Form 8-K

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

 

FORM 8-K

 

 

CURRENT REPORT

Pursuant to Section 13 OR 15(d)

of The Securities Exchange Act of 1934

Date of Report (Date of earliest event reported): July 27, 2016 (July 26, 2016)

 

 

 

LOGO

FREEPORT-McMoRan INC.

(Exact name of registrant as specified in its charter)

 

 

 

Delaware   001-11307-01   74-2480931
(State or other jurisdiction
of incorporation)
  (Commission
File Number)
  (IRS Employer
Identification No.)

 

333 North Central Avenue

Phoenix, AZ

  85004-2189
(Address of principal executive offices)   (Zip Code)

Registrant’s telephone number, including area code: (602) 366-8100

 

 

Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:

 

¨ Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)

 

¨ Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)

 

¨ Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))

 

¨ Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))

 

 

 


Item 1.01 Entry into a Material Definitive Agreement.

On July 27, 2016, Freeport-McMoRan Inc. (the “Company”) entered into a distribution agreement (the “Agreement”) with J.P. Morgan Securities LLC, Merrill Lynch, Pierce, Fenner & Smith Incorporated, BBVA Securities Inc., BMO Capital Markets Corp., BNP Paribas Securities Corp., BTIG, LLC, CIBC World Markets Corp., Citigroup Global Markets Inc., HSBC Securities (USA) Inc., Mizuho Securities USA Inc., MUFG Securities Americas Inc., RBC Capital Markets, LLC, Santander Investment Securities Inc., Scotia Capital (USA) Inc., SMBC Nikko Securities America, Inc., TD Securities (USA) LLC and Wells Fargo Securities, LLC (collectively, the “Sales Agents”). Pursuant to the terms of the Agreement, the Company may offer and sell shares of common stock, par value $0.10 per share (the “Shares”) having aggregate gross proceeds of up to $1,500,000,000 from time to time through one or more of the Sales Agents. Sales of the Shares, if any, would be made by means of ordinary brokers’ transactions or block trades on the New York Stock Exchange at market prices or as otherwise agreed between the Company and one or more of the Sales Agents. The Company may also agree to sell the Shares to one or more of the Sales Agents as principal for its own account on terms agreed to by the parties to such agreement. The Sales Agents will receive from the Company a commission equal to a percentage, not to exceed 1.50%, of the gross sales price per share of the Shares sold in agency transactions under the Agreement.

The Shares are registered under the Securities Act of 1933, as amended (the “Securities Act”), pursuant to the Company’s shelf registration statement (File No. 333-206257) (the “Registration Statement”) on Form S-3, which was filed with the Securities and Exchange Commission (the “SEC”) on August 10, 2015.

The Agreement is filed as Exhibit 10.1 to this Current Report on Form 8-K, and the description of the Agreement is qualified in its entirety by reference to such exhibit. For a more detailed description of the Agreement, see the disclosure under the caption “Plan of distribution (conflicts of interest)” contained in the Company’s prospectus supplement dated July 27, 2016 to the prospectus dated August 10, 2015, that has been filed with the SEC pursuant to Rule 424(b) under the Securities Act, which disclosure is hereby incorporated by reference. The Agreement is also filed with reference to, and is hereby incorporated by reference into, the Registration Statement.

In the ordinary course of its business, each of the Sales Agents has and/or its affiliates have in the past performed, and may continue to perform, investment banking, lending, broker dealer, financial advisory or other services for us for which they have received, or may receive, separate fees. In addition, in the ordinary course of their business activities, the Sales Agents and/or their affiliates may make or hold a broad array of investments and actively traded debt and equity securities (or related derivative securities) and financial instruments (including bank loans) for their own account and for the accounts of their customers. Such investments and securities activities may involve securities and/or instruments of ours or our affiliates. The Sales Agents and their affiliates may also make investment recommendations and/or publish or express independent research views in respect of such securities or financial instruments and may hold, or recommend to clients that they acquire, long and/or short positions in such securities and instruments. Under our revolving credit facility and term loan (the “senior credit facilities”), JPMorgan Chase Bank, N.A., an affiliate of J.P. Morgan Securities LLC, is administrative agent and collateral agent. JPMorgan Chase Bank, N.A., also acts as swingline lender under our revolving credit facility. Bank of America, N.A., an affiliate of Merrill Lynch, Pierce, Fenner & Smith Incorporated, acts as syndication agent under both of our senior credit facilities. In addition, affiliates of certain of the sales agents are joint lead arrangers, co-documentation agents, joint bookrunners and senior managing agents under one or both of our senior credit facilities or credit facilities of certain of our subsidiaries and trustees under certain of our indentures. Affiliates of each of the Sales Agents are also lenders under one or both of our senior credit facilities. These Sales Agent affiliates will receive a portion of the proceeds from the sale of our common stock under the Agreement to the extent such proceeds are used to repay borrowings under these credit facilities.

A copy of the opinion of Davis Polk & Wardwell LLP relating to the legality of the Shares is filed as Exhibit 5.1 to this Current Report and is filed with reference to, and is hereby incorporated by reference into, the Registration Statement.


Item 8.01. Other Events.

Freeport-McMoRan

Reports Second-Quarter and Six-Month 2016 Results

 

 

 

  Net loss attributable to common stock totaled $479 million, $0.38 per share, for second-quarter 2016.

 

  Consolidated sales (including volumes from Tenke Fungurume (Tenke), which is being reported as a discontinued operation) totaled 1.1 billion pounds of copper, 156 thousand ounces of gold, 19 million pounds of molybdenum and 12.4 million barrels of oil equivalents (MMBOE) for second-quarter 2016, compared with 964 million pounds of copper, 352 thousand ounces of gold, 23 million pounds of molybdenum and 13.1 MMBOE for second-quarter 2015.

 

  Consolidated sales for the year 2016 (including volumes from Tenke through the anticipated closing date) are expected to approximate 5.0 billion pounds of copper, 1.7 million ounces of gold, 76 million pounds of molybdenum and 47.4 MMBOE, including 1.3 billion pounds of copper, 410 thousand ounces of gold, 20 million pounds of molybdenum and 11.4 MMBOE for third-quarter 2016.

 

  Average realized prices were $2.18 per pound of copper, $1,292 per ounce for gold and $41.10 per barrel for oil for second-quarter 2016.

 

  Average unit net cash costs were $1.33 per pound of copper for mining operations and $15.00 per barrel of oil equivalents (BOE) for oil and gas operations for second-quarter 2016. Unit net cash costs for the year 2016 are expected to average $1.06 per pound of copper for mining operations (including Tenke) and $15.50 per BOE for oil and gas operations.

 

  Operating cash flows totaled $874 million (including $278 million in working capital sources and changes in other tax payments) for second-quarter 2016. Based on current sales volume and cost estimates and assuming average prices of $2.25 per pound for copper, $1,300 per ounce for gold, $6 per pound for molybdenum and $48 per barrel for Brent crude oil for the second half of 2016, operating cash flows for the year 2016 are expected to approximate $4.5 billion (including $0.7 billion in working capital sources and changes in other tax payments).

 

  Capital expenditures totaled $833 million for second-quarter 2016, consisting of $441 million for mining operations (including $350 million for major projects) and $392 million for oil and gas operations. Capital expenditures are expected to approximate $3.1 billion for the year 2016, consisting of $1.7 billion for mining operations (including $1.3 billion for major projects) and $1.4 billion for oil and gas operations.

 

  During second-quarter 2016, FCX completed previously announced asset sales for aggregate cash consideration of $1.3 billion, including the $1.0 billion sale of an additional 13 percent undivided interest in Morenci. In May 2016, FCX entered into a definitive agreement to sell its interest in TF Holdings Limited for $2.65 billion in cash and contingent consideration of up to $120 million. In accordance with accounting guidelines, the results of Tenke are reported as discontinued operations for all periods presented.

 

  During second-quarter 2016, FCX entered into agreements to terminate FM O&G’s three drilling rig contracts for a total of $755 million and potential contingent consideration depending on future oil prices. The settlements result in aggregate savings of approximately $350 million, compared to the previously contracted commitments.

 

  Through July 25, 2016, FCX exchanged $369 million in senior notes for approximately 28 million shares of its common stock in a series of privately negotiated transactions, including $268 million exchanged during second-quarter 2016.

 

  At June 30, 2016, consolidated debt totaled $19.3 billion and consolidated cash totaled $352 million. At June 30, 2016, FCX had no borrowings and $3.5 billion available under its $3.5 billion revolving credit facility.

 

 

Freeport-McMoRan    1


PHOENIX, AZ, July 26, 2016 - Freeport-McMoRan Inc. (NYSE: FCX) reported net losses attributable to common stock of $479 million, $0.38 per share, for second-quarter 2016 and $4.7 billion, $3.70 per share, for the first six months of 2016, compared with $1.85 billion, $1.78 per share, for second-quarter 2015 and $4.3 billion, $4.16 per share, for the first six months of 2015. FCX’s net losses attributable to common stock include net charges totaling $452 million, $0.36 per share, for second-quarter 2016 and $4.4 billion, $3.53 per share, for the first six months of 2016, primarily for impairment of oil and gas properties and drillship settlements/idle rig costs, partly offset by net gains on the sales of assets. Second-quarter 2015 included net charges of $2.0 billion, $1.92 per share, and the first six months of 2015 included net charges of $4.4 billion, $4.24 per share, primarily for the impairment of oil and gas properties. For further discussion of these net charges refer to the supplemental schedule “Adjusted Net (Loss) Income,” on page V.

SUMMARY FINANCIAL DATA

 

     Three Months Ended      Six Months Ended  
     June 30,      June 30,  
     2016      2015      2016      2015  
     (in millions, except per share amounts)  

Revenuesa,b

   $ 3,334       $ 3,938       $ 6,576       $ 7,709   

Operating income (loss)a

   $ 18       $ (2,421    $ (3,854    $ (5,451

Net loss from continuing operations

   $ (229    $ (1,828    $ (4,326    $ (4,275

Net (loss) income from discontinued operationsc

   $ (181    $ 29       $ (185    $ 70   

Net loss attributable to common stockd,e

   $ (479    $ (1,851    $ (4,663    $ (4,325

Diluted net (loss) income per share of common stock:

           

Continuing operations

   $ (0.23    $ (1.78    $ (3.54    $ (4.18

Discontinued operations

     (0.15      —           (0.16      0.02   
  

 

 

    

 

 

    

 

 

    

 

 

 
   $ (0.38    $ (1.78    $ (3.70    $ (4.16
  

 

 

    

 

 

    

 

 

    

 

 

 

Diluted weighted-average common shares outstanding

     1,269         1,040         1,260         1,040   

Operating cash flowsf

   $ 874       $ 1,069       $ 1,614       $ 1,786   

Capital expenditures

   $ 833       $ 1,661       $ 1,815       $ 3,528   

At June 30:

           

Cash and cash equivalents

   $ 352       $ 318       $ 352       $ 318   

Total debt, including current portion

   $ 19,319       $ 20,902       $ 19,319       $ 20,902   

 

a. For segment financial results, refer to the supplemental schedules, “Business Segments,” beginning on page VIII.
b. Includes (unfavorable) favorable adjustments to provisionally priced concentrate and cathode copper sales recognized in prior periods totaling $(28) million ($(15) million to net loss attributable to common stock from continuing operations or $(0.01) per share) in second-quarter 2016, $(22) million ($(11) million to net loss attributable to common stock from continuing operations or $(0.01) per share) in second-quarter 2015, $5 million ($2 million to net loss attributable to common stock from continuing operations or less than $0.01 per share) for the first six months of 2016 and $(99) million ($(47) million to net loss attributable to common stock from continuing operations or $(0.04) per share) for the first six months of 2015. For further discussion, refer to the supplemental schedule, “Derivative Instruments,” on page VII.
c. Net (loss) income from discontinued operations includes charges for (i) allocated interest expense totaling $11 million in second-quarter 2016, $7 million in second-quarter 2015, $21 million for the first six months of 2016 and $14 million for the first six months of 2015 associated with the portion of the term loan that is required to be repaid as a result of the sale of FCX’s interest in Tenke and (ii) income tax (benefit) provision totaling $(16) million in second-quarter 2016, $12 million in second-quarter 2015, $(23) million for the first six months of 2016 and $31 million for the first six months of 2015. In accordance with accounting guidelines, the second quarter and first six months of 2016 are also net of an estimated loss on disposal, which will be adjusted through closing of the transaction (refer to the supplemental schedule, “Adjusted Net (Loss) Income,” on page V).
d. Includes net charges totaling $452 million ($0.36 per share) in second-quarter 2016, $2.0 billion ($1.92 per share) in second-quarter 2015, $4.4 billion ($3.53 per share) for the first six months of 2016 and $4.4 billion ($4.24 per share) for the first six months of 2015, which are described in the supplemental schedule, “Adjusted Net (Loss) Income,” on page V.

 

Freeport-McMoRan    2


e. FCX defers recognizing profits on intercompany sales until final sales to third parties occur. For a summary of net impacts from changes in these deferrals, refer to the supplemental schedule, “Deferred Profits,” on page VII.
f. Includes net working capital sources (uses) and changes in other tax payments of $278 million in second-quarter 2016, $(104) million in second-quarter 2015, $466 million for the first six months of 2016 and $(190) million for the first six months of 2015.

DEBT REDUCTION INITIATIVES

FCX previously announced plans to reduce debt and restore its balance sheet strength through a combination of asset sale transactions, cash flow from operations and potential capital market transactions. To date, FCX has announced over $4 billion in transactions and has received aggregate cash consideration of $1.4 billion, including $87 million in July 2016. The $2.65 billion Tenke Fungurume (Tenke) transaction is expected to close in fourth-quarter 2016. In addition, FCX continues to aggressively manage production, exploration and administrative costs and capital spending.

During second-quarter 2016, FCX restructured its oil and gas business to reduce costs and align capital allocation for the business with FCX’s corporate debt reduction initiatives. During the quarter, FCX terminated contracts for Freeport-McMoRan Oil & Gas LLC’s (FM O&G) deepwater drillships, and settled aggregate commitments totaling $1.1 billion for $755 million, of which $540 million was funded with shares of FCX common stock.

During 2016, FCX has retired $369 million of its senior notes through a series of privately negotiated exchanges for 28 million shares of its common stock (including $268 million during second-quarter 2016, which resulted in a $39 million gain on early extinguishment of debt). These transactions will reduce annual interest expense by $17 million. FCX will continue to evaluate opportunities for transactions, which may include open-market purchases of its debt, debt for debt exchanges, and privately negotiated exchanges of its debt for equity or equity-linked securities. FCX may also issue additional debt or convertible securities to repay or refinance existing debt. The completion and amount of these transactions, if any, are subject to a number of factors, including market conditions, FCX’s financial position and its ability to complete such transactions on economically attractive terms.

As part of its plan to reduce outstanding indebtedness, FCX intends to commence, subject to market conditions, a registered at-the-market offering of up to $1.5 billion of common stock and use the proceeds to retire outstanding indebtedness. FCX believes the proceeds of this offering, together with previously announced asset sale transactions and anticipated cash flow from operations, will enable it to achieve its near-term debt reduction objectives.

