The War Below: Lithium, Copper & the Global Battle For Power - Ernest Scheyder and Richard Adkerson

So, this is really a tables turn day here. Ernie and I met how many years ago? Seven or eight at least. Yeah, at least I think it's been longer than that. And he's always interviewing me. He works with Reuters. He's a journalist. And so today I'm interviewing him. And the thing he wrote the book about has been my life. I mean, The War Below has been the war internationally, but I mean working with communities, dealing with environmental issues, permitting and all so forth, that's Freeport. And so I've been given lectures not to talk too much because I could really get off on that. So here we are in New Orleans. Freeport, the company that I'm chairman of now, has a long history in this area. The roots go real deep. It was once a sulfur mining company formed in New York in the early 1900s. Port Sulfur is a company town. Freeport, Texas was a company town. And then our headquarters moved here in the mid-80s for Freeport. And we were here until 2007 when we moved to Phoenix, and acquired a much larger company there and became more of a kind of created the modern Freeport. Our roots here go back to McMoRan Exploration. I moved to New Orleans in 1970. McMoRan was in the Pierremarquette building, had 16 employees. Kevin Alins is here somewhere, and his father and I were just like this in those early days. 16 employees. Today we have 70,000 workers globally and so the world has really changed. To set the stage for any, I think particularly since we're in New Orleans, to give kind of a framework, we have natural resources. Oil and gas is one important segment of that, particularly in this area with an oil and gas background. And then internationally, globally, I mean petroleum started world wars and critical to everybody's economy and you had the predominance of the cartel in the Middle East. The second basic group that I'd refer to are the industrial metals. Copper is a big industrial metal, but you also have aluminum, nickel, zinc, lead, big industrial metals. Now we have of growing importance a group of specialty metals that lithium, part of the title of this book, is a key one. Those include battery metals but also what's called rare earth metals which are increasingly important to countries and that has changed so much. So those are the three basic categories and I like to think of natural resources but particularly the metals industry which we're into as having three eras. Going back historically, they tracked the demand tracked the global economic cycle. Copper is the commodity that's most closely correlated with industrial production. And so before the early 2000s, these metals would track the business cycle. Then China emerged in just an unexpected and critical way and it turned the world of metals upside down. The price of copper had for years ranged right around 70 cents a pound and everybody thought it was going to stay roughly in that range. Within two years it went to $4 and as we sit here today it's between $4.50 and $5. So China changed everything. Our company produces more copper for example than China does as a country and yet they consume almost 60% of the world's copper and so that positions them to do anything. Now we have a new era of copper metals that's really driven by electricity. Two-thirds of copper goes into generating, transmitting or using electricity. And you all know just how important, how much more electrical the world has gotten and is getting to be. And these resources are very difficult to find. I've been the biggest seller of this book since I read it the first time. Ernie and we have similarities. We were both trained as accountants. Both went into oil and gas. I started, I was in Houston in the 80s and Ernie got signed to Reuters to oil and gas initially and now we ended up focusing on the same area of these industrial metals. But so Ernie, why don't you add to whatever you want to about your background. Sure. And talk about how this led into this great book. And the book, I really encourage you to read it because it's very readable. Ernie's a journalist and he doesn't write it as an advocate. He really, what's so good about it is you cover both sides of these issues both in terms of the policy makers and the company's desires or need to develop resources and then communities' issues with having those developed in ways that affect communities. And so you read it and it's so educational and he writes clearly. It's not something that's a strain to read. So, I congratulate you, Ernie. And thank you.

