeport-McMoRan's Fourth Quarter Earnings Conference Call. At this time all participants are in a listen-only mode. Later we will conduct a question-and-answer session. (Operator Instructions)
I would now like to turn the conference over to Ms. Kathleen Quirk, Executive Vice President and Chief Financial Officer. Please go ahead, ma'am.
Kathleen L. Quirk -- Executive Vice President and Chief Financial Officer
Thank you, and good morning. Welcome to the Freeport-McMoRan fourth quarter 2018 earnings conference call. Our results were released earlier this morning, and a copy of the press release and slides for today's call are available on our website at fcx.com. Our conference call today is being broadcast live on the Internet, and anyone may listen to the call by accessing our website home page and clicking on the webcast link for the call.
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.
Before we begin our comments, we'd like remind everyone that today's press release and certain of our comments on the call include forward-looking statements, and actual results may differ materially. We'd like to refer everyone to the cautionary language included in our press release and presentation materials and to the risk factors described in our 2017 Form 10-K and subsequent SEC filings.
On the call today are Richard Adkerson; Red Conger; Mike Kendrick, we also have Mark Johnson, that's -- has dived into the call from our site in Papua, Indonesia.
I'll start by briefly summarizing our financial results and then turn the call over to Richard who will be reviewing our performance and outlook and using the prepared slide materials that are available on our website.
Today FCX reported net income attributable to common stock of $140 million, $0.09 per share in the fourth quarter of 2018 and $2.3 billion or $1.55 per share for the full year 2018. We had a number of special nonrecurring items in the quarter. These are detailed on page -- on roman numeral VII of our press release, but the charges netted to a net charge of $21 million or $0.02 a share. They included $331 million in charges related to disputed Cerro Verde royalty claims and some charges at PT-FI. These were largely offset by $310 million in tax credits and gains on asset sales. Excluding these net charges, our adjusted fourth quarter net income totaled $161 million or $0.11 per share.
Our adjusted earnings before interest taxes depreciation and amortization or EBIDTA for fourth quarter 2018 totaled $885 million and we've got a reconciliation on page 33 of our slide deck providing the EBITDA calculation.
Our fourth quarter production totaled 841 million pounds of copper and 334,000 ounces of gold. Our production was higher than our sales which totaled 785 million pounds of copper and that was similar to our October guidance -- October 2018 guidance, but our gold sales of 266,000 ounces were about 64,000 ounces below our 2018 guidance, and this is purely a timing issue related to a delay in shipments at PT-FI late in the quarter associated with some unscheduled maintenance at the third-party operated Gresik smelter in Indonesia. So these sales were deferred from the fourth quarter. They'll be shipped in in the first quarter, but they had an approximate $80 million impact on our fourth quarter adjusted EBITDA. This was just for the gold, the deferral.
For the year our sales of copper totaled 3.8 billion pounds, sales of gold totaled 2.4 million ounces, and we sold 94 million pounds of molybdenum. Our fourth quarter realized price for copper was $2.75 per pound and that was 14% below the year-ago quarterly average of $3.21 per pound. Gold realized prices in the quarter was $12.55 per ounce and that compared to $1,285 per ounce in the fourth quarter of the prior year. Our unit cost net of by-product credits, on a consolidated basis averaged a $1.54 per pound of copper and a $1.07 for the full year.
Operating cash flows for the year totaled $3.9 billion and those exceeded our capital expenditures of approximately $2 billion. And we ended the year in a strong position from a cash liquidity position. We ended the year with $4.2 billion of cash and consolidated debt totaled $11.1 billion. We have no borrowings under our $3.5 billion revolving credit facility.
I'd now like to turn the call over to Richard who will be referring to the materials -- the slide presentation materials on our website.
Richard C. Adkerson -- Vice Chairman, President and Chief Executive Officer
Good morning, everyone. In a very complicated world today, politically and economically, we have a lot of excitement here at Freeport, and while our management team and globally across our organization. We had a very active year in 2018, and it was culminated by the completion of our transactions with the Government of Indonesia on December 21st. And this was a -- frankly a heavy load lifted off of us. We've been dealing with this for a number of years and in this process, particularly over the past three years, in such a positive way it is very gratifying.
Now we're focused on 2019 and the years beyond that. Some of our accomplishments in 2018, start with the fact that globally we had a very safe and productive year in our operations. If you look back three years ago, 2015, 2016, when commodity prices were very low, the outlook was very weak. As a company we had a heavy debt burden that wasn't clear how we're going to deal with that. But in the Americas, at that time, to conserve cash, we ramped down our mining operations. And this past year, we restored mining operations to establish ourselves for a long-term future of productivity in those mines.
We ramped up our mining activities by nearly 20%, and this is going to support our long-term mine plans, and preserve our optionality as we go forward. That's like building a new mine, when you think about the 20% of an operation this size. We advanced the construction of a new mine at Lone Star. This is a ore resource that joins our Safford mine, that mine was just getting started when Freeport acquired Phelps Dodge in 2007. It has processing capacity that we're able to utilize productively with developing this new resource, and we continue to drill the Lone Star ore body and resources and really are identifying a massive new resource which will be good for the future of our company. It would be great for the future of our company. This mine is located just across the mountain range from Morenci in Eastern Arizona.
Our mill at Cerro Verde continues to hit new records. This is -- if not the largest milling complex in the world. One of the very largest. Since we began its operations it is just performed magnificently, and continues to do so. At our Bagdad mine in Northwest Arizona, we had a very interesting process this year, where we completed an efficiency project using big data and artificial intelligence models, it's lifted productivity with this mine in a low capital intensive way, and now we're going to take that experience and carry forward to our other mines.
We increased our reserves in Americas by over 35%, but too long we've held own to using a $2 copper price to determine reserves. We increased that to $2.50, and while this increases, the improved and probable reserves that we'll report to the SEC, it's also going to be very beneficial as we look to the future when we develop these assets to create additional value for our shareholders out of the -- these operations.
In Indonesia, we made really important progress in preparing our underground mines for the future. This is the future, because we will complete mining from the Grasberg pit this year in 2019, the first half of this year. For over a 15 year period now we've been developing this infrastructure including the installation of the state-of-the-art underground rail, and overflow systems, and we developed the infrastructure necessary for large scale underground mining. This is -- we are addressing the seismicity issues from mining that we've encountered at the separate Deep MLZ mine and the results with that for today are encouraging and we're gaining increasing confidence about our ramp up plans for the Deep MLZ. Over the next two years, now, we've been foreshadowing these two years for -- ever since we developed our long-term mine plans at Grasberg in the mid 1990s. We've been foreshadowing the fact that there would be a transition period as we complete mining in the pit and ramp up production from two large scale high grade underground mines, and we expect production in the Grasberg district will double between 2019 and 2021. And this has always been our plan but now we've got -- we've derisk the infrastructure development, the transition years are here, this is equivalent to a new start up operation for a mine. We've completed the open pit here and now in the underground area. It's a major undertaking that our team has carefully planned over the years and is now executing and it's all going on schedule.
I personally could not be more pleased with the outcome of our negotiations with the Indonesian government. All three parties, the government of Indonesia, our former joint venture partner Rio Tinto and Freeport, accomplished each of our fundamental objectives. And for those of you who follows, you recognize this was no easy feat in the complicated circumstances we faced. But at the end of the day, all of us were happy. We were successful in maintaining for Freeport the basic economics of this ore body and the deal that we have going forward is roughly equivalent -- approximately equivalent to the economics we had under our contract award. And it maintains, sustains our exposure to this world class asset. World's second largest copper mine, world's largest gold mine, it's a remarkable asset and really worth all the effort that we've poured into it over the years.