While additional asset sales may be considered, FCX remains focused on retaining a high-quality portfolio of long-lived copper assets positioned to generate value as market conditions improve. In addition to debt reduction plans, FCX is pursuing opportunities to create additional value through mine designs that would increase copper reserves, reduce costs and provide opportunities to enhance net present values, and continues to advance studies for future development of its copper resources, the timing of which will be dependent on market conditions.     

 

Freeport-McMoRan    3


Following provides a summary of FCX’s completed and pending asset sales (in billions):

 

     Closing or Expected    Cash  
    

Closing Date

   Consideration a  

Morenci (13 percent interest)

   Second-quarter 2016    $ 1.00   

Timok exploration project in Serbia

   Second-quarter 2016      0.13  b 

Oil and gas royalty interests

   Second-quarter 2016      0.10   

Other land sales

   Second-quarter 2016      0.06   

Haynesville shale assets

   Third-quarter 2016      0.09   

Tenke

   Fourth-quarter 2016      2.65  c 
     

 

 

 

Total, excluding potential transactions and contingent consideration

        4.03   

Potential Freeport Cobalt/Kinsanfu transactionsd

        0.15   

Contingent considerationb,c

        0.23   
     

 

 

 

Total

      $ 4.41   
     

 

 

 

 

a. Reflects aggregate cash consideration.
b. Excludes contingent consideration of up to $107 million payable to FCX in stages based upon achievement of defined development milestones.
c. Excludes contingent consideration of up to $120 million, consisting of $60 million if the average copper price exceeds $3.50 per pound and $60 million if the average cobalt price exceeds $20 per pound, for the 24-month period ending December 31, 2019.
d. FCX has agreed to negotiate exclusively with China Molybdenum Co., Ltd. (CMOC) until December 31, 2016, to enter into a definitive agreement to sell its interests in Freeport Cobalt for $100 million and the Kinsanfu exploration project in the Democratic Republic of Congo (DRC) for $50 million in separate transactions.

SUMMARY OPERATING DATA

 

     Three Months Ended      Six Months Ended  
     June 30,      June 30,  
     2016      2015      2016      2015  

Copper (millions of recoverable pounds)

           

Productiona

     1,133         977         2,230         1,892   

Sales, excluding purchasesa

     1,111         964         2,234         1,924   

Average realized price per pounda

   $ 2.18       $ 2.71       $ 2.16       $ 2.70   

Site production and delivery costs per poundb

   $ 1.43       $ 1.85       $ 1.47       $ 1.89   

Unit net cash costs per poundb

   $ 1.33       $ 1.50       $ 1.35       $ 1.57   

Gold (thousands of recoverable ounces)

           

Production

     166         367         350         626   

Sales, excluding purchases

     156         352         357         615   

Average realized price per ounce

   $ 1,292       $ 1,174       $ 1,259       $ 1,183   

Molybdenum (millions of recoverable pounds)

           

Production

     19         25         39         49   

Sales, excluding purchases

     19         23         36         46   

Average realized price per pound

   $ 8.34       $ 9.51       $ 7.99       $ 9.84   

Oil Equivalents

           

Sales volumes

           

MMBOE

     12.4         13.1         24.5         25.6   

Thousand BOE (MBOE) per day

     136         144         135         142   

Cash operating margin per BOEc

           

Realized revenues

   $ 32.70       $ 50.04  d     $ 28.29       $ 46.95  d 

Cash production costs

     (15.00      (19.04      (15.42      (19.62
  

 

 

    

 

 

    

 

 

    

 

 

 

Cash operating margin

   $ 17.70       $ 31.00       $ 12.87       $ 27.33   
  

 

 

    

 

 

    

 

 

    

 

 

 

 

Freeport-McMoRan    4


a. Includes production and sales volumes from the Tenke mine, which is reported as a discontinued operation. Copper sales volumes from the Tenke mine totaled 124 million pounds in second-quarter 2016, 104 million pounds in second-quarter 2015, 247 million pounds for the first six months of 2016 and 237 million pounds for the first six months of 2015.
b. Reflects per pound weighted-average production and delivery costs and unit net cash costs (net of by-product credits) for all copper mines (including Tenke), before net noncash and other costs. Excluding the Tenke mine, mining unit net cash costs averaged $1.33 per pound in second-quarter 2016, $1.56 per pound in second-quarter 2015, $1.36 per pound for the first six months of 2016 and $1.63 per pound for the first six months of 2015. For reconciliations of per pound unit costs by operating division to production and delivery costs applicable to sales reported in FCX’s consolidated financial statements, refer to the supplemental schedules, “Product Revenues and Production Costs,” beginning on page XI.
c. Cash operating margin for oil and gas operations reflects realized revenues less cash production costs. Cash production costs exclude accretion and other costs. For reconciliations of realized revenues and cash production costs per BOE to revenues and production and delivery costs reported in FCX’s consolidated financial statements, refer to the supplemental schedules, “Product Revenues and Production Costs,” beginning on page XI.
d. Includes realized cash gains on crude oil derivative contracts of $7.73 per BOE in second-quarter 2015 and $7.87 per BOE for the first six months of 2015. FCX currently does not have oil and gas derivative contracts in place for 2016 or future years.

Consolidated Sales Volumes

Second-quarter 2016 consolidated copper sales (including Tenke) of 1.1 billion pounds were higher than second-quarter 2015 sales of 964 million pounds, primarily reflecting higher volumes from Cerro Verde.

Second-quarter 2016 consolidated gold sales of 156 thousand ounces were lower than second-quarter 2015 sales of 352 thousand ounces, primarily reflecting lower ore grades and lower mining and milling rates.

Second-quarter 2016 consolidated molybdenum sales of 19 million pounds were lower than second-quarter 2015 sales of 23 million pounds, primarily reflecting market-driven curtailed production volumes from the primary molybdenum mines.

Second-quarter 2016 sales from oil and gas operations of 12.4 MMBOE, including 8.65 million barrels (MMBbls) of crude oil, 18.8 billion cubic feet (Bcf) of natural gas and 0.6 MMBbls of natural gas liquids (NGLs), were lower than second-quarter 2015 sales of 13.1 MMBOE, primarily reflecting lower natural gas volumes from Haynesville.

Sales volumes for the year 2016 are expected to approximate 5.0 billion pounds of copper (including 440 million pounds for Tenke through the anticipated closing date), 1.7 million ounces of gold, 76 million pounds of molybdenum and 47.4 MMBOE, including 1.3 billion pounds of copper (including 115 million pounds for Tenke), 410 thousand ounces of gold, 20 million pounds of molybdenum and 11.4 MMBOE for third-quarter 2016. Anticipated higher grades from the Grasberg mine are expected to result in approximately 30 percent of 2016 copper sales and 55 percent of 2016 gold sales to occur in fourth-quarter 2016.

Consolidated Unit Costs

Mining Unit Net Cash Costs. Consolidated average unit net cash costs (net of by-product credits) for FCX’s copper mines (including Tenke) of $1.33 per pound of copper in second-quarter 2016 were lower than unit net cash costs of $1.50 per pound in second-quarter 2015, primarily reflecting higher copper sales volumes and the impact of ongoing cost reduction initiatives, partly offset by lower gold and silver credits.

Assuming average prices of $1,300 per ounce of gold and $6 per pound of molybdenum for the second half of 2016 and achievement of current sales volume and cost estimates, consolidated unit net cash costs (net of by-product credits) for copper mines (including Tenke) are expected to average $1.06 per pound of copper for the year 2016. The impact of price changes for the second half of 2016 on consolidated unit net cash costs would approximate $0.015 per pound for each $50 per ounce change in the average price of gold and $0.01 per pound for each $2 per pound change in the average price of molybdenum. Quarterly unit net cash costs vary with fluctuations in sales volumes and realized prices primarily for gold and molybdenum.

Oil and Gas Cash Production Costs per BOE. Cash production costs for oil and gas operations of $15.00 per BOE in second-quarter 2016 were lower than cash production costs of $19.04 per BOE in second-quarter 2015, primarily reflecting higher production from Gulf of Mexico (GOM) wells and ongoing cost reduction efforts.

Based on current sales volume and cost estimates, cash production costs are expected to approximate $15.50 per BOE for the year 2016.

 

Freeport-McMoRan    5


 

MINING OPERATIONS

North America Copper Mines. FCX operates seven open-pit copper mines in North America - Morenci, Bagdad, Safford, Sierrita and Miami in Arizona, and Chino and Tyrone in New Mexico. In addition to copper, molybdenum concentrate and silver are also produced by certain of FCX’s North America copper mines.

All of the North America mining operations are wholly owned, except for Morenci. FCX records its undivided joint venture interest in Morenci using the proportionate consolidation method. On May 31, 2016, FCX completed the sale of an additional 13 percent undivided interest in Morenci for $1.0 billion in cash. As a result of the transaction, FCX’s undivided interest in Morenci was prospectively reduced from 85 percent to 72 percent.

Operating and Development Activities. FCX has significant undeveloped reserves and resources in North America and a portfolio of long-term development projects. In the near term, FCX is deferring development of new projects as a result of current market conditions. Future investments will be undertaken based on the results of economic and technical feasibility studies, and market conditions.

During 2015, FCX’s revised plans for its North America copper mines to incorporate reductions in mining rates to reduce operating and capital costs. In addition, FCX curtailed operations at the Miami and Tyrone mines and is operating its Sierrita mine at reduced rates. The revised plans at each of the operations incorporate the impacts of lower energy, acid and other consumables, reduced labor costs and a significant reduction in capital spending plans. These operating plans continue to be reviewed and additional adjustments will be made as market conditions warrant.     

Operating Data. Following is a summary of consolidated operating data for the North America copper mines for the second quarters and first six months of 2016 and 2015:

 

     Three Months Ended      Six Months Ended  
     June 30,      June 30,  
     2016      2015      2016      2015  

Copper (millions of recoverable pounds)

           

Production

     469         469         956         921   

Sales

     464         486         967         958   

Average realized price per pound

   $ 2.18       $ 2.77       $ 2.17       $ 2.73   

Molybdenum (millions of recoverable pounds)

           

Productiona

     8         10         16         19   

Unit net cash costs per pound of copperb

           

Site production and delivery, excluding adjustments

   $ 1.40       $ 1.78       $ 1.40       $ 1.79   

By-product credits

     (0.11      (0.16      (0.10      (0.17

Treatment charges

     0.11         0.12         0.11         0.13   
  

 

 

    

 

 

    

 

 

    

 

 

 

Unit net cash costs

   $ 1.40       $ 1.74       $ 1.41       $ 1.75   
  

 

 

    

 

 

    

 

 

    

 

 

 

 

a. Refer to summary operating data on page 4 for FCX’s consolidated molybdenum sales, which includes sales of molybdenum produced at the North America copper mines.
b. For a reconciliation of unit net cash costs per pound to production and delivery costs applicable to sales reported in FCX’s consolidated financial statements, refer to the supplemental schedules, “Product Revenues and Production Costs,” beginning on page XI.

North America’s consolidated copper sales volumes totaling 464 million pounds in second-quarter 2016 were lower than 486 million pounds in second-quarter 2015 primarily because of timing of sales in the 2015 period. North America copper sales are estimated to approximate 1.8 billion pounds for the year 2016, compared with 2.0 billion pounds in 2015.

Average unit net cash costs (net of by-product credits) for the North America copper mines of $1.40 per pound of copper in second-quarter 2016 were lower than the unit net cash costs of $1.74 per pound in second-quarter 2015, primarily reflecting cost reduction initiatives and lower energy and other input costs.

Average unit net cash costs (net of by-product credits) for the North America copper mines are expected to approximate $1.42 per pound of copper for the year 2016, based on achievement of current sales volume and cost

 

Freeport-McMoRan    6


 

estimates and assuming an average molybdenum price of $6 per pound for the second half of 2016. North America’s average unit net cash costs would change by approximately $0.012 per pound for each $2 per pound change in the average price of molybdenum.

South America Mining. FCX operates two copper mines in South America - Cerro Verde in Peru (in which FCX owns a 53.56 percent interest) and El Abra in Chile (in which FCX owns a 51 percent interest). These operations are consolidated in FCX’s financial statements. In addition to copper, the Cerro Verde mine produces molybdenum concentrate and silver.

Operating and Development Activities. In September 2015, the Cerro Verde expansion project commenced operations, and achieved capacity operating rates during first-quarter 2016. Cerro Verde’s expanded operations benefit from its large-scale, long-lived reserves and cost efficiencies. The project expanded the concentrator facilities from 120,000 metric tons of ore per day to 360,000 metric tons of ore per day and is on track to provide incremental annual production of approximately 600 million pounds of copper and 15 million pounds of molybdenum.

During 2015, FCX revised plans for its South America copper mines, principally to reflect adjustments to the mine plan at El Abra to reduce mining and stacking rates by approximately 50 percent to achieve lower operating and labor costs, defer capital expenditures and extend the life of the existing operations.

FCX continues to evaluate a potential large-scale milling operation at El Abra to process additional sulfide material and to achieve higher recoveries. Exploration results in recent years at El Abra indicate a significant sulfide resource, which could potentially support a major mill project. Future investments will depend on technical studies, economic factors and global copper market conditions.

Operating Data. Following is a summary of consolidated operating data for the South America mining operations for the second quarters and first six months of 2016 and 2015:

 

     Three Months Ended      Six Months Ended  
     June 30,      June 30,  
     2016      2015      2016      2015  

Copper (millions of recoverable pounds)

           

Production

     334         188         669         381   

Sales

     327         178         650         378   

Average realized price per pound

   $ 2.19       $ 2.69       $ 2.18       $ 2.68   

Molybdenum (millions of recoverable pounds)

           

Productiona

     4         2         9         4   

Unit net cash costs per pound of copperb

           

Site production and delivery, excluding adjustments

   $ 1.20       $ 1.77       $ 1.22       $ 1.76   

By-product credits

     (0.12      (0.04      (0.10      (0.06

Treatment charges

     0.23         0.17         0.23         0.17   

Royalty on metals

     —           —           0.01         —     
  

 

 

    

 

 

    

 

 

    

 

 

 

Unit net cash costs

   $ 1.31       $ 1.90       $ 1.36       $ 1.87   
  

 

 

    

 

 

    

 

 

    

 

 

 

 

a. Refer to summary operating data on page 4 for FCX’s consolidated molybdenum sales, which includes sales of molybdenum produced at Cerro Verde.
b. For a reconciliation of unit net cash costs per pound to production and delivery costs applicable to sales reported in FCX’s consolidated financial statements, refer to the supplemental schedules, “Product Revenues and Production Costs,” beginning on page XI.

South America’s consolidated copper sales volumes of 327 million pounds in second-quarter 2016 were significantly higher than second-quarter 2015 sales of 178 million pounds, primarily reflecting Cerro Verde’s expanded operations. Sales from South America mining are expected to approximate 1.36 billion pounds of copper for the year 2016, compared with 871 million pounds of copper in 2015.

