September 26, 2017
FREEPORT-MCMORAN INC. DESK OF THE CEO
333 NORTH CENTRAL AVENUE PHOENIX, ARIZONA 85004
Attention: Richard Adkerson, CEO, President & Vice Chairman Subject: Continuing a Copper Legacy
Dear Mr. Adkerson,
Sent Via Email
As Freeport-McMoRan Inc. (FMI) depletes its reserves and interests in mining projects worldwide, what is FMI doing now to advance itself as the global leader of copper production and reserves? FMI is in a unique position to assert itself as not only the world’s top publically traded producer of copper, but the world’s top copper producer...outright. However, FMI is also in danger of losing its top shelf status if it doesn’t play its cards right. The decisions the company makes now are critical to its future. The time to make certain acquisitions in order to continue FMI’s legacy is now.
Since the mid 1800’s, the early remnants of today’s FMI, the company has pioneered a legacy. From supplying critical minerals, to developing mining technology and methods that many firms enjoy today, FMI and its people have built a substantial and respectable presence on the global natural resources stage. All interests involved with FMI want to see the legacy continue.
As you are aware, Mr. Adkerson, the global copper market is in the early stages of a new cyclical uptrend that is still providing some bargain opportunities for those who have capital and industry leverage. We all agree that the bargain basement event occurred around mid-late 2015. For FMI, making strategic moves now are in the best interest of the company because, as seasoned resource professionals know, assets will only get more expensive as this new cycle gets underway. The window of value opportunity for this cycle is closing.
As to FMI and its debt loads, the downtrend cycle that occurred from 2012 thru 2015 caused much pain and led to the unwinding of non-core assets at fire sale prices. FMI was forced to un-leverage sins from the last cycle spanning from 2003 thru 2011 with a 6- month fear driven selloff (buying opportunity) for natural resource equities in latter half of 2008. Shares of FMI near their peak in late 2010 fetched about $60 per share. By early 2016, shares had suffered a long decent down to the mid $4 range, about a 92% washout from the highs. Investors flush with cash in early 2016 were rewarded handsomely. The critical key here was that they had cash and were able to deploy capital to scoop up cheap quality assets for next to nothing. FMI, on the other hand, was selling assets for pennies on the dollar to raise cash at a time when you had a buyers market. As you and senior management at FMI know, assets need sold near market tops, not market bottoms. Capital is difficult to raise when you have despised markets, like in 2015.
FMI’s acquisition and re-entrance into the U.S. oil & gas sector proved to be a costly disaster as it spent about $9 billion in 2012 acquiring the assets, only to sell them in 2016 for steep discounts, near a point of extreme pessimism in the oil & gas industry when oil was trading in the lower $30 range, down from over $100 per barrel in mid 2014.
Going forward, FMI needs to use its cash, debt, and industry leverage in an efficient and more economically robust manner. The company needs to get back to targeting tier one world class assets, similar to its Grasberg asset in Indonesia. For about 47 years, FMI has successfully navigated the majority extraction of the value contained at the Grasberg district. Along the way, FMI has provided significant support to the economy of Indonesia, all while the nation’s government has continually taken more and more, as to be expected with just about every government on earth. We congratulate FMI on being able to hold the asset this long. It speaks to the skills and expertise that past and present FMI management possesses. While we can’t speculate as to how long before the government, for lack of better words, “seizes” the remaining control of the Grasberg district, we do know that FMI still has the potential to extract more value there and maintain relations as long as possible before “jerking the rug out”.
As with tier one assets anywhere, there will always be some form of plundering from those who think they deserve more of the pie in which they had no hand in making. However, FMI champions itself on being a globally diverse premier copper company. With that in mind, we ask that FMI continue to “diversify” to other jurisdictions to help spread out the risk. Right now, your major operations occur in Indonesia, Chile, and the U.S. Your exploration is global. Most of your top assets are based in Indonesia and Chile. Therefore, we do not consider two jurisdictions “diverse” in our view. While the U.S. and Canada may have an over encumbered (to put it kindly) regulatory burden, some good mining districts still exist across North America and in Alaska, which can only survive on natural resource extraction & use. This region offers another layer of diversification for the company’s copper asset ambitions, as compared to Indonesia’s risks.