Really important in this process is we ended the tough, tough negotiations on a positive note. We now have a new partnership structure that strongly aligns Freeport's interest with the government. Where for all these years we've been on the opposite side of the table in really an unproductive way. I'm convinced that this will mitigate political risk as we go forward and other major risk related to everything from security to labor relations, community relations. We now have aligned interest. We're partners with a state-owned company. That state-owned company has incurred significant debt to finance this transaction. Just like we, they will be looking to have positive cash flows coming out of this business over time to service that debt, and to provide dividends of substance to the government for years to come.
As a company, I look back three years ago, and think of just about how there our situation was then, with markets and with our debt position. Over that time we've reduced our debt. We're in a strong financial liquidity position and the steps taken to reduce our debt by nearly two thirds were way beyond the targets we set at this call three years ago, position us now to manage this transition in Indonesia and deal with the market uncertainties that may -- we may face.
We'll talk more about this, but on the call and answer your questions. The fundamentals even today with all the confusion economically in the world with all the risk that we hear about every day, the fundamentals of copper market point to a very positive future. In our company and our management team are managing our company's assets to enable our shareholders to benefit significantly from what I'm confident will be strong copper markets ultimately in the future.
With today's uncertainties in the global marketplace, neither we nor anyone else can predict short-term movements in copper prices. But our management team is confident, we have the right portfolio of assets, the right structure, we derisk it so much of our business over the past three years and particularly in 2018, that we can deliver significant values over the long term to our shareholders.
So we're going to now answer your questions about the past, if you have any, sure you will. But we are going to focus on what's ahead of us in the future. It's all about execution now. Our team recognizes that we're focused on it. We have a great track record of executing and project development and operations and now we're going to use those capabilities to build success.
When I step back and look at it today's world is confused in many respects and dysfunctional. We're not confused at Freeport, and we're going to be functional. We know what we need to do and we're going to set out to do it.
So turning to the slides now, Kathleen has reviewed the 2018 highlights. Just a couple of comments. We had this problem with the smelter in Gresik being down. We had 130,000 tons of concentrate that we had produced at Grasberg that was in inventory and our concentrate barns at Grasberg normally is 20,000. So a 100,000 tonnes of concentrate that was produced otherwise would have been sold if Gresik had been up. That's 60 million pounds of copper and 100,000 ounces of gold as that's not in our numbers this year. Copper prices dropped $0.12 in December, much of our production for the year is priced at December prices. We put out a guidance note for analysts, who publish earnings guidance in December. I would encourage you to read that note, and apply. Several analysts didn't do it this year and that resulted in the expectations about earnings being higher than they otherwise would have been.
So anyway, past is past, we're focusing on the future. Slide four summarizes the transaction with the Government of Indonesia, importantly for financial reporting purposes, because of the structure of our shareholders agreement with Inalum, the state-owned company, Freeport will continue to consolidate PT-FI. And PT-FI is now larger because, previously, we separated the interest in the joint venture between Freeport and Rio Tinto. Now all of that is part of PT-FI. All of that will be in our consolidated results, and our consolidated reserves will be higher, as a result of that report. FCX's equity interest in the reserves will be equivalent -- will be the same. But those are details, and if you have questions we'll answer about it.
Now turning to priorities. Here's what we're going to do. We're going to ramp up production from our large scale underground mines at Grasberg. Two basic mines although the Grasberg Block Cave has two headings and in some ways it could be viewed as two mines within the Grasberg ore body, and the Deep MLZ mine. We're going to focus on productivity and cost management globally in the Americas, as well as in Indonesia. We're going to advance this Lone Star development and continue to look at the very exciting long-term expansion opportunities for that ore body. And then we're going to look at other future growth opportunities from a large portfolio of reserves and resources.
We have a great opportunity in Chile with our El Abra mine, and then we have a number of opportunities in the U.S. Mines are going to be evaluating them and ranking them and be prepared to go forward when markets give us the comfort to go forward. We're not going to be spending capital on those in near-term.
So copper markets. In the face of all the investment -- investor uncertainties that come about for obvious reasons that still pertain there, the concerns about the ultimate risk to the economy in China and the global economy from a number of items including the unfortunate trade policy issues that are being considered now. The fundamentals in the marketplace remain very strong. China set records for copper imports. They're continuing to invest in smelting capacities. They're reducing scrap going into China. There is just a lot of things about China. China as a country has enormous financial resources. They're looking at stimulating their economy, investing in one-road initiatives. China has lots of alternatives of dealing with issues that faces in the current marketplace. Time will tell whether this will develop into a serious problem, and we'll be prepared for that. But today the outlook going forward is good.
In the US It's really amazing. We supply maybe a third of the copper to the downstream market. We're stretched. We're not being able to commit to meet all the commitments of our U.S. customers. Who actually have to go out and buy some copper, can you imagine that at Freeport, the world's largest operator of copper mines is having to buy some copper to fulfill customer demands in the U.S.
All of this is really contrary to investor sentiment. Investor sentiment is what it is. We live with it. But the market is fundamentally continues to be strong, and then when we look forward, when we look at the declines in base production, experts are analyzing that to be over 5% over the next 10 years. If you look at modest demand growth and we've used 1.5% over the next 10 years. You end up needing almost 5 million pounds of new copper per year. 5 million tonnes of new copper per year. And today it takes prices well over $3 a pound to justify new investments. So there's coming times when copper prices will simply have to rise. And then you look at where is today's copper coming from.
And on slide seven, the slide you've seen from us before you see the reserves and production from the top 10 copper mines in the world today. We have three of the five largest producing mines in the world. In aggregate, those mines only produce 5.4 million tonnes a year in 2018. So you're talking about having to replace all of these mines 10 years out. That's a good outlook. So here's what our reserves are. We have -- I've been talking with our team for some time now about why do we continue to use $2 copper. So we've changed to $2.50 copper in the Americas. And that resulted in about a quarter increase in our reserves just by using that price, and that's not just accounting exercise, that's helping us as we look to see where we write these investment opportunities to go forward. That's proved in probable reserves under SEC industry standards. Beyond that we have an equivalent amount of mineralized material associated with our existing mines, that with additional drilling analysis, engineering planning and so forth could well come into reserves. Half of these resources roughly are in the U.S. So we're positioned as a company to benefit from this coming positive copper markets and have the ability to deal with it, if in fact we have to deal with economic weakness.
More information on our reserves are shown on page nine. Most of the additions that came about are in the America's we doubled our reserves, at Bagdad, which is a really attractive future investment opportunity mine for us. We've added significant reserves to Morenci. We've added reserves at Cerro Verde. Our reserves will also grow because of the consolidation, the inclusion of the former Rio Tinto interest and the PT-FI and the continued consolidation of PT-FI. Big reserves, big resources.
Cerro Verde operations are really going well. This is really a great mine. So glad we buckled up, made the decision to do the major expansion that we completed and started ramping up three years ago. And the concentrator facilities, leading -- industry leading in size are performing well, exceeding nameplate capacity and so this is a great mine. I'm really pleased this is part of our portfolio.
Lone Star, I mentioned there's a picture here -- we are mining leachable oxide ore now, doing stripping, that's going to be a very profitable project for us. 5.6 billion pounds of copper, it's strictly leaching using the facilities that are already in place at the adjoining Safford mine. So that's going to be a good project. But what's really exciting, is beyond those 5.6 billion pounds of reserves now, we have 50 billion pounds to 70 billion pounds of resources. Enormous opportunity driven by the sulfide resources underneath these oxide resources that we're producing. We also have a sizable sulfide opportunity in Safford, which has been today strictly a leaching operation. And so, this has the opportunity of being a Morenci class mine as we go forward, right in the heart of our operations in a community where they're welcoming the mine activities, part of a brownfield expansion, really exciting.