 

Freeport-McMoRan    7


 

Average unit net cash costs (net of by-product credits) for South America mining of $1.31 per pound of copper in second-quarter 2016 were significantly lower than unit net cash costs of $1.90 per pound in second-quarter 2015, primarily reflecting higher copper sales volumes and economies of scale associated with the Cerro Verde expansion. Average unit net cash costs (net of by-product credits) for South America mining are expected to approximate $1.40 per pound of copper for the year 2016, based on current sales volume and cost estimates and assuming average prices of $6 per pound of molybdenum for the second half of 2016.

Indonesia Mining. Through its 90.64 percent owned and consolidated subsidiary PT Freeport Indonesia (PT-FI), FCX’s assets include one of the world’s largest copper and gold deposits at the Grasberg minerals district in Papua, Indonesia. PT-FI operates a proportionately consolidated joint venture, which produces copper concentrates that contain significant quantities of gold and silver.

Regulatory Matters. In October 2015, the Indonesian government provided a letter of assurance to PT-FI indicating that it will approve the extension of operations beyond 2021, and provide the same rights and the same level of legal and fiscal certainty provided under its current Contract of Work (COW). PT-FI continues to engage in discussions with the Indonesian government to obtain extension of its long-term rights available under the COW.

In connection with its COW negotiations and subject to concluding an agreement to extend PT-FI’s operations beyond 2021 on acceptable terms, PT-FI has agreed to construct new smelter capacity in Indonesia and to divest an additional 20.64 percent interest in PT-FI at fair market value.

PT-FI is required to apply for renewal of export permits at six-month intervals. In February 2016, PT-FI’s export permit was renewed through August 8, 2016. PT-FI has applied for an extension of this permit. The Indonesian government continues to impose a 5.0 percent export duty while it reviews PT-FI’s smelter plans.

Operating and Development Activities. PT-FI’s revised operating plans incorporate improved operational efficiencies, reductions in input costs, supplies and contractor costs, foreign exchange impacts and an approximate 20 percent deferral of capital expenditures that had been planned for 2016.

PT-FI has several projects in progress in the Grasberg minerals district related to the development of its large-scale, long-lived, high-grade underground ore bodies. In aggregate, these underground ore bodies are expected to produce large-scale quantities of copper and gold following the transition from the Grasberg open pit, currently anticipated to occur in early 2018. From 2016 to 2020, estimated aggregate capital spending on these projects is currently expected to average $1.0 billion per year ($0.8 billion per year net to PT-FI). Considering the long-term nature and size of these projects, actual costs could vary from these estimates. In response to market conditions and Indonesian regulatory uncertainty, the timing of these expenditures continues to be reviewed.

 

Freeport-McMoRan    8


 

Operating Data. Following is a summary of consolidated operating data for the Indonesia mining operations for the second quarters and first six months of 2016 and 2015:

 

     Three Months Ended      Six Months Ended  
     June 30,      June 30,  
     2016      2015      2016      2015  

Copper (millions of recoverable pounds)

           

Production

     208         205         373         359   

Sales

     196         196         370         351   

Average realized price per pound

   $ 2.20       $ 2.61       $ 2.17       $ 2.66   

Gold (thousands of recoverable ounces)

           

Production

     158         360         336         615   

Sales

     151         346         346         606   

Average realized price per ounce

   $ 1,292       $ 1,173       $ 1,260       $ 1,183   

Unit net cash costs per pound of coppera

           

Site production and delivery, excluding adjustments

   $ 1.77       $ 2.26       $ 1.99       $ 2.51   

Gold and silver credits

     (1.05      (2.13      (1.27      (2.11

Treatment charges

     0.29         0.32         0.30         0.31   

Export duties

     0.08         0.18         0.08         0.16   

Royalty on metals

     0.11         0.18         0.12         0.17   
  

 

 

    

 

 

    

 

 

    

 

 

 

Unit net cash costs

   $ 1.20       $ 0.81       $ 1.22       $ 1.04   
  

 

 

    

 

 

    

 

 

    

 

 

 

 

a. For a reconciliation of unit net cash costs per pound to production and delivery costs applicable to sales reported in FCX’s consolidated financial statements, refer to the supplemental schedules, “Product Revenues and Production Costs,” beginning on page XI.

Indonesia’s consolidated copper sales totaled 196 million pounds in both the second quarters of 2016 and 2015 as higher copper ore grades in the 2016 period were offset by lower mining and milling rates. Indonesia’s second-quarter 2016 gold sales of 151 thousand ounces were lower than second-quarter 2015 sales of 346 thousand ounces, primarily reflecting lower gold ore grades and lower mining and milling rates.

During second-quarter 2016, PT-FI completed repairs to its large-scale concentrating facility, which required 23 days of downtime to repair one of the milling circuits. PT-FI’s second-quarter 2016 production was also impacted by lower than expected mining rates and productivity in the Grasberg open pit, which affects the timing of metal production. Productivity in the Grasberg open pit has improved in July.

At the Grasberg mine, the sequencing of mining areas with varying ore grades causes fluctuations in quarterly and annual production of copper and gold. Consolidated sales volumes from Indonesia mining operations are expected to approximate 1.3 billion pounds of copper and 1.7 million ounces of gold for the year 2016, compared with 744 million pounds of copper and 1.2 million ounces of gold for the year 2015. PT-FI expects ore grades to improve significantly, with approximately 40 percent of its 2016 copper sales and 55 percent of its 2016 gold sales anticipated in fourth-quarter 2016.

A significant portion of PT-FI’s costs are fixed and unit costs vary depending on volumes and other factors. Indonesia’s unit net cash costs (including gold and silver credits) of $1.20 per pound of copper in second-quarter 2016 were higher than unit net cash costs of $0.81 per pound in second-quarter 2015, primarily reflecting lower gold credits, partly offset by lower royalties, export duties and energy costs.

Based on current sales volume and cost estimates, and assuming an average gold price of $1,300 per ounce for the second half of 2016, unit net cash costs (net of gold and silver credits) for Indonesia mining are expected to approximate $0.12 per pound of copper for the year 2016 and $0.43 per pound for third-quarter 2016. Indonesia mining’s unit net cash costs for the year 2016 would change by approximately $0.05 per pound for each $50 per ounce change in the average price of gold. Because of the fixed nature of a large portion of Indonesia mining’s costs, unit costs vary from quarter to quarter depending on copper and gold volumes. Anticipated higher ore grades from the Grasberg mine are expected to result in lower unit net cash costs in the second half of 2016.

 

Freeport-McMoRan    9


 

Africa Mining. Africa mining includes the Tenke Fungurume Mining S.A. (TFM) minerals district, in which FCX holds an effective 56 percent interest in the Tenke copper and cobalt mining concessions in the Southeast region of the DRC. In May 2016, FCX entered into a definitive agreement to sell its interest in TF Holdings Limited. As a result and in accordance with accounting guidelines, the operating results of Africa mining have been separately reported as discontinued operations in FCX’s consolidated statements of operations for all periods presented. The transaction is expected to close in fourth-quarter 2016, subject to regulatory approvals, CMOC shareholder approval and other customary closing conditions.

Operating and Development Activities. Revised plans at Tenke incorporate a 50 percent reduction in capital spending for 2016 and various initiatives to reduce operating, administrative and exploration costs. TFM successfully commissioned a sulphuric acid plant in first-quarter 2016, which will reduce requirements for third-party acid purchases.

Operating Data. Following is a summary of operating data for the Africa mining operations for the second quarters and first six months of 2016 and 2015:

 

     Three Months Ended      Six Months Ended  
     June 30,      June 30,  
     2016      2015      2016      2015  

Copper (millions of recoverable pounds)

           

Production

     122         115         232         231   

Sales

     124         104         247         237   

Average realized price per pounda

   $ 2.07       $ 2.63       $ 2.08       $ 2.66   

Cobalt (millions of contained pounds)

           

Production

     10         9         19         16   

Sales

     10         8         20         16   

Average realized price per pound

   $ 6.58       $ 9.27       $ 6.52       $ 9.23   

Unit net cash costs per pound of copperb

           

Site production and delivery, excluding adjustments

   $ 1.62       $ 1.54       $ 1.63       $ 1.56   

Cobalt creditsc

     (0.33      (0.53      (0.35      (0.44

Royalty on metals

     0.05         0.06         0.05         0.06   
  

 

 

    

 

 

    

 

 

    

 

 

 

Unit net cash costs

   $ 1.34       $ 1.07       $ 1.33       $ 1.18   
  

 

 

    

 

 

    

 

 

    

 

 

 

 

a. Includes point-of-sale transportation costs as negotiated in customer contracts.
b. For a reconciliation of unit net cash costs per pound to production and delivery costs applicable to sales reported in net (loss) income from discontinued operations in FCX’s consolidated financial statements, refer to the supplemental schedules, “Product Revenues and Production Costs,” beginning on page XI.
c. Net of cobalt downstream processing and freight costs.

Africa mining’s copper sales of 124 million pounds in second-quarter 2016 were higher than second-quarter 2015 copper sales of 104 million pounds, primarily reflecting higher mining rates and timing of sales in the 2015 period. Africa mining’s sales for 2016 (through the anticipated closing date) are expected to approximate 440 million pounds of copper and 35 million pounds of cobalt, compared with 467 million pounds of copper and 35 million pounds of cobalt for the year 2015.

Africa mining’s unit net cash costs (net of cobalt credits) of $1.34 per pound of copper in second-quarter 2016 were higher than unit net cash costs of $1.07 per pound of copper in second-quarter 2015, primarily reflecting lower cobalt credits. Unit net cash costs (net of cobalt credits) for Africa mining are expected to approximate $1.28 per pound of copper for the year 2016, based on current sales volume and cost estimates and assuming an average cobalt price of $11 per pound for the second half of 2016. Africa mining’s unit net cash costs for the year 2016 would change by approximately $0.045 per pound for each $2 per pound change in the average price of cobalt.

 

Freeport-McMoRan    10


 

Molybdenum Mines. FCX has two wholly owned molybdenum mines in North America—the Henderson underground mine and the Climax open-pit mine, both in Colorado. The Henderson and Climax mines produce high-purity, chemical-grade molybdenum concentrate, which is typically further processed into value-added molybdenum chemical products. The majority of molybdenum concentrate produced at the Henderson and Climax mines, as well as from FCX’s North and South America copper mines, is processed at FCX’s conversion facilities.

Operating and Development Activities. In response to market conditions, the revised plans for the Henderson molybdenum mine incorporate lower operating rates, resulting in an approximate 65 percent reduction in Henderson’s annual production volumes. FCX also adjusted production plans at its by-product mines, including reduced production at its Sierrita mine. Additionally, FCX incorporated changes in the commercial pricing structure for its chemicals products to promote continuation of chemical-grade production.

Production from the Molybdenum mines totaled 7 million pounds of molybdenum in second-quarter 2016 and 13 million pounds in second-quarter 2015. Refer to summary operating data on page 4 for FCX’s consolidated molybdenum sales, which includes sales of molybdenum produced at the Molybdenum mines, and from FCX’s North and South America copper mines.

Average unit net cash costs for the Molybdenum mines of $7.80 per pound of molybdenum in second-quarter 2016 were higher than average unit net cash costs of $7.19 per pound in second-quarter 2015, primarily reflecting lower volumes. Based on current sales volume and cost estimates, unit net cash costs for the Molybdenum mines are expected to average approximately $8.60 per pound of molybdenum for the year 2016.

For a reconciliation of unit net cash costs per pound to production and delivery costs applicable to sales reported in FCX’s consolidated financial statements, refer to the supplemental schedules, “Product Revenues and Production Costs,” beginning on page XI.

Mining Exploration Activities. FCX’s mining exploration activities are generally associated with its existing mines focusing on opportunities to expand reserves and resources to support development of additional future production capacity. Exploration results continue to indicate opportunities for significant future potential reserve additions in North and South America. Exploration spending continues to be constrained by market conditions and is expected to approximate $45 million for the year 2016.

OIL AND GAS OPERATIONS

Through its wholly owned oil and gas subsidiary, FM O&G, FCX’s principal oil and gas assets include significant oil production facilities and growth potential in the Deepwater GOM and established oil production facilities in California. For the first six months of 2016, approximately 90 percent of FCX’s oil and gas revenues were from oil and NGLs.

During second-quarter 2016, FM O&G completed the sale of certain oil and gas royalty interests for cash consideration of $102 million (before closing adjustments), and in July 2016, completed the sale of its Haynesville shale assets in North Louisiana for cash consideration of $87 million (before closing adjustments). Under full cost accounting rules, the proceeds from these transactions are recorded as a reduction of capitalized oil and gas properties, with no gain or loss recognition.

Impairment of Oil and Gas Properties. FM O&G follows the full cost method of accounting, whereby all costs associated with oil and gas property acquisition, exploration and development activities are capitalized and amortized to expense under the unit-of-production method on a country-by-country basis using estimates of proved oil and gas reserves relating to each country where such activities are conducted. The costs of unproved oil and gas properties are excluded from amortization until the properties are evaluated.

Under full cost accounting rules, a “ceiling test” is conducted each quarter to review the carrying value of oil and gas properties for impairment. The U.S. Securities and Exchange Commission (SEC) requires the twelve-month average of the first-day-of-the-month historical reference oil price be used in determining the ceiling test limitation. Using West Texas Intermediate (WTI) as the reference oil price, the average price was $43.12 per barrel at June 30, 2016, compared with $46.26 per barrel at March 31, 2016. As a result of the impact of the reduction in twelve-month historical prices, net capitalized costs exceeded the ceiling test limitation under full cost accounting rules, which resulted in the recognition of a second-quarter 2016 impairment charge of $291 million.

 

Freeport-McMoRan    11


 

If the twelve-month historical average price remains below the June 30, 2016, twelve-month average of $43.12 per barrel, the ceiling test limitation will decrease, potentially resulting in additional ceiling test impairments of FCX’s oil and gas properties. The WTI spot oil price was $43.13 per barrel at July 25, 2016. In addition to a decline in the trailing twelve-month average oil and gas prices, other factors that could result in future impairment of FCX’s oil and gas properties include costs transferred from unevaluated properties to the full cost pool without corresponding proved oil and gas reserve additions, negative reserve revisions and the capitalization of future exploration and development costs. At June 30, 2016, carrying costs for unevaluated properties excluded from amortization totaled $1.7 billion. These costs will be transferred into the full cost pool as the properties are evaluated and proved reserves are established or if impairment is determined. If these activities do not result in additions to discounted future net cash flows from proved oil and gas reserves at least equal to the related costs transferred (net of related tax effects), additional ceiling test impairments may occur.

