Latest / On The Record with Andrea Hotter / Richard Adkerson: Freeport Chairman

Transcript

Richard Adkerson: Freeport Chairman · On The Record with Andrea Hotter

• 0:00
  SPEAKER_00: Andrea, congratulations on your new position.
• 0:03
  SPEAKER_01: Thank you so much.
• 0:04
  SPEAKER_01: I'm very excited about it.
• 0:05
  SPEAKER_01: Where are you, Richard?
• 0:06
  SPEAKER_01: That looks lovely behind you.
• 0:07
  SPEAKER_00: I'm in Jackson Hole, Wyoming, my home here.
• 0:10
  SPEAKER_01: Ah, on the ranch.
• 0:12
  SPEAKER_01: Okay, so I'm just gonna start and then we can chat.
• 0:15
  SPEAKER_00: Yeah, my biggest challenge is always the older I get, the more I talk.
• 0:19
  SPEAKER_00: I'm gonna try to keep it short and try not to overexplain.
• 0:23
  SPEAKER_00: So help me with that.
• 0:24
  SPEAKER_01: I'll try.
• 0:25
  SPEAKER_01: I will try.
• 0:35
  SPEAKER_01: Richard Atkison, you are now on the record, which is a new fortnightly podcast by CPAL, hosted by me, Andrea Hotta.
• 0:44
  SPEAKER_01: And honestly, I couldn't think of a better person to launch with than with you.
• 0:48
  SPEAKER_01: Richard, you are truly one of the great characters of the mining industry and someone who's seen just about every kind of cycle crisis and corporate drama that you can imagine.
• 1:00
  SPEAKER_01: You spent decades at Preport McMoran.
• 1:03
  SPEAKER_01: Was it 1989 that you started, I think?
• 1:05
  SPEAKER_01: Is that right?
• 1:06
  SPEAKER_00: When I graduated from college in 1970, graduated as an accountant, moved to New Orleans, and just happened to be assigned to the audit of McMoran Expiration, which was a new startup company, had about 16 people.
• 1:19
  SPEAKER_00: And so while I joined the company in 89 as an employee, I'd worked with them during all the 70s and 80s as well.
• 1:27
  SPEAKER_00: So I'd been around for the whole deal.
• 1:30
  SPEAKER_01: Yeah, very familiar with it.
• 1:31
  SPEAKER_01: So you became its president, then you became its CEO, you're now its chairman, and along the way, you've helped turn the company into one of the industry's leading copper players.
• 1:42
  SPEAKER_01: I could have picked so many different moments from your career to discuss today, but we've only got half an hour.
• 1:47
  SPEAKER_01: So the story I particularly wanted to revisit is what I imagine was, and you can tell us, one of the biggest bets of your career, which was Freeport's acquisition of Phelps Dodge.
• 1:59
  SPEAKER_01: So let's go back in time, Richard.
• 2:01
  SPEAKER_01: It was a very unusual situation.
• 2:02
  SPEAKER_01: I do remember it at the time, but obviously from afar, Freeport had been financially stretched.
• 2:09
  SPEAKER_01: You and then CFO Kathleen Quirk had rebuilt the balance sheet.
• 2:13
  SPEAKER_01: And then suddenly the headlines hit the news that Freeport was in a deal to acquire Phelps Dodge.
• 2:20
  SPEAKER_01: So let's hear the inside track on this deal, but first maybe you could set the scene.
• 2:25
  SPEAKER_01: So when you look back at Phelps Dodge now, what's the first thing that you remember?
• 2:29
  SPEAKER_01: And let's go back to pre-deal before it happened.
• 2:33
  SPEAKER_00: I became CEO at roughly the same time as China emerged and turned the copper markets upside down.
• 2:40
  SPEAKER_00: And the price of copper had been below 70 cents a pound, and then it jumped up to 90 cents a dollar.
• 2:47
  SPEAKER_00: No one in the industry thought it was going to go higher, and then it moved to$4.
• 2:52
  SPEAKER_00: And that was when at Freeport we made our strategic commitment to copper.
• 2:57
  SPEAKER_00: We also recognized that Freeport, as a single asset company with its Grassbury mine in Indonesia, was one-third gold and two-thirds copper.