Grasberg underground. This is just really going to be amazing. In the future, as we look out beyond the ramp up, the primary asset is going to be the Grasberg Block Cave. Now this is the same ore body that we've been mining from the surface since early 1990. Not a different ore body. It's just physically, it's more economically to access it underground now from the surface. We'll be ramping this single underground mine. It'll have two headings. And Mark Johnson's on the call with us, it's late at night, he's in to make -- he's in -- came back at four. But it's really in effect like two mines because there's two headings, ramping up to a 130,000 tons a day from this ore body by 2023. We had our first Drawbell blast on December 15th. I was in Jakarta, and that was exciting to be late at night at the Fairmont Hotel, and watch that first blast go off on a screen, and that's just one evidence of the progress we've made in developing the infrastructure.
Now it's important to note that this is in ore body we know. The Deep MLZ, where we've had mining and do seismic activities in a separate mineralization area. An area where we end Block Cave mining in early 1980, and have extended at a depth. It's 1,500 meters below the surface, we're 300 meters below the surface with the Grasberg Block Cave mine, different rock environment, we know the rock, we're comfortable though that we won't have to deal with these conditioning exercises, we're having to do with the Deep MLZ with the fracking operations.
The Deep MLZ will be ramping up. We feel confident to the 80,000 tons a day by 2022. We began the fracking operations in 2018 to manage the seismic events, pre-condition the cave. This is not the first time it's been done in the industry. First time we've done it, and results to-date are very encouraging and giving us increasing confidence about our ramp up schedule.
We have an inventory of 70 Drawbells. So we are prepared to have this ramp-up going and we're giving you our estimate as to how we'll achieve which is shown here on page 13.
First half of 2019, we're basically finished at the bottom of the pit. We've -- we're looking out for opportunities to -- in the pit to get some incremental high grade ore as we finish mining in the pit. One way we're doing that the primary way is we're mining out the truck ramp roads that are led down there with very high grade. And that'll be the bulk of the source of our ore production during the first half of 2019. And then you can see in these schedules how the other mines will ramp up.
So we're into this transition period 2019-2020. We have an increasing confidence about our ability to meet our targets, and we'll end up with the Grasberg mine operating with totally underground feed with a mill of over 200,000 tons per day. A very high grade copper and gold ore. And now the decks are cleared of all these issues that we've had with the government for us to proceed to do that in a business like fashion. And it'll be our primary focus.
So we've got a global footprint of course, key positive about our companies that we operate all the assets that we have ownership interest in. We're not minority owners, we're not joint venture participants, but we have the ability to benefit from having a common operating group managing all these operations and that gives us a lot of synergies to deal with both in supply change and people and mine planning and so forth. A large part of our resource and reserves are in the Americas 70%. We've got a great team. Real high morale here. Everybody's excited. We are ramping up the operations today. We're planning for future development and all of us are happy about it.
Leading position in the United States. Looking back a number of years ago, mining the Southwest copper district was dead. Now it's really exciting. We've got favorable tax situation. We have a huge operating loss carry forward from our own gas investments, so taxes will be minimal in the U.S. going forward. An improved regulatory environment, we have really good relationships with the states where we operate and so we -- and the energy situation in the U.S. with shale oil, shale gas, the flexibility of labor, we don't have labor unions here. We have communities that support the families that work at our business. So anyway it's -- we are really excited about our business in the U.S. great opportunity in Chile with El Abra, a world class mine in Peru and of course Indonesia being a historically tremendous asset.
We showed this, I think last quarter, but I want to come back to it, about just how difficult it would be to replicate what we have here at Freeport. If we look at the copper equivalent capacity of our company, 4.5 billion pounds of annual production extending for -- far as you can see, the cost to developed Greenfield capacity is $8 to $10 a pound, that indicates that to replace what we already have now, would be on the order of $35 billion to $45 billion. Time will justify this and we're focused on giving the market the basis to do it.
So we've got our 2019 outlook. It is very consistent with what we had before. Unit cost will be higher the next two years than they have been or will be because of the ore volumes with the transition at Grasberg, and that'll affect our cash flows for a two year period. But this is just like someone starting up a new mine, whether that mines in Mongolia or Africa or Panama, whatever is the ramp-up period, and that's what we have.
Capital expenditures are consistent with what we've got it to before. A large portion of these will relate to projects that will be adding significant future production. You can see our sales profile, which will be increasing as we go through the ramp-up years. And then go sales is particularly evident because that's Grasberg, and that's where we're having the transition.
18 -- slide 17 shows the volumes and cost by region. Our cost in the Americas is being fairly consistent. Each mine will be affected by some volume differences, but the fundamental cost situation is under control and remaining the same. Consolidated cost we're showing at current commodity prices for 2019 being a $1.73, but that's with Grasberg being at $1.55 a pound. We think Grasberg after the transition will be no more than $0.30, maybe lower depending on commodity prices, and if we pro forma to that our cost would be a $1.30 versus $1.73. We just keep want to drive home the fact that we're in a transition year -- years.
This is page 18, and it shows what our average EBITDA and operating cash flows will be on average for '19 and '20. And then after the ramp-up, how much it'll grow. So I'll let you look at those numbers and I think they are evidence what we're -- what we're doing with that. No significant changes to our capital expenditures, bulk of our major mining projects are Grasberg underground development. And our financial policy, we are -- we're going to be studying and ranking future investment opportunities. We're not planning to commit major amounts of new capital to those projects. We're going to continue with Grasberg and with Lone Star, but we're going to be looking at attractive projects for the future. We're going to continue to be focused on improving our balance sheet to the extent we get to a period to where we're generating excess cash, maintaining our current dividend. And what we're really looking forward to is, is having production ramp-up, a more positive copper pricing environment and that will allow us the ability to pay cash dividends as has been our tradition at Freeport.
So that is where we are. As I said, in a complicated dysfunctional world in many respects, we're very excited about where we are and we are focused on moving forward to make our company really successful for our shareholders.
So, Regina, we'll open up for questions.
Questions and Answers:
Operator
Ladies and gentlemen, we will now begin the question-and-answer session. (Operator Instructions) The first question comes from the line of Chris Terry with Deutsche Bank. Please go ahead.
Christopher Terry -- Deutsche Bank -- Analyst
Hi, Richard and Kathleen. Two questions from me. The first one, in your slide deck, slide 27, where you've got the quarterly sales forecast for 2019. Just looking for a little bit more color on the ramp up of the two headers at the Grasberg Underground. Resume with the first quarter of '19, got in 825 million pounds, includes a little bit of the sales that didn't come through from 4Q '18. I think 2Q '19 from what you've said included some of the open pit material at the slightly higher grade. Is it really the second half of the year where we then more rely completely on the underground. Just trying to step through the profile there. That's the first question.
And just on this -- on your projects beyond Lone Star, can you rank at this stage what the order of preference would be for any new projects including El Abra or North American options? Thank you.
Richard C. Adkerson -- Vice Chairman, President and Chief Executive Officer
Okay. So Chris, you're exactly right. I mean you're reading the slides. The first half of the year the bulk of production at Grasberg is going to come from the open pit ramp mining and then by the end of the year the Grasberg Block Cave will be commencing production. We also, over time have developed stockpiles of material that we will use to maintain as much throughput through our mill as we can, but that's been a long term plant plan to stockpile some lower than average grade material and that'll be available for us as well,
Kathleen L. Quirk -- Executive Vice President and Chief Financial Officer
And for the year Deep MLZ represents about 12% of our production. So relatively small percentage in 2019 and Grasberg Block Cave is under 10% for 2019. The rest of that will come from the open pit the DLZ mine which has been operated for several years now is the other piece of this in addition to stockpiles and a small amount from Big Gossain as well.
Richard C. Adkerson -- Vice Chairman, President and Chief Executive Officer
Mark, do you have anything to add to that. Or were you OK with it?