Financial and Operating Data. Following is a summary of financial and operating data for the U.S. oil and gas operations for the second quarters and first six months of 2016 and 2015:

 

     Three Months Ended      Six Months Ended  
     June 30,      June 30,  
     2016      2015      2016      2015  

Financial Summary (in millions)

           

Realized revenuesa

   $ 405       $ 656  b     $ 694       $ 1,203   

Cash production costsa

     (186      (249      (378      (503
  

 

 

    

 

 

    

 

 

    

 

 

 

Cash operating margin

   $ 219       $ 407       $ 316       $ 700   

Capital expendituresc

   $ 388       $ 777       $ 868       $ 1,795   

Sales Volumes

           

Oil (MMBbls)

     8.7         8.6         17.0         17.0   

Natural gas (Bcf)

     18.8         23.5         38.4         45.3   

NGLs (MMBbls)

     0.6         0.6         1.2         1.1   

MMBOE

     12.4         13.1         24.5         25.6   

Average Realized Pricesa

           

Oil (per barrel)

   $ 41.10       $ 67.61  b     $ 35.21       $ 62.13  b 

Natural gas (per million British thermal units, or MMBtu)

   $ 2.04       $ 2.66       $ 2.02       $ 2.75   

NGLs (per barrel)

   $ 18.00       $ 20.50       $ 16.44       $ 21.71   

Cash Operating Margin per BOEa

           

Realized revenues

   $ 32.70       $ 50.04  b     $ 28.29       $ 46.95  b 

Cash production costs

     (15.00      (19.04      (15.42      (19.62
  

 

 

    

 

 

    

 

 

    

 

 

 

Cash operating margin

   $ 17.70       $ 31.00       $ 12.87       $ 27.33   
  

 

 

    

 

 

    

 

 

    

 

 

 

 

a. Cash operating margin for oil and gas operations reflects realized revenues less cash production costs. Cash production costs exclude accretion and other costs. For reconciliations of realized revenues (including average realized prices for oil, natural gas and NGLs) and cash production costs to revenues and production and delivery costs reported in FCX’s consolidated financial statements, refer to the supplemental schedules, “Product Revenues and Production Costs,” beginning on page XI.
b. Includes realized cash gains on crude oil derivative contracts of $101 million ($11.79 per barrel of oil and $7.73 per BOE) in second-quarter 2015 and $201 million ($11.88 per barrel of oil and $7.87 per BOE) for the first six months of 2015. FCX currently does not have oil and gas derivative contracts in place for 2016 or future years.
c. Excludes international oil and gas expenditures totaling $4 million in second-quarter 2016, $29 million in second-quarter 2015, $47 million for the first six months of 2016 and $44 million for the first six months of 2015, primarily related to the Morocco oil and gas properties.

FM O&G’s average realized price for crude oil was $41.10 per barrel in second-quarter 2016 (87 percent of the average Brent crude oil price of $47.03 per barrel). FM O&G’s average realized price for natural gas was $2.04 per MMBtu in second-quarter 2016, compared to the New York Mercantile Exchange natural gas price average of $1.95 per MMBtu for the April through June 2016 contracts.

 

Freeport-McMoRan    12


 

Lower realized revenues for oil and gas operations of $32.70 per BOE in second-quarter 2016, compared to $50.04 per BOE in second-quarter 2015, primarily reflects lower oil prices and the impact of realized cash gains on derivative contracts of $7.73 per BOE in second-quarter 2015.

Cash production costs for oil and gas operations of $15.00 per BOE in second-quarter 2016 were lower than cash production costs of $19.04 per BOE in second-quarter 2015, primarily reflecting higher production from GOM wells and ongoing cost reduction efforts.

Following is a summary of average oil and gas sales volumes per day by region for the second quarters and first six months of 2016 and 2015:

 

     Three Months Ended      Six Months Ended  
     June 30,      June 30,  
     2016      2015      2016      2015  

Sales Volumes (MBOE per day)

           

GOMa

     88         80         85         77   

California

     32         38         32         39   

Haynesville/Madden/Otherb

     16         26         18         26   
  

 

 

    

 

 

    

 

 

    

 

 

 

Total oil and gas operations

     136         144         135         142   
  

 

 

    

 

 

    

 

 

    

 

 

 

 

a. Includes sales from properties on the GOM Shelf and in the Deepwater GOM, and the Inboard Lower Tertiary/Cretaceous natural gas trend.
b. In July 2016, FM O&G completed the sale of the Haynesville shale assets.

Daily sales volumes averaged 136 MBOE for second-quarter 2016, including 95 thousand barrels (MBbls) of crude oil, 207 million cubic feet (MMcf) of natural gas and 6 MBbls of NGLs. Since year-end 2015, FM O&G has commenced production from six 100-percent-owned Deepwater GOM wells. Oil and gas sales volumes are expected to average 130 MBOE per day for the year 2016, comprised of 73 percent oil, 22 percent natural gas and 5 percent NGLs.

In late June 2016, a fire at a third-party natural gas processing plant in Pascagoula, Mississippi resulted in the shutdown of the plant and the pipeline that transports gas supply from several offshore platforms, including FM O&G’s Horn Mountain and Marlin facilities (representing approximately 45 percent of FM O&G’s GOM BOE production). As a result, production has been temporarily constrained and FM O&G is currently accessing an alternative pipeline as an interim solution. FM O&G is working with third parties on alternative routes to resume normal production and does not expect long-term impacts from this event.

Based on current sales volume and cost estimates, cash production costs are expected to approximate $15.50 per BOE for the year 2016.

Oil and Gas Exploration, Operating and Development Activities. In second-quarter 2016, FM O&G remained focused on managing costs and enhancing asset values in response to the current market environment. FM O&G achieved a number of important operational milestones during the quarter, including the commencement of production from five 100-percent-owned Deepwater GOM tieback wells, including three at Holstein Deep and two in the Horn Mountain area. At Lucius and Heidelberg, the operator drilled development wells with favorable results that we believe will further benefit future oil production.

During second-quarter 2016, FCX negotiated the termination and settlement of FM O&G’s drilling rig contracts with Noble Drilling (U.S.) LLC (Noble) and Rowan Companies plc (Rowan). As a result of the settlements, FM O&G was released from a total of $1.1 billion in payment obligations under its three drilling rig contracts. In aggregate, reductions in previously contracted commitments for deepwater drillships approximate $350 million. During second-quarter 2016, FCX issued 48 million shares of its common stock (representing a value of $540 million) and paid $85 million cash in connection with the settlements. FCX will fund the remaining $130 million in cash during third-quarter 2016. FCX also agreed to provide contingent payments of up to $105 million, depending on the average price of crude oil over the 12-month period ending June 30, 2017. A net charge of $0.6 billion was recorded in second-quarter 2016 associated with the termination of these contracts.

Since commencing development activities in 2014 at its three 100-percent-owned production platforms in the Deepwater GOM, FM O&G has drilled 14 wells in producing fields with positive results; 10 of these wells have been brought on production, including five wells during second-quarter 2016.

 

Freeport-McMoRan    13


Oil and Gas Capital Expenditures. Capital expenditures for oil and gas operations in second-quarter 2016 totaled $388 million in the U.S. (including $205 million incurred for GOM and approximately $150 million associated with the change in capital expenditure accruals) and $4 million associated with international oil and gas properties.

Capital expenditures for oil and gas operations for the year 2016 are estimated to total $1.4 billion, with approximately 90 percent of the capital budget expected to be directed to the GOM.

Deepwater GOM. FM O&G operates and owns 100-percent working interests in the Holstein, Marlin and Horn Mountain deepwater production platforms, which in total have processing capacity of 250 MBbls of oil per day. In addition, FM O&G has interests in the Lucius, Heidelberg, Ram Powell and Hoover producing oil fields and the Atwater Valley undeveloped area.

During second-quarter 2016, production from six wells in the Lucius field in the Keathley Canyon area averaged 20 MBOE per day, net to FM O&G’s 25-percent working interest. The field has performed well since initial production commenced in first-quarter 2015. In second-quarter 2016, the operator completed the seventh well in the field. Approximately 80 percent of FM O&G’s working interest is held through its consolidated subsidiary Plains Offshore Operations Inc. (POI). Third parties hold a preferred interest in POI and are entitled to a liquidation preference and to receive preferred distributions.

In January 2016, first oil production commenced from three initial subsea wells in the Heidelberg oil field in the Green Canyon area. Heidelberg is a subsea oil development consisting of five subsea wells tied back to a truss spar hull located in 5,300 feet of water. In second-quarter 2016, the operator commenced drilling a fourth well in the field, and in July 2016, logging results confirmed oil pay with similar characteristics to a good offset producing well. The fifth and final well of the initial development phase commenced drilling in third-quarter 2016. Heidelberg field was discovered in February 2009, and the subsequent development project was sanctioned in early 2013. FM O&G has a 12.5 percent working interest in Heidelberg.

At the 100-percent-owned Holstein Deep, three wells commenced production in second-quarter 2016 and are currently producing at a gross rate of approximately 9 MBOE per day. The rates are below previous estimates, reflecting lower than expected crude oil quality and lower permeability. The Holstein Deep development is located in Green Canyon Block 643, west of the 100-percent-owned Holstein platform in 3,890 feet of water, with production facilities capable of processing 113 MBbls of oil per day.

FM O&G’s 100-percent-owned Horn Mountain field is located in the Mississippi Canyon area and has production facilities capable of processing 75 MBbls of oil per day. The Quebec/Victory and Kilo/Oscar wells commenced production in second-quarter 2016. To enhance recovery of remaining oil in place, future development plans will target subsea tieback from multiple stacked sands in the area.

FM O&G’s well inventory also includes the Horn Mountain Deep discovery well, where successful drilling results in 2015 indicated the presence of sand sections deeper than known pay sections in the field. These positive results and geophysical data support the existence of Middle Miocene reservoir potential for additional development opportunities in the Horn Mountain Deep area, including five 100-percent-owned exploration prospects with significant future potential. FM O&G controls rights to over 55,000 acres associated with these prospects.

FM O&G’s 100-percent-owned Marlin Hub is located in the Mississippi Canyon area and has production facilities capable of processing 60 MBbls of oil per day. FM O&G has drilled five successful tieback opportunities in the area since 2014. The King D-12 and Dorado wells commenced production in 2015, and the King D-13 well commenced production in first-quarter 2016.

CASH FLOWS, CASH and DEBT TRANSACTIONS

Operating Cash Flows. FCX generated operating cash flows of $874 million (including $278 million in working capital sources and changes in other tax payments) for second-quarter 2016 and $1.6 billion (including $466 million in working capital sources and changes in other tax payments) for the first six months of 2016.

Based on current sales volume and cost estimates and assuming average prices of $2.25 per pound of copper, $1,300 per ounce of gold, $6 per pound of molybdenum and $48 per barrel of Brent crude oil for the second half of 2016, FCX’s consolidated operating cash flows are estimated to approximate $4.5 billion for the year 2016 (including $0.7 billion in working capital sources and other tax payments). The impact of price changes for the second half of 2016 on operating cash flows would approximate $260 million for each $0.10 per pound change in the average price of copper, $40 million for each $50 per ounce change in the average price of gold, $35 million for

 

Freeport-McMoRan    14


 

each $2 per pound change in the average price of molybdenum and $55 million for each $5 per barrel change in the average Brent crude oil price.

Capital Expenditures. Capital expenditures totaled $833 million for second-quarter 2016, consisting of $441 million for mining operations (including $350 million for major projects) and $392 million for oil and gas operations. Capital expenditures for the first six months of 2016 totaled $1.8 billion, consisting of $900 million for mining operations (including $0.7 billion for major projects) and $915 million for oil and gas operations.

Capital expenditures are expected to approximate $3.1 billion for the year 2016, consisting of $1.7 billion for mining operations (including $1.3 billion for major projects, primarily for underground development activities at Grasberg and remaining costs for the Cerro Verde expansion) and $1.4 billion for oil and gas operations.

Cash. Following is a summary of the U.S. and international components of consolidated cash and cash equivalents available to the parent company (excluding cash and cash equivalents of $78 million in assets held for sale), net of noncontrolling interests’ share, taxes and other costs at June 30, 2016 (in millions):

 

Cash at domestic companies

   $ 20   

Cash at international operations

     332   
  

 

 

 

Total consolidated cash and cash equivalents

     352   

Noncontrolling interests’ share

     (102
  

 

 

 

Cash, net of noncontrolling interests’ share

     250   

Withholding taxes and other

     (23
  

 

 

 

Net cash available

   $ 227   
  

 

 

 

Debt. FCX continues to focus on cost and capital management and cash flow generation from its operations and is taking actions to reduce debt through asset sales, available cash flows and other transactions. Following is a summary of total debt and the related weighted-average interest rates at June 30, 2016 (in billions, except percentages):

 

                             
            Weighted-  
            Average  
            Interest Rate  

FCX Senior Notes

   $ 11.6         3.8

FCX Term Loan

     2.5  a       3.2

FM O&G Senior Notes

     2.5         6.6

Cerro Verde Credit Facility

     1.8         2.8

Other debt

     0.9         4.7
  

 

 

    
   $ 19.3         4.0
  

 

 

    

 

a. In accordance with the mandatory prepayment provision of the amended Term Loan, 50 percent of the proceeds associated with the Tenke sale must be applied toward repaying the Term Loan.

At June 30, 2016, FCX had $40 million in letters of credit issued and availability of $3.5 billion under its $3.5 billion revolving credit facility.

Through July 25, 2016, FCX exchanged $369 million in senior notes (including exchanges totaling $268 million in second-quarter 2016) maturing in 2022, 2023, 2034 and 2043 for 28 million shares of FCX common stock in a series of privately negotiated transactions at a cost of $311 million. FCX has approximately 1.33 billion common shares outstanding, which includes shares issued through July 25, 2016, in connection with the settlement of these privately negotiated transactions.

FINANCIAL POLICY

FCX intends to continue to seek to strengthen its financial position, with a focus on significant debt reduction. In December 2015, FCX’s common stock dividend was suspended. FCX’s Board of Directors will continue to review its financial policy on an ongoing basis.

 

 

Freeport-McMoRan    15


FREEPORT-McMoRan INC.

