fcx123109-10k.htm
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UNITED
STATES
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SECURITIES
AND EXCHANGE COMMISSION
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Washington,
D.C. 20549
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FORM
10-K
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(Mark
One)
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[X]
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
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For
the fiscal year ended December 31, 2009
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OR
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[ ]
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
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For
the transition period from
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to
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Commission
File Number: 1-9916
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Freeport-McMoRan
Copper & Gold Inc.
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(Exact
name of registrant as specified in its
charter)
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Delaware
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74-2480931
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(State
or other jurisdiction of
incorporation
or organization)
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(I.R.S.
Employer Identification No.)
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One
North Central Avenue
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Phoenix,
Arizona
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85004-4414
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(Address
of principal executive offices)
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(Zip
Code)
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(602)
366-8100
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(Registrant's
telephone number, including area
code)
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Securities
registered pursuant to Section 12(b) of the Act:
Title
of each class
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Name
of each exchange on which registered
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Common
Stock, par value $0.10 per share
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New
York Stock Exchange
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7% Convertible
Senior Notes due 2011 of the registrant
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New
York Stock Exchange
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6¾%
Mandatory Convertible Preferred Stock, par value $0.10 per
share
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New
York Stock Exchange
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Preferred
Stock Purchase Rights
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New
York Stock Exchange
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Securities
registered pursuant to Section 12(g) of the Act: None
Indicate
by check mark if the registrant is a well-known seasoned issuer, as defined in
Rule 405 of the Securities
Act R Yes 0
No
Indicate
by check mark if the registrant is not required to file reports pursuant to
Section 13 or Section 15(d) of the
Act. 0 Yes R
No
Indicate
by check mark whether the registrant (1) has filed all reports required to be
filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the
preceding 12 months (or for such shorter period that the registrant was required
to file such reports), and (2) has been subject to such filing requirements for
the past 90
days. R Yes 0
No
Indicate
by check mark whether the registrant has submitted electronically and posted on
its corporate Web site, if any, every Interactive Data File required to be
submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this
chapter) during the preceding 12 months (or for such shorter period that the
registrant was required to submit and post such
files). R Yes 0
No
Indicate
by check mark if disclosure of delinquent filers pursuant to Item 405 of
Regulation S-K (§229.405 of this chapter) is not contained herein, and will not
be contained, to the best of the registrant’s knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form 10-K
or any amendment to this Form 10-K. R
Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer or a smaller reporting company. See
the definitions of “large accelerated filer,” “accelerated filer” and “smaller
reporting company” in Rule 12b-2 of the Exchange Act. R Large
accelerated filer 0 Accelerated
filer 0
Non-accelerated filer 0 Smaller
reporting company
Indicate
by check mark whether the registrant is a shell company (as defined in Rule
12b-2 of the
Act). 0 Yes R
No
The
aggregate market value of common stock held by non-affiliates of the registrant
was approximately $31.4 billion on February 12, 2010, and approximately $20.5
billion on June 30, 2009.
Common
stock issued and outstanding was 430,565,147 shares on February 12, 2010, and
411,783,284 shares on June 30, 2009.
DOCUMENTS
INCORPORATED BY REFERENCE
Portions
of our proxy statement for our 2010 annual meeting of stockholders are
incorporated by reference into Part III (Items 10, 11, 12, 13 and 14) of
this report.
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FREEPORT-McMoRan COPPER & GOLD INC.
TABLE
OF CONTENTS
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S-1
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F-1
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E-1
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Items 1. and 2. Business and Properties.
All
of our periodic reports filed with the Securities and Exchange Commission (SEC)
pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as
amended, are available, free of charge, through our web site, www.fcx.com,
including our annual reports on Form 10-K, quarterly reports on Form 10-Q,
current reports on Form 8-K and any amendments to those reports. These reports
and amendments are available through our web site as soon as reasonably
practicable after we electronically file or furnish such material to the
SEC.
References
to “we,” “us” and “our” refer to Freeport-McMoRan Copper & Gold Inc. (FCX)
and its consolidated subsidiaries, including, except as otherwise stated, Phelps
Dodge Corporation (Phelps Dodge) and its subsidiaries, which we acquired on
March 19, 2007. In 2008, we changed Phelps Dodge’s legal name to
Freeport-McMoRan Corporation (FMC); therefore, references to FMC and Phelps
Dodge represent the same entity. References to “Notes” refer to the “Notes to
Consolidated Financial Statements” included herein (see Item 8. “Financial
Statements and Supplementary Data”).
GENERAL
We are a
leading international mining company with headquarters in Phoenix, Arizona. We
are one of the world’s largest copper, gold and molybdenum mining companies in
terms of reserves and production. Our portfolio of assets includes the Grasberg
minerals district in Indonesia, which contains the largest single recoverable
copper reserve and the largest single gold reserve of any mine in the world
based on the latest available reserve data provided by third-party industry
consultants; significant mining operations in North and South America; and the
Tenke Fungurume minerals district in the Democratic Republic of Congo (DRC). We
also operate Atlantic Copper, our wholly owned copper smelting and refining unit
in Spain.
As a
mining company, our principal assets are our reserves. At December 31, 2009,
consolidated recoverable proven and probable reserves totaled 104.2 billion
pounds of copper, 37.2 million ounces of gold, 2.59 billion pounds of
molybdenum, 270.4 million ounces of silver and 0.78 billion pounds of cobalt.
Approximately 33 percent of our copper reserves were in Indonesia, approximately
33 percent were in South America, approximately 26 percent were in North America
and approximately eight percent were in Africa. Approximately 96 percent of our
gold reserves were in Indonesia, with the majority of our remaining gold
reserves located in South America. Our molybdenum reserves are primarily in
North America (approximately 80 percent), with our remaining molybdenum reserves
in South America (refer to “Ore Reserves”).
Our
mining revenues for 2009 include sales of copper (approximately 75 percent),
gold (approximately 17 percent) and molybdenum (approximately five percent). We
currently have six operating copper mines in North America, four in South
America, the Grasberg minerals district in Indonesia and the Tenke Fungurume
minerals district in the DRC. We also have one operating primary molybdenum mine
in North America. During 2009, approximately 61 percent of our consolidated
copper production was from our Grasberg, Morenci and Cerro Verde mines, and more
than half of our mined copper was sold in concentrate, approximately 25 percent
as cathodes and approximately 21 percent as rod (principally from our North
America operations). We also produce gold as a by-product at our copper mines,
primarily at the Grasberg minerals district in Indonesia, which accounted for
approximately 96 percent of our consolidated gold production for 2009. For 2009,
approximately 50 percent of our consolidated molybdenum production was from the
Henderson molybdenum mine and approximately 46 percent was produced as a
by-product at our North America copper mines. Refer to “Mines” for further
discussion of our mining operations.
Prior to
March 19, 2007, we operated our Grasberg mine in Indonesia and Atlantic Copper.
On March 19, 2007, we acquired Phelps Dodge, a fully integrated producer of
copper and molybdenum with mines in North and South America, and several
development projects, including Tenke Fungurume in the DRC. After completion of
the Phelps Dodge acquisition, our business strategy was focused on repaying
acquisition-related debt, defining the potential of our resources and developing
expansion and growth plans to deliver additional volumes to a growing
marketplace. During 2007, we repaid $10.0 billion in term loans using a
combination of equity proceeds and internally generated cash flows. Because of
the significant reduction in debt and historically high prices for copper, gold
and molybdenum, our financial policy during most of 2008 was designed to use our
cash flow to invest in growth projects with anticipated high rates of return and
to return excess cash flows to stockholders in the form of dividends and share
purchases. The dramatic declines in copper and molybdenum prices in late 2008
and the deterioration of the economic and credit environment limited our ability
to invest in growth projects and
required
us to make adjustments to our near-term plans in late 2008 and early 2009 (refer
to Note 2 for further discussion). However, during 2009 copper prices improved
from the January 2009 low of $1.38 per pound to $3.33 per pound on December 31,
2009, and subsequently closed at $3.11 per pound on January 29, 2010. Rising
copper prices, along with higher volumes from the Grasberg mine and lower costs
at our North America mines, enabled us to enhance our financial and liquidity
position during 2009, allowing us to manage volatile conditions effectively,
reduce debt and reinstate cash dividends to stockholders, while maintaining our
future growth opportunities. In addition, we have announced initiatives to
resume certain project development activities that were deferred in late 2008.
For additional information, refer to Item 7. “Management’s Discussion and
Analysis of Financial Condition and Results of Operations.”
In North
America, we currently have six operating copper mines – Morenci, Sierrita,
Bagdad, Safford and Miami in Arizona, and Tyrone in New Mexico. In addition to
copper, the Morenci, Sierrita and Bagdad mines produce molybdenum as a
by-product. Although we currently are not conducting mining operations at our
Chino mine in New Mexico, we continue to produce copper from leaching
operations.
In South
America, we have four operating copper mines – Cerro Verde in Peru, and
Candelaria, Ojos del Salado and El Abra in Chile. In addition to copper, the
Cerro Verde mine produces molybdenum concentrate as a by-product and the
Candelaria and Ojos del Salado mines produce gold and silver as
by-products.
In
Indonesia, PT Freeport Indonesia operates the Grasberg minerals district. Our
Grasberg minerals district also produces significant quantities of gold and
silver as by-products. PT Freeport Indonesia also owns 25 percent of PT
Smelting, a smelting and refining company in Gresik, Indonesia.
In
Africa, we operate the Tenke Fungurume minerals district. In addition to copper,
the Tenke Fungurume mine produces cobalt hydroxide. Copper production commenced
in March 2009, and Tenke achieved targeted copper production rates in September
2009. We are continuing to address start-up and quality issues in the cobalt
circuit and sustained targeted cobalt production rates are expected to be
reached during 2010.
We
produce molybdenum at our wholly owned Henderson molybdenum mine in Colorado,
which is the largest primary producer of molybdenum in the world. Additionally,
we own the Climax molybdenum mine in Colorado which is currently on
care-and-maintenance status.
For
information about our operating segments and financial data by geographic area
refer to Note 20.
The
locations of our operating mines are shown on the map below.
The
diagram below shows our corporate structure.
COPPER,
GOLD AND MOLYBDENUM
Our mines
primarily produce copper, gold and molybdenum. A brief discussion of the
production and sales of these metals appears below; discussion of markets and
prices for these metals appears in Item 7. “Management’s Discussion and Analysis
of Financial Condition and Results of Operations.”
Copper
Copper,
in the form of copper cathode, is an internationally traded commodity, and its
prices are determined by the major metals exchanges – New York Mercantile
Exchange (COMEX), the London Metals Exchange (LME) and the Shanghai Futures
Exchange (SHFE). Prices on these exchanges generally reflect the worldwide
balance of copper supply and demand and can be volatile and
cyclical.
Our
copper ores are generally processed either by smelting and refining or by
solution extraction and electrowinning (SX/EW). Ore subject to the smelting
process is crushed and further treated to produce a copper concentrate with an
average copper content of about 30 percent. Copper concentrate is then smelted
(subjected to extreme heat) to produce copper anodes, which weigh between 800
and 900 pounds each and have an average copper content of 99.5 percent. The
anodes are further treated by electrolytic refining to produce copper cathodes,
which weigh between 100 and 350 pounds each and have a copper content of 99.99
percent.
In the
SX/EW process, copper is extracted from ore by dissolving it with a weak
sulphuric acid solution. The copper content of the solution is increased in two
additional solution-extraction stages and then the copper-bearing solution
undergoes an electrowinning process to produce cathode that is 99.99 percent
copper.
Our
copper cathodes are used as the raw material input for copper rod, brass mill
products and for other uses. In general, demand for copper reflects the rate of
underlying world economic growth, particularly in industrial production and
construction. According to Brook Hunt, a widely followed independent metals
market consultant, copper’s end-use markets (and their estimated shares of total
consumption) are:
Construction
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35
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%
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Electrical
applications
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32
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%
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Industrial
machinery
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12
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%
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Transportation
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11
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%
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Consumer
products
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10
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%
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Gold
Gold is
used for jewelry, coinage and bullion as well as various industrial and
electronic applications. Gold can be readily sold on numerous markets throughout
the world. Benchmark prices are generally based on London Bullion Market
Association quotations.
Molybdenum
Molybdenum
is a key alloying element in steel and the raw material for several
chemical-grade products used in catalysts, lubrication, smoke suppression,
corrosion inhibition and pigmentation. Molybdenum as a high-purity metal is also
used in electronics such as flat-panel displays and in super alloys used in
aerospace. Molybdenum’s end-use markets and their share of total consumption
are:
Construction
steel
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37
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%
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Stainless
steel
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21
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%
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Chemicals
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13
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%
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Tool
and high-speed steel
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10
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%
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Cast
iron
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8
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%
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Molybdenum
metal
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7
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%
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Super
alloys
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4
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%
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Reference
prices for molybdenum are available in several publications, including
Platts Metals Week,
Ryan’s Notes and Metal
Bulletin.
PRODUCTS
AND SALES
Copper
Products
We are
one of the world’s leading producers of copper concentrate, cathode and
continuous cast copper rod. During 2009, approximately 61 percent of our
consolidated copper production was from our Grasberg, Morenci and Cerro Verde
mines, and more than half of our mined copper was sold in concentrate,
approximately 25 percent as cathodes and approximately 21 percent as rod
(principally from our North America operations).
Copper
Concentrate. In 2009, we produced copper concentrate at seven
mines, of which PT Freeport Indonesia is our largest producer. Approximately 50
percent of PT Freeport Indonesia’s concentrate production in 2009 was refined at
affiliated smelters, Atlantic Copper and PT Smelting.
Copper
concentrate was also produced at our Morenci, Sierrita and Bagdad mines in
Arizona, and was generally shipped to our Miami smelter in Arizona. In South
America, we produced copper concentrate at our Cerro Verde mine in Peru and our
Candelaria and Ojos del Salado mines in Chile. We are initiating activities to
restart the Morenci mill, which was temporarily idled in February 2009, to
process available sulfide material currently being mined.
Copper
Cathode. In 2009, we produced copper cathode at two
electrolytic refineries and ten mines. Our refineries are located in El Paso,
Texas, and Huelva, Spain. PT Smelting also produces copper cathode. We produced
SX/EW cathode from our Morenci, Sierrita, Bagdad, Chino, Safford, Tyrone and
Miami mines in North America and our Cerro Verde and El Abra mines in South
America. In 2009, we began SX/EW production at our Tenke Fungurume mine in the
DRC.
Continuous
Cast Copper Rod. We manufacture continuous cast copper rod at
our facilities in El Paso, Texas; Norwich, Connecticut and Miami,
Arizona.
Other
Copper Products. We produce specialty copper products at our
Bayway operations in Elizabeth, New Jersey. These products include specialty
copper alloys in the forms of rod, bar and strip. We manufacture electrode wire
for use in welding steel cans at our Norwich, Connecticut and El Paso, Texas,
facilities. We also produce copper sulfate pentahydrate for use in agricultural
and industrial applications at our facility in Sierrita, Arizona.