• 3:07
  SPEAKER_00: And the valuations were much different than they even are now.
• 3:11
  SPEAKER_00: And so we had trouble attracting investors.
• 3:13
  SPEAKER_00: Our multiple was too high for copper investors and too low for gold investors.
• 3:17
  SPEAKER_00: And so we got the company's stock price up by just paying big dividends.
• 3:23
  SPEAKER_00: But we worked on a number of strategic ideas to try to deal with this single asset problem.
• 3:29
  SPEAKER_00: And we went to Phelps Dodge actually 10 years earlier than the deal closed and came very close to a deal in 1996, but ultimately couldn't get it done.
• 3:39
  SPEAKER_00: We always saw it was a great strategic mix.
• 3:42
  SPEAKER_00: Phelps Dodge was very conservative, understandably so, because of their low-grade mines.
• 3:49
  SPEAKER_00: And here we had Grassburg with high copper grades and this huge gold component.
• 3:56
  SPEAKER_00: And so by putting those together, it allowed us to be much more aggressive in developing resources and expanding the resources of Phelps Dodge.
• 4:05
  SPEAKER_00: And we had approached it initially to have Phelps by us.
• 4:09
  SPEAKER_00: And Phelps was trying to do a number of transactions.
• 4:12
  SPEAKER_00: They had an activist shareholder when we acquired them.
• 4:16
  SPEAKER_00: Nobody expected Freeport to be the acquirer, by the way, because we weren't that well known in the copper industry.
• 4:22
  SPEAKER_00: Our history had been in sulfur, ag minerals, and oil and gas.
• 4:26
  SPEAKER_00: So it was a real surprise to everybody when we emerged as the buyer.
• 4:30
  SPEAKER_00: But it just made so much sense.
• 4:32
  SPEAKER_01: Say take me back to that.
• 4:34
  SPEAKER_01: I mean, obviously, you kept coming back to Phelps Dodge.
• 4:37
  SPEAKER_01: You're back again ten years after the first attempt.
• 4:40
  SPEAKER_01: Take me back to what happened and how did that come about?
• 4:43
  SPEAKER_00: They were very conservative, but they knew they needed to expand their company.
• 4:48
  SPEAKER_00: And they made a number of series of opportunities to do it.
• 4:51
  SPEAKER_00: And then earlier, before we approached them, England and Falconbridge were going to merge and Phelps stepped in to acquire them both.
• 4:59
  SPEAKER_00: They ended up being our bid by Extrada for Inco and Valet for Falconbridge.
• 5:04
  SPEAKER_00: As that deal was winding down, was when bankers came to me, and I was just unbelievable.
• 5:10
  SPEAKER_00: My office in New Orleans, Merrill Lynch and JP Morgan, consecutive weeks, not together, came in and said they could finance an unfriendly takeover with Phelps Dodge.
• 5:20
  SPEAKER_01: And what was your reaction at that point?
• 5:22
  SPEAKER_01: Are you thinking, oh my goodness, these guys are crazy because we're far too small?
• 5:26
  SPEAKER_00: My heart jumped up.
• 5:27
  SPEAKER_00: Literally, Andrea, two years earlier, I had to spend two weeks on the road to raise$400 million to secure some financing for our restructuring we were doing.
• 5:38
  SPEAKER_00: And all of a sudden, here they walk in saying we can do the biggest deal ever in the mining industry.
• 5:43
  SPEAKER_00: And I was approaching my 60th birthday, and it was just a dream come true.
• 5:48
  SPEAKER_00: I just knew what a great strategic fit this was.
• 5:52
  SPEAKER_00: And I knew we could manage it and we could succeed with it.
• 5:55
  SPEAKER_00: So there was no reluctance.
• 5:57
  SPEAKER_01: And at that point, you were friendly with the CEO of Phelps Dodge, I understand.
• 6:01
  SPEAKER_01: Is that correct?
• 6:02
  SPEAKER_00: I built a good relationship with him.
• 6:05
  SPEAKER_00: Steve was a guy who loved hunting.
• 6:07
  SPEAKER_00: And so he invited me on hunting trips.
• 6:09
  SPEAKER_00: I invited him on hunting trips.
• 6:11
  SPEAKER_00: And Kathleen was in the background.