SELECTED MINING OPERATING DATA

 

     Three Months Ended June 30,      Six Months Ended June 30,  
     2016      2015      2016      2015  

100% North America Copper Mines

           

Solution Extraction/Electrowinning (SX/EW) Operations

           

Leach ore placed in stockpiles (metric tons per day)

     780,700         890,000         807,100         902,500   

Average copper ore grade (percent)

     0.33         0.26         0.32         0.25   

Copper production (millions of recoverable pounds)

     303         261         605         508   

Mill Operations

           

Ore milled (metric tons per day)

     300,400         316,000         299,500         308,800   

Average ore grades (percent):

           

Copper

     0.48         0.47         0.49         0.48   

Molybdenum

     0.03         0.03         0.03         0.03   

Copper recovery rate (percent)

     86.6         85.8         85.6         85.6   

Production (millions of recoverable pounds):

           

Copper

     219         247         445         488   

Molybdenum

     8         10         16         19   

100% South America Mining

           

SX/EW Operations

           

Leach ore placed in stockpiles (metric tons per day)

     170,400         237,000         155,500         235,300   

Average copper ore grade (percent)

     0.39         0.41         0.40         0.41   

Copper production (millions of recoverable pounds)

     82         109         172         223   

Mill Operations

           

Ore milled (metric tons per day)

     352,000         116,500         345,700         117,900   

Average ore grades:

           

Copper (percent)

     0.42         0.46         0.43         0.45   

Molybdenum (percent)

     0.02         0.01         0.02         0.02   

Copper recovery rate (percent)

     88.0         78.2         87.1         78.9   

Production (recoverable):

           

Copper (millions of pounds)

     252         79         497         158   

Molybdenum (millions of pounds)

     4         2         9         4   

100% Indonesia Mining

           

Ore milled (metric tons per day)a

           

Grasberg open pit

     110,200         134,200         108,000         121,200   

Deep Ore Zone underground mine

     36,700         42,700         40,500         45,800   

Deep Mill Level Zone (DMLZ) underground mineb

     4,900         —           4,500         —     

Grasberg Block Cave underground mineb

     2,600         —           2,400         —     

Big Gossan underground mineb

     1,000         —           600         —     
  

 

 

    

 

 

    

 

 

    

 

 

 

Total

     155,400         176,900         156,000         167,000   
  

 

 

    

 

 

    

 

 

    

 

 

 

Average ore grades:

           

Copper (percent)

     0.84         0.67         0.77         0.63   

Gold (grams per metric ton)

     0.48         0.86         0.50         0.78   

Recovery rates (percent):

           

Copper

     90.4         90.6         89.9         90.6   

Gold

     80.0         83.5         80.3         83.9   

Production (recoverable):

           

Copper (millions of pounds)

     226         205         409         359   

Gold (thousands of ounces)

     174         360         364         615   

100% Africa Mining (Discontinued Operation)

           

Ore milled (metric tons per day)

     15,900         15,300         15,500         14,900   

Average ore grades (percent):

           

Copper

     4.05         4.02         4.01         4.18   

Cobalt

     0.43         0.44         0.46         0.40   

Copper recovery rate (percent)

     94.5         93.9         93.7         93.9   

Production (millions of pounds):

           

Copper (recoverable)

     122         115         232         231   

Cobalt (contained)

     10         9         19         16   

100% Molybdenum Mines

           

Ore milled (metric tons per day)

     18,600         35,900         18,500         38,200   

Average molybdenum ore grade (percent)

     0.19         0.20         0.21         0.19   

Molybdenum production (millions of recoverable pounds)

     7         13         14         26   

 

a. Amounts represent the approximate average daily throughput processed at PT-FI’s mill facilities from each producing mine and from development activities that result in metal production.
b. Targeted production rates once the DMLZ underground mine reaches full capacity are expected to approximate 80,000 metric tons of ore per day in 2021; production from the Grasberg Block Cave underground mine is expected to commence in 2018 and production from the Big Gossan underground mine is expected to restart in the first half of 2017.

 

I


FREEPORT-McMoRan INC.

CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited)

 

     Three Months Ended     Six Months Ended  
     June 30,     June 30,  
     2016     2015     2016     2015  
     (In millions, except per share amounts)  

Revenuesa

   $ 3,334      $ 3,938      $ 6,576      $ 7,709   

Cost of sales:

        

Production and deliveryb

     2,956        2,651        5,455        5,330   

Depreciation, depletion and amortization

     632        833        1,294        1,699   

Impairment of oil and gas properties

     291        2,686        4,078        5,790   
  

 

 

   

 

 

   

 

 

   

 

 

 

Total cost of sales

     3,879        6,170        10,827        12,819   

Selling, general and administrative expenses

     160  c      148        298  c      299   

Mining exploration and research expenses

     15        30        33        57   

Environmental obligations and shutdown costs

     11        11        21        24   

Net gain on sales of assets

     (749     —          (749     (39
  

 

 

   

 

 

   

 

 

   

 

 

 

Total costs and expenses

     3,316        6,359        10,430        13,160   
  

 

 

   

 

 

   

 

 

   

 

 

 

Operating income (loss)

     18        (2,421     (3,854     (5,451

Interest expense, netd

     (196     (142     (387     (281

Net gain on early extinguishment of debt

     39        —          36        —     

Other income, net

     25        36  e      64        43  e 
  

 

 

   

 

 

   

 

 

   

 

 

 

Loss from continuing operations before income taxes and equity in affiliated companies’ net earnings

     (114     (2,527     (4,141     (5,689

(Provision for) benefit from income taxesf

     (116     699        (193     1,413   

Equity in affiliated companies’ net earnings

     1        —          8        1   
  

 

 

   

 

 

   

 

 

   

 

 

 

Net loss from continuing operations

     (229     (1,828     (4,326     (4,275

Net (loss) income from discontinued operationsg

     (181     29        (185     70   
  

 

 

   

 

 

   

 

 

   

 

 

 

Net loss

     (410     (1,799     (4,511     (4,205

Net income attributable to noncontrolling interests:

        

Continuing operations

     (47     (16     (109     (48

Discontinued operations

     (12     (26     (22     (52

Preferred dividends attributable to redeemable noncontrolling interest

     (10     (10     (21     (20
  

 

 

   

 

 

   

 

 

   

 

 

 

Net loss attributable to common stockholdersh

   $ (479   $ (1,851   $ (4,663   $ (4,325
  

 

 

   

 

 

   

 

 

   

 

 

 

Basic and diluted net (loss) income per share attributable to common stockholders:

        

Continuing operations

   $ (0.23   $ (1.78   $ (3.54   $ (4.18

Discontinued operations

     (0.15     —          (0.16     0.02   
  

 

 

   

 

 

   

 

 

   

 

 

 
   $ (0.38   $ (1.78   $ (3.70   $ (4.16
  

 

 

   

 

 

   

 

 

   

 

 

 

Basic and diluted weighted-average common shares outstanding

     1,269        1,040        1,260        1,040   
  

 

 

   

 

 

   

 

 

   

 

 

 

Dividends declared per share of common stock

   $ —        $ 0.1605      $ —        $ 0.2105   
  

 

 

   

 

 

   

 

 

   

 

 

 

 

a. Revenues include favorable (unfavorable) adjustments to provisionally priced concentrate and cathode copper sales recognized in prior periods (refer to the supplemental schedule, “Derivative Instruments,” on page VII for a summary of these amounts). Revenues for the 2015 periods also include net noncash mark-to-market losses associated with crude oil derivative contracts (refer to the supplemental schedule, “Adjusted Net (Loss) Income,” on Page V for a summary of these amounts).
b. Refer to the supplemental schedule, “Adjusted Net (Loss) Income,” on page V for a summary of amounts included in production and delivery costs for net charges at (i) oil and gas operations primarily associated with drillship contract settlements/idle rig costs and inventory write downs and (ii) mining operations for adjustments to inventories.
c. Includes net restructuring charges at oil and gas operations. Refer to the supplemental schedule, “Adjusted Net (Loss) Income,” on page V.
d. Consolidated interest expense, excluding capitalized interest, totaled $218 million in second-quarter 2016, $208 million in second-quarter 2015, $436 million for the first six months of 2016 and $411 million for the first six months of 2015.
e. Includes a gain for the proceeds received from insurance carriers and other third parties related to a shareholder derivative litigation settlement. Refer to the supplemental schedule, “Adjusted Net (Loss) Income,” on page V.
f. Refer to the supplemental schedule, “Income Taxes,” on page VI for a summary of income taxes from continuing operations.
g. Net of charges for (i) allocated interest expense associated with FCX’s term loan that is required to be repaid as a result of the sale of FCX’s interest in Tenke Fungurume (Tenke) totaling $11 million in second-quarter 2016, $7 million in second-quarter 2015, $21 million for the first six months of 2016 and $14 million for the first six months of 2015 and (ii) income tax (benefit) provision totaling $(16) million in second-quarter 2016, $12 million in second-quarter 2015, $(23) million for the first six months of 2016 and $31 million for the first six months of 2015. In accordance with accounting guidelines, the second quarter and first six months of 2016 are also net of $177 million for the estimated loss on disposal, which will be adjusted through closing of the transaction.
h. FCX defers recognizing profits on intercompany sales until final sales to third parties occur. Refer to the supplemental schedule, “Deferred Profits,” on page VII for a summary of net impacts from changes in these deferrals.

 

II


FREEPORT-McMoRan INC.

CONSOLIDATED BALANCE SHEETS (Unaudited)

 

     June 30,     December 31,  
     2016     2015  
     (In millions)  

ASSETS

    

Current assets:

    

Cash and cash equivalents

   $ 352      $ 195   

Trade accounts receivable

     694        660   

Income and other tax receivables

     916        1,341   

Other accounts receivable

     102        154   

Inventories:

    

Mill and leach stockpiles

     1,348        1,539   

Materials and supplies, net

     1,338        1,594   

Product

     1,058        1,071   

Other current assets

     226        164   

Held for sale

     4,666        744   
  

 

 

   

 

 

 

Total current assets

     10,700        7,462   

Property, plant, equipment and mining development costs, net

     23,609        24,248   

Oil and gas properties, net - full cost method:

    

Subject to amortization, less accumulated amortization and impairment

     1,381        2,262   

Not subject to amortization

     1,656        4,831   

Long-term mill and leach stockpiles

     1,742        1,663   

Other assets

     2,208        2,001   

Held for sale

     —          4,110   
  

 

 

   

 

 

 

Total assets

   $ 41,296      $ 46,577   
  

 

 

   

 

 

 

LIABILITIES AND EQUITY

    

Current liabilities:

    

Accounts payable and accrued liabilities

   $ 2,569      $ 3,255   

Current portion of debt

     770        649   

Current portion of environmental and asset retirement obligations

     322        272   

Accrued income taxes

     55        23   

Held for sale

     824        108   
  

 

 

   

 

 

 

Total current liabilities

     4,540        4,307   

Long-term debt, less current portion

     18,549        19,779   

Deferred income taxes

     3,758        3,607   

Environmental and asset retirement obligations, less current portion

     3,697        3,717   

Other liabilities

     1,662        1,641   

Held for sale

     —          718   
  

 

 

   

 

 

 

Total liabilities

     32,206        33,769   

Redeemable noncontrolling interest

     771        764   

Equity:

    

Stockholders’ equity:

    

Common stock

     145        137   

Capital in excess of par value

     25,105        24,283   

Accumulated deficit

     (17,049     (12,387

Accumulated other comprehensive loss

     (488     (503

Common stock held in treasury

     (3,710     (3,702
  

 

 

   

 

 

 

Total stockholders’ equity

     4,003        7,828   

Noncontrolling interestsa

     4,316        4,216   
  

 

 

   

 

 

 

Total equity

     8,319        12,044   
  

 

 

   

 

 

 

Total liabilities and equity

   $ 41,296      $ 46,577   
  

 

 

   

 

 

 

 

a. Includes noncontrolling interests of $1.2 billion at June 30, 2016, and December 31, 2015, associated with Tenke.

 

III


FREEPORT-McMoRan INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)

 

     Six Months Ended June 30,  
     2016     2015  
     (In millions)  

Cash flow from operating activities:

    

Net loss

   $ (4,511   $ (4,205

Adjustments to reconcile net loss to net cash provided by operating activities:

    

Depreciation, depletion and amortization

     1,374        1,829   

Impairment of oil and gas properties

     4,078        5,790   

Non-cash oil and gas drillship settlements/idle rig costs

     612        —     

Oil and gas inventory adjustments and write downs

     82        23   

Mining inventory adjustments

     7        63   

Net gain on sales of assets

     (749     (39

Net charges for environmental and asset retirement obligations, including accretion

     107        109   

Payments for environmental and asset retirement obligations

     (116     (81

Net gain on early extinguishment of debt

     (36     —     

Deferred income taxes

     169        (1,432

Estimated loss on disposal of discontinued operations

     177        —     

Increase in long-term mill and leach stockpiles

     (99     (104

Net gains on crude oil derivative contracts

     —          (58

Other, net

     53        81   

Changes in working capital and other tax payments, excluding amounts from dispositions:

    

Accounts receivable

     259        493   

Inventories

     190        8   

Other current assets

     (53     (1

Accounts payable and accrued liabilities

     44        (205

Accrued income taxes and changes in other tax payments

     26        (485
  

 

 

   

 

 

 

Net cash provided by operating activities

     1,614        1,786   
  

 

 

   

 

 

 

Cash flow from investing activities:

    

Capital expenditures:

    

North America copper mines

     (76     (214

South America

     (293     (902

Indonesia

     (459     (438

Molybdenum mines

     (1     (7

U.S. oil and gas operations

     (868     (1,795

Other

     (118     (172

Net proceeds from sale of additional interest in Morenci

     996        —     

Net proceeds from sale of other assets

     290        150   

Other, net

     (6     (14
  

 

 

   

 

 

 

Net cash used in investing activities

     (535     (3,392
  

 

 

   

 

 

 

Cash flow from financing activities:

    

Proceeds from debt

     2,811        4,422   

Repayments of debt

     (3,649     (2,360

Net proceeds from sale of common stock

     32        —     

Cash dividends and distributions paid:

    

Common stock

     (5     (380

Noncontrolling interests

     (39     (60

Stock-based awards net payments, including excess tax benefit

     (5     (7

Debt financing costs and other, net

     (18     (7
  

 

 

   

 

 

 

Net cash (used in) provided by financing activities

     (873     1,608   
  

 

 

   

 

 

 

Net increase in cash and cash equivalents

     206        2   

Increase in cash and cash equivalents in assets held for sale

     (49     (1

Cash and cash equivalents at beginning of year

     195        317   
  

 

 

   

 

 

 

Cash and cash equivalents at end of period

   $ 352      $ 318   
  

 

 

   

 

 

 

 

IV


FREEPORT-McMoRan INC.