Copper
Sales
North
America. The majority of the copper produced at our North
America copper mines and refined in our El Paso refinery is consumed at our rod
plants in El Paso, Texas; Norwich, Connecticut and Miami, Arizona. The remainder
of our North America copper production is sold in the form of copper cathode or
copper concentrate to third parties. Generally, copper rod and cathode are sold
to wire and cable fabricators and brass mills under United States (U.S.)
dollar-denominated, annual contracts. Cathode and rod contract prices are
generally based on the prevailing COMEX monthly average spot price for the month
of shipment and include a premium.
South
America. Production from our
South America copper mines is generally sold as copper concentrate or copper
cathode under U.S. dollar-denominated, annual and multi-year contracts. Cerro
Verde sells approximately 70 percent of its production as concentrate and the
rest as cathode. Some of Cerro Verde’s cathode is sold under annual contract
terms to South American customers. Approximately 22 percent of Cerro Verde’s and
11 percent of Candelaria’s 2009 concentrate production was sold at market rates
to Atlantic Copper. A majority of our Ojos del Salado concentrate production is
sold to local Chilean smelters. El Abra’s cathode production is sold primarily
under annual or multi-year contracts to Asian or European rod or brass mill
customers, or to merchants. The remainder of the cathode and concentrate
production is primarily sold under long-term contracts to external customers,
largely located in Asia, with the balance sold on a spot basis.
Our South
America sales are priced based on the LME monthly average spot price. Cathode
sales are generally priced in the month of arrival at the buyer’s facilities and
generally include a premium. Substantially all of our concentrate sales are
priced in the third calendar month following the month of arrival at the buyer’s
facilities. Revenues from South America concentrate sales are recorded net of
treatment and refining charges. Treatment and refining charges are fees paid to
smelters and refiners and are generally negotiated annually. Moreover, because a
portion of the metals contained in copper concentrates is unrecoverable from the
smelting process, our revenues from concentrate sales are also recorded net of
allowances based on the quantity and value of these unrecoverable metals. These
allowances are a negotiated term of our contracts and vary by
customer.
Indonesia. PT Freeport Indonesia
sells its production in the form of copper concentrate, which contains
significant quantities of by-product gold and silver, under U.S.
dollar-denominated sales agreements. During 2009, approximately half of PT
Freeport Indonesia’s production was sold to Atlantic Copper and PT Smelting. PT
Freeport Indonesia sells substantially all of its budgeted production of copper
concentrates under long-term contracts. In general, most of its concentrate
sales are priced on the basis of the LME average spot price for either the
first, second or third calendar month following the month of arrival at the
buyer’s facilities.
PT
Freeport Indonesia has a long-term contract to provide Atlantic Copper with
approximately 55 percent of its current concentrate requirements at market
prices.
PT
Freeport Indonesia’s contract with PT Smelting provides for the supply of 100
percent of the copper concentrate requirements necessary to produce 205,000
metric tons of copper annually (essentially the smelter’s original design
capacity) on a priority basis. Refer to “Smelting Facilities” for further
discussion.
We
anticipate that PT Freeport Indonesia will sell approximately 60 percent of its
annual concentrate production to Atlantic Copper and PT Smelting in 2010. A
summary of PT Freeport Indonesia’s aggregate percentage concentrate sales to PT
Smelting, Atlantic Copper and to other parties for the last three years
follows:
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2009
|
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2008
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2007
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PT
Smelting
|
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32%
|
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41%
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|
39%
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Atlantic
Copper
|
|
18%
|
|
15%
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|
25%
|
Other
parties
|
|
50%
|
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44%
|
|
36%
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|
|
100%
|
|
100%
|
|
100%
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|
|
|
|
|
|
|
PT
Freeport Indonesia’s sales to PT Smelting represented approximately 13 percent
of our consolidated revenues in 2009, approximately eight percent in 2008 and
approximately 11 percent in 2007. No other customer accounted for more than 10
percent of our consolidated revenues in any of the three years ended December
31, 2009.
Revenues
from our Indonesia concentrate sales are recorded net of royalties (refer to
“Mines – Indonesia – Contracts of Work”), and treatment and refining charges
(including price participation charges, if applicable, based on the market
prices of metals). Similar to our South America mines, Indonesia concentrate
sales are net of allowances for unrecoverable metals. PT Freeport Indonesia
sells a small amount of copper concentrates in the spot market.
Africa. Copper
produced at our Tenke Fungurume mining district is generally sold as copper
cathode under U.S. dollar denominated contracts priced based on the LME monthly
average spot price for the month after the month of shipment.
Europe. Atlantic Copper sells
copper cathode directly to rod and brass mills, primarily located in Europe.
Atlantic Copper has occasionally sold copper cathode to merchants. Copper
cathode is generally sold under annual contracts and priced based on the LME
average spot price for the month of arrival at the buyer’s
facilities.
Gold
Products and Sales
We also
produce gold as a by-product, primarily at the Grasberg minerals district, which
accounted for approximately 96 percent of our consolidated gold production in
2009. Gold is primarily sold as a component of our copper concentrate or in
slimes, which are a by-product of the smelting and refining process. Gold
generally is priced at the average London Bullion Market Association price for a
specified month near the month of shipment.
Molybdenum
Products and Sales
We are
the world’s largest producer of molybdenum and molybdenum-based chemicals. In
addition to production from our Henderson molybdenum mine, we produce by-product
molybdenum at our Morenci, Sierrita and Bagdad mines in Arizona and at our Cerro
Verde mine in Peru. For 2009, approximately half of our consolidated molybdenum
production was from the Henderson molybdenum mine and approximately 46 percent
was produced as a by-product at the North America mines.
The
majority of our molybdenum concentrates are processed in our own conversion
facilities. Technical-grade oxide is produced from molybdenum concentrates in
Sierrita, Arizona; Fort Madison, Iowa and Rotterdam, the Netherlands.
Ferromolybdenum is produced from technical-grade oxide in Stowmarket, United
Kingdom through a metallothermic reduction process. High-quality molybdenum
concentrates are converted into molybdenum chemicals at Fort Madison, Iowa and
Rotterdam, the Netherlands. Molybdenum generally is priced based on the average
Platts Metals Week
price for the month of shipment. Approximately 90 percent of our expected 2010
molybdenum sales are expected to be priced at prevailing market
prices.
Other
Products and Sales
We
produce cobalt as a cobalt hydroxide intermediate by-product of copper
production at the Tenke Fungurume mine in the DRC and silver as a component of
our copper concentrate or in slimes. Cobalt hydroxide intermediate product is
priced based on a discount to the average monthly price published by Metal Bulletin for a
specified month near the month of shipment and silver generally is priced at the
average London Bullion Market Association price for a specified month near the
month of shipment. Sales of cobalt and silver, along with other by-product
metals such as rhenium and magnetite, do not represent a significant component
of our total revenues.
For an
allocation of our consolidated revenues by geographic area, refer to Note
20.
MINES
Curtailed
Facilities
The
following table summarizes the temporary curtailments announced in late 2008 and
early 2009 in response to market conditions. For additional information, refer
to Note 2. In addition, refer to Item 7. “Management’s Discussion and Analysis
of Financial Condition and Results of Operations” for further discussion of our
current development projects.
Facility
|
|
Date
of Announcement
|
|
Announced
Reductions
|
|
Current
Status
|
Copper
|
|
|
|
|
|
|
North America
|
|
|
|
|
|
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· Morenci
|
|
December
2008 and January 2009
|
|
25
percent reduction in mining and crushed-leach rates in December 2008 and
an additional reduction in January 2009 for a total 50 percent reduction
in mining and crushed-leach rates.
|
|
Activities
to restart mill commenced in 2010. Mine continues to operate at reduced
rates.
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· Chino
|
|
December
2008
|
|
Suspension
of mining and milling activities. Leaching activities from stockpiles
continues.
|
|
No
change.
|
· Safford
|
|
December
2008
|
|
50
percent reduction in mining and stacking rates.
|
|
Continuing
to operate at reduced rates.
|
· Tyrone
|
|
December
2008
|
|
50
percent reduction in mining rate.
|
|
Operating
at 80 percent of capacity.
|
· Miami
|
|
December
2008
|
|
Deferral
of restart of the Miami mine.
|
|
Restart
activities resumed in late 2009.
|
South America
|
|
|
|
|
|
|
· Cerro
Verde
|
|
January
2009
|
|
Deferral
of incremental mill expansion
|
|
Mill
expansion activities resumed in late 2009; continue to study long-term
expansion opportunities.
|
· Candelaria/
Ojos del Salado
|
|
January
2009
|
|
Reduction
in mining rates.
|
|
Continuing
to operate at reduced rates.
|
· El
Abra
|
|
December
2009
|
|
Deferral
of development of sulfide ores.
|
|
Resumed
development activities.
|
|
|
|
|
|
|
|
Molybdenum
|
|
|
|
|
|
|
· Henderson
|
|
November
2008 and January 2009
|
|
40
percent reduction in mining and milling rates.
|
|
Mining
rates currently at 80 percent of capacity.
|
· Climax
|
|
November
2008
|
|
Deferral
of restart of the Climax mine.
|
|
No
change.
|
· Cerro
Verde
|
|
January
2009
|
|
Suspension
of molybdenum by-product production.
|
|
Molybdenum
by-product production resumed in fourth quarter of
2009.
|
We are
continuing to closely monitor market conditions and may make further adjustments
to our production and sales plans.
Following
are maps and descriptions of our North America (including Molybdenum
operations), South America, Indonesia and Africa mining operations.
North
America
In the
U.S., most of the land occupied by our copper and molybdenum mines,
concentrators, SX/EW facilities, smelter, refinery, rod mills, molybdenum
roasters and processing facilities is generally owned by us or is located on
unpatented mining claims owned by us. Certain portions of our Sierrita, Bagdad,
Miami, Tyrone, Chino, Cobre and Henderson operations are located on
government-owned land and are operated under a Mine Plan of Operations or other
use permit. Various federal and state permits or leases on government land are
held for purposes incidental to mine operations.
Morenci
We own an
85 percent undivided interest in Morenci, with the remaining 15 percent owned by
affiliates of Sumitomo Corporation. Each partner takes in kind its share of
Morenci’s production.
Morenci
is an open-pit copper mining complex that has been in continuous operation since
1939 and previously was mined through underground workings. Morenci is located
in Greenlee County, Arizona, approximately 50 miles northeast of Safford on U.S.
Highway 191. The site is accessible by a paved highway and a railway spur. The
Morenci mine is a porphyry copper deposit that has oxide and secondary sulfide
mineralization, and primary sulfide mineralization. The predominant oxide copper
mineral is chrysocolla. Chalcocite is the most important secondary copper
sulfide mineral with chalcopyrite as the dominant primary copper sulfide. The
Morenci operation consists of a 49,000 metric ton-per-day concentrator, that
when operating produces copper and molybdenum concentrate; a 72,000 metric
ton-per-day crushed-ore leach pad and stacking system; a large low-grade
run-of-mine (ROM) leaching system; four SX plants; and three EW tank houses that
produce copper cathode. Total EW tank house capacity is approximately 916
million pounds of copper per year. Copper production for 2009 was 504 million
pounds, including our partner’s share, which reflects the revised operating plan
reducing the mining and crushed leach rate by 50 percent beginning in late 2008
and early 2009. The available mining fleet consists of 102 235-metric ton haul
trucks loaded by 18 shovels with bucket sizes ranging from 47 to 55 cubic
meters, which are capable of moving over 750,000 metric tons of material per
day.
The
concentrate leach, direct-electrowinning facility at Morenci was commissioned in
third-quarter 2007 and produced copper concentrate until early 2009. We placed
this facility on care-and-maintenance in first-quarter 2009 as part of our
revised operating plan.
Morenci
is located in a desert environment with rainfall averaging 13 inches per year.
The highest bench elevation is 1,950 meters above sea level and the ultimate pit
bottom is expected to have an elevation of 900 meters above sea level. The
Morenci operation encompasses approximately 53,944 acres, comprising 47,609
acres of patented mining claims and other fee lands, 5,914 acres of unpatented
mining claims, and 421 acres of land held by state or federal permits, easements
and rights-of-way.
Morenci
receives electrical power from Tucson Electric Power Company, Arizona Public
Service Company and the Luna Energy facility in Deming, New Mexico (in which we
own a one-third interest). Although we believe the Morenci operation has
sufficient water sources to support currently planned mining operations, we are
a party to litigation that could adversely affect our water rights at Morenci
and at our other properties in Arizona. Refer to Item 3. “Legal Proceedings,”
for information concerning the status of these proceedings.
Sierrita
Our
wholly owned Sierrita mine has been in operation since 1959 and is an open-pit
copper and molybdenum mining complex located in Pima County, Arizona,
approximately 20 miles southwest of Tucson and seven miles west of the town of
Green Valley and Interstate Highway 19. The site is accessible by a paved
highway and by rail. The Sierrita mine is a porphyry copper deposit that has
oxide and secondary sulfide mineralization, and primary sulfide mineralization.
The predominant oxide copper minerals are malachite, azurite and chrysocolla.
Chalcocite is the most important secondary copper sulfide mineral, and
chalcopyrite and molybdenite are the dominant primary sulfides.
The
Sierrita operation includes a 102,000 metric ton-per-day concentrator that
produces copper and molybdenum concentrates. Sierrita also produces copper from
a ROM oxide-leaching system. Cathode copper is plated at the Twin Buttes EW
facility, which has a design capacity of approximately 50 million pounds of
copper per year. In 2004, a copper sulfate crystal plant began production. The
facility has the capacity to produce 40 million pounds of copper sulfate per
year. The Sierrita operation also has molybdenum facilities consisting of a
leaching circuit, two molybdenum roasters and a packaging facility. The
molybdenum facilities process Sierrita concentrate, concentrate from our other
mines and concentrate from third-party sources. Copper production for 2009 was
170 million pounds and molybdenum production was 19 million pounds. The
available mining fleet has the capacity to move an average of 200,000 metric
tons of material per day using 24 235-metric ton haul trucks loaded by four
shovels with bucket sizes ranging from 34 to 56 cubic meters.
Sierrita
is located in a desert environment with rainfall averaging 12 inches per year.
The highest bench elevation is 1,350 meters above sea level and the ultimate pit
bottom is expected to be 550 meters above sea level. The Sierrita operation,
including the recently acquired Twin Buttes site, encompasses approximately
23,418 acres, comprising 13,282 acres of patented mining claims and other fee
lands, 9,644 acres of unpatented mining claims, 5,913 acres of Arizona state
mineral leases and 2,024 acres of leased lands.