• 6:13
  SPEAKER_00: She became CFO, Kathleen Quirk, and she actually joined Freeport as a young woman the same time I joined, but she became CFO when I became CEO in 2003.
• 6:24
  SPEAKER_00: And she was really pushing copper and pushing that deal.
• 6:28
  SPEAKER_00: So when this opportunity came, like I said, it was just a thrill.
• 6:31
  SPEAKER_00: We had talked about a merger of equals, but the cultures of the company were so different that I was not comfortable unless we were the acquirer.
• 6:38
  SPEAKER_01: So take me back to that phone call to Steve.
• 6:41
  SPEAKER_01: What did he say?
• 6:41
  SPEAKER_01: What was his reaction?
• 6:42
  SPEAKER_01: What went down on that call?
• 6:44
  SPEAKER_00: Well, the first concerning meeting I had was with our chairman, Jim Bob Moffat, who was a legendary oil and gas guy and had a personality that'd fill any room.
• 6:55
  SPEAKER_00: And he was a rock star at investor meetings because he would get off color and say outrageous things.
• 7:02
  SPEAKER_00: And the Phelps Dodge CEO was very conservative.
• 7:05
  SPEAKER_00: And Jim Bob started characterizing Phelps Dodge as the Emperor has no clothes.
• 7:11
  SPEAKER_00: And so I sat in my office thinking, man, what is Jim Bob going to say about this?
• 7:16
  SPEAKER_00: And when I walked in and talked to him, he was so attracted to the idea of creating such a large company that he supported and told me to go do it.
• 7:25
  SPEAKER_00: He was not involved in the deal.
• 7:27
  SPEAKER_00: He never talked to a banker, a lawyer, or anybody from Phelps Dodge.
• 7:30
  SPEAKER_00: The Phelps Dodge board didn't like him.
• 7:33
  SPEAKER_00: He didn't like them.
• 7:34
  SPEAKER_00: And so he backed off and just stayed out of the deal.
• 7:37
  SPEAKER_00: And it was summer of 2006.
• 7:40
  SPEAKER_00: We just had a board meeting in Colorado, interestingly, because Phelps' climax mine was about a half hour away from a ranch there.
• 7:48
  SPEAKER_00: And the board members were talking about us buying stock back and paying dividends and all that.
• 7:54
  SPEAKER_00: And I called Steve up.
• 7:55
  SPEAKER_00: I said, Steve, you and I have always recognized what a great combination this would be.
• 8:00
  SPEAKER_00: I'm here to tell you that we have the financial wherewithal now to make an acquisition of Phelps Dodge at a market-based premium.
• 8:10
  SPEAKER_00: And I didn't know how Steve would take it.
• 8:13
  SPEAKER_00: I know it bothered him selling a company that went back to the 1860s and 1870s.
• 8:19
  SPEAKER_00: And so that was difficult for him.
• 8:21
  SPEAKER_00: And yet they had a problem with this firm called Atticus, which was trying to get somebody else to buy them and criticizing every step they took.
• 8:30
  SPEAKER_00: So anyway, that started the process, and we went back and forth.
• 8:34
  SPEAKER_00: Their board approved Steve to negotiate with me.
• 8:37
  SPEAKER_00: A key meeting happened at LME Week in 2006, where Steve was the dinner speaker.
• 8:44
  SPEAKER_00: And that's when we met and basically agreed to the structure of the deal.
• 8:49
  SPEAKER_00: And I went to an industry meeting right before that investor meeting.
• 8:53
  SPEAKER_00: And one of our biggest shareholders got up and called Phelps Dodge a dead man walking.
• 8:58
  SPEAKER_01: Oh, dead.
• 8:59
  SPEAKER_00: And I was sitting in the back of the room here to buy the company.
• 9:03
  SPEAKER_00: And later on, this famous investor accused me of agreeing with that.
• 9:08
  SPEAKER_00: And I said, no, I was deadly silent because right after that meeting, I met with Steve, and we had some things to go back and forth with about how much cash, how much stock, what board representation to have.
• 9:20
  SPEAKER_00: We ended up paying about 70% cash and 30% stock.
• 9:25
  SPEAKER_01: Well, Richard, take me back to that due diligence process because I know there's quite an entertaining story around this.
• 9:30
  SPEAKER_01: I've always found it funny.
