Kathleen L. Quirk
President at Freeport-McMoRan
Thank you, Richard. And I'll start on slide three. Richard mentioned, we had a really good first quarter. Slide three summarizes the highlights. We achieved meaningful growth in volumes and margins which translated into strong cash flows and significant cash returns to shareholders. Our copper and gold sales were 24% higher for copper than the year ago quarter and 59% higher for gold than the year ago quarter. Our copper sales were 6% above our guidance going into the year. We benefited from strong U.S. demand in the quarter, which allowed us to reduce inventories. Our gold sales were also above our plan, 8%. After reaching the targeted metal run rates in late 2021, Grasberg is operating well and sustaining the high-volume, low-cost operation. Our average unit net cash cost for the quarter of $1.33 per pound came in under our guidance in the first quarter and below the year ago quarterly average. This is particularly impressive given the cost pressures affecting all of us and allowed us to generate strong margins with average copper realizations of $4.66 per pound during the quarter. Notably, Grasberg's costs were a net credit of $0.06 per pound in the quarter. Richard referenced this earlier, but this means that the gold revenues more than offset all of our cash production costs at the site. We generated adjusted EBITDA of $3.4 billion in the quarter; and adjusted net income, excluding nonrecurring charges of $1.6 billion or $1.07 per share for the first quarter. We generated very strong operating cash flows, totaling $1.7 billion. This was net of about $800 million in working capital uses, primarily reflecting the timing of our cash taxes.
Our cash flow significantly exceeded our capital spending and that allowed us to return substantial cash to shareholders while maintaining a strong balance sheet. We continued our share repurchase program during the quarter, funded nearly $600 million of share purchases. Since starting the program in November of last year, we have purchased 27 million shares at an average cost of approximating $42 per share. We're $1.1 billion into the program out of a total of $3 billion. Our total share repurchases and common stock dividends, which doubled from the last year's rate, approached $800 million in the first quarter. Our balance sheet remains strong. Net debt was $1.3 billion at the end of the quarter. About half of this relates to financing of the Indonesian smelter project, which is advancing. As Richard said, as we look forward, we're enthusiastic about the embedded opportunities our asset can bring to supply the world's rising demand for copper. With several projects, we are progressing with near-term, medium-term and longer-term horizons. We're continuing to dedicate significant resources to our sustainability objectives and now lead the industry with nine of our operating sites certified under the Copper Mark. We have a strong foundation for success. We're executing our strategy very effectively, and we'll continue to focus on delivering on our plans. Slide four is just a summary of the recent reports that we filed, our annual report to shareholders and just today filing our 2021 sustainability report. Our theme for our recent annual report is titled Electrifying the Future, and it highlights our assets and the prominent role that Freeport has in supplying modern uses for copper.
We also published the sustainability report. This marks our 21st year of reporting on our sustainability programs. As a leader in the industry, we also want to lead in our reporting and transparency in this important area. We really hope you'll have the opportunity to review the report in detail, it's available on our website. We're proud of the work we're doing. It's embedded in all of our business plans and supports our responsible production practices. On slide five, we had a neat deal earlier this month. We celebrated PT Freeport Indonesia's 55th anniversary. We've operated at this same site for more than five decades, and we've developed one of the industry's most prominent operations, providing tens of thousands of jobs and meaningful economic impacts to the Indonesian government and province of Papua. As Richard mentioned, we've invested heavily over the years to create a modern, world-class operation there that will benefit all stakeholders for decades to come. We lead the industry in technology, supporting our large-scale block cave mining. And as Richard mentioned, with our new partnership with the government established in 2018 and our committed and focused team, we're enthusiastic about the future for this exceptional mining district. Turning to markets. Richard covered this in his comments, we view the fundamental outlook of the copper business is very positive, supported by copper's role in the global economy, a renewed focus on infrastructure, connectivity and copper's essential role in meeting global decarbonization targets.