Mark J. Johnson -- President and Chief Operating Officer, Indonesia
No, that's perfect. We've also ramped up the Big Gossan and it'll be at full production of 7,000 tons a day by the third quarter and it'll consistently supply about just over 10% of the copper and about 45% of the gold.
Richard C. Adkerson -- Vice Chairman, President and Chief Executive Officer
So Chris, with regard to ranking I'd be careful because we can get some fairly heated discussions internally about that. We start out with a base I think with El Abra. It's for our mind that we thought by this time would be depleted, when we acquired Phelps Dodge almost twelve years ago now. Our subsequent core drilling and exploration analysis gives us a really exciting opportunity. We own 51% of that mine, CODELCO is our partner and CODELCO is very positive about expansion.
On the other hand, the U.S. has the benefits of the -- that I mentioned, energy costs, labor flexibility, which Chile is recognizing is an impediment to that country's future in the mining industry now. And we own 100% of the mines. We own the land and see here. We don't -- and our workers drive their pickup trucks to work and carry lunch pails and send their kids to community and state schools and have hospitals, so it is a lot of advantages in the U.S. leading the pack right now in terms of timing would be Bagdad.
We've invested in water resources which is a constraint there. We've done some work on land rights for tailings disposal and it's less capital intensive, smaller, easy executional project and then longer range, we've got some very large projects to consider at Lone Star and at Morenci. And you know even in New Mexico where our mines are very old, but as we keep continuing to keep drilling these old ore bodies we get excited about what we're seeing there. So it's a -- it'll be a horse race to decide what to do. Not a decision we'll reach. We'll continue our work throughout the year and report to you how that analysis is going.
Christopher Terry -- Deutsche Bank -- Analyst
Okay. Thanks.
Richard C. Adkerson -- Vice Chairman, President and Chief Executive Officer
All right thanks Chris.
Operator
Your next question will come from the line of David Gagliano with BMO Capital Markets. Please go ahead.
David Gagliano -- BMO Capital Markets -- Analyst
Hi. Thanks for taking my questions. I just -- I had a quick question. First of all on the capital spending for the Indonesia smelter. The slides obviously is -- are before CapEx for the smelter and I know it's early days. When do you expect to start spending?
Richard C. Adkerson -- Vice Chairman, President and Chief Executive Officer
All right. So we have been spending some planning money today. We'll continue with that. Significant capital spending won't come into play until 2020. And we are now engaged in conversations about potential partners, about financing structure and how that will be dealt with. So we've deferred that until we got our deal done. The deal is done. We're now actively pursuing that project. And you can expect updates through 2019 as we go forward. But not much in the way of capital during 2019.
Kathleen L. Quirk -- Executive Vice President and Chief Financial Officer
And David we would just point out on slide 19 where we show capital spend expenditures, those are consolidated, and now we're bringing in all the aggregate capital from Indonesia, whereas the previous structure was Rio Tinto. Their contribution was was not included in our capital. So our capital spending really, from our previous guidance has not changed. We'll get under the economic arrangement we have with our new shareholder, we'll have -- they'll make a contribution similar to what Rio Tinto would have otherwise done, but that won't be be netted in our capital like it had been before.
And with respect to the smelter, as Richard said, we are focused on -- we're doing the front-end engineering right now. And while we're in those planning stages, we are going to work to try to find partners that may be interested in offtake or other participation in the smelter. Ideally, we'd like to structure the smelter similar to what we did with the original smelter we built in Indonesia where PT-FI provided a contract to a smelter project company that use that contract to finance the smelter, but we don't know yet. This is all new in terms of getting the deal done in Indonesia. So as we go forward, we're going to look to minimize equity contributions from FCX, and look to try to find financing for the smelter as long-term as possible to reflect the long-term nature of the assets and the amortization of the smelter will have over time.
Richard C. Adkerson -- Vice Chairman, President and Chief Executive Officer
And Dave, let me make a couple of side comments on all of this. All of the issues related to capital allocations in the smelter were settled with Inalum during our negotiations. Rio Tinto was a great partner of ours since the mid 1990s, but there were some issues related to the smelter and cost allocations in the final years before they went up to 40%, that were unresolved. We resolved those now and those are settled with Inalum in a fair way, and in a way that was consistent with the Rio Tinto deal.
And when you think about the smelter, Indonesia really is exposed to roughly 50% of the economics of the smelter through taxes and royalties. Now they have a 50% equity interest. So 70% to 75% of the economics of the smelter will be borne by the government of Indonesia. And Freeport's exposure to the smelter which in today's world and foreseeable world will have an economic, the impact is limited to 25% to 30%. I think that's obvious, but I think it's something I just wanted to point out.
David Gagliano -- BMO Capital Markets -- Analyst
I appreciate the extra details and color. It's always helpful. Just one other quick question. If you could just take a step back. Obviously, commodity prices down, all the big producers are out saying, there's really not any good projects out there. And so, I just wanted to ask if you could give us an update on your thoughts regarding M&A activity in the sector in general, and where Freeport shakes out?
Richard C. Adkerson -- Vice Chairman, President and Chief Executive Officer
So, Dave, you and others read what other companies say, and there is a consensus across the industry among the diversified companies that puts copper as a top priority of every company. I mean every company talks about that. And yet as you point out, the opportunities for investments are very limited just because of the geology and politics and the nature of the ore bodies that are valuable to the industry right now. So over time, I think there will be a strong desire for companies to try to expand their copper business and they're going to be limited by their ability to do that through exploration and development activities.
And I think that will add to the value of Freeport's assets. We don't have any strategy about M&A that's that's been formally adopted. We're going to be in the marketplace looking for ways to increase shareholder value, and that is the total focus of our company as we go forward. During my long career in this industry, my observation is M&A opportunities emerge. People get in trouble when they try to force M&A ideas into a company strategy. But they tend to be more -- the good ones tend to be more opportunistic like our acquisition of Phelps Dodge, wasn't a strategy that we planned, it was an opportunity that emerged because of the circumstances of Phelps Dodge, the circumstances of Freeport, the circumstances in the financial marketplace at the time. And I think that'll drive what we do in the future opportunities.
David Gagliano -- BMO Capital Markets -- Analyst
Okay. Just to clarify as reported, would you say more of a buyer or a seller?
Richard C. Adkerson -- Vice Chairman, President and Chief Executive Officer
I can see strategy working the either way.
David Gagliano -- BMO Capital Markets -- Analyst
Okay. Thanks.
Richard C. Adkerson -- Vice Chairman, President and Chief Executive Officer
Well I haven't said that, to be a buyer would be faces an uphill challenge with us, because we have all these resources where we're not getting any credit for in our current valuation. And if we create values in those undeveloped resources, all of that goes to benefit our shareholders. If you buy anything you have to pay the other company shareholders something so, it would be a real uphill battle for us to find an acquisition opportunity that makes sense for us.
David Gagliano -- BMO Capital Markets -- Analyst
Great. Thank you.
Operator
Your next question will come from the line of Chris LaFemina with Jefferies. Please go ahead.
Christopher LaFemina -- Jefferies -- Analyst
Hi. Thank you for taking my question. Just, first, a couple of quick questions on the transition at Grasberg and then one on costs for the entire company. So it looks like you actually slightly increased your production guidance from the Deep MLZ for 2020 and 2021. Is that just a function of being more confident in the results of the hydraulic fracturing or is it something else going on there.
And I guess kind of along those lines. What milestones should we be looking for or you looking for at the Block Cave and at the Deep MLZ through 2019 and 2020, that would give you even further confidence in the kind of successful transition to the ramp up in production from those assets?
Richard C. Adkerson -- Vice Chairman, President and Chief Executive Officer
Okay. So the changes at Deep MLZ or just part of the natural updates of outlooks, and here at Freeport we don't have an annual planning process. We update our mine plans every quarter. Before -- at the end of every quarter, we have a meeting where all of our mine managers globally come in, analyze what's happened in the past quarter, how their plans will change and so it's a dynamic real-time updating. And when you see adjustments like that that just reflects the information that came into the quarter. You won't see us having these big adjustments based on annual planning processes. Anyway my experience has shown me it's best to stay on top of these things real-time and that's what we do.