ADJUSTED NET (LOSS) INCOME

 

     Three Months Ended June 30,  
     2016     2015  
     Pre-tax     After-tax     Per Share     Pre-tax     After-tax     Per Share  

Net loss attributable to common stockholders

     N/A      $ (479   $ (0.38     N/A      $ (1,851   $ (1.78
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net noncash mark-to-market losses on crude oil derivative contracts

   $ —        $ —        $ —        $ (95   $ (59   $ (0.06

Impairment of oil and gas properties

     (291     (291 ) a      (0.23     (2,686     (1,975 ) a      (1.90

Other net charges for oil and gas operations:

            

Drillship settlements/idle rig costs

     (639     (639     (0.50     (3     (2     —     

Inventory write downs

     (53     (53     (0.04     (19     (12     (0.01

Restructuring charges

     (37     (37     (0.03     —          —          —     

Mining inventory adjustments

     (2     (2     —          (59     (38     (0.04

Net gain on sales of assetsb

     749        744        0.59        —          —          —     

Net gain on early extinguishment of debt

     39        39        0.03        —          —          —     

Gain on shareholder derivative litigation settlement

     —          —          —          92        92        0.09   

Net tax chargesc

     N/A        (36     (0.03     N/A        —          —     

Estimated loss on discontinued operations

     (177     (177     (0.14     —          —          —     
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 
   $ (411   $ (452   $ (0.36 ) d    $ (2,770   $ (1,994   $ (1.92
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

     Six Months Ended June 30,  
     2016     2015  
     Pre-tax     After-tax     Per Share     Pre-tax     After-tax     Per Share  

Net loss attributable to common stockholders

     N/A      $ (4,663   $ (3.70     N/A      $ (4,325   $ (4.16
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net noncash mark-to-market losses on crude oil derivative contracts

   $ —        $ —        $ —        $ (143   $ (89   $ (0.09

Impairment of oil and gas properties

     (4,078     (4,078 ) a      (3.24     (5,790     (4,374 ) a      (4.20

Other net charges for oil and gas operations:

            

Drillship settlements/idle rig costs

     (804     (804     (0.64     (16     (10     (0.01

Inventory write downs

     (88     (88     (0.07     (23     (14     (0.01

Restructuring charges

     (39     (39     (0.03     —          —          —     

Mining inventory adjustments

     (7     (7     (0.01     (63     (41     (0.04

Net gain on sales of assetsb

     749        744        0.59        39        25        0.02   

Net gain on early extinguishment of debt

     36        36        0.03        —          —          —     

Gain on shareholder derivative litigation settlement

     —          —          —          92        92        0.09   

Net tax chargesc

     N/A        (36     (0.03     N/A        —          —     

Estimated loss on discontinued operations

     (177     (177     (0.14     —          —          —     
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 
   $ (4,408   $ (4,449   $ (3.53 ) d    $ (5,904   $ (4,411   $ (4.24
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

a. As a result of the impairment to oil and gas properties, FCX recorded tax charges of $108 million in second-quarter 2016, $305 million in second-quarter 2015, $1.5 billion for the first six months of 2016 and $763 million for the first six months of 2015 to establish a valuation allowance against deferred tax assets that will not generate a future benefit. These tax charges have been reflected in the above after-tax impacts for the impairment of oil and gas properties.
b. Net gain on sales of assets primarily reflects the sales of a 13 percent undivided interest in the Morenci unincorporated joint venture and an interest in the Timok exploration project in Serbia for the second quarter and first six months of 2016, and the sale of FCX’s one-third interest in the Luna Energy power facility in New Mexico for the first six months of 2015.
c. For further discussion of net tax charges impacting the second quarter and first six months of 2016, refer to “Income Taxes,” on page VI.
d. Per share amounts do not foot down because of rounding.

 

V


FREEPORT-McMoRan INC.

INCOME TAXES

Following is a summary of the approximate amounts used in the calculation of FCX’s consolidated income tax (provision) benefit from continuing operations for the first six months of 2016 and 2015 (in millions, except percentages):

 

     Six Months Ended June 30,  
     2016     2015  
                 Income Tax                 Income Tax  
     Income     Effective     Benefit     Income     Effective     Benefit  
     (Loss)a     Tax Rate     (Provision)     (Loss)a     Tax Rate     (Provision)  

U.S.

   $ (535     (7 )%    $ (39 ) b    $ (455 ) c      63   $ 288   

South America

     219        38     (82     81        37     (30

Indonesia

     164        33     (54     289        43     (124

Impairment of oil and gas properties

     (4,078     38     1,543        (5,790     38     2,179   

Valuation allowance, netd

     —          N/A        (1,543     —          N/A        (763

Eliminations and other

     89        N/A        (25     186        N/A        (50

Rate adjustmente

     —          N/A        7        —          N/A        (87
  

 

 

     

 

 

   

 

 

     

 

 

 

Continuing operations

   $ (4,141     (5 )% f    $ (193   $ (5,689     25   $ 1,413   
  

 

 

     

 

 

   

 

 

     

 

 

 

 

a. Represents income (loss) from continuing operations by geographic location before income taxes and equity in affiliated companies’ net earnings.
b. Includes net tax charges of $36 million, comprised of a tax charge of $96 million related to the reversal of income tax benefits recognized in 2015 for carryback claims, partly offset by a tax benefit of $60 million associated with FCX’s election to monetize alternative minimum tax credits.
c. Includes a gain of $92 million related to net proceeds received from insurance carriers and other third parties related to the shareholder derivative litigation settlement for which there was no related tax provision.
d. As a result of the impairment to U.S. oil and gas properties, FCX recorded tax charges to establish valuation allowances against U.S. federal and state deferred tax assets that will not generate a future benefit.
e. In accordance with applicable accounting rules, FCX adjusts its interim provision for income taxes equal to its consolidated tax rate.
f. The consolidated effective income tax rate is a function of the combined effective tax rates for the jurisdictions in which FCX operates. Accordingly, variations in the relative proportions of jurisdictional income result in fluctuations to FCX’s consolidated effective income tax rate. Assuming achievement of current sales volume and cost estimates and average prices of $2.25 per pound for copper, $1,300 per ounce for gold, $6 per pound for molybdenum and $48 per barrel of Brent crude oil for the second half of 2016, FCX estimates its consolidated effective rate related to continuing operations for the year 2016 will approximate 40 percent, excluding U.S. domestic losses.

 

VI


FREEPORT-McMoRan INC.

DERIVATIVE INSTRUMENTS

Provisional Pricing. During the first six months of 2016, FCX’s mined copper (excluding volumes from Tenke) was sold 53 percent in concentrate, 23 percent as cathode and 24 percent as rod from North America operations. Under the long-established structure of sales agreements prevalent in the industry, copper contained in concentrates and cathodes is provisionally priced at the time of shipment. The provisional prices are finalized in a contractually specified future month (generally one to four months from the shipment date) primarily based on quoted monthly average spot copper prices on the London Metal Exchange (LME). Because a significant portion of FCX’s copper concentrate and cathode sales in any quarterly period usually remain subject to final pricing, the quarter-end forward price is a major determinant of recorded revenues and the average recorded copper price for the period. LME spot copper prices averaged $2.14 per pound during second-quarter 2016, compared to FCX’s average realized price from continuing operations of $2.19 per pound. Following is a summary of the (unfavorable) favorable impacts of net adjustments to prior periods’ provisionally priced copper sales for the second quarters and first six months of 2016 and 2015 (in millions, except per share amounts):

 

     Three Months Ended June 30,      Six Months Ended June 30,  
     2016      2015      2016      2015  

Revenues from continuing operations

   $ (28    $ (22    $ 5       $ (99

Net income attributable to common stock from continuing operations

   $ (15    $ (11    $ 2       $ (47

Net income per share of common stock from continuing operations

   $ (0.01    $ (0.01    $ —         $ (0.04

At June 30, 2016, FCX had provisionally priced copper sales at its copper mining operations totaling 538 million pounds of copper (net of intercompany sales and noncontrolling interests) recorded at an average of $2.19 per pound, subject to final pricing over the next several months. FCX estimates that each $0.05 change in the price realized from the June 30, 2016, provisional price recorded would have an approximate $19 million effect on 2016 net loss attributable to common stock from continuing operations. The LME spot copper price closed at $2.22 per pound on July 25, 2016.

DEFERRED PROFITS

FCX defers recognizing profits on sales from its mining operations to Atlantic Copper and on 25 percent of PT-FI’s sales to PT Smelting (PT Freeport Indonesia’s 25 percent-owned Indonesian smelting unit) until final sales to third parties occur. Changes in these deferrals attributable to variability in intercompany volumes resulted in net (reductions) additions to net loss attributable to common stock from continuing operations of $(13) million in second-quarter 2016, $13 million in second-quarter 2015, $(11) million for the first six months of 2016 and $37 million the first six months of 2015. FCX’s net deferred profits on its inventories at Atlantic Copper and PT Smelting to be recognized in future periods’ net income attributable to common stock from continuing operations totaled $31 million at June 30, 2016. Quarterly variations in ore grades, the timing of intercompany shipments and changes in product prices will result in variability in FCX’s net deferred profits and quarterly earnings.

 

VII


FREEPORT-McMoRan INC.

BUSINESS SEGMENTS

FCX has organized its continuing mining operations into four primary divisions – North America copper mines, South America mining, Indonesia mining and Molybdenum mines, and operating segments that meet certain thresholds are reportable segments. For oil and gas operations, FCX determines its operating segments on a country-by-country basis. Separately disclosed in the following table are FCX’s reportable segments, which include the Morenci, Cerro Verde and Grasberg copper mines, the Rod & Refining operations, the Atlantic Copper Smelting & Refining operation and U.S. Oil & Gas operations.

FCX’s reportable segments previously included Africa mining, which consisted of the Tenke Fungurume (Tenke) mine. In May 2016, FCX entered into a definitive agreement to sell its effective 56 percent interest in Tenke, and as a result, Tenke has been removed from continuing operations and reported as discontinued operations for all periods presented.

On May 31, 2016, FCX completed the sale of an additional 13 percent undivided joint venture interest in the Morenci unincorporated joint venture. As a result, FCX’s undivided interest in Morenci was prospectively reduced from 85 percent to 72 percent.

Intersegment sales between FCX’s mining operations are based on similar arms-length transactions with third parties at the time of the sale. Intersegment sales may not be reflective of the actual prices ultimately realized because of a variety of factors, including additional processing, timing of sales to unaffiliated customers and transportation premiums.

FCX allocates certain operating costs, expenses and capital expenditures to its operating divisions and individual segments. However, not all costs and expenses applicable to an operation are allocated. U.S. federal and state income taxes are recorded and managed at the corporate level (included in Corporate, Other & Eliminations), whereas foreign income taxes are recorded and managed at the applicable country level. In addition, most mining exploration and research activities are managed on a consolidated basis, and those costs along with some selling, general and administrative costs are not allocated to the operating divisions or individual segments. Accordingly, the following segment information reflects management determinations that may not be indicative of what the actual financial performance of each operating division or segment would be if it was an independent entity.

 

 

VIII


FREEPORT-McMoRan INC.

BUSINESS SEGMENTS (continued)

 

(In millions)   Mining Operationsa                    
    North America Copper Mines     South America     Indonesia                                                  
                                                          Atlantic     Other                 Corporate,        
                                              Molyb-           Copper     Mining           U.S.     Other        
                      Cerro                       denum     Rod &     Smelting     & Elimi-     Total     Oil & Gas     & Elimi-     FCX  
    Morenci     Other     Total     Verde     Other     Total     Grasberg     Mines     Refining     & Refining     nations     Mining     Operations     nations     Total  

Three Months Ended June 30, 2016

                             

Revenues:

                             

Unaffiliated customers

  $ 79      $ 43      $ 122      $ 494      $ 123      $ 617      $ 532  b    $ —        $ 919      $ 493      $ 241  c    $ 2,924      $ 410      $ —        $ 3,334   

Intersegment

    404        534        938        60        —          60        (1 ) d      45        7        2        (1,051     —          —          —          —     

Production and delivery

    298        428        726        303        103        406        356        50        919        466        (866     2,057        889  e      10        2,956   

Depreciation, depletion and amortization

    57        77        134        109        27        136        93        17        3        7        20        410        218        4        632   

Impairment of oil and gas properties

    —          —          —          —          —          —          —          —          —          —          —          —          290        1  f      291   

Selling, general and administrative expenses

    1        1        2        2        —          2        22        —          —          4        2        32        81  g      47        160   

Mining exploration and research expenses

    —          —          —          —          —          —          —          —          —          —          15        15        —          —          15   

Environmental obligations and shutdown costs

    —          —          —          —          —          —          —          —          —          —          10        10        —          1        11   

Net gain on sale of assets

    (577     —          (577     —          —          —          —          —          —          —          (172     (749     —          —          (749
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Operating income (loss)

    704        71        775        140        (7     133        60        (22     4        18        181        1,149        (1,068     (63     18   

Interest expense, net

    —          1        1        20        —          20        —          —          —          4        19        44        93        59        196   

Provision for (benefit from) income taxes

    —          —          —          45        (2     43        18        —          —          —          —          61        —          55        116   

Total assets at June 30, 2016

    2,960        4,676        7,636        9,330        1,609        10,939        9,550        1,969        217        607        6,151  h      37,069        3,902        325        41,296   

Capital expenditures

    37        5        42        135        1        136        234        —          —          5        24  i      441        388  j      4        833   

Three Months Ended June 30, 2015

                             

Revenues:

                             

Unaffiliated customers

  $ 180      $ 92      $ 272      $ 195      $ 221      $ 416      $ 792  b    $ —        $ 1,089      $ 495      $ 305  c    $ 3,369      $ 569  k    $ —        $ 3,938   

Intersegment

    427        706        1,133        37        —          37        (2 ) d      102        8        5        (1,283     —          —          —          —     

Production and delivery

    386        576 l      962        165        150        315        455        84  l      1,088        468        (1,004 ) l      2,368        281  e      2        2,651   

Depreciation, depletion and amortization

    55        84        139        40        32        72        78        25        3        9        19        345        485        3        833   

Impairment of oil and gas properties

    —          —          —          —          —          —          —          —          —          —          —          —          2,686        —          2,686   

Selling, general and administrative expenses

    —          2        2        —          1        1        25        —          —          4        5        37        49        62        148   

Mining exploration and research expenses

    —          2        2        —          —          —          —          —          —          —          28        30        —          —          30   

Environmental obligations and shutdown costs

    —          —          —          —          —          —          —          —          —          —          11        11        —          —          11   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Operating income (loss)

    166        134        300        27        38        65        232        (7     6        19        (37     578        (2,932     (67     (2,421

Interest expense, net

    —          1        1        —          —          —          —          —          —          2        39        42        41        59        142   

Provision for (benefit from) income taxes

    —          —          —          (5     11        6        95        —          —          —          —          101        —          (800     (699

Total assets at June 30, 2015

    3,806        5,582        9,388        8,567        1,935        10,502        8,959        2,052        286        786        6,461  h      38,434        15,393        181        54,008   

Capital expenditures

    79        28        107        444        13        457        213        4        —          4        70  i      855        777  j      29        1,661   

 

a. Excludes the results of Tenke, which is reported as discontinued operations. Net (loss) income from discontinued operations totaled $(181) million in second-quarter 2016 and $29 million in second-quarter 2015. Refer to the supplemental schedules, “Product Revenues and Production Costs,” beginning on page XI for a summary of the results of discontinued operations.
b. Includes PT-FI’s sales to PT Smelting totaling $287 million in second-quarter 2016 and $293 million in second-quarter 2015.
c. Includes revenues from FCX’s molybdenum sales company, which includes sales of molybdenum produced by the Molybdenum mines and by certain of the North and South America copper mines.
d. Reflects net reductions for provisional pricing adjustments to prior period open sales.
e. Includes charges at oil and gas operations totaling $692 million in second-quarter 2016 and $22 million in second-quarter 2015 primarily associated with drillship settlements/idle rig costs and inventory write-downs. For a summary of these amounts, refer to the supplemental schedule, “Adjusted Net (Loss) Income,” on Page V for a summary of these amounts.
f. Reflects impairment charges for international oil and gas properties primarily in Morocco.
g. Includes $37 million for net restructuring charges at oil and gas operations.
h. Includes assets held for sale totaling $4.7 billion at June 30, 2016, and $4.9 billion at June 30, 2015, associated with the Tenke disposal group.
i. Includes capital expenditures of $20 million in second-quarter 2016 and $58 million in second-quarter 2015 associated with discontinued operations.
j. Excludes international oil and gas capital expenditures totaling $4 million in second-quarter 2016 and $29 million in second-quarter 2015, primarily related to the Morocco oil and gas properties, which are included in Corporate, Other & Eliminations.
k. Includes net mark-to-market gains of $6 million associated with crude oil derivative contracts.
l. Includes inventory adjustments totaling $11 million at other North America copper mines, $3 million at Molybdenum mines and $45 million at Other Mining & Eliminations.