Sierrita
receives electrical power through long-term contracts with the Tucson Electric
Power Company. Although we believe the Sierrita operation has sufficient water
resources to support currently planned mining operations, we are a party to
litigation that could adversely affect our water rights at Sierrita and at our
other properties in Arizona. Refer to Item 3. “Legal Proceedings,” for
information concerning the status of these proceedings.
Bagdad
Bagdad is
a wholly owned open-pit copper and molybdenum mining complex located in Yavapai
County in west-central Arizona. It is approximately 60 miles west of Prescott
and 100 miles northwest of Phoenix. The property can be reached by Arizona
Highway 96, which ends at the town of Bagdad. The closest railroad siding is at
Hillside, Arizona, approximately 24 miles southeast on Arizona Highway 96. The
open-pit mining operation has been ongoing since 1945, and prior mining was
conducted through underground workings. The Bagdad mine is a porphyry copper
deposit containing both sulfide and oxide mineralization. Chalcopyrite and
molybdenite are the dominant primary sulfides and are the primary economic
minerals in the mine. Chalcocite is the most common secondary copper sulfide
mineral, and the predominant oxide copper minerals are chrysocolla, malachite
and azurite.
The
Bagdad operation consists of a 75,000 metric ton-per-day concentrator that
produces copper and molybdenum concentrates, an SX/EW plant that can produce up
to 25 million pounds per year of copper cathode from solution generated by
low-grade dump leaching and a pressure leach plant to process molybdenum
concentrate. Copper production for 2009 was 225 million pounds and molybdenum
production was six million pounds. The available mining fleet has the capacity
to move in excess of 180,000 metric tons of material per day using 24 235-metric
ton haul trucks loaded by five shovels with bucket sizes ranging from 40 to 56
cubic meters.
Bagdad is
located in a desert environment with rainfall averaging 15 inches per year. The
highest bench elevation is 1,200 meters above sea level and the ultimate pit
bottom is expected to be 475 meters above sea level. The Bagdad operation
encompasses approximately 21,743 acres, comprising 21,143 acres of patented
mining claims and other fee lands, and 600 acres of unpatented mining
claims.
Bagdad
receives electrical power from Arizona Public Service Company. Although we
believe the Bagdad operation has sufficient water resources to support currently
planned mining operations, we are a party to litigation that could adversely
affect our water rights at Bagdad and at our other properties in Arizona. Refer
to Item 3. “Legal Proceedings,” for information concerning the status of these
proceedings.
Safford
Safford
is a wholly owned open-pit copper mining complex located in Graham County,
Arizona, approximately eight miles north of the town of Safford and 170 miles
east of Phoenix. The site is accessible by paved county road off U.S. Highway
70. The Safford mine includes two copper deposits that have oxide mineralization
overlaying primary copper sulfide mineralization. The predominant oxide copper
minerals are chrysocolla and copper-bearing iron oxides with the predominant
copper sulfide material being chalcopyrite.
Initial
production commenced in late 2007 and ramped up to full production capacity
during 2008 before operating plans were revised in fourth-quarter 2008 to
curtail production.
The
property is a mine-for-leach project and produces copper cathodes. The operation
consists of two open pits feeding a crushing facility with a capacity of 103,000
metric tons per day of crushed ore. The crushed ore is delivered to a single
leach pad by a series of overland and portable conveyors. Leach solutions feed
an SX/EW facility with a capacity of 240 million pounds of copper per year.
Copper production for 2009 was 184 million pounds, which reflects the revised
operating plan reducing the mining and stacking rate by 50 percent beginning in
late 2008. The available mining fleet consists of 23 235-metric ton haul trucks
loaded by five shovels with
bucket
sizes ranging from 31 to 34 cubic meters, which are capable of moving an average
of approximately 285,000 metric tons of material per day.
Safford
is located in a desert environment with rainfall averaging 10 inches per year.
The highest bench elevation is 1,250 meters above sea level and the ultimate pit
bottom is expected to have an elevation of 750 meters above sea level. The
Safford operation encompasses approximately 24,957 acres, comprising 20,994
acres of patented lands, 3,932 acres of unpatented lands and 31 acres of land
held by federal permit.
The
Safford operation’s electrical power is provided by Morenci Water and Electric
Company, a wholly owned subsidiary of FCX, through the transmission systems of
Southwest Transmission Cooperative, a subsidiary of Arizona Electric Power
Cooperative, Inc., with most of the power sourced from the Luna Energy facility.
Although we believe the Safford operation has sufficient water resources to
support currently planned mining operations, we are a party to litigation that
could adversely impact the water rights at Safford and at our other properties
in Arizona. Refer to Item 3. “Legal Proceedings,” for information concerning the
status of these proceedings.
Miami
Miami is
a wholly owned open-pit copper mining complex located in Gila County, Arizona,
approximately 90 miles east of Phoenix and six miles west of the city of Globe
on U.S. Highway 60. The site is accessible by a paved highway and by rail. The
Miami mine is developed on a porphyry copper deposit that has leachable oxide
and secondary sulfide mineralization. The predominant oxide copper minerals are
chrysocolla, copper-bearing clays, malachite and azurite; chalcocite and
covellite are the most important secondary copper sulfide minerals.
Since
about 1915, the Miami mining operation had processed copper ore using both
flotation and leaching technologies; currently, and since 2002, operations have
consisted of residual leaching of stockpiles with copper recovered (from
solution) by the SX/EW process. The design capacity of the SX/EW plant is 200
million pounds of copper per year. Copper production for 2009 was 16 million
pounds. The available mining fleet consists of 24 227-metric ton haul trucks
loaded by 3 shovels with bucket sizes ranging from 31 to 34-cubic meters, which
are capable of moving an average of approximately 155,000 metric tons of
material per day.
In
fourth-quarter 2009, we initiated plans to restart limited mining activities at
the Miami mine, which will improve efficiencies of ongoing reclamation projects
associated with historical mining activities at the site. During the approximate
five-year mine life, we expect to ramp up production to approximately 100
million pounds of copper per year by the second half of 2011. We will be
investing approximately $40 million in this project, which will benefit from the
use of existing mine equipment.
Miami is
located in a desert environment with rainfall averaging 18 inches per year. The
highest bench elevation is 1,390 meters above sea level, and the ultimate pit
bottom will have an elevation of 810 meters above sea level. The Miami operation
encompasses approximately 9,058 acres comprising 8,725 acres of patented mining
claims and other fee lands, and 333 acres of unpatented mining
claims.
Miami
receives electrical power through long-term contracts with the Salt River
Project and natural gas through long-term contracts with El Paso Natural Gas as
the transporter. Although we believe the Miami operation has sufficient water
resources to support currently planned mining operations, we are a party to
litigation that could
adversely
impact the water rights at Miami and at our other properties in Arizona. Refer
to Item 3. “Legal Proceedings,” for information concerning the status of these
proceedings.
Tyrone
Our
wholly owned Tyrone mine is an open-pit copper mining complex which has been in
operation since 1967. It is located in southwestern New Mexico in Grant County,
approximately 10 miles south of Silver City, New Mexico, along State Highway 90.
The site is accessible by paved road. The Tyrone mine is a porphyry copper
deposit. Mineralization is predominantly secondary sulfide consisting of
chalcocite.
Copper
processing facilities consist of an SX/EW operation with a maximum capacity of
168 million pounds of copper cathodes per year. Copper production for 2009 was
86 million pounds, reflecting the revised operating plan which reduced the
mining rate by 50 percent beginning in late 2008. The mining rate increased
during 2009, and the mine is currently operating at approximately 80 percent of
capacity. The available mining fleet has the capacity to move an average of
120,000 metric tons of material per day using 15 240-metric ton haul trucks
loaded by three shovels with bucket sizes ranging from 17 to 42 cubic
meters.
Tyrone is
located in a desert environment with rainfall averaging 16 inches per year. The
highest bench elevation is 2,000 meters above sea level and the ultimate pit
bottom is expected to have an elevation of 1,500 meters above sea level. The
Tyrone operation encompasses approximately 35,200 acres, comprising 18,755 acres
of patented mining claims and other fee lands, and 16,445 acres of unpatented
mining claims (includes 1,116 acres overlaying federal minerals on previously
counted fee lands).
Tyrone
receives electrical power from the Luna Energy facility and from the open
market. Tyrone also has the ability to self-generate power. We believe the
Tyrone operation has sufficient water resources to support currently planned
mining operations.
Henderson
Our
wholly owned Henderson molybdenum mine has been in operation since 1976 and is
located approximately 42 miles west of Denver, Colorado, off U.S. Highway 40.
Nearby communities include the towns of Empire, Georgetown and Idaho Springs.
The Henderson mill site is located approximately 15 miles west of the mine and
is accessible from Colorado State Highway 9. The Henderson mine and mill are
connected by a 10-mile conveyor tunnel under the Continental Divide and an
additional five-mile surface conveyor. The tunnel portal is located five miles
east of the mill. The Henderson mine is a porphyry molybdenum deposit with
molybdenite as the primary sulfide mineral.
The
Henderson operation consists of a large block-cave underground mining complex
feeding a concentrator with a current capacity of approximately 29,000 metric
tons-per-day. Henderson has the capacity to produce approximately 40 million
pounds of molybdenum per year. The majority of the molybdenum concentrate
produced is shipped to our Fort Madison, Iowa, processing facility. Molybdenum
production for 2009 was 27 million pounds, which reflects the revised operating
plan reducing Henderson’s annual production by 40 percent beginning in late 2008
and early 2009. Conditions improved somewhat during 2009 and Henderson is
currently operating at approximately 80 percent of capacity. The available
underground mining equipment fleet consists of 13 nine-metric ton load-haul-dump
(LHD) units and seven 36- and 73-metric ton haul trucks, which feed a gyratory
crusher feeding a series of three overland conveyors to the mill
stockpiles.
The
Henderson mine is located in a mountain region with the main access shaft at
3,180 meters above sea level. The main production levels are currently at
elevations of 2,200 and 2,350 meters above sea level. This region experiences
significant snowfall during the winter months.
The
Henderson mine and mill operations encompass approximately 11,878 acres,
comprising 11,843 acres of patented mining claims and other fee lands, and a
35-acre easement with the U.S. Forest Service for the surface portion of the
conveyor corridor.
Henderson
operations receive electrical power through long-term contracts with Xcel Energy
and natural gas through long-term contracts with BP Energy, with Xcel Energy as
the transporter. We believe the Henderson operation has sufficient water
resources to support currently planned mining operations.
Non-Operating
North America Mines
In
addition to the currently operating mines described above, we have three
non-operating copper mines in Arizona: Ajo, Bisbee and Tohono; two in New
Mexico: Chino (with limited residual copper production from leaching operations)
and Cobre; and the Climax molybdenum mine in Colorado, all of which are
currently on care-and-maintenance status.
In
response to market conditions during fourth-quarter 2008, we placed the Chino
mine on care-and-maintenance status in December 2008. The remainder of these
copper mines have been on care-and-maintenance status for several years and
would require significant capital investment to return them to operating status.
Several of the non-operating Arizona and New Mexico copper mines continue to
produce copper cathode from stockpiles. Copper production in 2009 from these
mines totaled 36 million pounds.
During
fourth-quarter 2008, we also suspended construction activities associated with
the project to restart the Climax molybdenum mine, which would have an annual
capacity of 30 million pounds of molybdenum with expansion options. We continue
to monitor market conditions to determine timing for restarting construction of
this project. Once a decision is made to resume construction activities, the
project could be completed within 18 months. Remaining costs for the project are
estimated to approximate $350 million.
South
America
At our
operations in South America, mine properties and facilities are controlled
through mining claims or concessions under the general mining laws of the
relevant country. The claims or concessions are owned or controlled by the
operating companies in which we or our subsidiaries have an ownership interest.
Roads, power lines and aqueducts are controlled by easements.
Cerro
Verde
We have a
53.56 percent ownership interest in Cerro Verde. The remaining 46.44 percent is
held by SMM Cerro Verde Netherlands B.V. (21.0 percent), Compañia de Minas
Buenaventura S.A.A. (19.3 percent) and other stockholders whose shares are
publicly traded on the Lima Stock Exchange (6.14 percent).
Cerro
Verde is an open-pit copper and molybdenum mining complex that has been in
operation since 1976 and is located 20 miles southwest of Arequipa, Peru. The
site is accessible by paved highway. The Cerro Verde mine is a porphyry copper
deposit that has oxide and secondary sulfide mineralization, and primary sulfide
mineralization. The predominant oxide copper minerals are brochantite,
chrysocolla, malachite and copper “pitch.” Chalcocite and covellite are the most
important secondary copper sulfide minerals. Chalcopyrite and molybdenite are
the dominant primary sulfides.
Cerro
Verde’s current operation consists of an open-pit copper mine, concentrator and
SX/EW leaching facilities. Leach copper production is derived from a 39,000
metric ton-per-day crushed leach facility and a ROM leach system. This leaching
operation has a capacity of approximately 200 million pounds of copper per year.
A 108,000 metric ton-per-day concentrator was completed in late 2006 and began
processing of sulfide ore in the fourth quarter of 2006. Copper production for
2009 was 662 million pounds and molybdenum production was 2 million pounds. We
have commenced a project to optimize throughput at the concentrator. The
project, which is expected to be completed by the end of 2010, is designed to
add 30 million pounds of additional copper production per year by increasing
mill throughput from 108,000 metric tons of ore per day to 120,000 metric tons
of ore per day. The total capital investment for this project is expected to
approximate $50 million.
Cerro
Verde has sufficient equipment to move an average of 308,000 metric tons of
material per day using an available fleet of 28 180-metric ton and 230-metric
ton haul trucks loaded by five shovels with bucket sizes ranging in size from 21
to 53 cubic meters.
Approximately
one-third of Cerro Verde’s copper cathode production is sold locally and the
remaining copper cathodes and concentrate production are transported
approximately 70 miles by truck and rail to the Pacific Port of Matarani for
shipment to international markets.
Cerro
Verde is located in a desert environment with rainfall averaging 1.5 inches per
year and is in an active seismic zone. The highest bench elevation is 2,900
meters above sea level and the ultimate pit bottom is expected to be 2,000
meters above sea level. Cerro Verde has a mining concession covering
approximately 157,007 acres plus 24 acres of owned property and 79 acres of
rights-of-way outside the mining concession area.
Cerro
Verde receives electrical power under long-term contracts with Electroperu and
Empresa de Generación Eléctrica de Arequipa. Water for our Cerro Verde
processing operations comes from renewable sources through a series of storage
reservoirs on the Rio Chili watershed that collect water primarily from seasonal
precipitation. Cerro Verde’s participation in the Pillones Reservoir Project has
secured water rights that we believe will be sufficient to support Cerro Verde’s
currently planned operations. With the completion of the Bamputañe dam during
2009, an additional 40 million cubic meters of water storage was added to the
system. For a discussion of risks associated with the availability of water, see
Item 1A. – “Risk Factors.”