Kathleen L. Quirk -- Executive Vice President and Chief Financial Officer
Mark do you want to comment on the -- it's roughly 2,000 tons a day more in 2020 and 2021. Do you want to comment on some of the progress we're making at Deep MLZ.
Mark J. Johnson -- President and Chief Operating Officer, Indonesia
Yeah. The -- really the only difference on that is that with the hydro fracking success that we've had -- we've began to pull the ore body now. We have been for the last three months, and what -- what's happening is as we frac the ore body, we watch very closely the air gap between the mud pile and the cave back where that's very small, in a lot of cases it's less than 5 meters. We pull the material to continue to open up the space for the the ore body to continue to propagate. And so that came on quicker than what we had previously forecast. So we're continuing to do that today. We have days now in the Deep MLZ with the development material that we -- that is in ore grade also, and the pulling of the cave were up over 10,000 tons, which is marginally above what we'd forecast last quarter.
So we're very optimistic on that. We continue to frac in that area. That's going to be one of our key milestones. We just recently commissioned our second hydro-fracking pump. We've got six drill rigs supplying the holes for the two hydro-fracking pumps. So for me the Deep MLZ, it'll be continued as -- the milestones will be continued success on the hydro fracking. And we'll begin undercutting. We're forecasting to begin undercutting again in the Deep MLZ in April. So that'll be driven by this continued success on the drill holes and the fracking that goes along with them.
In the Grasberg, it's -- there's really -- it's just a matter now of undercutting and blasting Drawbells, and we've gotten off to a good start there, we're slightly ahead. And we don't see any issues there. We've got a lot of development already in place in the undercut that we'll be developing over the next three years really. So it's just a continued ramp-up of that. The trains in an ongoing state of of commissioning, but we see good progress on that. The overflow was commissioned back in 2018, and really nothing that we need to do with the overflow system in the next couple of years to meet the increasing production.
Christopher LaFemina -- Jefferies -- Analyst
So aside from -- the aside from the seismic, the mining and the seismic activity in the Deep MLZ, you haven't really had any significant operational surprises at the Block Cave or at the Deep MLZ. It seems like things are going pretty well recently, is that fair to say?
Mark J. Johnson -- President and Chief Operating Officer, Indonesia
Yes, that is. The fracking, we've seen a much better response than we first had anticipated. The caves propagating better than we anticipated vertically. And we're establishing this fracking along the perimeter of the cave to where we'll be able to successfully and safely advance the undercuts. So it has gone slightly better than what we anticipated in the last forecast.
Christopher LaFemina -- Jefferies -- Analyst
Thank you for that. And sorry Richard, just one last question from me on the pro forma cost guidance of a $1.30 per pound. Obviously, the reduction for 2019 to that is due to Grasberg. But what should we -- how should we think about unit costs in North America and at Cerro Verde. I mean you had -- I guess over the last five years, there has been some pretty severe cost inflation in both of those regions. And is any of that reversible or are we kind of looking at new -- the current kind of cost rates are going to be the normalized run rates for those assets. How is that going to change over time?
Richard C. Adkerson -- Vice Chairman, President and Chief Executive Officer
So part of what you've seeing in recent years was this ramp-up of mining activity that we were restoring these curtailments that we put in place back in 2015 and 2016 for financial reasons. Had we not done that Chris, we would have seen volumes fall off. Because we weren't mining at optimal rates to maintain production. So we've incurred some additional cost. I mean 20% ramp-up involves a lot of people and equipment. And so, now we believe we've got it at rough red rate hike, we've got it at really a stable operating rates. And then we'll be just subject to the normal factors that affect cost structures. And today we're not seeing anything like that, that's a major concern for us. We've done this great job with truck rebuilds. Red when was the last time, we've bought a Haul Truck?
Harry M. "Red" Conger -- President and Chief Operating Officer, Americas
2008.
Richard C. Adkerson -- Vice Chairman, President and Chief Executive Officer
A brand new one.
Harry M. "Red" Conger -- President and Chief Operating Officer, Americas
A brand new one. We bought 150 of them. In the last 12 years --
Richard C. Adkerson -- Vice Chairman, President and Chief Executive Officer
We've added 50 of them. And so we're doing things like that our tire of age is going paid. So, when you look past all the issues of Freeport, they've been related to the Indonesian contract and the transition to underground. We've had a big part of our business, that's just been focused on nuts and bolts, and doing a great job with that.
Kathleen L. Quirk -- Executive Vice President and Chief Financial Officer
So in that one-third, we've got relatively stable cost from the Americas work out.
Christopher LaFemina -- Jefferies -- Analyst
Perfect. Thank you for that. Good luck.
Richard C. Adkerson -- Vice Chairman, President and Chief Executive Officer
Appreciate it, Chris.
Operator
Your next question will come from the line of Matthew Korn with Goldman Sachs. Please go ahead.
Matthew Korn -- Goldman Sachs -- Analyst
Hi. Good morning everybody.
Kathleen L. Quirk -- Executive Vice President and Chief Financial Officer
Good morning.
Matthew Korn -- Goldman Sachs -- Analyst
So the question, when you think about your potential growth portfolio beyond that of Lone Star and the prospects you outlined for Cerro Verde, Bagdad, Safford et cetera. You laid out this percent of price at $3.30. I know it's probably the most challenging question for a mining company when you have a long lead time between cash investment and incremental revenues. But what does the market look like, when you make that decision saying, yes it's time to put in this capital, price is at $3.30, it stays there a quarter or two quarters, practically is that enough. And if not, what is?
Richard C. Adkerson -- Vice Chairman, President and Chief Executive Officer
I don't think you can simplify. It's not just like the price -- the current price or whether it lasts a couple of quarters or not. We don't allow ourselves to focus on a price. That's what history has taught me. We look at a scenario of prices, we don't think that you're going to get to a price, analysts used to get upset when because they say what's your long-term price? And I say, we don't have one.
What we would do as we look at these projects is look at the market, see what the opportunity would create for us if we did the project and got those volumes, and had the benefit of the prices that were available. And then we would risk it. We would say, OK, if you make the investment prices drop, not on that project alone, but how would that fit in to your total portfolio of assets. What would that do to the company? Is the company financially strong enough? And we're so much better now than we have been. And how we would fit in?
We've benefited back -- we undertook three projects at once coming out of the 2008-2009 downturn. We did an expansion -- thinking expansion at Morenci, the major expansion at Cerro Verde, and we looked at all of those and strategically we come back to the fact that you've got Grasberg there, with its high volumes and significant gold component, giving you this long-lived, low cost reserve, that was the whole basis for the Phelps Dodge deal. So as we look at future opportunities, we got this base for the company of Grasberg there, which is now derisk in a major, major way to support our company, and that allows to be more aggressive in terms of looking at those investments. It's not looking at them on a stand-alone basis.
So, I can't give you a formula, but as we hopefully get past these trade issues and the Brexit and the government shutdown, and get some clarity on what the Fed's interest rate policies are going to be and what the global economy is going to be, how China deals with all these things will come together and they'll give us a view as to what -- what's the time to start these. You correctly point out the very long term investments. The price could obviously jump to $5 today. We wouldn't have significant incremental production for six, seven years. And so there's gonna be a counting time unless there's some really disaster economically in China and the world where your -- your likely to see really, really high copper prices. I mean it's just -- it's just read the tea leaves, look at these basic numbers and say, how are you going to replace the top 10 mines in the world in 10 years. That's not going to come from what's on the schedule right now, though prices have got to go way up. People are only scrambling to produce copper. We've got the resources to do it in a productive way and that's what the future is going to be.
