Kathleen Quirk
President at Freeport-McMoRan
Thank you, Richard, and we'll start on slide three with a summary of the quarter's highlights.
As you've seen, we achieved strong production and sales performance in the quarter. And as Richard mentioned, we're continuing our focus on effective execution of our plans in a challenging environment. Sales volumes for copper were 3% higher than last year's third quarter, and 4% higher than our guidance going into the quarter. Our gold sales were above the year ago quarter by 19% and 20% above our July guidance, and that reflects very strong performance at Grasberg during the quarter.
From a cash cost standpoint, our consolidated average unit net cash cost were $1.75 in the quarter, they averaged $1.75, and that was about 5% above our estimates going into the quarter. As Richard referenced, cost pressures continue to be a significant issue for our operations and really across the global mining industry.
In the current market, many of our input costs are above historical correlations to the copper price. We can't predict how long this dislocation will occur, but based on history, we typically see a high correlation of many of our input costs with the price of copper. As Richard mentioned, we're going to continue to focus on those areas of cost and efficiencies that we can control to help mitigate these cost increases.
Adjusted EBITDA in the quarter was $1.5 billion. This was net of $228 million reduction associated with copper sales that were provisionally priced at the end of June at $3.75 per pound, which remains subject to final settlement. The decline in copper prices during the quarter resulted in this negative adjustment. We've got a reconciliation of the EBITDA calculations on Page 31 of the slide deck.
Adjusted net income for the quarter was $375 million. That excludes $0.02 in nonrecurring gains that are detailed on Roman numeral page seven of our earnings release. So $375 million or $0.26 per share in the third quarter of adjusted net income. Operating cash flows of roughly $800 million in the quarter approximated our capital expenditures. Our capital spending during the quarter included $400 million for major projects, principally associated with our Grasberg underground projects and $200 million to advance construction on the Indonesian smelter.
During the quarter, we continued opportunistic purchases of our public debt securities in open market. So far, in 2022, we have purchased approximately $1.1 billion of our notes at a discount to par, including $400 million in principal amount in the third quarter. The market conditions in recent months have provided a great opportunity for us to reduce our absolute debt levels at attractive prices, and these purchases generate approximately $50 million per annum and interest cost savings.
We continue to maintain a strong balance sheet. We've got a large cash balance and significant liquidity. We ended the quarter with $1.3 billion in net debt, excluding the $800 million in net debt associated with the Indonesian smelter. That's well below our targeted net debt range of $3 billion to $4 billion.
The authorization under our share purchase program remains at $3.2 billion. Since reaching our net debt target in the range of $3 billion to $4 billion in the middle of last year, we've used over 50% of our free cash flow for shareholder returns. That totaled $2.7 billion in share purchases and dividends over that period. We did not purchase shares since mid-July, and that reflects our priorities on our balance sheet and our policy of using excess cash flows for shareholder returns and the timing of our future purchases will be dependent on our cash flows and overall market conditions.
I want to point out that we recently published our updated Annual Climate Report that's available on our website. The report includes an update on our progress to improve our energy efficiency and integrate lower carbon alternatives into our operations, and we're making great strides in that area.
As Richard talked about, and we talked about on our July call, we commented on the magnitude of the sharp decline in copper prices that we experienced in recent months. We benefit from having the balance sheet, the asset quality and experience to successfully manage the volume in uncertain market environment. And despite the recent weakness, we remain confident in our strategy centered on being foremost in copper, we're positive about the strong future fundamentals for copper and the strength of our assets and team to increase value for stakeholders.
I'll move to slide four, which is a graph of the year-to-date copper prices. We discussed on our last earnings call that the price move appeared to be anticipatory and financially driven by global macroeconomic conditions. This backdrop continues to be challenged by rising interest rates to tame inflation, concerns about Chinese economic growth and pressures in Europe associated with energy and geopolitical turmoil.