• 9:31
  SPEAKER_01: I mean, I know people want to keep things quiet when they're in MA discussions, but you did the due diligence in a basement room at Dallas Fort Worth Airport, which sounds almost comically clandestine.
• 9:43
  SPEAKER_01: So who else was in the room at this point?
• 9:45
  SPEAKER_00: Well, we were very nervous because we were worried that if word got out, other buyers could well come in.
• 9:53
  SPEAKER_00: Phelps wanted to know more about Grassburg with our issues with the local community, the issues with the government of Indonesia, the tailings issue, which was controversial at that time.
• 10:04
  SPEAKER_00: And so two of our directors met with them and then they insisted on making a quick trip to see it.
• 10:09
  SPEAKER_00: And all we had was public information on Phelps.
• 10:13
  SPEAKER_00: And so we wanted to find a quiet place, and so we found this basement auditorium in the FWA airport.
• 10:19
  SPEAKER_00: It was a large group there.
• 10:21
  SPEAKER_00: It was the bankers, the financial advisors, the senior management team.
• 10:25
  SPEAKER_00: And so we just walked through their assets and their resources.
• 10:28
  SPEAKER_01: It's quite amazing it didn't leak because these days things do.
• 10:32
  SPEAKER_00: And Andrew, when I was listening to them and saw how little drilling they had done on their properties, how conservative they've been on expansion ideas, I literally just went out of the room and called Jim Bob up.
• 10:43
  SPEAKER_00: And I said, You're not going to believe this.
• 10:45
  SPEAKER_00: You're not going to believe what's here.
• 10:47
  SPEAKER_00: They have resources.
• 10:48
  SPEAKER_00: I likened it to mid-continent gas reserves.
• 10:51
  SPEAKER_00: I said, We'll operate these properties and just continually replace the reserves.
• 10:56
  SPEAKER_00: And in fact, I think they had like 50 billion pounds of copper then, since we produced close to 100 million, and we got 80 million more and we're growing.
• 11:05
  SPEAKER_00: So I mean, I I can't tell you the feeling that I had.
• 11:08
  SPEAKER_01: Yeah, I'm sure.
• 11:10
  SPEAKER_00: So we just started moving then as quickly as we could to get the deal done.
• 11:14
  SPEAKER_01: You described the deal.
• 11:15
  SPEAKER_01: I remember you telling me before that it was a bit like the minnow swallowing the whale.
• 11:19
  SPEAKER_01: I mean, it was the modern-day David and Goliath.
• 11:21
  SPEAKER_01: Everyone thought it was impossible.
• 11:23
  SPEAKER_01: Was there a moment when you're going through it, you've seen this fantastic set of assets now that you've really been able to uncover?
• 11:29
  SPEAKER_01: You're in the room, you're the smaller player.
• 11:31
  SPEAKER_01: Did you ever think perhaps everyone's right and we are a little bit crazy and we can't do this?
• 11:36
  SPEAKER_00: No.
• 11:38
  SPEAKER_00: No, I was like, I was exhilarated from the day the Bakers walked in.
• 11:41
  SPEAKER_00: It was a dream come true.
• 11:43
  SPEAKER_00: And we really needed to do something with FCX.
• 11:47
  SPEAKER_00: And we had talked with Phelps Dodge for 10 years.
• 11:50
  SPEAKER_00: A number of our people that worked for them knew each other in the industries.
• 11:53
  SPEAKER_00: Their corporate culture was so different from ours, but in the field in operations, they were very good and our people knew it.
• 12:01
  SPEAKER_00: And copper prices had moved up.
• 12:03
  SPEAKER_00: You know, they jumped up in 2006 by like 80%.
• 12:06
  SPEAKER_00: And like I said, we had concluded, you know, that the outlook for copper was so bright.
• 12:11
  SPEAKER_00: So no, there was never any questioning on it.
• 12:14
  SPEAKER_00: The issue was executing it.
• 12:16
  SPEAKER_01: If you weren't skeptical about it, was anybody else?
• 12:19
  SPEAKER_01: And I'm curious as to what they were saying if they were being skeptical to you.
• 12:23
  SPEAKER_00: You know, it was total surprise to the market.
• 12:25
  SPEAKER_00: We have a small corporate organization at Freeport at that time.