Yeah. In the 80s I was in Houston working with Mitchell Energy, George Mitchell, which actually started the shale revolution in the Fort Worth Basin. Huge, huge advancement. Yeah. So it's been part of my life and I saw how it transformed the energy industry because before that they were talking about peak oil. The US was going to run out of oil. Now the US is a major exporter and there's another important difference between mining and oil and gas. Values created in the oil and gas industry in broad terms with the discovery of resources. Very rare to find new mines in our industry. Our mine in Indonesia was discovered in 1988 and it's the most recent major discovery right since then. Our values created in developing resources and operating them efficiently, whereas values created in the oil and gas business by finding resources. The margins between operating cost and sales price is much wider in the oil and gas industry than in our industry. Right. Right. So what one thing is overhang us right now. I feel like this book's been out forever, but it was only published in January 2024. And I think it's 2024 just if you're coming out for a 21-year-old book. Thank you. I'm an accountant. I can't keep public numbers. And so just a little over a year ago. A lot's changed. Yeah. A lot has changed. I mean, and it's changing every day. I mean, you know, I've been spending time in Washington and it's like literally the old phrase of drinking out of a fire hydrant. I mean, not sure what you're referring to, Richard. They call executive orders and here you see so. But you know we can blend that into the discussion but I think this issue of choice and how projects affect communities and people like you say. I mean I love the story about the project in Nevada with the wildlife that only grows in lithium-rich soil. And yeah, what I guess what I would say to that, Richard, is yes, there will be change and certainly whoever's in the White House or whoever is going to be elected in at any political office and anywhere in the world will change. And what I wanted to bring to the reader was, as you say, this idea of choice and to say that the specific projects that I write about in the book, they might have some resolution, whether that's in courts or they might not get the permits that they need. But each chapter looks at a specific what I consider tension point that we as the reader need to be exploring. So, one big chapter talks about indigenous rights. Do indigenous rights matter more than our quest for copper and other critical minerals? And Richard's referring to that, the wildflower he's referring to is a story that I use as the narrative spine of the book. About 200 miles north of Las Vegas, there's a vast lithium deposit that a company based in Australia would like to mine and sell to Ford and other automakers as well as other manufacturers. The problem for this company though is that this site is home to a rare flower found nowhere else on the planet. And so if you dig the mine, would you basically relegate this flower to extinction? Should we care about the flower or should we care about the lithium? And if we do nothing, would the flower go extinct? So these are some of the issues and at some point that project will have a resolution. Something will happen there. But for me the issue about does biodiversity matter more than our fight against climate change was something to bring to the reader and to say these are some of the issues that you need to explore. The book does talk a lot about what former President Biden did or didn't do just because it was a product of its time. But I still think how we demand more from our elected officials regardless of who's in the White House or who's sitting on Capitol Hill is extremely important. And what I would say is that I purposely focused on projects in the United States. All but one I talk about in the book are in the United States because I wanted us as Americans to really have to sit in this sticky situation and to almost stew in it and to say what would we do if we were sitting in the White House or on Capitol Hill? How do we actually want the manufacturers that build the products we use every single day to source these metals? So that's what I wanted to do with the reader.

Yeah. Next book, let's talk about international. So, and these issues that Ernie's talking about are straightforward in a lot of ways intellectually. You can say, we need these resources. You can point how the world's going, how demand's growing, that we have critical needs for them. And yet then when you get on the ground and try to do it, the whole thing changes dramatically. And we learned early on some, so I'm so old even the ones from New Orleans remember but Freeport was once a company with a black hat on because of what we were doing with our phosphate mines in the Mississippi River and dumping in the river and there was a byproduct or waste product that was called toxic at the time and big controversy here in New Orleans about. After we sold the business, it was declassified, no longer considered toxic. But and then we had a controversial project in Indonesia. We're in the US in a big way. It's about a third of our global copper production and yet Freeport produces almost 75% of the copper produced in the United States. We don't import or export out of the United States to speak of. And the rest of the copper needs is imported. The US wants copper. We got big resources. We want to develop it. Very large employer in the southwest and yet it just takes so long. Permitting is a piece of it, but just to design mines, do all the engineering work, all the water work, the environmental protection and things like that. What we've learned and it started with the experience we had in Indonesia. We have 30,000 people working in one of the remote places in the world on the island of New Guinea where we have the world's second largest copper mine and gold is a byproduct. Most years it's the largest gold mine in the world and there's tremendous problems between the indigenous people who are racially different, culturally different, religiously different than the bulk of Indonesians. And so we had to learn to deal with that. And so what we have as our approach is to try to find common ground with people to not dismiss people because of concerns about an endangered wildlife or flower and to think about the impact you have on a community and so forth and we've been successful with it. In fact why don't you, you have a chapter in your book on our mine Morenci. Why don't you say a couple of things about it?