We also indicated on our last call that markets remain strong, physical markets remain strong for copper. Our customers are reporting solid orders, physical market was tight as evidenced by low levels of inventories. The situation is much the same today. Copper demand remains healthy. The industry continues to struggle to meet production targets and inventories remain low by historical levels.
And as we look forward, we see copper demand that will benefit from the substantial requirements for metals required for electrification and the energy transition. This new demand is emerging and is driven by secular trends rather than economic cycles. The industry does not have a current pipeline to meet this demand and the recent weakness in copper prices will only make this development more difficult.
Richard talked about we're realistic about the current macro conditions creating uncertainties. But we do have strong conviction about the long-term fundamentals for the copper markets, and we expect to start seeing as we go through this period of increased demand from decarbonization, large gas supply-demand gaps emerging in the copper market. On slide five, we'll turn to operations, and you'll see we present here a summary of our sales by region for the third quarter. And I'll just go through around the globe how our teams are doing.
Starting with the U.S., our teams are focused on meeting our production targets safely and efficiently in overcoming challenges with limitations on available labor. We're ramping up the Safford mine, we're ramping up mining rates in the U.S. and we're aggressively pursuing leach production and continuing to study the possible expansion of the Bagdad mine in Northwest Arizona.
Moving to South America. Our team at Cerro Verde in Peru continues to execute very effectively and produced at an average of over 400,000 tons of ore per day through the concentrator during the quarter. We faced some challenges during the quarter with byproduct molybdenum productions, and that impacted net unit cash cost. The team is doing great work to overcome this challenge as we look forward into the fourth quarter and beyond. And we're particularly proud of the exceptional work Cerro Verde does in the community, and that provides a sustainable model for the operations. At El Abra, we're continuing to optimize the existing operation, while we consider the larger expansion options in the future.
Richard talked about Grasberg. We benefited from continued outstanding execution of the plans that allowed us to exceed our third quarter sales guidance with strong production results in the quarter, higher than forecast grades and an exceptional loading and shipping performance. The team loaded and shipped all of its third quarter production and available concentrate inventories during the period. We're also continuing to advance several projects at the site related to our mill work to add a new mill circuit, working on power infrastructure, we're continuing to advance the development of Kucing Liar and we're progressing with construction of the new smelter in Eastern Java, with a targeted completion of that project in 2024.
We show unit costs at the bottom of the slide on a consolidated basis. As I mentioned, the costs in the third quarter were about 5% above our guidance. That mainly, on a consolidated basis, was associated with higher maintenance and the increased cost of supplies.
Breaking it down by region, the U.S. was challenged with higher maintenance, supplies and labor. In South America, the variance to our expectations related to lower molybdenum by-product credits, and Grasberg was in line with our prior estimate, but they were offsetting variances, higher maintenance costs and supply costs were offset by stronger gold byproduct credits in the quarter.
We've adjusted our annual cost guidance for 2022 to average $1.55 per pound. That compares with the previous estimate of $1.50 per pound, and we've got a reconciliation provided in the reference materials on slide 22.
On slide six, we wanted to highlight the progress at Grasberg that Richard referred to. Since reaching the targeted run rate in the second half of last year, the team at Grasberg has just done a great job demonstrating sustained large-scale production for several quarters now.
We benefit from our industry-leading expertise in block caving and we're effectively managing the largest underground mining complex in the world. This is a major accomplishment, not only for our company, but in the history of the global mining industry. The resource at this site where we've been operating for over five decades is significant. And with the success of this project, we're engaged in discussions regarding an extension of our operating rights beyond our current 2041 time frame.
Richard talked about earlier, we've got some pictures from the visit on the slide. We were honored in late August to host Indonesia's President at the Grasberg site. He toured the site extensively. He visited the former surface mine, had an in-depth tour of the underground and actively engaged with our team. He expressed great pride over what has been achieved technically and for the people of Papua in the country. It was really a happy time, special time for our entire team who's worked so hard over the years to make this project such a success.