• 12:29
  SPEAKER_00: So no, there was no one feeling anything but excitement.
• 12:32
  SPEAKER_01: And one of the other things that probably is quite astonishing when you look back on it, I took notes on this to look up the numbers.
• 12:38
  SPEAKER_01: You raised six billion in high yield debt and you took on a ten billion dollar bank loan.
• 12:43
  SPEAKER_01: And after being stretched before, how on earth did you persuade yourself that this was the prudent thing to do?
• 12:50
  SPEAKER_01: I mean, I know I wouldn't have been sleeping.
• 12:51
  SPEAKER_01: Was it keeping you off at night?
• 12:53
  SPEAKER_00: No, I've always been able to sleep.
• 12:55
  SPEAKER_00: That's been the quality that's been well, our market cap was$12 billion, and the acquisition price was$26 billion.
• 13:04
  SPEAKER_00: Oof.
• 13:05
  SPEAKER_00: And we had very low debt.
• 13:07
  SPEAKER_00: But you're right.
• 13:08
  SPEAKER_00: And at the time that was the biggest acquisition merger in the mining industry's history.
• 13:13
  SPEAKER_00: And we did the largest high-yield bond deal in any industry.
• 13:17
  SPEAKER_00: And we did a$10 billion bank term loan, which was the biggest bank term loan at that time in any industry, not just mining.
• 13:25
  SPEAKER_00: So here we were with$12 million market cap.
• 13:29
  SPEAKER_00: We ended up with$17 billion in debt.
• 13:31
  SPEAKER_00: But we had good copper prices going.
• 13:34
  SPEAKER_00: When Phelps Dodge insisted on more cash than debt, as soon as we closed the next day, we were out on the road and we did$7.5 billion plus equity offering.
• 13:46
  SPEAKER_00: It was common stock and non-convertible preferred stock.
• 13:51
  SPEAKER_00: So we immediately paid off$7 billion of that debt with equity.
• 13:55
  SPEAKER_00: And then we had strong cash flows.
• 13:58
  SPEAKER_00: And so by the end of the year in 2006, our$17 billion debt had shrank by$10 billion.
• 14:04
  SPEAKER_00: That was going into 2008, which was an incredibly interesting year.
• 14:08
  SPEAKER_01: Well, we all know what happened that year.
• 14:37
  SPEAKER_01: I mean, you were then hit by another complete twist of the story, which is the global financial crisis.
• 14:42
  SPEAKER_01: So you've done this deal, and then the world falls apart pretty much.
• 14:46
  SPEAKER_01: Copper went from$4 to, I think it was$1.20 in 2008.
• 14:50
  SPEAKER_00: Yeah, it went to$4 in early July of 2008.
• 14:54
  SPEAKER_01: Right.
• 14:55
  SPEAKER_00: And then the mortgage crisis hit and it just kept dropping.
• 14:59
  SPEAKER_01: So are you sitting there at this point thinking, oh my goodness, what have we done?
• 15:03
  SPEAKER_01: Have we made this catastrophic mistake, or were you still staying confident?
• 15:07
  SPEAKER_00: No, I went again to LME Week and I was real close friends with the CEOs of Rio Tinto and BHP.
• 15:14
  SPEAKER_00: And I went there and I heard that iron ore ships were lining up in China, that there was no market there.
• 15:21
  SPEAKER_00: I flew straight to Phoenix, called the senior management group in, and there was a real funny Saturday Night Live skit going on then about the mortgage crisis.
• 15:30
  SPEAKER_00: It's actor Keenan Thompson.
• 15:31
  SPEAKER_00: He said, fix it, fix it.
• 15:33
  SPEAKER_00: So I started meeting it off before I said anything.
• 15:36
  SPEAKER_00: I played that video of the Saturday Night Live skit.
• 15:39
  SPEAKER_00: I said, guys, we got to fix it.
• 15:41
  SPEAKER_00: We immediately shut down all of our expansion projects totally.
• 15:45
  SPEAKER_00: We idled 100 haul trucks in Marinsey.
• 15:49
  SPEAKER_00: We required every mine to break even financially at lower car prices.
• 15:54
  SPEAKER_00: At first we set it at$1.50, then we dropped it to a dollar and a quarter, and I think we ended up lower than that.