Kathleen L. Quirk -- Executive Vice President and Chief Financial Officer
The other thing we're doing in -- or for our North American projects is we're going through some work right now, some technical work to try to bring down the capital intensity of investments. And we're working on some concentrator designs that may allow us to bring in projects from the lower capital intensity standpoint than what just a conventional technology would bring.
So we want to get the results of that -- those studies done. And in meantime we're doing some value engineering on the El Abra pre-feasibility study, so that we can be in a position to make decisions and rank these projects and sequence them in a way that -- that drives the most value for our company. So we've got the inventory but we want to do them in the most economic way that we can. And that's why we're going through some time during this market uncertainty to study ways to bring down the capital intensity of the projects.
Matthew Korn -- Goldman Sachs -- Analyst
Thanks.
Richard C. Adkerson -- Vice Chairman, President and Chief Executive Officer
And this is a team that was a world leader in SXEW and SAG mill development, high pressure grinding road development. The development of Tenke was technically industry leading and now with this new mill design that we did at Morenci, all of that's coming together to allow us to look at the next stage of how do you do these things with less capital, less energy, less carbon emissions, all of the things that have a recovery, better recoveries and now using this big data analysis project that we've done it at Bagdad. That's what the gut to this company is going to be about. And I really look forward to having earnings calls talking about these things, rather than negotiations with governments.
Matthew Korn -- Goldman Sachs -- Analyst
Thanks. I appreciate that. That brings to my next question. I wanted to ask a little bit on the CapEx side. On slide 19, we see the other mining creep up a bit $800 million to $1 billion by 2020. A major project holding at $1.5 billion over '19 and '20, although Grasberg holds a $900 million, Lone Star declines by $200 million. So given what you just said, could you break down -- what regions, which mines are driving a little bit of the pop in the other mining. Whether we should be thinking about a $1 billion consolidated, is this sustainable capital going forward. And then, as you get into 2020, what else is popping into the major projects bucket?
Richard C. Adkerson -- Vice Chairman, President and Chief Executive Officer
Well. So with the sustaining capital, some of that effects, there is ramp up effect that we talked about. Not only you constrain operations which we show by necessity maintenance capital. And I mean, these quarterly meetings we had, it was back and forth between the teams and our Kathleen, the financial staff. And so, now we're having to go back and do some things that we had deferred. And that's all that, that is. And so, I think the sustaining capital that you see in those years should be --
Kathleen L. Quirk -- Executive Vice President and Chief Financial Officer
More normal.
Richard C. Adkerson -- Vice Chairman, President and Chief Executive Officer
More normal.
Kathleen L. Quirk -- Executive Vice President and Chief Financial Officer
Yes.
Richard C. Adkerson -- Vice Chairman, President and Chief Executive Officer
And we'll find ways to try to reduce it. There won't be any unexpected increases, right, we'd incur. All right, write that down. That won't be coming in and then by 2020 we may well have clarity on where we're going next. With El Abra, Bagdad and other things that we would be beaming with. So we'll just -- we'll be update -- the milestones will be apparent to all of you all now, because every quarter we're going to be talking about them.
Kathleen L. Quirk -- Executive Vice President and Chief Financial Officer
Yes.
Richard C. Adkerson -- Vice Chairman, President and Chief Executive Officer
And that's a way this will unfold.
Kathleen L. Quirk -- Executive Vice President and Chief Financial Officer
There's not anything major besides the underground and Safford or Lone Star. We are -- we do have some capital at El Abra that we're doing in the next phase of the --
Richard C. Adkerson -- Vice Chairman, President and Chief Executive Officer
New leach pad.
Kathleen L. Quirk -- Executive Vice President and Chief Financial Officer
Of the new leach pad to extend the life of our Safford project there. So it's -- the bulk of it's coming from Safford -- I mean Lone Star and Grasberg Underground.
Matthew Korn -- Goldman Sachs -- Analyst
Alright, best of luck, folks.
Richard C. Adkerson -- Vice Chairman, President and Chief Executive Officer
Thanks, Matt.
Operator
Your next question comes from the line of Alex Hacking with Citi. Please go ahead.
Alexander Hacking -- Citi -- Analyst
Good morning, Richard and Kathleen. I guess, just following up on Indonesia. My first question. I noticed that the mining rights have been extended through 2031, a 10 year period, not 2041. Was that always expected to be the case? And then secondly, the extension there is contingent on building the smelter and I guess paying taxes and royalties? And any other contingencies on that extension? Thanks.
Richard C. Adkerson -- Vice Chairman, President and Chief Executive Officer
Okay. No, we always knew that because of Indonesian mining law and regulations that we had to do -- 10 by 10 to 10 year. And part of the negotiations were -- and that was the case with the whole contract, there was a primary return to 2021 and we had rights to 2041 in two 10 year increments past 2021. So we always knew we had to deal with that -- a focused area of negotiations were what was going to be the contingencies for that 2031 to 2041. And we ended up agreeing that there would be very specific criteria and we said that with those criteria met it would be automatic. And those criteria are simply this: we pay our taxes and royalties. What's due, we build the smelter. Other than that there's no environmental review or other administration no -- we thought, it will come with our rights under the COW, but the COW said, in Indonesia, the government had to grant those extensions --
Kathleen L. Quirk -- Executive Vice President and Chief Financial Officer
Not the unreasonable result.
Richard C. Adkerson -- Vice Chairman, President and Chief Executive Officer
Without unreasonable -- without any unreasonable delay. There is no reasonableness on this. It's measurable, it's specific criteria, it's totally expected by the government and by us that we will extend. And now our partner Inalum will set to be extended. So we're in a much better position than we were under our COW in many respects and this is one of them.
Alexander Hacking -- Citi -- Analyst
Okay. Thanks, Richard that's very clear. And then once Grasberg is through the transition, it's going to be a big cash cow. Do you have any kind of guarantees on your ability to get that cash out of Indonesia? Thanks.
Richard C. Adkerson -- Vice Chairman, President and Chief Executive Officer
We do. And one of the things that was again a focus point in negotiations was that within the shareholders agreement is a -- an agreement on financial policy. Dividends will not be set by the Board of Commissioners or Board of Directors. There is an agreement that to the extent that cash is generated from the operations beyond in excess of its capital expenditures and other cash requirements. That's going to be distributed as dividends. And there's no restrictions on that. So we have a set financial policy that goes to 2041.
Alexander Hacking -- Citi -- Analyst
Okay, Thanks.
Richard C. Adkerson -- Vice Chairman, President and Chief Executive Officer
The entity can't incur debt without mutual agreement.
Alexander Hacking -- Citi -- Analyst
Okay, thanks again. Again very clear. And then just one final one, if I may. On the Cerro Verde royalty dispute. Do you anticipate any near term cash flow impacts from that? And does it affect your 2019 cost guidance in any way? Thanks.
Kathleen L. Quirk -- Executive Vice President and Chief Financial Officer
We've got some payments worked into our plan, where we are paying some amount in installments, under protest. We're going to continue to pursue our legal strategy to get those payments back. But we do have some amounts going through our cash flows over time with -- to pay on those obligations for those claims.
Alexander Hacking -- Citi -- Analyst
Okay. Thanks, Kathleen. Best of luck. Thank you again.
Operator
Your next question comes from the line of Matthew Murphy with Barclays. Please go ahead.
Matthew Murphy -- Barclays Bank PLC, Research Division -- Analyst
Hi. I had a question, another one on the Grasberg Block Cave ramp up. I'm just wondering how major this first drop point blast is? Is this being followed up with like mucking and this cave is propagating or is it still very early days. I'm just wondering how you look at the derisking of the project over the course of the year? At what stage do you think you feel more comfortable kind of with the proof of concept here?
