Dear Shareholders, I am proud of our global team’s performance, focus and effective execution during 2022 to drive results and long-term value. The theme of our 2022 annual report, “The Power of Copper,” highlights the critical role of copper in the global transition to cleaner energy and electrification. Freeport’s strategy is centered on being Foremost in Copper, supported by a high-quality portfolio of assets with characteristics difficult to replicate.
The increased intensity of copper use required by clean energy applications and the acceleration of electrification has enhanced copper’s importance in the economy, pointing to broad-based secular growth in long-term copper demand. At the same time, it will be challenging for the industry to meet this period of growing demand, leading to projected large market deficits. Higher long-term copper prices will be required to incentivize new supplies.
In 2022, we strengthened our industry leadership position in copper. We achieved another year of growth in copper and gold sales volumes, driven largely by underground production from the Grasberg minerals district in Papua, Indonesia. In the Americas, our teams at Cerro Verde in Peru and El Abra in Chile proved resilient in restoring production that was impacted by the pandemic and our teams in the United States (U.S.) maintained production at 2021 levels despite ongoing labor shortages. We also made advances on innovative new leach initiatives and are optimistic about the opportunity to enhance value by improving copper recoveries through this emerging low cost, low carbon technology in the years ahead.
Our portfolio also benefits from exposure to molybdenum. We are a leader in the molybdenum industry and are the world’s largest producer with by-product and primary production in the Americas. The significant price increase in recent months, if sustained, will add additional leverage to our future results.
The Grasberg transition to full underground mining is a significant success story for Freeport, the global mining industry and the country of Indonesia. We started planning for this transition over 20 years ago and our team has done an outstanding job. During 2022, we celebrated our 55th anniversary of operations in Indonesia. The success of this project and our strong partnership with the Government of Indonesia establish a strong foundation for the future.
In 2022, we generated solid financial results, maintained balance sheet strength and continued to implement our performance-based shareholder payout policy, which was introduced in 2021. Through the combination of cash dividends and share repurchases, we nearly tripled our year-over-year cash returns to shareholders in 2022. We believe the priorities of balance sheet strength and allocating excess cash flow to shareholder returns and organic growth will enhance long-term value.
During 2022, we added to our large reserve and resource position. We are well-positioned to support attractive investments in our low-risk brownfield projects in the Americas. We continue to plan our next phase of growth and have multiple organic growth projects to develop over time, including future expansions at Bagdad and Lone Star in Arizona and El Abra in Chile. We operate all the mines in which we own an interest, which allows us to direct capital across the portfolio to the highest value opportunities, and leverage shared experiences, new technologies, operating synergies and best practices. Our proven technical expertise is a core strength, and our management team has a track record of operating sustainably and responsibly.
In addition to driving value through operating and financial achievements, we are proud of our work with third parties to validate all our mining operations under the Copper and Molybdenum Mark standards, the measurable progress we are making on our climate initiatives, and the expanded disclosures we have developed to enhance transparency and accountability in our environmental, social and governance programs. While there were numerous achievements in 2022, we are saddened by the fatal injury of a contractor at our Morenci mine. We continue to show a favorable trend in reducing serious injuries but are disappointed with our 2022 safety incident rate, which exceeded our target. We are committed to turning this around.
As we enter 2023, our global team is energized for success with the priority of safe and responsible production and is highly motivated to build value in our business. We have a clear focus on executing our operating plans efficiently, maintaining the momentum at Grasberg, driving our innovation initiatives, and advancing our internal options for future growth. In Indonesia, priorities include completing construction of new smelter capacity in a safe, timely and cost-efficient manner, and securing an extension of our operating rights beyond 2041. In our Americas business, we are focused on improving our safety performance, enhancing productivity in a challenging U.S. labor market and building value with our new leach initiatives.
We appreciate the positive spirit, commitment and dedication of our entire organization. Our team’s steady and consistent execution shined through during a volatile macroeconomic environment in 2022. We also value the counsel and support of our Board of Directors as we look forward to executing our long-term business objectives and strategy.
As a leading responsible copper producer of scale, we believe we are strongly positioned to benefit from our long-lived, geographically diverse portfolio and the “The Power of Copper.” Thank you for your investment in Freeport.
Respectfully yours,
RICHARD C. ADKERSON
Chairman of the Board and Chief Executive Officer
March 24, 2023
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