• 16:00
  SPEAKER_00: We had Grassberg, because of its gold, that could fund our debt carrying cost and all of our corporate GNA.
• 16:07
  SPEAKER_00: So the whole deal was everybody else do whatever was necessary, reduce people, reduce spending, reduce everything to break even on a mine by mine basis.
• 16:17
  SPEAKER_00: And so we did that.
• 16:19
  SPEAKER_00: Stock dropped, of course, and then China came back much quicker than anybody ever thought.
• 16:24
  SPEAKER_00: And right after that, we were off and running.
• 16:27
  SPEAKER_00: I had a long list of expansion projects that we wanted to do.
• 16:30
  SPEAKER_00: We went into Tinky, we expanded Marinsi, expanded Cerro Verde, we did an expansion of our molybdenum business and Climax.
• 16:38
  SPEAKER_00: Probably did too much too fast after the recovery.
• 16:42
  SPEAKER_00: But all of this created the modern Freeport.
• 16:44
  SPEAKER_01: And when you look back on that whole period, the Phelps Dodge deal, I mean, what did it teach you about deals that you didn't know before?
• 16:51
  SPEAKER_01: I know you'd had a great history in this sector, but were there any lessons or keys, takeaways for you?
• 16:58
  SPEAKER_00: One thing we did do when I talked about the culture being consistent at the field, at the operational level.
• 17:04
  SPEAKER_00: Headquarters culture was old-line U.S.
• 17:08
  SPEAKER_00: industrial culture, which I had run into in Houston in my prior life working in the oil business.
• 17:13
  SPEAKER_00: It was like the major oil companies.
• 17:15
  SPEAKER_00: They viewed the company as an institution and not as a shareholder asset.
• 17:20
  SPEAKER_00: And the culture of Feld Stodge at that time was that the role of headquarters group, financial administrative group, was to ride herd on operations.
• 17:30
  SPEAKER_00: I hated that corporate culture.
• 17:31
  SPEAKER_00: I never thought I'd go to work for a company that had it.
• 17:34
  SPEAKER_00: Freeport had it when I joined it.
• 17:35
  SPEAKER_00: And one thing Jim Bob did was he gave me and Chip Goodyear the leeway to change the culture at Freeport.
• 17:42
  SPEAKER_01: What was the biggest cultural clash, Richard?
• 17:45
  SPEAKER_01: Was it like you said, the traditional, more conservative?
• 17:47
  SPEAKER_00: You can't imagine.
• 17:48
  SPEAKER_00: I mean, they didn't allow people to have paper on their desk.
• 17:52
  SPEAKER_00: I mean, Kathleen and I have the messiest desk in the world.
• 17:55
  SPEAKER_00: I I called it in, I said, look, finance administration is here to support the mines.
• 18:00
  SPEAKER_00: We make money in the mines.
• 18:02
  SPEAKER_00: You don't try to manage them from Phoenix.
• 18:05
  SPEAKER_00: You work with them to help them achieve their goals.
• 18:08
  SPEAKER_00: We work together to come up with what the goals are, and we work together.
• 18:12
  SPEAKER_00: And so our Freeport team stepped in, brought our culture, our style of working together.
• 18:17
  SPEAKER_00: We had to make money while copper prices were high to pay our debt off.
• 18:20
  SPEAKER_00: It kept everybody focused.
• 18:22
  SPEAKER_01: Well, it sounds like you did definitely fix it from everything you said.
• 18:25
  SPEAKER_01: And I know a lot of the Phelps Dodge people have gone on to have great careers within Freeport as well to this day.
• 18:31
  SPEAKER_01: So that's a testament to the integration that happened as well, isn't it?
• 18:34
  SPEAKER_00: We were so nervous.
• 18:35
  SPEAKER_00: Jim Bob and I had shared this with you about the Phelps Dodge brand and name.
• 18:40
  SPEAKER_00: It'd been there for so long.
• 18:41
  SPEAKER_00: It was so well known with customers and everybody.
• 18:44
  SPEAKER_00: And Freeport was this new kid in town.
• 18:47
  SPEAKER_00: So we kept the Phelps Dodge name for our marketing group and so forth.
• 18:51
  SPEAKER_00: And one of the great moments was Steve Higgins, who was head of the marketing group, very experienced in the industry, knew everybody.