 

IX


FREEPORT-McMoRan INC.

BUSINESS SEGMENTS (continued)

 

 

(In millions)   Mining Operationsa                    
    North America
Copper Mines
    South America     Indonesia                                                  
                                                          Atlantic     Other                 Corporate,        
                                              Molyb-           Copper     Mining           U.S.     Other        
                      Cerro                       denum     Rod &     Smelting     & Elimi-     Total     Oil & Gas     & Elimi-     FCX  
    Morenci     Other     Total     Verde     Other     Total     Grasberg     Mines     Refining     & Refining     nations     Mining     Operations     nations     Total  

Six Months Ended June 30, 2016

                             

Revenues:

                             

Unaffiliated customers

  $ 241      $ 99      $ 340      $ 980      $ 267      $ 1,247      $ 1,030  b    $ —        $ 1,890      $ 915      $ 449  c    $ 5,871      $ 705      $ —        $ 6,576   

Intersegment

    761        1,095        1,856        101        —          101        57        90        15        3        (2,122     —          —          —          —     

Production and delivery

    638        876        1,514        594        222        816        750        102        1,889        859        (1,784     4,146        1,296  d      13        5,455   

Depreciation, depletion and amortization

    119        159        278        210        58        268        174        36        5        15        38        814        473        7        1,294   

Impairment of oil and gas properties

    —          —          —          —          —          —          —          —          —          —          —          —          4,061        17  e      4,078   

Selling, general and administrative expenses

    1        2        3        4        —          4        36        —          —          8        6        57        130  f      111        298   

Mining exploration and research expenses

    —          1        1        —          —          —          —          —          —          —          32        33        —          —          33   

Environmental obligations and shutdown costs

    —          —          —          —          —          —          —          —          —          —          20        20        —          1        21   

Net gain on sale of assets

    (577     —          (577     —          —          —          —          —          —          —          (172     (749     —          —          (749
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Operating income (loss)

    821        156        977        273        (13     260        127        (48     11        36        187        1,550        (5,255     (149     (3,854

Interest expense, net

    1        1        2        42        —          42        —          —          —          8        39        91        164        132        387   

Provision for (benefit from) income taxes

    —          —          —          90        (8     82        54        —          —          —          —          136        —          57        193   

Capital expenditures

    65        11        76        291        2        293        459        1        1        7        63  g      900        868  h      47        1,815   

Six Months Ended June 30, 2015

                             

Revenues:

                             

Unaffiliated customers

  $ 286      $ 207      $ 493      $ 443      $ 452      $ 895      $ 1,413  b    $ —        $ 2,151      $ 1,035      $ 653  c    $ 6,640      $ 1,069  i    $ —        $ 7,709   

Intersegment

    877        1,370        2,247        51        (7 ) j      44        (16 ) j      215        15        11        (2,516     —          —          —          —     

Production and delivery

    760        1,145  k      1,905        363        297        660        894        167  k      2,151        987        (2,003 ) k      4,761        564  d      5        5,330   

Depreciation, depletion and amortization

    106        166        272        77        70        147        148        51        5        19        35        677        1,015        7        1,699   

Impairment of oil and gas properties

    —          —          —          —          —          —          —          —          —          —          —          —          5,790        —          5,790   

Selling, general and administrative expenses

    1        2        3        1        1        2        50        —          —          9        11        75        103        121        299   

Mining exploration and research expenses

    —          5        5        —          —          —          —          —          —          —          52        57        —          —          57   

Environmental obligations and shutdown costs

    —          —          —          —          —          —          —          —          —          —          24        24        —          —          24   

Net gain on sale of assets

    —          (39     (39     —          —          —          —          —          —          —          —          (39     —          —          (39
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Operating income (loss)

    296        298        594        53        77        130        305        (3     10        31        18        1,085        (6,403     (133     (5,451

Interest expense, net

    1        1        2        1        —          1        —          —          —          5        79        87        78        116        281   

Provision for (benefit from) income taxes

    —          —          —          —          30        30        124        —          —          —          —          154        —          (1,567     (1,413

Capital expenditures

    163        51        214        875        27        902        438        7        1        8        119  g      1,689        1,795  h      44        3,528   

 

a. Excludes the results of Tenke, which is reported as discontinued operations. Net (loss) income from discontinued operations totaled $(185) million for the first six months of 2016 and $70 million for the first six months of 2015. Refer to the supplemental schedules, “Product Revenues and Production Costs,” beginning on page XI for a summary of the results of discontinued operations.
b. Includes PT-FI’s sales to PT Smelting totaling $564 million for the first six months of 2016 and $643 million for the first six months of 2015.
c. Includes revenues from FCX’s molybdenum sales company, which includes sales of molybdenum produced by the Molybdenum mines and by certain of the North and South America copper mines.
d. Includes charges at oil and gas operations totaling $892 million for the first six months of 2016 and $39 million for the first six months of 2015 primarily associated with drillship settlements/idle rig costs and inventory write downs. For a summary of these amounts, refer to the supplemental schedule, “Adjusted Net (Loss) Income,” on Page V for a summary of these amounts.
e. Reflects impairment charges for international oil and gas properties primarily in Morocco.
f. Includes $39 million for net restructuring charges at oil and gas operations.
g. Includes capital expenditures of $55 million for the first six months of 2016 and $97 million for the first six months of 2015 associated with discontinued operations.
h. Excludes international oil and gas capital expenditures totaling $47 million for the first six months of 2016 and $44 million for the first six months of 2015, primarily related to the Morocco oil and gas properties, which are included in Corporate, Other & Eliminations.
i. Includes net mark-to-market gains of $58 million associated with crude oil derivative contracts.
j. Reflects net reductions for provisional pricing adjustments to prior period open sales. There were no intersegment sales from El Abra or Grasberg for the first six months of 2015.
k. Includes inventory adjustments totaling $11 million at other North America copper mines, $3 million at Molybdenum mines and $49 million at Other Mining & Eliminations for the first six months of 2015.

 

X


FREEPORT-McMoRan INC.

PRODUCT REVENUES AND PRODUCTION COSTS

Mining Product Revenues and Unit Net Cash Costs. Unit net cash costs per pound of copper and molybdenum are measures intended to provide investors with information about the cash-generating capacity of FCX’s mining operations expressed on a basis relating to the primary metal product for the respective operations. FCX uses this measure for the same purpose and for monitoring operating performance by its mining operations. This information differs from measures of performance determined in accordance with U.S. generally accepted accounting principles (GAAP) and should not be considered in isolation or as a substitute for measures of performance determined in accordance with U.S. GAAP. This measure is presented by other metals mining companies, although FCX’s measures may not be comparable to similarly titled measures reported by other companies.

FCX presents gross profit per pound of copper in the following tables using both a “by-product” method and a “co-product” method. FCX uses the by-product method in its presentation of gross profit per pound of copper because (i) the majority of its revenues are copper revenues, (ii) it mines ore, which contains copper, gold, molybdenum and other metals, (iii) it is not possible to specifically assign all of FCX’s costs to revenues from the copper, gold, molybdenum and other metals it produces, (iv) it is the method used to compare mining operations in certain industry publications and (v) it is the method used by FCX’s management and Board to monitor mining operations. In the co-product method presentations, shared costs are allocated to the different products based on their relative revenue values, which will vary to the extent FCX’s metals sales volumes and realized prices change.

FCX shows revenue adjustments for prior period open sales as a separate line item. Because these adjustments do not result from current period sales, these amounts have been reflected separately from revenues on current period sales. Noncash and other costs consist of items such as stock-based compensation costs, start-up costs, inventory adjustments, long-lived asset impairments, restructuring and/or unusual charges. They are removed from site production and delivery costs in the calculation of unit net cash costs. As discussed above, gold, molybdenum and other metal revenues at copper mines are reflected as credits against site production and delivery costs in the by-product method. The following schedules are presentations under both the by-product and co-product methods together with reconciliations to amounts reported in FCX’s consolidated financial statements.

U.S. Oil & Gas Product Revenues and Cash Production Costs per Unit. Realized revenues and cash production costs per unit are measures intended to provide investors with information about the cash operating margin of FCX’s oil and gas operations. FCX uses this measure for the same purpose and for monitoring operating performance by its oil and gas operations. This information differs from measures of performance determined in accordance with U.S. GAAP and should not be considered in isolation or as a substitute for measures of performance determined in accordance with U.S. GAAP. FCX’s measures may not be comparable to similarly titled measures reported by other companies.

Accretion charges for asset retirement obligations and other costs, such as drillship settlements/idle rig costs, inventory write downs and/or unusual charges, are removed from production and delivery costs in the calculation of cash production costs per BOE. Additionally, in the 2015 periods, FCX had crude oil derivative contracts. FCX shows revenue adjustments from these derivative contracts as separate line items. Because these adjustments did not result from oil and gas sales, gains and losses have been reflected separately from revenues on current period sales. The following schedules include calculations of oil and gas product revenues and cash production costs together with a reconciliation to amounts reported in FCX’s consolidated financial statements.

 

 

XI


FREEPORT-McMoRan INC.

PRODUCT REVENUES AND PRODUCTION COSTS (continued)

 

North America Copper Mines Product Revenues, Production Costs and Unit Net Cash Costs

 

Three Months Ended June 30, 2016

                                
(In millions)    By-Product     Co-Product Method  
     Method     Copper     Molybdenuma      Otherb      Total  

Revenues, excluding adjustments

   $ 1,010      $ 1,010      $ 50       $ 20       $ 1,080   
  

 

 

   

 

 

   

 

 

    

 

 

    

 

 

 

Site production and delivery, before net noncash and other costs shown below

     647        617        39         11         667   

By-product credits

     (50     —          —           —           —     

Treatment charges

     49        47        —           2         49   
  

 

 

   

 

 

   

 

 

    

 

 

    

 

 

 

Net cash costs

     646        664        39         13         716   

Depreciation, depletion and amortization (DD&A)

     134        127        5         2         134   

Noncash and other costs, net

     22        21        1         —           22   
  

 

 

   

 

 

   

 

 

    

 

 

    

 

 

 

Total costs

     802        812        45         15         872   

Revenue adjustments, primarily for pricing on prior period open sales

     (7     (7     —           —           (7
  

 

 

   

 

 

   

 

 

    

 

 

    

 

 

 

Gross profit

   $ 201      $ 191      $ 5       $ 5       $ 201   
  

 

 

   

 

 

   

 

 

    

 

 

    

 

 

 

Copper sales (millions of recoverable pounds)

     462        462           

Molybdenum sales (millions of recoverable pounds)a

         8         

Gross profit per pound of copper/molybdenum:

  

Revenues, excluding adjustments

   $ 2.18      $ 2.18      $ 5.92         
  

 

 

   

 

 

   

 

 

       

Site production and delivery, before net noncash and other costs shown below

     1.40        1.34        4.71         

By-product credits

     (0.11     —          —           

Treatment charges

     0.11        0.10        —           
  

 

 

   

 

 

   

 

 

       

Unit net cash costs

     1.40        1.44        4.71         

DD&A

     0.29        0.27        0.57         

Noncash and other costs, net

     0.05        0.05        0.08         
  

 

 

   

 

 

   

 

 

       

Total unit costs

     1.74        1.76        5.36         

Revenue adjustments, primarily for pricing on prior period open sales

     (0.01     (0.01     —           
  

 

 

   

 

 

   

 

 

       

Gross profit per pound

   $ 0.43      $ 0.41      $ 0.56         
  

 

 

   

 

 

   

 

 

       
Reconciliation to Amounts Reported                                 
(In millions)    Revenues     Production
and Delivery
    DD&A                

Totals presented above

   $ 1,080      $ 667      $ 134         

Treatment charges

     —          49        —           

Noncash and other costs, net

     —          22        —           

Revenue adjustments, primarily for pricing on prior period open sales

     (7     —          —           

Eliminations and other

     (13     (12     —           
  

 

 

   

 

 

   

 

 

       

North America copper mines

     1,060        726        134         

Other mining & eliminationsc

     1,864        1,331        276         
  

 

 

   

 

 

   

 

 

       

Total mining

     2,924        2,057        410         

U.S. oil & gas operations

     410        889        218         

Corporate, other & eliminations

     —          10        4         
  

 

 

   

 

 

   

 

 

       

As reported in FCX’s consolidated financial statements

   $ 3,334      $ 2,956      $ 632         
  

 

 

   

 

 

   

 

 

       

 

a. Reflects sales of molybdenum produced by certain of the North America copper mines to FCX’s molybdenum sales company at market-based pricing.
b. Includes gold and silver product revenues and production costs.
c. Represents the combined total for all other mining operations and the related eliminations, as presented in the supplemental schedule “Business Segments,” beginning on page VIII.

 

XII


FREEPORT-McMoRan INC.