Richard C. Adkerson -- Vice Chairman, President and Chief Executive Officer
Okay. Mark?
Mark J. Johnson -- President and Chief Operating Officer, Indonesia
Yes. It's the first step. So it's significant in that, the blast went well, good fragmentation. We are not -- right now, what we do and so we hit a hydraulic radius in this area at the Grasberg Block Cave, as we continue to do the same thing. We continue to undercut blasts and follow it up with a Drawbell blasts. We are about 50% of the hydraulic radius, and that's the span in which the cave, we'd expected to start caving on its own. We expect to be at hydraulic radius late second quarter, early third quarter of this year. And at that point you can start to muck the drop points that you've already blasted, while you continue to add new drop points.
As Richard stated, the Grasberg Block Cave is -- we've got multiple work areas there, it's essentially -- it's one mineralization, but there's the geometry is essentially we have two mines that we're developing concurrently, that share the same infrastructure. We have two fronts right now that we already established with the undercut sequencing on the very southern portion of the ore body and within this quarter we started to develop the Northern Land of the ore body and that'll continue on in a similar fashion. We don't see any surprises. Like Richard said we've -- we know this ore body very well, we're not deep, there's the geology and mapping is indicated the same fracture frequency and consistency of the rock that we'd initially modeled.
So I really don't see any issues there. In fact, we think that there's potential for upside. We've got a lot of the construction ahead in the Grasberg Block Cave a lot of the Drawbells have been constructed and are ready to be blasted. So we've got a good inventory of development ahead of us. The infrastructure is in place. We continue to add ventilation and pumping systems as we need to. But we're in very good shape in the Grasberg Block Cave.
Matthew Murphy -- Barclays Bank PLC, Research Division -- Analyst
Okay. Thanks for that. I mean not to get too bugged down on details but I'm just trying to picture I mean you've got a big open pit and a lot of rainfall above this area. Just wondering at what point do you start seeing some of that water flow and how do you deal with it? Thanks.
Mark J. Johnson -- President and Chief Operating Officer, Indonesia
Yeah. We've got extensive drainage within the Grasberg blockade development. We end up -- fortunately for an underground mine, our failsafe is that a gravity drains out to the rich camp area. We've got the addeds that are at a lower elevation that if the pumping systems were to go off, the failsafe would be as that the access drifts are built to handle the peak flows that we've modeled. We put a lot of effort into de-watering along the periphery of the Grasberg Block Cave to keep the groundwater away from the cave and that's going well. We've got surface drainage systems at the Grasberg around the pit that will continue to maintain to minimize the amount of surface water that gets into the cave.
We've done a lot of work on this. We've looked at a lot of contingencies and we feel very good about the system that we have. And essentially the pumping system that we put in, is purely to more economically provide the mill with water. If it wasn't for the mill needing water, we could essentially let the gravity do its thing at the GBC and with all the drainage systems that we're putting in as part of the block cave development.
Matthew Murphy -- Barclays Bank PLC, Research Division -- Analyst
So Mark when do we put in the Amole at it?
Mark J. Johnson -- President and Chief Operating Officer, Indonesia
That was -- yeah it was in the 1990 -- actually it probably about '95. Because we found the -- Kucing Liar with that.
Richard C. Adkerson -- Vice Chairman, President and Chief Executive Officer
So the only point of that is, this water management issue is not a new issue associated with the current development. It's been something that's been part of this operation from the very start. And what we've done in the past will allow us to deal with these issues that you raised.
Mark J. Johnson -- President and Chief Operating Officer, Indonesia
You know one thing, as big as the pit is right now and if you look at what we're doing, we've been very good at being able to manage the pit bottom. We're only pumping about 2,000 gallons a minute from the pit bottom and we have access to the Amole drift that Richard mentions. We still use that for our pit de-watering. So we've been able to keep the pit de-watered with a very minor amount of pumping infrastructure, because we can use the access that we have underground. And we'll continue to look at those sort of approaches with the GBC.
Richard C. Adkerson -- Vice Chairman, President and Chief Executive Officer
All right. Thanks Mark. Let's move along.
Operator
Our next question will come from the line of Orest Wowkodaw with Scotiabank. Please go ahead.
Orest Wowkodaw -- Scotiabank -- Analyst
Hi, good morning. I was wondering if we could get a bit more color on the cost outlook. And I appreciate the long term pro forma cost guidance you've given us here of a $1.30 a pound. Does that imply that we should anticipate costs in North America and South America close to the $2 a pound range before thinking about Grasberg?
Richard C. Adkerson -- Vice Chairman, President and Chief Executive Officer
I think it's $1.70 range, not $2.
Orest Wowkodaw -- Scotiabank -- Analyst
That's $1.70.
Richard C. Adkerson -- Vice Chairman, President and Chief Executive Officer
Yes, $1.70, $1.75, that's sort of where we are now and that's what our current outlook is. Unless there's some major changes in input costs.
Orest Wowkodaw -- Scotiabank -- Analyst
What drives that down from -- I think you're guiding this year North America costs of a $1.86. So what -- in the future I would think rates decline, what would be driving the long-term cost per pound down?
Kathleen L. Quirk -- Executive Vice President and Chief Financial Officer
Richard, was talking about a blend between North America and South America.
Richard C. Adkerson -- Vice Chairman, President and Chief Executive Officer
I was talking about the Americas combination. So if you look at South America and North America combined, which we look at is kind of one business unit, that's where the combined rate was.
Harry M. "Red" Conger -- President and Chief Operating Officer, Americas
But in general, the maintenance costs that Richard referred to, that we've been incurring catching up, those all level out get back in sequence, and we get back to those historical rates roughly.
Richard C. Adkerson -- Vice Chairman, President and Chief Executive Officer
And Red, this is not the -- the nature of these ore bodies, they're low grade, but they don't have significant declines in grade over time. We -- they'll change year-to-year, but it's not a question like a big open pit ore free where you mine the highest grades first. I mean the highest grades I remind you are 100 years ago. So it's more consistent grade than you might see in other mines. And you would see it on the mines.
Orest Wowkodaw -- Scotiabank -- Analyst
Okay. And in terms of the reserve increase, how much -- can you give us a rough idea of what percent of that increase has to do with the copper price change versus additional drilling?
Kathleen L. Quirk -- Executive Vice President and Chief Financial Officer
A big portion of it is related to the copper price change. We did do some drilling at Lone Star and actually have done more drilling that isn't reflected yet in 2018 reserves that will be incorporated into the models in 2019. But most of that is really dealing with the price assumptions and what we'll do is look at how to develop those reserves over time at the lowest possible cost. And really, just expanded that the footprint brought in pounds that would meet the reserve criteria at $2.50 or less.
Richard C. Adkerson -- Vice Chairman, President and Chief Executive Officer
Yes. So what we do is you know we look at our current operations that we've got planned. And we're just removing this artificial constraint on the footprint of the cone of the reserves that we previously limited to $2. And now it's extended to show what would be economic at $2.50?
Kathleen L. Quirk -- Executive Vice President and Chief Financial Officer
And we'll be likely mining in our $2 reserve plan for a long time. So we try to keep mining in a plan that keeps the cash costs as low as possible. But this gives us more optionality to look at expansions are bringing metal forward over time.
Orest Wowkodaw -- Scotiabank -- Analyst
Great. Thank you very much.
Richard C. Adkerson -- Vice Chairman, President and Chief Executive Officer
Thank you.
Operator
Your next question comes from the line of John Tumazos with John Tumazos Very Independent Research. Please go ahead.
John Tumazos -- John Tumazos Very Independent Research -- Analyst
Thank you. Your reserve in mineralized materials very interesting with the Americas reserve going up 23.7 billion pounds and the mineralized material going up 42 billion pounds in addition to that 66 billion pounds is like 2 times Grasberg, but smaller than Escondida. Could you give us a little more explanation how much of the mineralized material was new drilling at El Abra and new drilling at Lone Star versus the $3 resource price. Was that the same $3 price as a year ago? Maybe it'd be good if you just posted the reserve and resource pages of your 10-K on your website today. It might be more interesting than the rest of it?