• 18:58
  SPEAKER_00: You know Steve.
• 18:59
  SPEAKER_00: He's been an industry leader his whole career.
• 19:01
  SPEAKER_00: He came into my office and said, Richard, we would like to change our business cards to say Freeport and drop Phelps Dodge.
• 19:08
  SPEAKER_00: We want to be working for the company where the stock is traded.
• 19:12
  SPEAKER_00: And that was just the greatest feeling that everybody was coming together into the Freeport family.
• 19:17
  SPEAKER_00: And that's when we dropped Phelps Dodge, Nate.
• 19:20
  SPEAKER_01: That's fantastic.
• 19:21
  SPEAKER_01: It's such a great story and such a success story as well.
• 19:24
  SPEAKER_01: I'm interested, you know, obviously in you, you mentioned earlier you started thinking like you'd be an engineer and you became an accountant because somebody told you that accounting was the language of business.
• 19:34
  SPEAKER_01: So I wonder, when you look back on your career, did you ever imagine that you'd end up making one of the biggest mining acquisitions in history?
• 19:40
  SPEAKER_01: I mean, the biggest at its time.
• 19:42
  SPEAKER_00: No, I grew up in a modest family in the South and the United States.
• 19:46
  SPEAKER_00: First of my family to go to college.
• 19:48
  SPEAKER_00: My dad was a World War II veteran from South Pacific and came back and lived in small towns, played sports, and wanted to go to college and come back and live the life I lived growing up.
• 19:58
  SPEAKER_00: And I worked in this southern school bus factory that was horrible.
• 20:02
  SPEAKER_00: It was clay floors and no air conditioning, no safety equipment.
• 20:06
  SPEAKER_00: I saw people getting injured, getting pieces of their hands cut off, working.
• 20:10
  SPEAKER_00: I was in the machine shop.
• 20:11
  SPEAKER_00: And that's when I said, Man, this is what being an engineer is like.
• 20:14
  SPEAKER_00: And I was a good student and making good grades.
• 20:18
  SPEAKER_00: And I went over to business school and the dean, he said, What do you want to major in?
• 20:21
  SPEAKER_00: I said, I don't know.
• 20:22
  SPEAKER_00: And he said, majoring accounting is the language of business, like you said.
• 20:26
  SPEAKER_00: Warren Buffett, by the way, said the same thing.
• 20:28
  SPEAKER_00: So I jumped into accounting.
• 20:30
  SPEAKER_00: I was good at it.
• 20:31
  SPEAKER_00: I worked hard, had to work my way through school.
• 20:33
  SPEAKER_00: And I just was blessed all along the way to get promotions early and getting to be a partner and getting to be a senior position in Arthur Anderson.
• 20:41
  SPEAKER_00: I thought at some point I might go run an oil and gas company.
• 20:44
  SPEAKER_00: I had that opportunity several times, but I love our business.
• 20:48
  SPEAKER_00: I mean, I love dealing with these long-lived assets, fighting to control development costs, fighting to control operating costs.
• 20:55
  SPEAKER_00: There's a real difference in this in the oil and gas business where there's a huge margin between selling price and operating cost here.
• 21:02
  SPEAKER_00: That margin is small, so you got to run the business right.
• 21:04
  SPEAKER_00: I love our Freeport people.
• 21:06
  SPEAKER_00: We don't blame people.
• 21:07
  SPEAKER_00: We don't have a military-type organization.
• 21:10
  SPEAKER_00: We work across department lines, very fluid and so forth.
• 21:14
  SPEAKER_00: I just always say, no dunderheads.
• 21:16
  SPEAKER_00: And people say, What's a dunderhead, Richard?
• 21:18
  SPEAKER_00: And I said, you know one if you see it.
• 21:21
  SPEAKER_00: If they are in your company, you get them out and give younger, more qualified people the chance to move up.
• 21:27
  SPEAKER_00: So we win as a team, we lose as a team, we laugh a lot, play a lot of music together and stuff.
• 21:32
  SPEAKER_00: And now Kathleen became CEO two years ago, and she's just doing a fabulous job.