The demand trends are broad-based and global in nature. We see this continuing and accelerating with the increased intensity of use for copper associated with modern applications. Many are predicting we're in the early stages of a multiyear period of rising demand. Over the last decade, most of the growth in demand has come from China. As Richard mentioned, we're now seeing a major expansion of growth and demand for copper for infrastructure spending and decarbonization from Western world economies. The scarcity of new mine supply development is growing at a time when demand is rising. The project pipeline of actional development opportunities is significantly lower than it has been historically. Beyond the projects which are being completed now, there's a real absence of new supply development necessary to meet estimated demand increases. The current physical markets are tight, as evidenced by the low level of inventories on global exchanges. Supply chain continues to be stretched. While we'll see macro factors such as China's economy, geopolitical considerations and actions by the Fed impacting sentiment, the low level of inventories and supply limitations sets us up for a scenario of higher prices in the future. We're in a great position at Freeport as a responsible producer of scale and the strategies Richard outlined focused on copper, long-lived reserves and future growth options, the prospects are bright for our portfolio become more scarce and highly valued in the future. I'll comment a little bit about some details of our first quarter operations, moving to slide seven. In the U.S., the Lone Star mine continues to perform well above design capacity.
As you remember, we commissioned the mine in late 2020 and produced 265 million pounds of copper in 2021, a 30% increase from the original design. We're expanding further to take us to 300 million pounds per annum by 2023 with an investment of roughly $250 million. As we accelerate the mining of oxide ores at Lone Star, this will expose a much larger sulfide opportunity for us in the future. At Morenci, our largest mine in the North American portfolio, we completed the restart of our mill in March. We've been ramping up for several months and are now running at capacity. With the rise in COVID cases early in the quarter, our mining rates were constrained, resulting in the reduction in annual production compared with our prior expectations. We are back on track. We expect Morenci to produce 7% more copper in 2022 compared with last year. As Richard mentioned, we're also advancing our leach recovery initiatives. We're focused at Morenci using data analytics, and new technologies to enhance our leach production. This is a significant value-enhancing opportunity for Freeport, and we'll be reporting progress on this initiative as we go through the year. At Bagdad, we are advancing our plans for what we're calling the Bagdad two times project to double production at this mine in Northwest Arizona. We're advancing studies and planning to commence early works, principally for mine equipment and additional stripping in parallel with the studies. Turning to South America. The teams have done exceptional work navigating the pandemic. When things started to improve in late '21, we had a spike in cases in January and February in Peru, that did have an impact on our mining rates in the first quarter by about 10%. Situation improved significantly in March, we expect to reach our targeted mill rates of 400,000 tons per day in the balance of the year.
The lower mining rate in the first quarter is expected to have a small impact on our 2022 production at Cerro Verde compared with our prior plans, but we still see 8% growth in Cerro Verde production in 2022 compared with 2021. We continue to target a full restoration at Cerro Verde this year and be on our way back to one billion pounds per annum from this large-scale operation. El Abra has been successful in Chile in increasing the stacking rate of material on its leach pad. We expect a 30% increase in 2022 production at El Abra and to sustain a level of 200 million to 250 million pounds per annum for the next several years, as we assess opportunities for future growth. At Grasberg, we sustained our large-scale metal production after reaching our targeted metal run rate in the fourth quarter of last year. We achieved higher gold recoveries compared with our plan, which contributed to a favorable variance for the quarter. Our 2022 volumes are consistent with our prior forecast for Grasberg. We incorporated some relatively small adjustments for changes in mine sequencing in Grasberg Block Cave and Deep MLZ, but the 5-year metal forecast is generally consistent with prior expectations. We're advancing mill projects to provide additional capacity targeted for the second half of next year. We're diversifying our power sources in Indonesia, and we're advancing the long-term development for Kucing Liar. The team there is doing outstanding work and managing and sustaining the largest and most profitable underground operation in the world. On the next slide, Richard touched upon the leach opportunities we have at Freeport.