El
Abra
We own a
51 percent interest in El Abra. The remaining 49 percent interest is held by the
state-owned copper enterprise Corporación Nacional del Cobre de Chile
(CODELCO).
El Abra
is an open-pit copper mining complex that has been in operation since 1996 and
is located 47 miles north of Calama in Chile’s El Loa province, Region II. The
site is accessible by paved highway and by rail. The El Abra mine is a porphyry
copper deposit that has oxide and sulfide mineralization. The predominant oxide
copper minerals are chrysocolla and pseudomalachite. There are lesser amounts of
copper-bearing clays and tenorite. The predominant primary sulfide copper
minerals are bornite and chalcopyrite. There is a minor amount of secondary
sulfide mineralization as chalcocite.
The El
Abra operation consists of an open-pit copper mine and an SX/EW facility with a
capacity of 500 million pounds of copper cathode per year from a 120,000 metric
ton-per-day crushed leach circuit and a similar-sized, ROM leaching operation.
Copper production for 2009 was 358 million pounds. The mining operation has
sufficient equipment to move an average of 223,000 metric tons of material per
day using an available fleet of 26 220-metric ton haul trucks loaded by four
shovels with buckets ranging in size from 26 to 41 cubic meters.
We have
resumed construction activities associated with the development of a large
sulfide deposit at El Abra that will extend the mine life by over ten years.
Production from the sulfide ore, which will be ramping up to approximately 300
million pounds of copper per year is expected to begin in 2012 and will replace
the current oxide copper production that is expected to decline over the next
several years. The project will use a portion of the existing facilities to
process the additional sulfide ore. Total capital for the project is estimated
to approximate $700 million through 2015, of which approximately $500 million is
for the initial phase of the project that is expected to be completed in
2012.
El Abra
is located in a desert environment with rainfall averaging less than one inch
per year and is in an active seismic zone. The highest bench elevation is 4,180
meters above sea level and the ultimate pit bottom is expected to be 3,410
meters above sea level. El Abra controls a total of 110,268 acres of mining
claims covering the ore deposit, stockpiles, process plant, and water wellfield
and pipeline. In addition, El Abra has acquired land surface rights for the road
between the processing plant and the mine, the water wellfield, power
transmission lines and for the water pipeline from the Salar de
Ascotán.
El Abra
currently receives electrical power under a contract with Electroandina, which
will expire at the end of 2017. Water for our El Abra processing operations
comes from pumping of groundwater from the Salar de Ascotán pursuant to
regulatory approval. We believe El Abra has sufficient water rights to support
current operations. For a discussion of risks associated with the availability
of water, see Item 1A. – “Risk Factors.”
Candelaria
and Ojos del Salado
Candelaria. We
have an 80 percent ownership interest in Candelaria. The remaining 20 percent
interest is owned by affiliates of Sumitomo Corporation.
Candelaria’s
open-pit mine has been in operation since 1993 and the underground mine has been
in operation since 2005. The Candelaria copper mining complex is located
approximately 12 miles south of Copiapó in northern Chile’s Atacama province,
Region III. The site is accessible by two maintained dirt roads, one coming
through the Tierra Amarilla community and the other off of Route 5 of the
International Pan-American Highway. The
Candelaria mine is an iron oxide, copper/gold deposit. Primary sulfide
mineralization consists of chalcopyrite.
The
Candelaria operation consists of an open-pit copper mine and a 6,000 metric
ton-per-day underground copper mine, which is mined by sublevel stoping, feeding
a 75,000 metric ton-per-day concentrator. On average, open-pit mining operations
move 235,000 metric tons of material per day using an available fleet of 38
225-metric ton haul trucks loaded by six shovels with bucket sizes ranging from
13 to 43 cubic meters. Copper concentrates are transported by truck to the Punta
Padrones port facility located in Caldera, approximately 50 miles northwest of
the mine. Copper production for 2009 was 296 million pounds and gold production
was 74,000 ounces.
Candelaria
is located in a desert environment with rainfall averaging less than one inch
per year and is in an active seismic zone. The highest bench elevation is 675
meters above sea level and the ultimate pit bottom is expected to be 30 meters
below sea level. The Candelaria property encompasses approximately 13,390 acres,
including approximately 125 acres for the port facility in Caldera. The
remaining property consists of mineral rights owned by us in which the surface
is not owned but controlled by us, which is consistent with Chilean law.
Candelaria
receives electrical power through long-term contracts with Empresa Eléctrica
Guacolda S.A., a local energy company. Candelaria’s water supply comes from well
fields in the area of Tierra Amarilla and Copiapó that draw water from the
Copiapó River aquifer. Because of rapid depletion of that aquifer in recent
years, ongoing studies are addressing the adequacy of this water supply for
Candelaria’s currently planned operations. For a discussion of risks associated
with the availability of water, see Item 1A. – “Risk Factors.”
Ojos del
Salado. We have an 80 percent ownership interest in Ojos del
Salado. The remaining 20 percent interest
is owned by affiliates of Sumitomo Corporation.
The Ojos
del Salado operation began commercial production in 1929 and consists of two
underground copper mines (Santos and Alcaparrosa) and a 3,800 metric ton-per-day
concentrator. The operation is located approximately 10 miles east of Copiapó in
northern Chile’s Atacama province, Region III, and is accessible by paved
highway. The Ojos del Salado mines are iron oxide and copper/gold deposits.
Primary sulfide mineralization consists of chalcopyrite.
The Ojos
del Salado operation has a capacity of 3,800 metric tons per day of ore from the
Santos underground mine and 4,000 metric tons of ore per day from the
Alcaparrosa underground mine. The ore from both mines is mined by sublevel
stoping since both the ore and enclosing rocks are competent. The broken ore is
removed from the stopes using scoops and loaded into an available fleet of 18
28-metric ton trucks, which transport the ore to the surface. The ore from the
Santos mine is hauled directly to the Ojos del Salado mill for processing, and
the
ore from
the Alcaparrosa mine is reloaded into five 54-metric ton trucks and hauled seven
miles to the Candelaria mill for processing. The Ojos del Salado concentrator
has the capacity to produce over 30 million pounds of copper and 9,000 ounces of
gold per year. Copper production for 2009 was 74 million pounds and gold
production was 18,000 ounces. Tailings from the Ojos del Salado mill are pumped
to the Candelaria tailings facility for final deposition. The Candelaria
facility has sufficient capacity for the remaining Ojos del Salado tailings in
addition to Candelaria’s tailings.
Ojos del
Salado is located in a desert environment with rainfall averaging less than one
inch per year and is in an active seismic zone. The highest underground level is
at an elevation of 500 meters above sea level, with the lowest underground level
at 150 meters above sea level. The Ojos del Salado mineral rights encompass
approximately 15,815 acres, which includes approximately 6,784 acres of owned
land in and around the Ojos del Salado underground mines and plant site. The
remaining property consists of mineral rights owned by us in which the surface
is not owned but controlled by us, which is consistent with Chilean
law.
Ojos del
Salado receives electrical power through long-term contracts with Empresa
Eléctrica Guacolda S.A. Ojos del Salado’s water supply comes from well fields in
the area of Tierra Amarilla and Copiapó that draw water from the Copiapó River
aquifer. Because of rapid depletion of this aquifer in recent years, ongoing
studies are addressing the adequacy of this water supply for Ojos del Salado’s
currently planned operations. For a discussion of risks associated with the
availability of water, see Item 1A. – “Risk Factors.”
Indonesia
Ownership
PT
Freeport Indonesia is a limited liability company organized under the laws of
the Republic of Indonesia and incorporated in Delaware. We directly own 81.28
percent of PT Freeport Indonesia, 9.36 percent indirectly through our wholly
owned subsidiary, PT Indocopper Investama, and the Government of Indonesia owns
the remaining 9.36 percent. In July 2004, we received a request from the
Indonesian Department of Energy and Mineral Resources that we offer to sell
shares in PT Indocopper Investama to Indonesian nationals at fair market value.
Refer to Note 15 for additional discussion.
In 1996,
we established certain unincorporated joint ventures with Rio Tinto plc (Rio
Tinto), an international mining company with headquarters in London, England.
Pursuant to the joint venture agreements, Rio Tinto has a 40 percent interest in
certain assets and future production exceeding specified annual amounts of
copper, gold and silver through 2021 in Block A, and, after 2021, a 40 percent
interest in all production from Block A. Refer to Note 3 for further
discussion of the joint venture with Rio Tinto.
Contracts
of Work
Through a
Contract of Work (COW) with the Government of Indonesia, PT Freeport Indonesia
conducts its current exploration and mining operations in Indonesia. The COW
governs our rights and obligations relating to taxes, exchange controls,
royalties, repatriation and other matters, and was concluded pursuant to the
1967 Foreign Capital Investment Law, which expresses Indonesia’s foreign
investment policy and provides basic guarantees of remittance rights and
protection against nationalization, a framework for economic incentives and
basic rules regarding other rights and obligations of foreign investors.
Specifically, the COW provides that the Government of Indonesia will not
nationalize or expropriate PT Freeport Indonesia’s mining operations. Any
disputes regarding the provisions of the COW are subject to international
arbitration. We have experienced no disputes requiring arbitration during the 41
years we have operated in Indonesia.
PT
Freeport Indonesia’s COW covers both Block A, which was first included in a 1967
COW that was replaced by a new COW in 1991, and Block B in which we gained
rights in 1991. The initial term of our COW expires in December 2021, but we can
extend it for two 10-year periods subject to Indonesian government approval that
cannot be withheld or delayed unreasonably. The COW allows us to conduct
exploration, mining and production activities in the 24,700-acre Block A area,
located in Papua. All of PT Freeport Indonesia’s proven and probable mineral
reserves and current mining operations are located in Block A. Under the COW, PT
Freeport Indonesia also conducts exploration activities (which had been
suspended in 2009, but will resume in 2010) in the approximate 500,000-acre
Block B area, in Papua. We originally had the rights to explore 6.5 million
acres in Block B, but pursuant to the COW we have only retained the rights to
approximately 500,000 acres following
significant
geological assessment.
PT
Freeport Indonesia pays a copper royalty under its COW that varies from 1.5
percent of copper net revenue at a copper price of $0.90 or less per pound to
3.5 percent at a copper price of $1.10 or more per pound. The COW royalty rate
for gold and silver sales is 1.0 percent.
A large
part of the mineral royalties under Government of Indonesia regulations are
designated to the provinces from which the minerals are extracted. In connection
with our fourth concentrator mill expansion completed in 1998, PT Freeport
Indonesia agreed to pay the Government of Indonesia additional royalties
(royalties not required by our COW) to provide further support to the local
governments and the people of the Indonesia province of Papua. The additional
royalties are paid on production exceeding specified annual amounts of copper,
gold and silver expected to be generated when PT Freeport Indonesia’s milling
facilities operate above 200,000 metric tons of ore per day. The additional
royalty for copper equals the COW royalty rate and for gold and silver equals
twice the COW royalty rates. Therefore, PT Freeport Indonesia’s royalty rate on
copper net revenues from production above the agreed levels is double the COW
royalty rate, and royalty rates on gold and silver sales from production above
the agreed levels are triple the COW royalty rates. PT Freeport Indonesia’s
share of the combined royalties, including the additional royalties which became
effective January 1, 1999, totaled $147 million in 2009, $113 million in 2008
and $133 million in 2007.
PT Irja
Eastern Minerals (Eastern Minerals), of which we own 100 percent, conducts
exploration through a joint venture agreement, under a separate COW in an area
covering approximately 450,000 acres in Papua. The Eastern Minerals COW was
under suspension during 2009.
Under a
joint venture agreement through PT Nabire Bakti Mining (PTNBM), we conduct
exploration activities under a separate COW in an area covering approximately
500,000 acres in five parcels contiguous to PT Freeport Indonesia’s Block B and
one of Eastern Minerals’ blocks. The PTNBM COW was under suspension for much of
2009, but will resume in 2010.
In 2008,
Indonesia enacted a new mining law, which will operate under a licensing system
as opposed to the COW system that applies to PT Freeport Indonesia, Eastern
Minerals and PTNBM. In 2010, the Government of Indonesia promulgated regulations
under the 2008 mining law and certain provisions address existing COWs.
The regulations provide that COWs will continue to be honored until
their expiration. However, the regulations attempt to apply certain
provisions of the new law to any extension periods of COWs even though our COWs
provide for two ten-year extension periods under the existing terms of our COWs.
Grasberg Minerals District
PT
Freeport Indonesia operates in the remote highlands of the Sudirman Mountain
Range in the province of Papua, Indonesia, which is on the western half of the
island of New Guinea. We and our predecessors have conducted exploration and
mining operations in Block A since 1967 and have been the only operator of these
operations. We currently have two mines in operation: the Grasberg open pit and
the Deep Ore Zone (DOZ) underground block cave. We also have significant
development projects in the Grasberg minerals district, which are discussed in
more detail in “Development Projects and Exploration” below and in Item
7. “Management’s Discussion and Analysis of Financial Conditions and
Results of Operations.”
Grasberg Open Pit.
We began open-pit
mining of the Grasberg ore body in 1990. Open-pit operations are expected to
continue through mid 2016, at which time underground mining operations are
scheduled to begin at our Grasberg Block Cave mine, which is currently in
development. Production is currently at the 3,295- to 4,285-meter elevation
level and totaled 57 million metric tons of ore in 2009 and 49 million metric
tons of ore in 2008, which provided 70 percent of our 2009 mill feed and 67
percent of our 2008 mill feed. Remaining mill feed comes from our DOZ
mine.
The
current Grasberg equipment fleet consists of over 500 units. The larger mining
equipment directly associated with production includes an available fleet of 163
haul trucks with payloads ranging from approximately 215 metric tons to 330
metric tons and 18 shovels with bucket sizes ranging from 30 cubic meters to 42
cubic meters, which in 2009 moved an average of 725,000 metric tons per
day.
Grasberg
crushing and conveying systems are integral to the mine and provide the capacity
to transport up to 225,000 metric tons per day of Grasberg ore to the mill and
135,000 metric tons per day of overburden to the overburden stockpiles. The
remaining ore and overburden is moved by haul trucks.
Deep Ore Zone. The DOZ ore body lies
vertically below the now depleted Intermediate Ore Zone. We began production
from the DOZ ore body in 1989 using open stope mining methods, but we suspended
production in 1991 in favor of production from the Grasberg deposit. Production
resumed in September 2000 using the block-cave method. Production is at the
3,110-meter elevation level and totaled 26 million metric tons of ore in 2009
and 23 million metric tons in 2008. Production at the DOZ mine is expected to
continue through 2020 and we plan to ramp up production at our Deep Mill Level
Zone (DMLZ) block cave mine, which is currently under development, beginning in
2015.
During
2009, we completed over 11,000 meters of development drifting in support of the
block-cave mining method for the DOZ mine. Further expansion of the DOZ
operation to 80,000 metric tons of ore per day is substantially complete. The
success of the development of the DOZ mine, one of the world’s largest
underground
mines,
provides confidence in the future development of PT Freeport Indonesia’s
large-scale undeveloped underground ore bodies.