• 21:37
  SPEAKER_00: I mean, it's it's really a great feeling to see someone come in and be so competent, but she's kind and gentle and while being a strong person and carrying forward our culture, our strategy, and executing it so well.
• 21:50
  SPEAKER_00: I'm just so proud of the company, proud of our people and excited about being part of it.
• 21:54
  SPEAKER_01: It's interesting because so many companies aren't necessarily in the same strategic position.
• 21:58
  SPEAKER_01: Lots of companies don't have the major assets, and a lot of the big miners are, once again, thinking about scale.
• 22:04
  SPEAKER_01: So when you look at all of the MA efforts that we've seen over the last couple of years, does anything in there remind you of 2006 and Phelps Dodge?
• 22:14
  SPEAKER_01: Or is that completely fundamentally different, do you think?
• 22:17
  SPEAKER_00: I've thought about that, and I think it you'd be very hard-pressed to find all those positive things coming together in the same way.
• 22:26
  SPEAKER_00: You know, unlike the oil and gas industry, I'll exclude Africa for this discussion because we were there.
• 22:32
  SPEAKER_00: It's a special place for copper.
• 22:34
  SPEAKER_00: But it's really difficult for small startup companies to grow to build something that would be of interest to a company the size of ours, much less Rio and VHP.
• 22:44
  SPEAKER_00: What you have in the oil and gas industry, you see that entrepreneurial stuff happening.
• 22:49
  SPEAKER_00: And then a change from 2006, 2007 is now all the bigger companies, which have gotten to be much bigger over that time frame because of commodity price actions, they put copper at the top of their strategic priority list.
• 23:04
  SPEAKER_00: And looking back, like you suggested, it's really striking how little copper resources have been added by companies with great technical capabilities, lots of financial firepower, and just see what's accomplished.
• 23:17
  SPEAKER_00: Big mines get bigger, small mines get smaller.
• 23:20
  SPEAKER_00: And the big, high-quality mines are lodged in companies that want to keep them.
• 23:26
  SPEAKER_00: Now, like it did with Feld Stodge, the moon and the stars may line up someday.
• 23:30
  SPEAKER_00: You know, at Freeport, we have a strategy of building shareholder value.
• 23:35
  SPEAKER_00: If a transaction makes sense for our shareholders, we're going to take advantage of it.
• 23:40
  SPEAKER_00: So who knows what the future's going to hold.
• 23:42
  SPEAKER_00: Our strategy is not built on acquisitions.
• 23:45
  SPEAKER_00: We're built on organic growth projects, doing some exploration.
• 23:49
  SPEAKER_00: That's tough in our business.
• 23:51
  SPEAKER_00: But you know, if the right time and deal emerged, we'd be prepared to pursue it.
• 23:57
  SPEAKER_01: Well, you never know, Richard, you and I might be talking about this in another 20 years, although.
• 24:01
  SPEAKER_01: I don't even know if I'll be doing it then.
• 24:03
  SPEAKER_00: So let's still talk about age.
• 24:05
  SPEAKER_01: Richard, thank you so much.
• 24:06
  SPEAKER_01: It's been such a pleasure to sit down with you and have this conversation.
• 24:09
  SPEAKER_01: You really are such a legend in this industry, and I feel really lucky to have known and worked with you over the years.
• 24:15
  SPEAKER_01: It feels very fitting to have you here for this first episode, and I'm so glad we got to do this.
• 24:20
  SPEAKER_01: So you're officially off the record now.
• 24:23
  SPEAKER_00: Well, Andrew, you're kind to say that.
• 24:25
  SPEAKER_00: We've worked together for a number of years now, and I've always admired your knowledge of the industry and the quality of your reporting and your writing.
• 24:34
  SPEAKER_00: And so it's been a pleasure working with you.
• 24:37
  SPEAKER_01: Oh, thank you so much.
• 24:38
  SPEAKER_01: And to everybody listening, thanks for being with CPAL for this launch episode of On the Record.
• 24:43
  SPEAKER_01: I hope that you've enjoyed the conversation as much as I have.
• 24:46
  SPEAKER_01: We are going to be back with more people, more stories, and more great conversations in a fortnight.
• 24:52
  SPEAKER_01: So spread the word, sign up for episodes, make sure you don't miss any.
• 24:56
  SPEAKER_01: Thank you for listening, and we'll see you next time.