Another exciting area that we wanted to talk more about today on slide seven is our reach innovation initiatives. This is really focused in the Americas and our drive -- we're capturing higher recoveries from leach stockpiles is gaining a lot of momentum. The economics of this opportunity are extremely attractive, very low capital intensity, low incremental operating costs, low carbon footprint, the lowest cost copper units in our Americas portfolio and the carbon intensity is low because the mining costs have already been incurred. And so essentially, we're doing here is extracting more copper from what historically would be considered waste.
We're using new data analytics capabilities, and those are providing valuable information to guide us and prioritize our work on the highest value. We're continuing efforts to retain heat in the stockpile. We're moving forward to apply covers to our leach stockpiles because the retention of heat within the stockpiles is proving to enhance recoveries. We're also applying solutions to new areas that were not pursued historically. And we continue to test various additives that can further enhance recoveries.
The progress to date and early results are leading us to a target run rate of 200 million pounds by the end of next year, and that is at the top end of what we were prior thinking was 100 million to 200 million pounds. Success at this level would give us a road map to scale larger, and that's what we're focused on. And we're really taking advantage of the long history we have in leaching significant stockpile material, the availability of new technologies that weren't available in the past and we're in a really strong position to lead the innovation in this area.
We're managing this project and this initiative as we would a major project. And when we think about it, it's similar to a -- has a similar production to what we would look at, at a project within the U.S. to add concentrator, but we don't have the capital associated with it and the operating costs are very low. So we're allocating a meaningful amount of significant expertise and technical resources and are aggressively pursuing this opportunity.
I'm going to move to slide eight, which provides a three year outlook for our sales volumes. As you'll see, the 2022 volumes are very similar for copper, 4.2 billion pounds of copper for 2022. Gold sales are about 5% higher than our prior estimate for the year. And that reflects the.
The sales mix for 2022 is roughly 35% coming from the U.S., 28% from South America and 37% from Grasberg. You'll note that our 2023 copper sales guidance have been adjusted. They're lower by about 150 million pounds from our prior estimate. That's roughly 3%. About half of this is a timing matter and does not represent a production shortfall. And this goes to a change in the commercial agreement of our arrangement with PT Smelting, the existing smelter in Indonesia, which we own a 40% interest in currently. That commercial arrangement is converting in 2023 from a purchase and sale agreement to a tolling agreement. And so PT-FI's production a portion will be deferred in inventory until final sale, but it does not represent a production shortfall. And in fact, PT-FI's production is going very well in line with expectations.
The balance of this change is associated with updated mine plans in the Americas, and that includes the impact of anticipated lower grades than we were previously forecasting for 2023 at Cerro Verde. The rest of the guidance is pretty similar to what we were guiding to last quarter.
And we're going to move to cash flows on slide nine, and you've seen these charts before. As a leading producer of copper, our earnings and cash flows have significant leverage to the price of copper. And we show modeled results for our EBITDA and cash flow at various prices and with the current cost structure of the business, which, as we've talked about, has increased in recent quarters.
We've shown a broad range of prices ranging from $3 per pound to $5 per pound. Just to recall -- remind everyone in the first half of this year, prices averaged nearly $4.50 a pound, and we're approaching $5 a pound earlier in the year. We don't believe the current copper price is sustainable long term given the cost structure of the industry, the need for new supply development in the future.
Modeled results using the average of '23 and '24 with the current volume and cost estimates, holding gold flat at $1,700 per ounce and molybdenum flat at $18 per pound, our annual EBITDA would range from roughly $6 billion per year at $3 copper to over $14 billion per year at $5 copper. And our operating cash flows net of all of our taxes would range from $4 billion per year, $3 copper, to $11 billion at $5 copper. So a lot of leverage to the price of copper.
We show sensitivities to the various commodities on the right. As Richard talked about, we're prepared to manage in a low price environment, while retaining optionality for what we believe will be a much more positive situation as we go forward. And we've got this long-lived asset base that will prove to be valuable given the compelling fundamental outlook.