The DOZ
mine fleet consists of over 185 pieces of mobile heavy equipment, which in 2009
moved an average of 72,000 metric tons of ore per day. The primary mining
equipment directly associated with production and development includes an
available fleet of 49 load haul dump (LHD) units and 23 haul trucks. Our
production LHD units typically carry approximately 11 metric tons of ore. Using
ore passes and chutes, the LHD units transfer ore into 55-ton capacity haul
trucks. The trucks dump into two gyratory crushers and the ore is then conveyed
to the surface stockpiles.
PT
Freeport Indonesia’s total production for 2009 was 1.4 billion pounds of copper
and 2.6 million ounces of gold.
Our
principal source of power for all our Indonesian operations is a coal-fired
power plant that we built in conjunction with our fourth concentrator mill
expansion. Diesel generators supply peaking and backup electrical power
generating capacity. A combination of naturally occurring mountain streams and
water derived from our underground operations provides water for our operations.
Our Indonesian operations are in an active seismic zone and experience average
annual rainfall of approximately 200 inches.
Description of Ore
Bodies. Our
Indonesia ore bodies are located within and around two main igneous intrusions,
the Grasberg monzodiorite and the Ertsberg diorite. The host rocks of these ore
bodies include both carbonate and clastic rocks that form the ridge crests and
upper flanks of the Sudirman Range, and the igneous rocks of monzonitic to
dioritic composition that intrude them. The igneous-hosted ore bodies (the
Grasberg open pit and block cave, and portions of the DOZ block cave) occur as
vein stockworks and disseminations of copper sulfides, dominated by chalcopyrite
and, to a much lesser extent, bornite. The sedimentary-rock hosted ore bodies
occur as “magnetite-rich, calcium/magnesian skarn” replacements, whose location
and orientation are strongly influenced by major faults and by the chemistry of
the carbonate rocks along the margins of the intrusions.
The
copper mineralization in these skarn deposits is also dominated by chalcopyrite,
but higher bornite concentrations are common. Moreover, gold occurs in
significant concentrations in all of the district’s ore bodies, though rarely
visible to the naked eye. These gold concentrations usually occur as inclusions
within the copper sulfide minerals, though, in some deposits, these
concentrations can also be strongly associated with pyrite.
The
following diagram indicates the relative elevations (in meters) of our reported
ore bodies.
The
following map, which encompasses an area of approximately 42 square kilometers
(approximately 16 square miles), indicates the relative positions and sizes of
our reported ore bodies and their locations.
Africa
At Tenke
Fungurume, mine properties and facilities are controlled through mining
concessions under general mining laws and our mining rights remain in force as
long as the concessions are exploitable. The concessions are owned or controlled
by operating companies in which we or our subsidiaries have an ownership
interest.
Tenke
Fungurume
We own an
effective 57.75 percent interest in the Tenke Fungurume minerals district. The
remaining ownership interests are held by Lundin Mining Corporation (Lundin) (an
effective 24.75 percent interest) and La Générale des Carrières et des Mines
(Gécamines), which is wholly owned by the Government of the DRC (17.5 percent
non-dilutable interest).
In 2009,
we completed the approximate $2 billion initial project at the Tenke Fungurume
minerals district. Pursuant to our agreement with Lundin, we were responsible
for funding our share (70 percent) of the project development costs and 100
percent of certain cost overruns on the initial project. We and Lundin will be
repaid our advances prior to distributions to the stockholders of Tenke
Fungurume. Accordingly, we will receive a disproportionate share of cash flow
until the cost overrun financing and advances are repaid. Additionally, in
accordance with the terms of the agreement, Gécamines will receive asset
transfer payments totaling $100 million, $80 million of which have already been
paid and the remainder of which will be paid over the next two
years.
The Tenke
Fungurume deposits are located in the Katanga province of the DRC approximately
110 miles northwest of Lubumbashi. The deposits are accessible by unpaved roads
and by rail. The Tenke Fungurume deposits are sediment-hosted copper and cobalt
deposits with oxide, mixed oxide-sulfide and sulfide mineralization. The
dominant oxide minerals are malachite, pseudomalachite and heterogenite.
Important sulfide minerals consist of bornite, carrollite, chalcocite and
chalcopyrite.
Copper
and cobalt are recovered through an agitation-leach plant capable of processing
8,000 metric tons of ore per day. Copper production commenced in March 2009 and
achieved targeted production rates in September 2009. The cobalt and sulphuric
acid plants were commissioned in September 2009 and we continue to address
start-up and quality issues in the cobalt circuit and expect to reach sustained
targeted production rates during 2010. Current operations are designed to
produce approximately 250 million pounds of copper and 18 million pounds of
cobalt per year. The current equipment fleet includes 10 five-cubic meter
front-end loaders, 29 45-metric ton haul trucks, surface miners, production
drills, sampling machines and crawler dozers.
We
commenced a feasibility study in fourth-quarter 2009 to evaluate a second phase
of the project, which would include optimizing the current plant and potentially
increasing capacity by approximately 50 percent. The feasibility study is
expected to be completed by mid-year 2010. The timing of these expansions will
depend on a number of factors, including general economic and market
conditions.
Tenke
Fungurume is located in a tropical region; however, temperatures are moderated
by its higher altitudes. Weather in this region is characterized by a dry season
and a wet season, each lasting about six months with average rainfall of 47
inches per year. The highest bench elevation is expected to be 1,480 meters
above sea level and the ultimate pit bottom is expected to be 1,270 meters above
sea level. The Tenke Fungurume deposits are located within four concessions
totaling 394,455 acres.
Tenke
Fungurume has entered into long-term power supply and infrastructure funding
agreements with La Société Nationale d’Electricité (SNEL), the state-owned
electric utility company serving the region. The results of a recent water
exploration program, as well as the regional geological and hydro-geological
conditions, indicate that adequate water is available for the project, and for
hydro-electric generation during the expected life of the
operation.
In
February 2008, the Ministry of Mines, Government of the DRC, sent a letter
seeking comment on proposed material modifications to the mining contracts for
the Tenke Fungurume concession. We are continuing to work cooperatively with the
DRC government to resolve the ongoing contract review but cannot predict the
timing or outcome of the process. The contract review process has not affected
our development schedule and we are continuing to operate pursuant to the terms
of our contract. We believe the contract is fair and equitable, complies with
Congolese law and is enforceable without modification.
PRODUCTION
DATA
For
comparative purposes, operating data shown below for the years ended December
31, 2007, 2006 and 2005, combines our historical data with Phelps Dodge
pre-acquisition data. As the pre-acquisition operating data represent the
results of these operations under Phelps Dodge management, such combined data is
not necessarily indicative of what past results would have been under FCX
management or of future operating results.
COPPER
|
|
Years
Ended December 31,
|
|
(millions
of recoverable pounds)
|
|
2009
|
|
|
2008
|
|
|
2007a
|
|
|
2006a
|
|
|
2005a
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
MINED COPPER (FCX’s net
interest in %)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
North America
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Morenci
(85%)b
|
|
428
|
|
|
626
|
|
|
687
|
|
|
693
|
|
|
680
|
|
Bagdad
(100%)
|
|
225
|
|
|
227
|
|
|
202
|
|
|
165
|
|
|
201
|
|
Safford
(100%)
|
|
184
|
|
|
133
|
|
|
1
|
|
|
-
|
|
|
-
|
|
Sierrita
(100%)
|
|
170
|
|
|
188
|
|
|
150
|
|
|
162
|
|
|
158
|
|
Tyrone
(100%)
|
|
86
|
|
|
76
|
|
|
50
|
|
|
64
|
|
|
81
|
|
Chino
(100%)
|
|
36
|
|
|
155
|
|
|
190
|
|
|
186
|
|
|
210
|
|
Miami
(100%)
|
|
16
|
|
|
19
|
|
|
20
|
|
|
19
|
|
|
25
|
|
Other
(100%)
|
|
2
|
|
|
6
|
|
|
20
|
|
|
16
|
|
|
10
|
|
Total
North America
|
|
1,147
|
|
|
1,430
|
|
|
1,320
|
c
|
|
1,305
|
|
|
1,365
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
South America
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cerro
Verde (53.56%)
|
|
662
|
|
|
694
|
|
|
594
|
|
|
222
|
|
|
206
|
|
Candelaria/Ojos
del Salado (80%)
|
|
370
|
|
|
446
|
|
|
453
|
|
|
429
|
|
|
421
|
|
El
Abra (51%)
|
|
358
|
|
|
366
|
|
|
366
|
|
|
482
|
|
|
464
|
|
Total
South America
|
|
1,390
|
|
|
1,506
|
|
|
1,413
|
c
|
|
1,133
|
|
|
1,091
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Indonesia
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Grasberg
(90.64%)d
|
|
1,412
|
|
|
1,094
|
|
|
1,151
|
|
|
1,201
|
|
|
1,456
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Africa
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Tenke
Fungurume (57.75%)
|
|
154
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
Consolidated
|
|
4,103
|
|
|
4,030
|
|
|
3,884
|
|
|
3,639
|
|
|
3,912
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Less
noncontrolling participants’ share
|
|
754
|
|
|
693
|
|
|
653
|
|
|
537
|
|
|
543
|
|
Net
|
|
3,349
|
|
|
3,337
|
|
|
3,231
|
|
|
3,102
|
|
|
3,369
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
GOLD
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(thousands
of recoverable ounces)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
MINED GOLD (FCX’s net
interest in %)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
North
America (100%)b
|
|
4
|
|
|
14
|
|
|
15
|
|
|
19
|
|
|
17
|
|
South
America (80%)
|
|
92
|
|
|
114
|
|
|
116
|
e
|
|
112
|
|
|
117
|
|
Indonesia
(90.64%)d
|
|
2,568
|
|
|
1,163
|
|
|
2,198
|
|
|
1,732
|
|
|
2,789
|
|
Consolidated
|
|
2,664
|
|
|
1,291
|
|
|
2,329
|
|
|
1,863
|
|
|
2,923
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Less
noncontrolling participants’ share
|
|
258
|
|
|
132
|
|
|
229
|
|
|
184
|
|
|
284
|
|
Net
|
|
2,406
|
|
|
1,159
|
|
|
2,100
|
|
|
1,679
|
|
|
2,639
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
MOLYBDENUM
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(millions
of recoverable pounds)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
MINED MOLYBDENUM (FCX’s
net interest in %)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Henderson
(100%)
|
|
27
|
|
|
40
|
|
|
39
|
f
|
|
37
|
|
|
32
|
|
By-product
– North America (100%)b
|
|
25
|
|
|
30
|
|
|
30
|
|
|
31
|
|
|
30
|
|
By-product
– Cerro Verde (53.56%)
|
|
2
|
|
|
3
|
|
|
1
|
|
|
-
|
|
|
-
|
|
Consolidated
|
|
54
|
|
|
73
|
|
|
70
|
|
|
68
|
|
|
62
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Less
noncontrolling participants’ share
|
|
1
|
|
|
1
|
|
|
-
|
|
|
-
|
|
|
-
|
|
Net
|
|
53
|
|
|
72
|
|
|
70
|
|
|
68
|
|
|
62
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
a.
|
For
comparative purposes, operating data for the years ended December 31,
2007, 2006 and 2005, combines our historical data with Phelps Dodge
pre-acquisition data. As the pre-acquisition data represent the results of
these operations under Phelps Dodge management, such combined data is not
necessarily indicative of what past results would have been under FCX
management or of future operating
results.
|
b.
|
Amounts
are net of Morenci’s 15 percent joint venture partner
interest.
|
c.
|
Includes
North America copper production of 258 million pounds and South America
copper production of 259 million pounds for Phelps Dodge’s pre-acquisition
results.
|
d.
|
Amounts
are net of Grasberg’s joint venture partner’s interest, which varies in
accordance with terms of the joint venture
agreement.
|
e.
|
Includes
gold production of 21 thousand ounces for Phelps Dodge’s pre-acquisition
results.
|
f.
|
Includes
molybdenum production of 14 million pounds for Phelps Dodge’s
pre-acquisition results.
|
SALES
DATA
For
comparative purposes, operating data shown below for the years ended December
31, 2007, 2006 and 2005, combines our historical data with Phelps Dodge
pre-acquisition data. As the pre-acquisition operating data represent the
results of these operations under Phelps Dodge management, such combined data is
not necessarily indicative of what past results would have been under FCX
management or of future operating results.