So this ore deposit was discovered by US cavalryman Chase Kuchis back in the 1870s. They camped out by a stream. They noticed mineral staining in the stream. After they left the service, they got a concession on it which was very easy to get. And then they went up the west coast, up the east coast and got financing from the company we acquired in Phoenix called Phelps Dodge Company. And we have a huge mine in Peru. It's the largest concentrator in the world. And we move over a million tons of rock every day. That's equivalent of like two or 300 street dump trucks every hour. I mean, it's just amazing the scale of it. It's not that complicated, but the scale is just incredibly big. Now, let's transition from that. And we have another big difference is the difference between a greenfield mine. Yep. And a brand new mine. Greenfield mine. Brownfield mine. One that's been there. By being there, you've dealt, you have work if you do it right. You work hard with the local community, with the workforce, with state governments, federal governments, but starting a new mine is totally different. We have great relationships with the San Carlos Apache group. That's an important tribal group. It was several Apache tribes when they were settling them on reservations there. And since World War II, we've had a water agreement with them. We built a training facility for them. We hire them. Chief Rambler and good friend and they're very supportive. A little, I could just give a little context there as to why you mentioned the San Carlos Apache. I think for those that might not be too familiar, Richard, that's where I'm going to... Okay. Okay. I'm setting it up. So that's one situation. Basketball analogy. Now, in an area where we've had historical operations, there's an undeveloped massive ore body called Resolution just east of Phoenix. And they've been working on this for 10 or 15 years. And it is co-owned by a UK Australian company named Rio Tinto, which was our partner in Indonesia, and BHP, the largest company in Australia. And so pick it up because these are not too very far apart. Yeah. But totally different ore bodies and the timing of it is different.

And coincidentally, how many years ago, six, seven years ago in Western Australia, which is iron ore mining country, this same company, Rio Tinto, had a permit, but accidentally destroyed this cave system for the indigenous people in Australia. And it created such a furor in the way that they handled it that the CEO was terminated, lost his job. The chairman was pushed out of the board. And now this is providing fuel to the opposition here in the United States saying here's a company that's shown that they are not sensitive to these sorts of things. And Chairman Rambler, the head of the San Carlos Apache, you said they won't talk to all mining companies. They talk with us. And but well, I think... Yeah, I mean that's, I understand what you're saying. I understand what you're saying. And you guys have a water agreement with them, which we have a water agreement. We train facility. That was a business. So I asked the chairman about this. He said this is a business deal that we made of our own volition which I think gets back to the idea of tribal sovereignty. And but to show you the strong feelings and we stay out of this because we need to be friends with Rio Tinto and also with San Carlos Apaches but I have these really beautiful copper plates that I give to people after meetings and after our meeting with him I said I have a gift for you. He opened it up. He looked at his copper and he just pushed it right back at me. And so it's incredible the strength of feelings. And that's one of the good things about the book. They talk about those projects which I'm very familiar with, but we made a strategic decision to really focus on copper. We're not involved in specialty metals or other things. And I'd read about all these projects, but what Ernie does so well is he goes into these projects that I had read about, knew something about being in the industry, but reports then about those kinds of conflicts. This is one example, the North Carolina deal, which my family was small farmers in West Tennessee, and I can relate to how they would feel if a big mine comes into that kind of country and that sort of thing. It's one thing for it to be in Nevada or rural Arizona. It's another thing to be in a situation like that. But that's what this book does so well. It gives you the facts of the situation. It talks about the opposition. It talks about the companies trying to do it. And it talks about the policy need to develop these deals. And you know that's what we're seeing today is a big push to try to encourage development in the US. But it just takes so long. Even if they do cut permits down, it just takes so long to do it.