Looking at our capital expenditures on slide 10. You can see that we've reduced the 2022 capital forecast by $400 million, drawn from $3.1 billion in our prior forecast to the $2.7 billion in the current forecast. About half of that has shifted into 2023. As we've talked about all year, we've been spending capital at a slower pace than our original plans. This has something to do with just the supply chain and labor and other things that have deferred the projects. But we're continuing to prioritize the critical projects. We're going to continue to evaluate opportunities as we look at our capital spending plans in the context of the market environment to defer spending where and when it makes sense.
We have a lot of flexibility with our plans, and we benefit from the fact that the major investments required for the Grasberg transition are largely behind us. These amounts exclude capital for the Indonesian smelter project. That project is being funded with cash from a bond offering that we raised earlier in the year. There's some details on this project and its progress in the reference materials on slide s 27 and 28. Construction is moving forward. We're working to complete the project as early as we can. We currently expect it to complete it in 2024. And to date, we've invested about $800 million in this project.
We will talk for a minute about the financial policy and our strong balance sheet. Going to the balance sheet, it's really the cornerstone of our financial policy. The steps we've taken in the past placed us in an exceptionally strong position, particularly in the context of the current market weakness. We don't have a need to raise new capital for the foreseeable future. And essentially, all of our debt is fixed rate. We continued, as I mentioned, our opportunistic purchases of debt during the quarter and have repurchased over $1 billion in senior notes at attractive prices.
The slide here shows our net debt at $2.1 billion at the end of the third quarter. That includes $800 million for the smelter. So when we look at our net debt compared to our target, it's $1.3 billion, which is below our net debt target of $3 billion to $4 billion. And so that gives us some cushion. We've also got a very much cash balance of $8.6 billion, and that continues to provide significant liquidity for us.
As you'll see here, we have a very attractive debt maturity profile. We've got easily manageable maturities. We've taken steps to improve financial flexibility. We did some transactions to increase PT-FI's revolver. We did the same thing at Cerro Verde. And just this week, we completed the extension of our corporate revolver, which was previously planned to mature in '24. We've extended that to 2027.
In closing, we're showing a scorecard on slide 12 of the shareholder returns, which has been substantial since reaching our net debt targets last year. Just as a reminder, the financial policy provides for the distribution of 50% of our free cash flow and shareholder returns with a net debt target in the range of $3 billion to $4 billion, excluding the smelter debt.
We pay a base dividend and a variable dividend totaling $0.60 per share, and $0.30 per share of that is variable. We've used $1.8 billion of our $5 billion in share purchase authorization. Our variable dividend is continuing through 2022, and our Board will have the opportunity to review future dividends depending on performance. As I mentioned, we've returned $2.7 billion to shareholders. This represents over 50% of our free cash flow over this period, and we're well below our net debt targets.
As I mentioned, we did not purchase shares since July '22, and that reflects just the priorities on the balance sheet, the impact of the sharp decline in copper prices on our cash flows. We're going to continue to prioritize our balance sheet. We believe that maintaining the balance sheet strength in various market conditions is really important in our ability as we look forward to drive long-term returns for our shareholders.
We're focused on long-term value, focused on execution, doing this responsibly, safely, efficiently. In the near term, with respect to growth projects, we're going to continue to define our future options, but expect to defer new major investment decisions in the current market environment. We're convinced the world is going to need our projects in the future, and prices will need to move higher to incentivize the new project development.
Richard talked about the pipeline of options we have. We've got a lot of flexibility in terms of the timing of development of these options, particularly the expansive options we have for development of new supply in the U.S.
In closing, we're optimistic about the value of our assets, the strength of our team, the fundamentals of the copper business and the future prospects for the markets we serve.
I'll stop there and we'll -- operator, we'll open up the call for questions. Thanks, everyone, for your attention, and we look forward to your questions.