|
|
Years
Ended December 31,
|
|
COPPER
(millions of recoverable pounds)
|
|
2009
|
|
|
2008
|
|
|
2007a
|
|
|
2006a
|
|
|
2005a
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
MINED COPPER (FCX’s net
interest in %)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
North America
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Morenci
(85%)b
|
|
459
|
|
|
646
|
|
|
693
|
|
|
692
|
|
|
680
|
|
Bagdad
(100%)
|
|
225
|
|
|
226
|
|
|
200
|
|
|
165
|
|
|
209
|
|
Safford
(100%)
|
|
176
|
|
|
107
|
|
|
-
|
|
|
-
|
|
|
-
|
|
Sierrita
(100%)
|
|
172
|
|
|
184
|
|
|
157
|
|
|
161
|
|
|
165
|
|
Tyrone
(100%)
|
|
85
|
|
|
71
|
|
|
53
|
|
|
64
|
|
|
81
|
|
Chino
(100%)
|
|
52
|
|
|
174
|
|
|
186
|
|
|
186
|
|
|
209
|
|
Miami
(100%)
|
|
16
|
|
|
20
|
|
|
24
|
|
|
19
|
|
|
29
|
|
Other
(100%)
|
|
2
|
|
|
6
|
|
|
19
|
|
|
16
|
|
|
10
|
|
Total
North America
|
|
1,187
|
|
|
1,434
|
|
|
1,332
|
c
|
|
1,303
|
|
|
1,383
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
South America
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cerro
Verde (53.56%)
|
|
667
|
|
|
701
|
|
|
587
|
|
|
214
|
|
|
205
|
|
Candelaria/Ojos
del Salado (80%)
|
|
366
|
|
|
455
|
|
|
447
|
|
|
425
|
|
|
421
|
|
El
Abra (51%)
|
|
361
|
|
|
365
|
|
|
365
|
|
|
487
|
|
|
467
|
|
Total
South America
|
|
1,394
|
|
|
1,521
|
|
|
1,399
|
c
|
|
1,126
|
|
|
1,093
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Indonesia
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Grasberg
(90.64%)d
|
|
1,400
|
|
|
1,111
|
|
|
1,131
|
|
|
1,201
|
|
|
1,457
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Africa
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Tenke
Fungurume (57.75%)
|
|
130
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
Consolidated
|
|
4,111
|
|
|
4,066
|
|
|
3,862
|
|
|
3,630
|
|
|
3,933
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Less
minority participants’ share
|
|
746
|
|
|
699
|
|
|
647
|
|
|
535
|
|
|
545
|
|
Net
|
|
3,365
|
|
|
3,367
|
|
|
3,215
|
|
|
3,095
|
|
|
3,388
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated
sales from mines
|
|
4,111
|
|
|
4,066
|
|
|
3,862
|
|
|
3,630
|
|
|
3,933
|
|
Purchased
copper
|
|
166
|
|
|
483
|
|
|
650
|
|
|
736
|
|
|
821
|
|
Total
consolidated sales
|
|
4,277
|
|
|
4,549
|
|
|
4,512
|
|
|
4,366
|
|
|
4,754
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average
realized price per pound
|
|
$2.60
|
|
|
$2.69
|
|
|
$3.22
|
e
|
|
$2.80
|
e
|
|
$1.66
|
e
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
GOLD (thousands
of recoverable ounces)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
MINED GOLD (FCX’s net
interest in %)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
North
America (100%)b
|
|
6
|
|
|
16
|
|
|
21
|
|
|
19
|
|
|
18
|
|
South
America (80%)
|
|
90
|
|
|
116
|
|
|
114
|
f
|
|
111
|
|
|
117
|
|
Indonesia
(90.64%)d
|
|
2,543
|
|
|
1,182
|
|
|
2,185
|
|
|
1,736
|
|
|
2,790
|
|
Consolidated
|
|
2,639
|
|
|
1,314
|
|
|
2,320
|
|
|
1,866
|
|
|
2,925
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Less
minority participants’ share
|
|
256
|
|
|
134
|
|
|
228
|
|
|
185
|
|
|
285
|
|
Net
|
|
2,383
|
|
|
1,180
|
|
|
2,092
|
|
|
1,681
|
|
|
2,640
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated
sales from mines
|
|
2,639
|
|
|
1,314
|
|
|
2,320
|
|
|
1,866
|
|
|
2,925
|
|
Purchased
gold
|
|
1
|
|
|
2
|
|
|
6
|
|
|
12
|
|
|
12
|
|
Total
consolidated sales
|
|
2,640
|
|
|
1,316
|
|
|
2,326
|
|
|
1,878
|
|
|
2,937
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average
realized price per ounce
|
|
$993
|
|
|
$861
|
|
|
$682
|
|
|
$566
|
g
|
|
$454
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
MOLYBDENUM (millions
of recoverable pounds)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated
sales from mines
|
|
58
|
|
|
71
|
|
|
69
|
h
|
|
69
|
|
|
60
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Less
minority participants’ share
|
|
1
|
|
|
1
|
|
|
-
|
|
|
-
|
|
|
-
|
|
Net
|
|
57
|
|
|
70
|
|
|
69
|
|
|
69
|
|
|
60
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated
sales from mines
|
|
58
|
|
|
71
|
|
|
69
|
|
|
69
|
|
|
60
|
|
Purchased
molybdenum
|
|
6
|
|
|
8
|
|
|
9
|
|
|
8
|
|
|
13
|
|
Total
consolidated sales
|
|
64
|
|
|
79
|
|
|
78
|
|
|
77
|
|
|
73
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average
realized price per pound
|
|
$12.36
|
|
|
$30.55
|
|
|
$25.87
|
|
|
$21.87
|
|
|
$25.89
|
|
a.
|
For
comparative purposes, operating data for the years ended December 31,
2007, 2006 and 2005, combines our historical data with Phelps Dodge
pre-acquisition data. As the pre-acquisition data represent the results of
these operations under Phelps Dodge management, such combined data is not
necessarily indicative of what past results would have been under FCX
management or of future operating
results.
|
b.
|
Amounts
are net of Morenci’s joint venture partner’s 15 percent
interest.
|
c.
|
Includes
North America copper sales of 283 million pounds and South America copper
sales of 222 million pounds for Phelps Dodge’s pre-acquisition
results.
|
d.
|
Amounts
are net of Grasberg’s joint venture partner’s interest, which varies in
accordance with terms of the joint venture
agreement.
|
e.
|
Before
charges for hedging losses related to copper price protection programs,
amounts were $3.27 per pound for 2007, $3.08 per pound for 2006 and $1.76
per pound for 2005.
|
f.
|
Includes
gold sales of 18 thousand ounces for Phelps Dodge’s pre-acquisition
results.
|
g.
|
Amount
was approximately $606 per ounce before a loss on redemption of our
Gold-Denominated Preferred Stock, Series
II.
|
h.
|
Includes
molybdenum sales of 17 million pounds for Phelps Dodge’s pre-acquisition
results.
|
DEVELOPMENT
PROJECTS AND EXPLORATION
We have
several projects and potential opportunities to expand our production volumes,
extend our mine lives and develop large-scale underground ore bodies. During
fourth-quarter 2008, we deferred several project development activities because
of the downturn in global economic conditions. Major development projects for
2009 consisted of underground development in the Grasberg minerals district and
the Tenke Fungurume project, for which construction activities on the initial
project are complete. During fourth-quarter 2009, we announced that we are
resuming certain project development activities that were deferred. For further
discussion of our development projects and exploration activities, refer to Item
7. “Management’s Discussion and Analysis of Financial Condition and Results of
Operations.”
As
discussed in Item 7. “Management’s Discussion and Analysis of Financial
Condition and Results of Operations,” we have several projects in progress in
the Grasberg mineral district, including development of the Common
Infrastructure project, Grasberg Block Cave, the Big Gossan underground mine, a
further expansion of the DOZ underground mine (which is substantially complete)
and development of the Deep Mill Level Zone ore body. We also have an additional
long-term underground mine development project in the Grasberg minerals district
for the Kucing Liar ore body, which is discussed below and is based on our
latest mine plans and proven and probable reserves as of December 31,
2009.
The
Kucing Liar ore body lies on the southern flank of and underneath the southern
portion of the Grasberg open pit at the 2,605-meter elevation level. We expect
to mine the Kucing Liar ore body using the block-cave method. A pre-feasibility
study for the development of the Kucing Liar ore body was completed during 2009
and indicated aggregate capital costs of approximately $2.5
billion.
Based on
current estimates, we expect aggregate expenditures for underground mine
development in the Grasberg minerals district to average approximately $450
million annually during the next 15 years. These costs will be shared with Rio
Tinto in accordance with our joint venture agreement. Considering the long-term
nature and large size of these projects, actual costs could differ materially
from these estimates.
In
addition to the mine development costs above, our current mine development plans
include approximately $3 billion of capital expenditures at our processing
facilities to optimize the handling of underground ore types once Grasberg
open-pit operations cease. Substantially all of these expenditures will be made
between 2017 and 2029. We continue to review our mine development and processing
plans to maximize the value of our reserves.
SMELTING
FACILITIES
Atlantic Copper,
S.A. Atlantic Copper is our wholly owned copper smelter and
refinery located in Huelva, Spain. Atlantic Copper completed the last expansion
of its production capacity in 1997. The design capacity of the smelter is
290,000 metric tons of copper per year and the refinery currently has a capacity
of 260,000 metric tons of copper per year. We have no present plans to expand
Atlantic Copper’s production capacity. Atlantic Copper’s facilities are located
on land concessions from the Huelva, Spain port authorities and expire in
2027.
During
2009, Atlantic Copper treated 1,000,700 metric tons of concentrate and scrap and
produced 269,000 metric tons of copper anodes and 256,600 metric tons of copper
cathodes. During 2008, Atlantic Copper treated 1,028,100 metric tons of
concentrate and scrap and produced 259,900 metric tons of copper anodes and
257,100 metric tons of copper cathodes. In June 2007, Atlantic Copper completed
a scheduled 23-day maintenance turnaround. Major maintenance turnarounds
typically occur approximately every 12 years for Atlantic Copper, with
significantly shorter term maintenance turnarounds occurring in the interim. The
next scheduled maintenance
activity
at Atlantic Copper is in 2011.
During
2009, Atlantic Copper purchased approximately 35 percent of its concentrate
requirements from PT Freeport Indonesia and approximately 25 percent from our
South America copper mines at market prices. Atlantic Copper has experienced no
significant operating problems.
We made
no capital contributions to Atlantic Copper from 2005 through 2009. We loan
funds to Atlantic Copper from time to time, and at December 31, 2009, these
loans totaled $381 million. Our net investment in Atlantic Copper at December
31, 2009, was approximately $70 million.
PT
Smelting. PT Freeport Indonesia’s 1991 COW required us to
construct or cause to be constructed a smelter in Indonesia if we and the
Indonesian government determined that such a project would be economically
viable. In 1995, following the completion of a feasibility study, we entered
into agreements relating to the formation of PT Smelting, an Indonesian company,
and the construction of the copper smelter and refinery in Gresik, Indonesia. PT
Freeport Indonesia, Mitsubishi Materials Corporation (Mitsubishi Materials),
Mitsubishi Corporation (Mitsubishi) and Nippon Mining & Metals Co., Ltd.
(Nippon) own 25 percent, 60.5 percent, 9.5 percent, and 5 percent, respectively,
of the outstanding PT Smelting common stock. PT Smelting owns and operates the
smelter and refinery in Gresik, Indonesia.
During
2006, PT Smelting completed an expansion of its production capacity to 275,000
metric tons of copper per year from 250,000 metric tons. PT Freeport Indonesia’s
contract with PT Smelting provides for the supply of 100 percent of the copper
concentrate requirements necessary for PT Smelting to produce 205,000 metric
tons of copper annually (essentially the smelter’s original design capacity) on
a priority basis. For the first 15 years of PT Smelting’s commercial operations,
beginning December 1998, PT Freeport Indonesia agreed that the combined
treatment and refining charges (fees paid to smelters by miners) would
approximate market rates, but will not fall below specified minimum rates. The
minimum rate, applicable to the period April 27, 2008 to April 27, 2014, is to
be determined annually and to be sufficient to cover PT Smelting’s annual cash
operating costs (net of credits and including costs of debt service) for 205,000
metric tons of copper. The maximum rate is $0.30 per pound. The agreement is an
amendment to the long-term contract, which was approved by the Department of
Energy and Mineral Resources of the Government of Indonesia in 2009. PT Freeport
Indonesia also sells copper concentrate to PT Smelting at market rates, which
are not subject to a minimum or maximum rate, for quantities in excess of
205,000 metric tons of copper annually.
During
2009, PT Smelting treated 1,073,900 metric tons of concentrate and produced
310,200 metric tons of copper anodes and 286,000 metric tons of copper cathodes.
During 2008, PT Smelting treated 978,100 metric tons of concentrate and produced
261,300 metric tons of copper anodes and 253,400 metric tons of copper cathodes.
Higher volumes of anodes in 2009, compared to 2008, primarily reflect a 25-day
maintenance turnaround in the second quarter of 2008. Major maintenance
turnarounds typically occur approximately every four years for PT Smelting, with
significantly shorter term maintenance turnarounds in the interim.
Miami
Smelter. We own and operate a smelter at our Miami, Arizona
mining operation. The smelter processes concentrate primarily from our Arizona
mines. The smelter has been in production for over 80 years and has been
upgraded during that period to implement new technologies, to improve production
and to comply with current air quality standards. Concentrate processed through
the smelter totaled approximately 619,000 metric tons in 2009 and 719,000 metric
tons in 2008. The Miami smelter completed a 40-day major maintenance turnaround
in February 2009. Major maintenance turnarounds typically occur approximately
every 20 months for Miami, with significantly shorter term maintenance
turnarounds in the interim. Sulphuric acid is a by-product of smelting
concentrates, and the Miami smelter is the most significant source of sulphuric
acid for our U.S. leaching operations.
OTHER
PROPERTIES
Rod & Refining
Operations. Our Rod & Refining operations consist of conversion
facilities located in North America including a refinery in El Paso, Texas; rod
mills in El Paso, Texas, Norwich, Connecticut and Miami, Arizona; and a
specialty copper products facility in Bayway, New Jersey. We refine our copper
anode production from our smelter in Miami, Arizona, along with purchased
anodes, at our El Paso refinery. The El Paso refinery has an annual production
capacity of about 900 million pounds of copper cathode, which is sufficient to
refine all the copper anode we produce at Miami. Our El Paso refinery also
produces nickel carbonate, copper telluride, and autoclaved slimes material
containing gold, silver, platinum and palladium.
Molybdenum
Conversion Facilities. We process molybdenum concentrates
at our conversion plants in the U.S. and Europe into such products as
technical-grade molybdic oxide, ferromolybdenum, pure molybdic oxide, ammonium
molybdates, molybdenum disulfide and molybdenum metal powder. We operate
molybdenum roasters in Sierrita, Arizona; Fort Madison, Iowa; and Rotterdam, the
Netherlands.
The
conversion facility located at our Sierrita mine consists of two molybdenum
roasters that process molybdenum concentrates produced at our mines and on a
toll basis for third parties. The facility produces molybdenum oxide and related
products.
The Fort
Madison, Iowa, facility consists of two molybdenum roasters, a sulphuric acid
plant, a metallurgical (technical oxide) packaging facility, and a chemical
conversion plant, which includes a wet-chemicals plant, sublimation equipment
and molybdenum disulfide processing and packaging. In the chemical plant,
molybdic oxide is further refined into various high-purity molybdenum chemicals
for a wide range of uses by chemical and catalyst manufacturers. In addition to
metallurgical oxide products, the Fort Madison facility produces ammonium
dimolybdate, pure molybdic oxide, ammonium heptamolybdate, ammonium
octamolybdate, sodium molybdate, sublimed pure molybdic oxide and molybdenum
disulfide.
The
Rotterdam conversion facility consists of a molybdenum roaster, sulphuric acid
plant, metallurgical packaging facility and chemical conversion plant. The plant
produces metallurgical products primarily for third parties. Ammonium
dimolybdate and pure molybdic oxide are produced in the wet-chemicals
plant.
We also
produce ferromolybdenum for worldwide customers at our conversion plant located
in Stowmarket, United Kingdom. The plant is operated both as an internal and
external customer tolling facility.
SOURCES
AND AVAILABILITY OF RAW MATERIALS
Energy
(including electricity, diesel fuel, coal and natural gas), sulphuric acid and
water are the principal raw materials used in our operations. Most of our energy
is obtained from third parties under long-term contracts. For additional
information, refer to Item 7. “Management’s Discussion and Analysis of Financial
Condition and Results of Operations.”
Sulphuric
acid is used in the SX/EW process and is produced as a by-product of the
smelting process at our smelters. Sulphuric acid needs in excess of the
sulphuric acid produced by our operations are purchased from third parties as
needed.
Our
mining operations require significant quantities of water for mining, ore
processing and related support facilities. Although we believe our mining
operations have sufficient water rights, the loss of water rights for any of our
mines, in whole or in part, or shortages of water to which we have rights, could
require us to curtail or shut down mining operations. For a further discussion
of risks and legal proceedings associated with the availability of water, see
Item 1A. – “Risk Factors” and Item 3. – “Legal Proceedings.”