Yeah. Let's talk about climate change a bit. I mean, and that's obviously public opinion's changing on it. You know, it was the early 70s that started the process leading to the Paris Accords. Now, the US government's just withdrawn from the Paris Accords for the second time. For the second time. And you know, climate change is real. I mean all of us, I still have a home in New Orleans and all of us here worry about the effects of the increased frequency and severity of hurricanes. The city certainly saw it about the time we moved out. We didn't move out because of that by the way. And then out west forest fires are just unbelievable. I mean the devastation in Los Angeles. I'm friends with the CEO of Edison International and their power lines started one of those fires and we know people who live out there. I mean it was worse than Katrina. I mean it's just a disaster and you know it's just around us all the time the smoke and everything. So climate people who downplay climate change have reasons for it but it's real and there was a big movement among companies in the mining industry. We have an international organization that I was chair of and all these companies were making commitments about reaching carbon targets you know from the different elements and how do you define that and everything and there's a big move away from oil and gas investors. Reality has set in. I mean the world is going to need petroleum for a long time, it's not going to go away. But that doesn't mean there should be an us versus them issue between investments and climate change. Now talking my own book here because electric cars have three or four times more copper in them than regular cars and wind and solar has three or four more times copper in them than traditional generation of energy. But these metals that you're talking about are critical for that. They can't occur without it. And so, talk about your perspectives on how climate change is affecting these discussions.

It is. An example of that was I moved to Houston right after the fall of the Shah of Iran in the late 70s. Price of oil spiked over $100 a barrel after being for years at $3 a barrel from World War II up until the Middle East boycott. I mean, in the early 70s and a lot of Houston was built on the premise of a $100 barrel of oil. Well, $100 hit, price of gasoline went out of sight. Nobody took into account conservation. The people start driving smaller, much more fuel efficient cars, and that changed. So, as we run into shortages, and I'll just use copper as an example, prices are going to rise, but that's going to encourage not only recycling, which will be an important part of it, but conservation. People will work to find out how to use less copper for applications than they would when prices were lower. It will also trigger substitution. You know, China's taking steps now to how to use aluminum. By the way, I did tell the CEO of Edison that they have these aluminum high wires and they fall and they create forest fires. If you took copper cables and buried it, you wouldn't have some of these fires. Did anybody, did he, did you make a sale? Yeah. Yeah. Yeah. Because he was pretty shell shocked about what they were facing out there. But all of these things will happen. And of course it'll be more technology. We were using technology to recover more copper out of our ore bodies and our waste stacks than we are now. Learning how to be more efficient. The mines in the US are very low grade because they're so old. With mines, you mine the highest grade first and then as mines expand, inevitably grades drop. And our average cost of production in the US is like three times what it is internationally. So we have to be much more efficient the way we do that. So there'll be all these effects that'll be happening together and people who try to simplify it too much say we're going to get to zero scope 3 emissions by 2050, that's not the world because the world will constantly change. I mean there's no free lunch.

Last week. President company excluded. But yeah, and it's, you know, the history of mining is really tough. I was this week I was in Butte, Montana speaking to students and faculty of Montana Tech and the city of Butte has the largest Superfund site in the world and to see how that's changed all through the west you go, we're working with Trout Unlimited to try to clear up abandoned mine sites and things like that. The oil and gas industry has its own issues with its historical operations as we see in the Gulf. I see a t-shirt back there says Gulf of Mexico. I thought that was gone. Hang on to that. So, but all the companies, Chairman Phillips is on our board and he was with me. He's a graduate of Montana Tech and all the companies now are much more responsible about what they're doing. You know, they're finding, all of us are finding ways of reducing carbon emissions and it's hard. I mean, you know, these big haul trucks that you're talking about are diesel haul trucks and we're working with suppliers like Caterpillar to see if we can design an electric system. The batteries in those systems weigh like nine tons which has to be hauled too with the material. So all these things but everybody's working towards it. Nobody is saying it's not a problem and so it's something that's going to be part of all of our futures going forward.

And you did a great job. AI, we didn't even touch on that but that's a huge addition to metals demand. You need a lot of copper for AI. We're going to shut down here in 22 seconds. Ernie's going to be signing, selling his books. Nobody sold more of his books than I have in the last year and a half. I send it to everybody. Yeah, I'll take you up on that. So, anyway, thank you all for coming. It's great being here with you. Thank you. Thank you very much.