In 2015, the company mandated that it will return to its focus on copper. With that, the company should add that it will target, specifically, top shelf assets with excellent economics. These top shelf assets are best found during market lows or at least in early stage bull cycles. Having access to cash and even debt to buy top tier assets for great value is the only sure driver of securing long term performance for the company and subsequently, its interest holders.
CONTINUING A COPPER LEGACY: LETTER TO THE CEO OF FREEPORT-MCMORAN PAGE 1 OF 2
Mr. Adkerson, Sir, to the point, if the company wants to become the top copper producer in the world and compete for lowest cost producer, there are only two big stand-alone undeveloped copper assets that come to our mind as we write: Northern Dynasty’s Pebble asset in Alaska and Ivanhoe’s Kamoa-Kakula asset in the Democratic Republic of Congo (DRC). These projects are near equal today in terms of total copper resource. As you know, these are truly once in a generation mineral discoveries. For the next century, FMI has the potential once again to control world class mining assets while generating stockpiles of cash and hard metals.
To the point Richard, if the company wants to become the top copper producer in the world, compete for lowest cost producer and have the best asset portfolio, these two assets are the only ones that we are aware of that will get you there during this current bull cycle. In this specific letter, we want to draw your company’s focus on Northern Dynasty’s Pebble.
The Pebble project presents a both a diversification move and a move to put the company at the top of the copper chain. With any tier one asset, certain challenges will be faced, as you know. The market and political conditions today are extremely favorable to get this project from a concept to a reality before this current cycle ends. With any project in the U.S., the challenges are in greasing the wheels of the environmental and regulatory permitting process. A safe, effective, and low environmental impact design and construction is really the simpler part of the development process in this case. For a major mining firm, construction may be costly, but it is certainly not technically difficult nor outside of expertise. FMI has the expertise to bring this project from concept to production while satisfying the regulatory agencies and maintaining environmental safeguards. The economic benefits to the local community, Alaska, and the U.S. are too great not to proceed with developing this asset. The generational benefits are huge. The project is strategic and critical to the long term interest of U.S. economics and sustainability.
All of this discussion is not new to you, but rather context for other readers of this letter.
?We recommend that you and the team at FMI expeditiously lead discussions with Northern Dynasty in an effort to partner. A framework for this partnering and eventual control might look something like this:
? FMI earns 25% ownership of the project when it covers the certain costs, provides expertise resources in the permitting processes, feasibility studies and refinements, and continued exploration work to verify further resources. 25% earned upon all permits approved and in effect. FMI works with Northern Dynasty to assign minority interest in Pebble to local tribe interests as well as establish infrastructure commitments to the local area. FMI retains an 8% NSR interest with buyout options if permitting and local commitments fail.
? FMI earns an additional 50% ownership upon achieving successful infrastructure completion, mine development, startup and commercial production. FMI becomes operator.
? After 18 months of commercial production, within 60 days thereafter, FMI has the option to buyout the remaining Northern Dynasty interest for a fixed sum predetermined between parties. FMI becomes the sole operator and majority interest holder, less any interest held by local government tribes.
OR
? FMI acquires Northern Dynasty outright, possibly at a much lower overall cost in today’s market, and FMI develops the
project itself. We suspect FMI should be able to buy Northern Dynasty for about $3.5 billion or less under the current market situation. This sum is about a 1/3 of what FMI spent buy oil & gas assets in 2012 and is easily recoverable in the near term by other asset production gains or sale of further non-core assets. About $3.5 billion for Pebble is not market top pricing that big mining firms get sucked into near market highs. Instead, this value represents tremendous long term value and a growth catalyst for the company. We suspect Northern Dynasty will come to the table near this value.
Pebble is the replacement for the eventual divestiture of the Grasberg assets. You can bring Pebble online and be potentially many years into production as you transition out of the Grasberg assets.
Mr. Adkerson, you are at the helm of the legendary Freeport-McMoran, a company that is known for bold moves and building monster sized natural resource assets. Your predecessors are watching you lead the company through the next natural resource cycle. Copper demand trends are never stronger. This is your time to rally the company and go after projects that will move the needle in global natural resources and the growth needle of your company.
We appreciate you taking the time to read our commentary and we suggest you consider our recommendations. We look forward to your comments. Take care.
Sincerely,
Sm
News 
Market Data 
Discover 