COMPETITION
We are
one of the world’s largest copper, gold and molybdenum mining companies in terms
of reserves and production. With respect to copper, which generated
approximately 75 percent of our mining revenues in 2009, the top 10 producers
comprise approximately 55 percent of total worldwide mined copper production. We
currently rank second among those producers at approximately 10 percent of total
worldwide estimated mined copper production. Our competitive position is based
on the quality and grade of our ore bodies and our ability to manage costs
compared with other producers. We have a diverse portfolio of mining operations
with varying ore grades and cost structures. Our costs are driven by the
location, grade and nature of our ore bodies and the input costs, including
energy, labor and equipment. The metals markets are cyclical and our ability to
maintain our competitive position over the long term is based on our ability to
acquire and develop quality deposits, hire and retain a skilled workforce and to
manage our costs.
LABOR
MATTERS
At
December 31, 2009, we employed approximately 28,400 people (approximately 11,900
in Indonesia, 8,400 in North America, 4,400 in South America, 2,900 in Africa
and 800 in Europe and other locations). Additionally, we have contractors that
have personnel at many of our operations, including approximately 8,600 at our
Grasberg minerals district, 4,900 at our South America operations, 2,100 at
Tenke Fungurume, 600 in North America and 400 at Atlantic Copper. Employees
represented by unions are listed below, with the approximate number of employees
represented and the expiration date of the applicable union
agreements.
|
|
Number
of |
|
|
|
Union-
|
|
|
Number
of
|
Represented
|
|
Location
|
Unions
|
Employees
|
Expiration
Date
|
PT
Freeport Indonesia – Indonesia
|
1
|
6,794
|
September
2011
|
Tenke
Fungurume – DRC
|
2
|
2,927
|
May
2010
|
Cerro
Verde – Peru
|
1
|
1,023
|
August
2011
|
El
Abra – Chile
|
2
|
794
|
July
2012
|
Candelaria
– Chile
|
2
|
603
|
July
2013
|
Atlantic
Copper – Spain
|
2
|
402
|
December
2011
|
Bayway
– New Jersey
|
1
|
50
|
April
2010
|
Stowmarket
– United Kingdom
|
1
|
40
|
May
2011
|
Aurex
– Chile
|
1
|
33
|
December
2013
|
Rotterdam
– The Netherlands
|
2
|
22
|
March
2011
|
Chino
– New Mexico
|
1
|
14
|
November
2009a
|
a.
|
Negotiations
are in progress while employees continue to work under the provisions of
the expired contract.
|
FM
Services Company (FM Services), a wholly owned subsidiary of FCX, furnishes
certain executive, administrative, financial, accounting, legal, tax and similar
services to us. As of December 31, 2009, FM Services had 167 employees. FM
Services employees also provide these services to two other publicly traded
companies.
ENVIRONMENTAL
AND RECLAMATION MATTERS
The costs
of complying with environmental laws is a fundamental and substantial cost of
our business. For information about environmental regulation, litigation and
related costs, see Item 1A. – “Risk Factors;” Item 3. “Legal Proceedings;” Note
1 and Note 14.
COMMUNITY
AND HUMAN RIGHTS
We have
adopted policies that govern our working relationships with the communities
where we operate that are designed to guide our practices and programs in a
manner that respects basic human rights and the culture of the local people
impacted by our operations. We continue to make significant expenditures on
community development, education, training and cultural programs, which
include:
· comprehensive job training
programs
· basic education programs
· public health programs, including
malaria
control
· agricultural assistance
programs
· small and medium enterprise
development programs
· cultural preservation
programs
·
water and sewage treatment projects
·
clean water access
· charitable donations
In
December 2000, we endorsed the joint U.S. State Department-British Foreign
Office Voluntary Principles on Human Rights and Security (“Voluntary
Principles”). Several major natural resources companies and international human
rights organizations participated in developing the Voluntary Principles and
have endorsed them. We participated in developing these principles and they are
incorporated into our human rights policy.
We
believe that our social and economic development programs are responsive to the
issues raised by the local communities near our areas of operation and should
help us maintain good relations with the surrounding communities and avoid
disruptions of mining operations. Nevertheless, social and political instability
in the areas of our operations may adversely impact our mining operations. See
Item 1A. – “Risk Factors.”
South
America. Cerro Verde has provided a variety of community
support projects over the years. During 2006, as a result of discussions with
local mayors in the Arequipa region, Cerro Verde agreed to contribute to the
design and construction of domestic water and sewage treatment plants for the
benefit of the region. These facilities are being designed in a modular fashion
so that initial installations can be readily expanded in the future. We have
funded approximately 150 million Peruvian nuevo soles (approximately $49
million) as of December 31, 2009, to a designated bank account to be used for
financing Cerro Verde’s share of the construction costs of these
facilities.
During
2006, the Peruvian government announced that all mining companies operating in
Peru will make annual contributions to local development funds for a five-year
period when copper prices exceed certain levels that are adjusted annually. The
contribution is equal to 3.75 percent of after-tax profits, of which 2.75
percent is contributed to a local mining fund and 1.00 percent to a regional
mining fund. Cerro Verde’s contributions totaled $28 million in both 2009 and
2008 and $49 million in 2007.
Indonesia. In
1996, PT Freeport Indonesia established the Freeport Partnership Fund for
Community Development (formerly the Freeport Fund for Irian Jaya Development),
through which PT Freeport Indonesia has made available funding and technical
assistance to support the economic, health, education and social development of
the area. PT Freeport Indonesia has committed through 2011 to provide one
percent of its annual revenue for the development of the local people in its
area of operation through the Partnership Fund. Our share of contributions to
the Partnership Fund totaled $59 million in 2009, $34 million in 2008 and $48
million in 2007. Our joint venture partner, Rio Tinto, also contributes to this
fund and, including their share, the contributions totaled $69 million in 2009,
$35 million in 2008 and $53 million in 2007.
The
Amungme and Kamoro Community Development Organization (Lembaga Pembangunan Masyarakat
Amungme dan Kamoro or LPMAK) oversees disbursement of the program funds
we contribute to the Partnership Fund. LPMAK is governed by a board of
commissioners and a board of directors, which are comprised of representatives
from the local Amungme and Kamoro tribal communities, government leaders, church
leaders, and one representative of PT Freeport Indonesia on each board. The
Amungme and Kamoro people are original inhabitants of the land in our area of
operations.
Security Matters in
Indonesia. Consistent with our COW
in Indonesia and the requirement to protect our employees and property, we have
taken appropriate steps to provide a safe and secure working environment. As
part of its security program, PT Freeport Indonesia maintains its own internal
security department, which performs functions such as protecting company
facilities, monitoring the shipment of company goods through the airport and
terminal, assisting in traffic control and aiding rescue operations. PT Freeport
Indonesia’s civilian security employees (numbering approximately 725) are
unarmed and perform duties consistent with their internal security role. PT
Freeport Indonesia’s share of costs for its internal civilian security
department totaled approximately $18 million for 2009, $22 million for 2008 and
$17 million for 2007. The security department has received human rights training
and each member is required to certify his or her compliance with our human
rights policy.
PT
Freeport Indonesia, and all businesses and residents of Indonesia, rely on the
Government of Indonesia for the maintenance of public order, upholding the rule
of law and the protection of personnel and property. The Grasberg minerals
district has been designated by the Government of Indonesia as one of
Indonesia’s vital national assets. This designation results in the police and to
a lesser extent, the military, playing a significant role in protecting the area
of our operations. The Government of Indonesia is responsible for employing
police and military personnel and directing their operations.
From the
outset of PT Freeport Indonesia’s operations, the government has looked to PT
Freeport Indonesia to provide logistical and infrastructure support and
assistance for these necessary services because of the limited
resources
of the Indonesian government and the remote location of and lack of development
in Papua. PT Freeport Indonesia’s financial support for the Indonesian
government security institutions assigned to the operations area represents a
prudent response to its requirements to protect its workforce and property,
better ensuring that personnel are properly fed and lodged, and have the
logistical resources to patrol PT Freeport Indonesia’s roads and secure its
operating area. In addition, the provision of such support is consistent with PT
Freeport Indonesia’s obligations under the COW, reflects our philosophy of
responsible corporate citizenship, and is in keeping with our commitment to
pursue practices that will promote human rights.
PT
Freeport Indonesia’s share of support costs for the government-provided
security, currently involving approximately 3,000 Indonesian government security
personnel located in the general area of our operations, was $10 million for
2009, $8 million for 2008 and $9 million for 2007. This supplemental support
consists of various infrastructure and other costs, such as food, housing, fuel,
travel, vehicle repairs, allowances to cover incidental and administrative
costs, and community assistance programs conducted by the military and police.
PT Freeport Indonesia’s capital costs for associated infrastructure was
approximately $2 million in 2009 and less than $1 million a year in 2008 and
2007.
Since
July 2009, there have been a series of shooting incidents along the road leading
to our mining and milling operations at the Grasberg mining complex, including
an incident in January 2010. In connection with these incidents, there have been
three fatalities (including a PT Freeport Indonesia employee, a security
contractor and an Indonesian policeman) and several injuries. The Indonesian
government has responded with additional security forces and expressed a strong
commitment to protect the safety of the community and our operations. The
investigation of these matters is continuing, and we have taken precautionary
measures, including limiting use of the road to secured convoys. Our mining and
milling activities have continued uninterrupted; however, prolonged limitations
on access to the road could adversely affect operations at the mine. See Item
1A. – “Risk Factors.”
As
originally reported in January 2006, we received and responded to requests from
U.S. governmental authorities related to PT Freeport Indonesia’s support of
Indonesian security institutions. In May 2009, we were notified by the SEC that
the U.S. government’s investigation had been completed and no action has been
recommended.
Africa. Tenke
Fungurume has committed to assist the communities living within its concession
in the Katanga province of the DRC. Initiatives that have commenced over the
past three years include a malaria control program, construction and operational
support for six elementary schools, installation of over 40 clean water wells
throughout the concession as well as five villages outside the concession, a
public sanitation (latrines and hand washing) program reaching over 2,000
households, a mobile clinic for rural villages, and economic development
programs supporting local entrepreneurs, farmers and women’s income generation,
and literacy groups. We have also made significant investments in infrastructure
in the region that will have lasting benefits to the country, including
upgrading a national road and the regional power generation and transmission
systems. Additionally, we have committed to contribute 0.3 percent of net sales
revenue from production to a community development fund to assist the local
communities with development of local infrastructure and related services, such
as those pertaining to health, education and economic development. This fund
will be a platform to work jointly with the local government and community to
further assist them to fulfill their local development plans, meet basic
community needs and promote good governance. Community development fund
contributions for 2009 totaled approximately $1 million.
Similar
to our operations in Indonesia, Tenke Fungurume is required to engage government
security institutions to assist with security matters at its concession area. In
this regard, Tenke Fungurume provides food, housing, monetary allowances and
logistical support as well as direct payments to the government for the
provision of the security assigned to the concession area. The total cost to
Tenke Fungurume for this support, including in-kind support, totaled less than
$1 million in 2009.
ORE
RESERVES
Recoverable
proven and probable reserves summarized below and detailed on the following
pages have been calculated as of December 31, 2009, in accordance with Industry
Guide 7 as required by the Securities Exchange Act of 1934. Proven and probable
reserves may not be comparable to similar information regarding mineral reserves
disclosed in accordance with the guidance of other countries. Proven and
probable reserves were determined by the use of mapping, drilling, sampling,
assaying and evaluation methods generally applied in the mining industry, as
more fully discussed below. The term “reserve,” as used in the reserve data
presented here, means that part of a mineral deposit that can be economically
and legally extracted or produced at the time of the reserve determination. The
term “proven reserves” means reserves for which (1) quantity is computed from
dimensions revealed in outcrops, trenches, workings or drill holes; (2) grade
and/or quality are computed from the results of detailed sampling; and (3) the
sites for inspection, sampling and measurements are spaced so closely and the
geologic character is sufficiently defined that size, shape, depth and mineral
content of reserves are well established. The term “probable reserves” means
reserves for which quantity and grade are computed from information similar to
that used for proven reserves but the sites for sampling are farther apart or
are otherwise less adequately spaced. The degree of assurance, although lower
than that for proven reserves, is high enough to assume continuity between
points of observation.
Our
reserve estimates are based on the latest available geological and geotechnical
studies. We conduct ongoing studies of our ore bodies to optimize economic
values and to manage risk. We revise our mine plans and estimates of recoverable
proven and probable mineral reserves as required in accordance with the latest
available studies. Our estimates of recoverable proven and probable reserves are
prepared by and are the responsibility of our employees, and a majority of these
estimates are reviewed and verified by independent experts in mining, geology
and reserve determination. Estimated recoverable proven and probable reserves at
December 31, 2009, were determined using long-term average prices of $1.60 per
pound for copper, $550 per ounce for gold, $8.00 per pound for molybdenum,
$12.00 per ounce for silver and $10.00 per pound for cobalt. The London spot
metal prices for the past three years averaged $2.91 per pound for copper and
$847 per ounce for gold, and molybdenum prices for the past three years averaged
approximately $23 per pound.
|
|
Recoverable
Proven and Probable Reservesa
at December 31, 2009
|
|
|
|
Copper
|
|
Gold
|
|
Molybdenum
|
|
Silver
|
|
Cobalt
|
|
|
|
(billion
pounds)
|
|
(million
ounces)
|
|
(million
pounds)
|
|
(million
ounces)
|
|
(billion
pounds)
|
|
North
America
|
|
27.7
|
|
0.2
|
|
2,072
|
|
56.5
|
|
-
|
|
South
America
|
|
34.0
|
|
1.5
|
|
519
|
|
88.3
|
|
-
|
|
Indonesia
|
|
34.1
|
|
35.5
|
|
-
|
|
125.6
|
|
-
|
|
Africa
|
|
8.4
|
|
-
|
|
-
|
|
-
|
|
0.78
|
|
Consolidated
basisb
|
|
104.2
|
|
37.2
|
|
2,591
|
|
270.4
|
|
0.78
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
equity interestc
|
|
83.0
|
|
33.6
|
|
2,350
|
|
224.1
|
|
0.45
|
|
a.
|
Recoverable
proven and probable reserves are estimated metal quantities from which we
expect to be paid after application of estimated metallurgical recovery
rates and smelter recovery rates, where applicable. Recoverable reserves
are that part of a mineral deposit that we estimate can be economically
and legally extracted or produced at the time of the reserve
determination. Recoverable copper reserves in this table include
2.7 billion pounds in leach stockpiles and 1.3 billion pounds in mill
stockpiles, including our joint venture partner’s interest in the Morenci
mine.
|
b.
|
Consolidated
basis reserves represent estimated metal quantities after reduction for
joint venture partner interests at the Morenci mine in North America and
at the Grasberg minerals district in
Indonesia.
|
c.