And this is a major initiative ongoing that we have to extract more value from our historical leach stockpiles. This could unlock significant value for us by increasing production from material already mined and placed on to stockpiles. In the context of an industry where new projects can take 10 years to develop, this is a significant opportunity for us to bring the equivalent of a new mine on stream in a fraction of the time it takes to develop with a fraction of the carbon footprint, very little incremental capital and operating costs. So a tremendous value opportunity for us, and we're pursuing it with urgency. During the first quarter, we commenced the process to insulate our leach stockpiles to retain heat. Heat is proven to improve leach recoveries and work to date has indicated the potential to incrementally add to our production in the near term. We're also enhancing our processes with the use of data analytics. This tool is providing new insights and opportunities. We're working on internal technologies for additives, as well as with third parties who have proprietary technologies. We're optimistic that these collective initiatives have the opportunity to add an incremental 100 million to 200 million pounds of copper across our Americas portfolio in the near term. Early success will enable us to optimize and expand this potential moving forward. As you'll see in the charts, we currently estimate 38 billion pounds of copper in our stockpiles, which already has been mined, but this is not included in our reserves or production plans. A significant portion of this opportunity is at our flagship Morenci mine and our cross-functional team of technical experts, metallurgists, mine planners, data scientists, geologists and business analysts are all working together to take full advantage of this great opportunity for us.
The leach opportunity is just one facet of our growth, and Richard touched upon what we'll be focusing on as we go forward. We have multiple options -- looking at slide nine, multiple options for brownfield, low-risk growth across the portfolio. Recall, we have over 190 billion pounds of copper mineral resources in our portfolio in addition to the proven and probable reserves of over 100 billion pounds of copper. We talked about the leach opportunity and the ongoing oxide expansion at Lone Star, these are near-term opportunities to add incremental production in a 12- to 18-month time frame. In the medium term, we're highly optimistic that we'll double the size of Bagdad in the 2026 time frame. We expect to complete the feasibility study in the first half of next year and be in a position to commence construction activities. Longer term, we have the massive Lone Star sulfide opportunity of 50 billion pound copper resource in our established mining area in Eastern Arizona. The El Abra project in Chile has a resource approaching 30 billion pounds. We've done a lot of work in identifying an operation that could produce over 700 million pounds of copper per annum. We're closely monitoring the developments in Chile, and we'll defer our decision for the time being, pending the results of the ongoing constitutional work that's being done in the country. At Kucing Liar in the Grasberg district, it's a natural extension of our operations. This will allow us to continue our large-scale operation in Papua for decades to come. We believe the world will need our projects in the future. We have a long track record of success in qualifying and developing projects in an efficient, responsible manner. And this is enhanced by our industry-leading technical capabilities, our established license to operate and our strong franchises in our areas of focus.
Looking at our sales profile on slide 10, this is the annual sales for the next few years that we update each quarter. The outlook for volumes is largely in line with our prior forecast and the execution of our plans is on track. We have insignificant changes to our prior guidance for copper sales for 2022 and 2023 in the 1% range. That principally reflects the COVID downtime experienced in the Americas earlier this year and some timing changes at Grasberg between 2023 and 2025. After delivering a 19% increase in copper sales in 2021, we're projecting a 12% increase in 2022, reflecting higher production across the portfolio and further growth in 2023. We estimate about 36% of our sales for this year will come from our U.S. mines, 27% from South America and 37% from Indonesia. On slide 11, there's been a lot of discussion about cost pressures in our industry. The cost pressures that we're facing -- that the entire industry is facing this year are well-documented. Energy and other commodity-related inputs such as sulfuric acid, explosives, grinding media and other consumables have increased. We'll continue to work to manage and mitigate these impacts to the extent possible. We also benefit from the fact that our byproduct credits, particularly for gold, provide mitigation. We show a reconciliation of our prior unit net cash for 2022 estimates based on our January estimates compared to our current estimates. We've updated all of our plans to incorporate recent commodity pricing and our latest operating plans. You'll see here that half of the unit cost increase is offset by stronger gold prices and production. Bottom line, unit cash costs are up about $0.09 per pound of copper or an approximate 7% increase. These numbers were built off a copper price assumption that was $0.25 per pound above the prior plan.