PRODUCT REVENUES AND PRODUCTION COSTS (continued)

 

North America Copper Mines Product Revenues, Production Costs and Unit Net Cash Costs

 

Three Months Ended June 30, 2015

                                
(In millions)    By-Product     Co-Product Method  
     Method     Copper     Molybdenuma      Otherb      Total  

Revenues, excluding adjustments

   $ 1,341      $ 1,341      $ 80       $ 28       $ 1,449   
  

 

 

   

 

 

   

 

 

    

 

 

    

 

 

 

Site production and delivery, before net noncash and other costs shown below

     862        804        64         22         890   

By-product credits

     (80     —          —           —           —     

Treatment charges

     60        58        —           2         60   
  

 

 

   

 

 

   

 

 

    

 

 

    

 

 

 

Net cash costs

     842        862        64         24         950   

DD&A

     137        129        5         3         137   

Noncash and other costs, net

     46        45        1         —           46   
  

 

 

   

 

 

   

 

 

    

 

 

    

 

 

 

Total costs

     1,025        1,036        70         27         1,133   

Revenue adjustments, primarily for pricing on prior period open sales

     (13     (13     —           —           (13
  

 

 

   

 

 

   

 

 

    

 

 

    

 

 

 

Gross profit

   $ 303      $ 292      $ 10       $ 1       $ 303   
  

 

 

   

 

 

   

 

 

    

 

 

    

 

 

 

Copper sales (millions of recoverable pounds)

     485        485           

Molybdenum sales (millions of recoverable pounds)a

         10         

Gross profit per pound of copper/molybdenum:

  

Revenues, excluding adjustments

   $ 2.77      $ 2.77      $ 7.80         
  

 

 

   

 

 

   

 

 

       

Site production and delivery, before net noncash and other costs shown below

     1.78        1.66        6.24         

By-product credits

     (0.16     —          —           

Treatment charges

     0.12        0.12        —           
  

 

 

   

 

 

   

 

 

       

Unit net cash costs

     1.74        1.78        6.24         

DD&A

     0.28        0.27        0.53         

Noncash and other costs, net

     0.10        0.09        0.06         
  

 

 

   

 

 

   

 

 

       

Total unit costs

     2.12        2.14        6.83         

Revenue adjustments, primarily for pricing on prior period open sales

     (0.03     (0.03     —           
  

 

 

   

 

 

   

 

 

       

Gross profit per pound

   $ 0.62      $ 0.60      $ 0.97         
  

 

 

   

 

 

   

 

 

       
Reconciliation to Amounts Reported                                 
(In millions)          Production                      
     Revenues     and Delivery     DD&A                

Totals presented above

   $ 1,449      $ 890      $ 137         

Treatment charges

     —          60        —           

Noncash and other costs, net

     —          46        —           

Revenue adjustments, primarily for pricing on prior period open sales

     (13     —          —           

Eliminations and other

     (31     (34     2         
  

 

 

   

 

 

   

 

 

       

North America copper mines

     1,405        962        139         

Other mining & eliminationsc

     1,964        1,406        206         
  

 

 

   

 

 

   

 

 

       

Total mining

     3,369        2,368        345         

U.S. oil & gas operations

     569        281        485         

Corporate, other & eliminations

     —          2        3         
  

 

 

   

 

 

   

 

 

       

As reported in FCX’s consolidated financial statements

   $ 3,938      $ 2,651      $ 833         
  

 

 

   

 

 

   

 

 

       

 

a. Reflects sales of molybdenum produced by certain of the North America copper mines to FCX’s molybdenum sales company at market-based pricing.
b. Includes gold and silver product revenues and production costs.
c. Represents the combined total for all other mining operations and the related eliminations, as presented in the supplemental schedule “Business Segments,” beginning on page VIII.

 

XIII


FREEPORT-McMoRan INC.

PRODUCT REVENUES AND PRODUCTION COSTS (continued)

 

North America Copper Mines Product Revenues, Production Costs and Unit Net Cash Costs

 

Six Months Ended June 30, 2016

                                
(In millions)    By-Product     Co-Product Method  
     Method     Copper     Molybdenuma      Otherb      Total  

Revenues, excluding adjustments

   $ 2,092      $ 2,092      $ 90       $ 41       $ 2,223   
  

 

 

   

 

 

   

 

 

    

 

 

    

 

 

 

Site production and delivery, before net noncash and other costs shown below

     1,349        1,295        72         21         1,388   

By-product credits

     (92     —          —           —           —     

Treatment charges

     103        99        —           4         103   
  

 

 

   

 

 

   

 

 

    

 

 

    

 

 

 

Net cash costs

     1,360        1,394        72         25         1,491   

DD&A

     277        263        9         5         277   

Noncash and other costs, net

     48        48        —           —           48   
  

 

 

   

 

 

   

 

 

    

 

 

    

 

 

 

Total costs

     1,685        1,705        81         30         1,816   

Revenue adjustments, primarily for pricing on prior period open sales

     (1     (1     —           —           (1
  

 

 

   

 

 

   

 

 

    

 

 

    

 

 

 

Gross profit

   $ 406      $ 386      $ 9       $ 11       $ 406   
  

 

 

   

 

 

   

 

 

    

 

 

    

 

 

 

Copper sales (millions of recoverable pounds)

     964        964           

Molybdenum sales (millions of recoverable pounds)a

         16         

Gross profit per pound of copper/molybdenum:

            

Revenues, excluding adjustments

   $ 2.17      $ 2.17      $ 5.61         
  

 

 

   

 

 

   

 

 

       

Site production and delivery, before net noncash and other costs shown below

     1.40        1.34        4.51         

By-product credits

     (0.10     —          —           

Treatment charges

     0.11        0.11        —           
  

 

 

   

 

 

   

 

 

       

Unit net cash costs

     1.41        1.45        4.51         

DD&A

     0.29        0.27        0.55         

Noncash and other costs, net

     0.05        0.05        0.02         
  

 

 

   

 

 

   

 

 

       

Total unit costs

     1.75        1.77        5.08         

Revenue adjustments, primarily for pricing on prior period open sales

     —          —          —           
  

 

 

   

 

 

   

 

 

       

Gross profit per pound

   $ 0.42      $ 0.40      $ 0.53         
  

 

 

   

 

 

   

 

 

       
Reconciliation to Amounts Reported                                 
(In millions)          Production                      
     Revenues     and Delivery     DD&A                

Totals presented above

   $ 2,223      $ 1,388      $ 277         

Treatment charges

     —          103        —           

Noncash and other costs, net

     —          48        —           

Revenue adjustments, primarily for pricing on prior period open sales

     (1     —          —           

Eliminations and other

     (26     (25     1         
  

 

 

   

 

 

   

 

 

       

North America copper mines

     2,196        1,514        278         

Other mining & eliminationsc

     3,675        2,632        536         
  

 

 

   

 

 

   

 

 

       

Total mining

     5,871        4,146        814         

U.S. oil & gas operations

     705        1,296        473         

Corporate, other & eliminations

     —          13        7         
  

 

 

   

 

 

   

 

 

       

As reported in FCX’s consolidated financial statements

   $ 6,576      $ 5,455      $ 1,294         
  

 

 

   

 

 

   

 

 

       

 

a. Reflects sales of molybdenum produced by certain of the North America copper mines to FCX’s molybdenum sales company at market-based pricing.
b. Includes gold and silver product revenues and production costs.
c. Represents the combined total for all other mining operations and the related eliminations, as presented in the supplemental schedule “Business Segments,” beginning on page VIII.

 

XIV


FREEPORT-McMoRan INC.

PRODUCT REVENUES AND PRODUCTION COSTS (continued)

 

North America Copper Mines Product Revenues, Production Costs and Unit Net Cash Costs

 

Six Months Ended June 30, 2015

                                
(In millions)    By-Product     Co-Product Method  
     Method     Copper     Molybdenuma      Otherb      Total  

Revenues, excluding adjustments

   $ 2,612      $ 2,612      $ 162       $ 54       $ 2,828   
  

 

 

   

 

 

   

 

 

    

 

 

    

 

 

 

Site production and delivery, before net noncash and other costs shown below

     1,715        1,605        122         41         1,768   

By-product credits

     (163     —          —           —           —     

Treatment charges

     121        118        —           3         121   
  

 

 

   

 

 

   

 

 

    

 

 

    

 

 

 

Net cash costs

     1,673        1,723        122         44         1,889   

DD&A

     270        254        11         5         270   

Noncash and other costs, net

     77        76        1         —           77   
  

 

 

   

 

 

   

 

 

    

 

 

    

 

 

 

Total costs

     2,020        2,053        134         49         2,236   

Revenue adjustments, primarily for pricing on prior period open sales

     (28     (28     —           —           (28
  

 

 

   

 

 

   

 

 

    

 

 

    

 

 

 

Gross profit

   $ 564      $ 531      $ 28       $ 5       $ 564   
  

 

 

   

 

 

   

 

 

    

 

 

    

 

 

 

Copper sales (millions of recoverable pounds)

     956        956           

Molybdenum sales (millions of recoverable pounds)a

         19         

Gross profit per pound of copper/molybdenum:

  

Revenues, excluding adjustments

   $ 2.73      $ 2.73      $ 8.28         
  

 

 

   

 

 

   

 

 

       

Site production and delivery, before net noncash and other costs shown below

     1.79        1.68        6.24         

By-product credits

     (0.17     —          —           

Treatment charges

     0.13        0.12        —           
  

 

 

   

 

 

   

 

 

       

Unit net cash costs

     1.75        1.80        6.24         

DD&A

     0.28        0.27        0.58         

Noncash and other costs, net

     0.08        0.08        0.06         
  

 

 

   

 

 

   

 

 

       

Total unit costs

     2.11        2.15        6.88         

Revenue adjustments, primarily for pricing on prior period open sales

     (0.03     (0.03     —           
  

 

 

   

 

 

   

 

 

       

Gross profit per pound

   $ 0.59      $ 0.55      $ 1.40         
  

 

 

   

 

 

   

 

 

       
Reconciliation to Amounts Reported                                 
(In millions)          Production                      
     Revenues     and Delivery     DD&A                

Totals presented above

   $ 2,828      $ 1,768      $ 270         

Treatment charges

     —          121        —           

Noncash and other costs, net

     —          77        —           

Revenue adjustments, primarily for pricing on prior period open sales

     (28     —          —           

Eliminations and other

     (60     (61     2         
  

 

 

   

 

 

   

 

 

       

North America copper mines

     2,740        1,905        272         

Other mining & eliminationsc

     3,900        2,856        405         
  

 

 

   

 

 

   

 

 

       

Total mining

     6,640        4,761        677         

U.S. oil & gas operations

     1,069        564        1,015         

Corporate, other & eliminations

     —          5        7         
  

 

 

   

 

 

   

 

 

       

As reported in FCX’s consolidated financial statements

   $ 7,709      $ 5,330      $ 1,699         
  

 

 

   

 

 

   

 

 

       

 

a. Reflects sales of molybdenum produced by certain of the North America copper mines to FCX’s molybdenum sales company at market-based pricing.
b. Includes gold and silver product revenues and production costs.
c. Represents the combined total for all other mining operations and the related eliminations, as presented in the supplemental schedule “Business Segments,” beginning on page VIII.

 

XV


FREEPORT-McMoRan INC.

PRODUCT REVENUES AND PRODUCTION COSTS (continued)

 

South America Mining Product Revenues, Production Costs and Unit Net Cash Costs

 

Three Months Ended June 30, 2016

                         
(In millions)    By-Product     Co-Product Method  
     Method     Copper     Othera      Total  

Revenues, excluding adjustments

   $ 715      $ 715      $ 51       $ 766   
  

 

 

   

 

 

   

 

 

    

 

 

 

Site production and delivery, before net noncash and other costs shown below

     391        369        33         402   

By-product credits

     (40     —          —           —     

Treatment charges

     76        76        —           76   

Royalty on metals

     2        2        —           2   
  

 

 

   

 

 

   

 

 

    

 

 

 

Net cash costs

     429        447        33         480   

DD&A

     136        127        9         136   

Noncash and other costs, net

     5        5        —           5   
  

 

 

   

 

 

   

 

 

    

 

 

 

Total costs

     570        579        42         621   

Revenue adjustments, primarily for pricing on prior period open sales

     (11     (11     —           (11
  

 

 

   

 

 

   

 

 

    

 

 

 

Gross profit

   $ 134      $ 125      $ 9       $ 134   
  

 

 

   

 

 

   

 

 

    

 

 

 

Copper sales (millions of recoverable pounds)

     327        327        

Gross profit per pound of copper:

  

Revenues, excluding adjustments

   $ 2.19      $ 2.19        
  

 

 

   

 

 

      

Site production and delivery, before net noncash and other costs shown below

     1.20        1.13        

By-product credits

     (0.12     —          

Treatment charges

     0.23        0.23        

Royalty on metals

     —          —          
  

 

 

   

 

 

      

Unit net cash costs

     1.31        1.36        

DD&A

     0.41        0.39        

Noncash and other costs, net

     0.02        0.02        
  

 

 

   

 

 

      

Total unit costs

     1.74        1.77        

Revenue adjustments, primarily for pricing on prior period open sales

     (0.04     (0.04     
  

 

 

   

 

 

      

Gross profit per pound

   $ 0.41      $ 0.38        
  

 

 

   

 

 

      
Reconciliation to Amounts Reported                          
(In millions)          Production               
     Revenues     and Delivery     DD&A         

Totals presented above

   $ 766      $ 402      $ 136      

Treatment charges

     (76     —          —        

Royalty on metals

     (2     —          —        

Noncash and other costs, net

     —          5        —        

Revenue adjustments, primarily for pricing on prior period open sales

     (11     —          —        

Eliminations and other

     —          (1     —        
  

 

 

   

 

 

   

 

 

    

South America mining

     677        406        136      

Other mining & eliminationsb

     2,247        1,651        274      
  

 

 

   

 

 

   

 

 

    

Total mining

     2,924        2,057        410      

U.S. oil & gas operations

     410        889        218      

Corporate, other & eliminations

     —          10        4      
  

 

 

   

 

 

   

 

 

    

As reported in FCX’s consolidated financial statements

   $ 3,334      $ 2,956      $ 632      
  

 

 

   

 

 

   

 

 

    

 

a. Includes silver sales of 911 thousand ounces ($17.50 per ounce average realized price). Also reflects sales of molybdenum produced by Cerro Verde to FCX’s molybdenum sales company at market-based pricing.
b. Represents the combined total for all other mining operations and the related eliminations, as presented in the supplemental schedule, “Business Segments,” beginning on page VIII.

 

XVI


FREEPORT-McMoRan INC.

PRODUCT REVENUES AND PRODUCTION COSTS (continued)

 

South America Mining Product Revenues, Production Costs and Unit Net Cash Costs

 

Three Months Ended June 30, 2015

                        
(In millions)    By-Product     Co-Product Method  
     Method     Copper     Othera     Total  

Revenues, excluding adjustments

   $ 479      $ 479      $ 14      $ 493   
  

 

 

   

 

 

   

 

 

   

 

 

 

Site production and delivery, before net noncash and other costs shown below

     314        305        15        320   

By-product credits

     (8     —          —          —     

Treatment charges

     30        30        —          30   

Royalty on metals

     1        1        —          1   
  

 

 

   

 

 

   

 

 

   

 

 

 

Net cash costs

     337        336        15        351   

DD&A

     72        70        2        72   

Noncash and other (credits) costs, net

     (4     (5     1        (4
  

 

 

   

 

 

   

 

 

   

 

 

 

Total costs

     405        401        18        419   

Revenue adjustments, primarily for pricing on prior period open sales

     (8     (8     —          (8
  

 

 

   

 

 

   

 

 

   

 

 

 

Gross profit (loss)

   $ 66      $ 70      $ (4   $ 66   
  

 

 

   

 

 

   

 

 

   

 

 

 

Copper sales (millions of recoverable pounds)

     178        178       

Gross profit per pound of copper:

  

Revenues, excluding adjustments

   $ 2.69      $ 2.69       
  

 

 

   

 

 

     

Site production and delivery, before net noncash and other costs shown below

     1.77        1.72       

By-product credits

     (0.04     —         

Treatment charges

     0.17        0.17       

Royalty on metals

     —          —         
  

 

 

   

 

 

     

Unit net cash costs

     1.90        1.89