Richard C. Adkerson -- Vice Chairman, President and Chief Executive Officer
Well let me just say, I agree with that last comment.
John Tumazos -- John Tumazos Very Independent Research -- Analyst
It deserves more and to accept legal summary that your SEC attorneys right?
Richard C. Adkerson -- Vice Chairman, President and Chief Executive Officer
You're right. But John with the exception of Lone Star, it's mostly price change. There's not a lot of new drilling that drives that change. But having said that John, over the past 12 years, we've done an enormous amount of drilling. I mean previously when we walked in here and Phelps Dodge had not -- had really by management decisions had limited drilling. They just hadn't done it. So we came in and we drilled out El Abra and added significant, we drilled Lone Star, we drilled more at Morenci, Bagdad. So it's not just what happened this past year, but the cumulative effect. And then by releasing this artificial constraint at $2, we were able to take into account, previous drilling results and expand the cones of these reserves to some that was more realistic at $2.50. But we're going to continue to drill and understand what the resources are and that'll go into our ranking of future investment opportunities.
John Tumazos -- John Tumazos Very Independent Research -- Analyst
Did the higher copper price permit, moly resources to come into reserves from the properties that are copper with a moly credit. Is that how the moly went up a 1 billion pounds?
Richard C. Adkerson -- Vice Chairman, President and Chief Executive Officer
Yes. Yes, exactly because of extracting the cones for Bagdad, Sierrita, Cerro Verde, all of those by-product, moly operations, it took into material that was once outside the reserves, and then our 10 reserves.
John Tumazos -- John Tumazos Very Independent Research -- Analyst
I just hope you'd explain the 66 billion pounds they are wonderful?
Richard C. Adkerson -- Vice Chairman, President and Chief Executive Officer
Yes. That's what we're gonna be focused on now, John.
John Tumazos -- John Tumazos Very Independent Research -- Analyst
Thank you.
Richard C. Adkerson -- Vice Chairman, President and Chief Executive Officer
Thank you.
Operator
Your next question comes from the line of Chris Mancini with Gabelli & Company. Please go ahead.
Christopher Mancini -- Gabelli & Company -- Analyst
Hi thanks. Just a quick question on the North American operations. Are you experiencing any labor inflation due to the low unemployment rate just generally in the U.S. and are you having any trouble, say finding skilled workers to drive the trucks and things like that. And does that kind of play into your analysis relative to building these big new projects. We've been hearing just broadly speaking, even trucks difficulty finding long haul truck drivers in the U.S. and things like that. Just wondering, what you guys are experiencing from that perspective?
Harry M. "Red" Conger -- President and Chief Operating Officer, Americas
Yes. Chris, in North America we brought on 2,500 new employees last year in a very tight market. Truck drivers equipment operators we've been very successful with, we're still a bit short on skilled craft people, mechanics, electricians those kinds of things are in tight demand that we're very pleased with how our team has approached that and attracted great new employees to come work with us for the future and we don't see that as a deterrent to expanding going forward.
Richard C. Adkerson -- Vice Chairman, President and Chief Executive Officer
But having said that we're working with states and local communities on craft training and trying to encourage people. We've invested a lot in facilities for employees particularly at Morenci. It's a challenge to get people to live in these remote rural communities and we're working with universities. We're looking beyond just truck drivers, but we're working with universities now to define future leaders in engineering, metallurgy, geology and technical skills. So that's -- it's a real problem, it's coming problem, and we're giving a lot of thought investment and community activity work to try to deal with it.
Christopher Mancini -- Gabelli & Company -- Analyst
Okay. Yes, that's great. I guess you've been in Arizona for such a long time and it's -- that it's near enough you're an advantageous position I guess relative to some others. Thanks a lot.
Richard C. Adkerson -- Vice Chairman, President and Chief Executive Officer
All right.
Operator
Your final question will come from the line of Michael Dudas for the vertical research. Please go ahead.
Michael Dudas -- Vertical Research Partners -- Analyst
Thanks for getting me in and I hesitate to bring up a football analogy given what happened on Sunday.
Richard C. Adkerson -- Vice Chairman, President and Chief Executive Officer
We're going to have a moment of silence at the end of this at the first sign.
Michael Dudas -- Vertical Research Partners -- Analyst
Terrible. Yeah. Good luck with the lawsuits. I would characterize since the 2006 to 2009 time frame -- 2018 time frame you've had to play a lot of defense especially with the balance sheet and such but prices being low and maybe in your negotiations with the Indonesians to resolve the issues. Are you set up to be play more offense here and is your balance sheet structure do you think to do that given what you've done. And in that context if you were to see much lower copper prices, our plans in '19 and '20 pretty much set in stone and conversely if prices were to spike and get more generation cash flow is that points toward balance sheet or is that toward Capex or other issues?
Richard C. Adkerson -- Vice Chairman, President and Chief Executive Officer
Okay. So you're exactly right. I mean I really like the analysis of switching from defense to offense. And I mean three years ago the defense were survival. $20 billion of debt and not a clear cut path as to how we're going to get out of it. But we took some bitter peers, we built some asset, raised some capital, got that dealt with, then we had to struggle with Indonesia. And three years ago, we were at the point of filing an arbitration claim. And I stood in a press release in Jakarta and basically drew a line in the sand. And now, we've worked cooperatively to where the last press conference I had in Indonesia we were shaking hands and smiling and everybody was pleased before we ended up with. So you're exactly right.
Now, right -- If you look at our debt repayment schedule, we don't have any near-term debt requirements. And so as we look at the next two years if we do have to face a severe downturn in commodity prices, we can weather that -- we can weather that without having to alter our long term mine plans. We will tighten again, where we have to tighten and we'll respond to it. But it's not -- is not the critical situation we were in three years ago. And so we can manage through that if prices get higher during that period of time. In that time frame we're not likely to change our capital spending, and to the extent we generate -- if they do allow us to generate excess cash, we'll use that to further reduce debt for the time being. And that will accelerate our plans for future spending.
Michael Dudas -- Vertical Research Partners -- Analyst
Thank you, Richard.
Richard C. Adkerson -- Vice Chairman, President and Chief Executive Officer
All right. Appreciate it.
Operator
Now, I'll turn the call over to management for any closing remarks.
Richard C. Adkerson -- Vice Chairman, President and Chief Executive Officer
All I'm saying is I'm not watching the Super Bowl.
Kathleen L. Quirk -- Executive Vice President and Chief Financial Officer
Thanks everyone, we're available for any follow ups.
Operator
Ladies and gentlemen, that concludes our call for today. Thank you for your participation. You may now disconnect.
Duration: 91 minutes
Call participants:
Kathleen L. Quirk -- Executive Vice President and Chief Financial Officer
Richard C. Adkerson -- Vice Chairman, President and Chief Executive Officer
Christopher Terry -- Deutsche Bank -- Analyst
Mark J. Johnson -- President and Chief Operating Officer, Indonesia
David Gagliano -- BMO Capital Markets -- Analyst
Christopher LaFemina -- Jefferies -- Analyst
Harry M. "Red" Conger -- President and Chief Operating Officer, Americas
Matthew Korn -- Goldman Sachs -- Analyst
Alexander Hacking -- Citi -- Analyst
Matthew Murphy -- Barclays Bank PLC, Research Division -- Analyst
Orest Wowkodaw -- Scotiabank -- Analyst
John Tumazos -- John Tumazos Very Independent Research -- Analyst
Christopher Mancini -- Gabelli & Company -- Analyst
Michael Dudas -- Vertical Research Partners -- Analyst
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