But we're looking today at $4.70 copper at current market with a cash cost of $1.44 estimated for this year, which will generate very strong margins for us. We show, on the next slide, slide 12, the significant cash flow generation at various prices. This is a great strength of Freeport, a big exposure to copper markets and the large-scale nature of our existing capacity. We're in an enviable position with our significant new production that we brought online in recent quarters. And we show on the slide, slide 12, the significance of cash flow generation using our volume and cost estimates and prices ranging from $4 to $5 copper. These are modeled results using the average of 2023 and 2024 with current volume and cost estimates. In our annual EBITDA, these prices from $4 to $5 per pound, prices are closer to $5 today than $4 would average over $11 billion at $4 copper to nearly $16 billion per annum at $5 copper. And operating cash flows very strong, ranging from over $8 billion to approach $12 billion at $5 copper. Also on the chart, we've got sensitivities to various commodities. We can't predict prices, but the long-term fundamentals of our business indicate the prospects for higher copper prices. And as we go forward, you can note that each $0.25 per pound change in copper equates to over $1 billion in annual EBITDA. We'll generate significant free cash flow. We expect this to continue with cash flows significantly above our capital spending. And you'll see the capital spending on slide 13. These are largely unchanged from our prior guidance. We're forecasting some offsetting timing differences between 2022 and 2023.
And I've also included some early equipment purchases for our Bagdad expansion project in 2023, as well as ramping up the Kucing Liar project. Both of these projects are designated as discretionary projects for purposes of our available cash returns framework. We've got a tracking of the discretionary category included for your reference in the appendix. Roughly 25% of our capital spend over the next two years is associated with value-enhancing projects. These projects all have solid financial returns and operational benefits, and we'll use a portion of the 50% of free cash flow we are earmarking for organic investments toward these discretionary projects. I'll also note, and you'll see this in the slide, we've got a large decrease in spend on the Grasberg Block Cave and Deep MLZ from 2022 to 2023, totaling $500 million. So as those projects are being fully developed, we'll see our planned capital expenditures coming down. The next slide, we provide an update on our activities for the smelter. We were engaged in detailed engineering and procurement and early construction activities are advancing with pilings and concrete installation. We've got about 2,000 workers now on site, and that will grow to over 10,000 workers next year. We've got some updated photos for your reference in the appendix. And as we've been talking about for some time, this project is important for PT Freeport Indonesia and the Indonesian government. We are focused on completing the project as efficiently and timely as possible. Richard mentioned the successful bond offering we did earlier this month, raised $3 billion to support the cost of the smelter, long-term financing, average duration of roughly 14 years and an average cost of 5.4%. Richard mentioned the investor response, it was very positive and reflects the strength of PT-FI's underlying business.
The cost of this financing is largely offset by a phaseout of the 5% export duty. So the economic impact of the smelter is not material. Turning to the balance sheet. It's a core focus of ours and has been for the last several years. We've made meaningful progress in reducing our debt and our whole financial policy is centered around maintaining a strong balance sheet. We reduced our debt just over the last 12 months by nearly $4 billion, and our EBITDA continues to grow. Our free cash flow is significant, as you've seen, with growing volumes, positive markets and low capital requirements. We are in a fantastic position to execute the strategy of maintaining a strong balance sheet, investing in our long-term future and returning substantial cash to shareholders. Last slide that we'll cover is a summary of the financial policy. On slide 16, we show a scorecard of our shareholder returns. Those have increased meaningfully with a period of strong execution and balance sheet improvement. We began implementing the Board-authorized performance payout policy in November of last year. The combination of our share purchase program with dividends are designed to distribute 50% of our cash flow after capital expenditures, excluding the smelter investments and discretionary projects. Since November of 2021, when we began to implement the program, we've utilized about 1/3 of the authorized $3 billion share purchase program.
We've purchased 27 million shares, common stock at an average cost of just under $42 per share. We also have a variable dividend component in our common stock dividends for 2022. This is double the base dividend and the first payment at this higher rate was made in the first quarter of this year. Our Board will have the opportunity to consider additional actions as we progress the program further. I mentioned in the first quarter alone, returns to shareholders totaled nearly $800 million. With a continuation of favorable market conditions, solid execution of our plans, we expect shareholder returns to continue to be strong. As Richard mentioned, we have exceptional opportunities in our business. As a team, we are meeting the challenges and embracing the opportunities. Our future is very bright, and we at Freeport are electrifying the future, and we're going to do this responsibly, reliably and relentlessly. So that's a summary of our quarter and outlook. And now we'd like to take your questions.