|
Net
equity interest reserves represent estimated consolidated basis metal
quantities further reduced for noncontrolling interest
ownership.
|
Recoverable Proven and Probable
Reserves
|
Estimated at December 31,
2009
|
|
|
|
|
|
|
|
|
|
|
|
Proven
Reserves
|
|
Probable
Reserves
|
|
|
|
|
|
|
Average
Ore Grade
|
|
|
|
Average
Ore Grade
|
|
|
Processing
|
|
Million
|
|
Copper
|
|
Gold
|
|
Moly
|
|
Silver
|
|
Cobalt
|
|
Million
|
|
Copper
|
|
Gold
|
|
Moly
|
|
Silver
|
|
Cobalt
|
|
|
Method
|
|
metric
tons
|
|
%
|
|
g/t
|
|
%
|
|
g/t
|
|
%
|
|
metric
tons
|
|
%
|
|
g/t
|
|
%
|
|
g/t
|
|
%
|
North America
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Morenci
|
|
Mill
|
|
177
|
|
0.55
|
|
-
|
|
0.025
|
|
-
|
|
-
|
|
1
|
|
0.77
|
|
-
|
|
-
|
|
-
|
|
-
|
|
|
Crushed
leach
|
|
358
|
|
0.62
|
|
-
|
|
-
|
|
-
|
|
-
|
|
7
|
|
0.62
|
|
-
|
|
-
|
|
-
|
|
-
|
|
|
ROM
leach
|
|
2,554
|
|
0.20
|
|
-
|
|
-
|
|
-
|
|
-
|
|
69
|
|
0.24
|
|
-
|
|
-
|
|
-
|
|
-
|
Sierrita
|
|
Mill
|
|
1,310
|
|
0.26
|
|
-
|
b
|
0.029
|
|
1.51
|
|
-
|
|
131
|
|
0.23
|
|
-
|
b
|
0.023
|
|
1.34
|
|
-
|
|
|
ROM
leach
|
|
4
|
|
0.18
|
|
-
|
|
-
|
|
-
|
|
-
|
|
1
|
|
0.13
|
|
-
|
|
-
|
|
-
|
|
-
|
Bagdad
|
|
Mill
|
|
660
|
|
0.37
|
|
-
|
b
|
0.022
|
|
1.84
|
|
-
|
|
99
|
|
0.30
|
|
-
|
b
|
0.018
|
|
1.49
|
|
-
|
|
|
ROM
leach
|
|
95
|
|
0.17
|
|
-
|
|
-
|
|
-
|
|
-
|
|
110
|
|
0.15
|
|
-
|
|
-
|
|
-
|
|
-
|
Safford
|
|
Crushed
leach
|
|
147
|
|
0.45
|
|
-
|
|
-
|
|
-
|
|
-
|
|
96
|
|
0.43
|
|
-
|
|
-
|
|
-
|
|
-
|
Tyrone
|
|
ROM
leach
|
|
138
|
|
0.32
|
|
-
|
|
-
|
|
-
|
|
-
|
|
42
|
|
0.24
|
|
-
|
|
-
|
|
-
|
|
-
|
Henderson
|
|
Mill
|
|
134
|
|
-
|
|
-
|
|
0.180
|
|
-
|
|
-
|
|
4
|
|
-
|
|
-
|
|
0.190
|
|
-
|
|
-
|
Chino
|
|
Mill
|
|
54
|
|
0.66
|
|
0.03
|
|
0.013
|
|
0.49
|
|
-
|
|
6
|
|
0.55
|
|
0.03
|
|
0.014
|
|
0.42
|
|
-
|
|
|
ROM
leach
|
|
68
|
|
0.41
|
|
-
|
|
-
|
|
-
|
|
-
|
|
14
|
|
0.30
|
|
-
|
|
-
|
|
-
|
|
-
|
Miami
|
|
ROM
leach
|
|
74
|
|
0.44
|
|
-
|
|
-
|
|
-
|
|
-
|
|
17
|
|
0.35
|
|
-
|
|
-
|
|
-
|
|
-
|
Climaxa
|
|
Mill
|
|
76
|
|
-
|
|
-
|
|
0.189
|
|
-
|
|
-
|
|
114
|
|
-
|
|
-
|
|
0.137
|
|
-
|
|
-
|
Cobrea
|
|
ROM
leach
|
|
71
|
|
0.40
|
|
-
|
|
-
|
|
-
|
|
-
|
|
2
|
|
0.23
|
|
-
|
|
-
|
|
-
|
|
-
|
|
|
|
|
5,920
|
|
0.28
|
|
-
|
b
|
0.016
|
|
0.54
|
|
|
|
713
|
|
0.23
|
|
-
|
b
|
0.030
|
|
0.46
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
South America
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cerro
Verde
|
|
Mill
|
|
746
|
|
0.45
|
|
-
|
|
0.017
|
|
1.28
|
|
-
|
|
2,063
|
|
0.39
|
|
-
|
|
0.015
|
|
1.12
|
|
-
|
|
|
Crushed
leach
|
|
89
|
|
0.57
|
|
-
|
|
-
|
|
-
|
|
-
|
|
73
|
|
0.48
|
|
-
|
|
-
|
|
-
|
|
-
|
|
|
ROM
leach
|
|
32
|
|
0.26
|
|
-
|
|
-
|
|
-
|
|
-
|
|
50
|
|
0.23
|
|
-
|
|
-
|
|
-
|
|
-
|
El
Abra
|
|
Crushed
leach
|
|
440
|
|
0.55
|
|
-
|
|
-
|
|
-
|
|
-
|
|
112
|
|
0.50
|
|
-
|
|
-
|
|
-
|
|
-
|
|
|
ROM
leach
|
|
284
|
|
0.32
|
|
-
|
|
-
|
|
-
|
|
-
|
|
140
|
|
0.30
|
|
-
|
|
-
|
|
-
|
|
-
|
Candelaria
|
|
Mill
|
|
382
|
|
0.54
|
|
0.12
|
|
-
|
|
2.04
|
|
-
|
|
29
|
|
0.59
|
|
0.13
|
|
-
|
|
2.22
|
|
-
|
Ojos
del Salado
|
|
Mill
|
|
6
|
|
1.13
|
|
0.26
|
|
-
|
|
3.18
|
|
-
|
|
3
|
|
1.08
|
|
0.25
|
|
-
|
|
3.02
|
|
-
|
|
|
|
|
1,979
|
|
0.47
|
|
0.02
|
|
0.006
|
|
0.89
|
|
-
|
|
2,470
|
|
0.39
|
|
-
|
b
|
0.012
|
|
0.96
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Indonesia
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Grasberg
open pit
|
|
Mill
|
|
198
|
|
0.96
|
|
1.15
|
|
-
|
|
2.39
|
|
-
|
|
134
|
|
0.81
|
|
0.86
|
|
-
|
|
2.04
|
|
-
|
Deep
Ore Zone
|
|
Mill
|
|
85
|
|
0.65
|
|
0.64
|
|
-
|
|
3.24
|
|
-
|
|
169
|
|
0.57
|
|
0.68
|
|
-
|
|
2.58
|
|
-
|
Grasberg
block cavea
|
|
Mill
|
|
308
|
|
1.23
|
|
1.15
|
|
-
|
|
3.49
|
|
-
|
|
698
|
|
0.94
|
|
0.66
|
|
-
|
|
3.19
|
|
-
|
Kucing
Liara
|
|
Mill
|
|
156
|
|
1.32
|
|
1.15
|
|
-
|
|
7.51
|
|
-
|
|
285
|
|
1.20
|
|
1.06
|
|
-
|
|
6.57
|
|
-
|
Deep
Mill Level Zonea
|
|
Mill
|
|
59
|
|
1.00
|
|
0.78
|
|
-
|
|
4.94
|
|
-
|
|
442
|
|
0.87
|
|
0.74
|
|
-
|
|
4.38
|
|
-
|
Big
Gossana
|
|
Mill
|
|
10
|
|
2.49
|
|
1.26
|
|
-
|
|
17.04
|
|
-
|
|
46
|
|
2.20
|
|
1.04
|
|
-
|
|
13.66
|
|
-
|
|
|
|
|
816
|
|
1.12
|
|
1.07
|
|
-
|
|
4.24
|
|
-
|
|
1,774
|
|
0.95
|
|
0.77
|
|
-
|
|
4.16
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Africa
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Tenke
Fungurume
|
|
Agitation
leach
|
|
50
|
|
3.37
|
|
-
|
|
-
|
|
-
|
|
0.399
|
|
85
|
|
2.99
|
|
-
|
|
-
|
|
-
|
|
0.289
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
|
8,765
|
|
0.42
|
|
0.11
|
|
0.012
|
|
0.96
|
|
0.002
|
|
5,042
|
|
0.61
|
|
0.27
|
|
0.010
|
|
2.00
|
|
0.005
|
|
a. Undeveloped
reserves requiring significant capital investment to bring into
production.
|
b. Grade
not shown because of rounding.
|
|
The
reserve table above and the tables on pages 33 to 35 and 40 utilize the
following abbreviations:
|
·
|
g/t
– grams per metric ton
|
|
|
|
Recoverable Proven and Probable
Reserves
|
Estimated at December 31,
2009
|
(continued)
|
|
|
|
|
|
|
Average
Ore Grade
|
|
Recoveriesa
|
|
|
|
|
Proven
and
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Probable
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Processing
|
|
Million
|
|
Copper
|
|
Gold
|
|
Moly
|
|
Silver
|
|
Cobalt
|
|
Copper
|
|
Gold
|
|
Moly
|
|
Silver
|
|
Cobalt
|
|
|
Method
|
|
metric
tons
|
|
%
|
|
g/t
|
|
%
|
|
g/t
|
|
%
|
|
%
|
|
%
|
|
%
|
|
%
|
|
%
|
North America
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Morenci
|
|
Mill
|
|
178
|
|
0.55
|
|
-
|
|
0.025
|
|
-
|
|
-
|
|
79.3
|
|
-
|
|
27.8
|
|
-
|
|
-
|
|
|
Crushed
leach
|
|
365
|
|
0.62
|
|
-
|
|
-
|
|
-
|
|
-
|
|
77.9
|
|
-
|
|
-
|
|
-
|
|
-
|
|
|
ROM
leach
|
|
2,623
|
|
0.21
|
|
-
|
|
-
|
|
-
|
|
-
|
|
43.6
|
|
-
|
|
-
|
|
-
|
|
-
|
Sierrita
|
|
Mill
|
|
1,441
|
|
0.25
|
|
-
|
b
|
0.028
|
|
1.50
|
|
-
|
|
81.9
|
|
59.1
|
|
80.5
|
|
49.3
|
|
-
|
|
|
ROM
leach
|
|
5
|
|
0.17
|
|
-
|
|
-
|
|
-
|
|
-
|
|
55.6
|
|
-
|
|
-
|
|
-
|
|
-
|
Bagdad
|
|
Mill
|
|
759
|
|
0.36
|
|
-
|
b
|
0.021
|
|
1.79
|
|
-
|
|
84.5
|
|
59.1
|
|
72.1
|
|
49.3
|
|
-
|
|
|
ROM
leach
|
|
205
|
|
0.16
|
|
-
|
|
-
|
|
-
|
|
-
|
|
28.9
|
|
-
|
|
-
|
|
-
|
|
-
|
Safford
|
|
Crushed
leach
|
|
243
|
|
0.44
|
|
-
|
|
-
|
|
-
|
|
-
|
|
69.3
|
|
-
|
|
-
|
|
-
|
|
-
|
Tyrone
|
|
ROM
leach
|
|
180
|
|
0.30
|
|
-
|
|
-
|
|
-
|
|
-
|
|
62.2
|
|
-
|
|
-
|
|
-
|
|
-
|
Henderson
|
|
Mill
|
|
138
|
|
-
|
|
-
|
|
0.180
|
|
-
|
|
-
|
|
-
|
|
-
|
|
86.1
|
|
-
|
|
-
|
Chino
|
|
Mill
|
|
60
|
|
0.65
|
|
0.03
|
|
0.013
|
|
0.48
|
|
-
|
|
77.1
|
|
77.9
|
|
35.3
|
|
78.5
|
|
-
|
|
|
ROM
leach
|
|
82
|
|
0.39
|
|
-
|
|
-
|
|
-
|
|
-
|
|
61.2
|
|
-
|
|
-
|
|
-
|
|
-
|
Miami
|
|
ROM
leach
|
|
91
|
|
0.43
|
|
-
|
|
-
|
|
-
|
|
-
|
|
63.1
|
|
-
|
|
-
|
|
-
|
|
-
|
Climax
|
|
Mill
|
|
190
|
|
-
|
|
-
|
|
0.158
|
|
-
|
|
-
|
|
-
|
|
-
|
|
88.8
|
|
-
|
|
-
|
Cobre
|
|
ROM
leach
|
|
73
|
|
0.39
|
|
-
|
|
-
|
|
-
|
|
-
|
|
65.4
|
|
-
|
|
-
|
|
-
|
|
-
|
|
|
|
|
6,633
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
South America
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cerro
Verde
|
|
Mill
|
|
2,809
|
|
0.40
|
|
-
|
|
0.015
|
|
1.16
|
|
-
|
|
86.4
|
|
-
|
|
52.6
|
|
59.5
|
|
-
|
|
|
Crushed
leach
|
|
162
|
|
0.53
|
|
-
|
|
-
|
|
-
|
|
-
|
|
76.1
|
|
-
|
|
-
|
|
-
|
|
-
|
|
|
ROM
leach
|
|
82
|
|
0.24
|
|
-
|
|
-
|
|
-
|
|
-
|
|
43.3
|
|
-
|
|
-
|
|
-
|
|
-
|
El
Abra
|
|
Crushed
leach
|
|
552
|
|
0.54
|
|
-
|
|
-
|
|
-
|
|
-
|
|
55.5
|
|
-
|
|
-
|
|
-
|
|
-
|
|
|
ROM
leach
|
|
424
|
|
0.32
|
|
-
|
|
-
|
|
-
|
|
-
|
|
26.0
|
|
-
|
|
-
|
|
-
|
|
-
|
Candelaria
|
|
Mill
|
|
411
|
|
0.54
|
|
0.12
|
|
-
|
|
2.05
|
|
-
|
|
91.0
|
|
79.0
|
|
-
|
|
76.3
|
|
-
|
Ojos
del Salado
|
|
Mill
|
|
9
|
|
1.12
|
|
0.26
|
|
-
|
|
3.12
|
|
-
|
|
89.8
|
|
59.6
|
|
-
|
|
66.1
|
|
-
|
|
|
|
|
4,449
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Indonesia
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Grasberg
open pit
|
|
Mill
|
|
332
|
|
0.90
|
|
1.03
|
|
-
|
|
2.25
|
|
-
|
|
83.5
|
|
81.6
|
|
-
|
|
43.4
|
|
-
|
Deep
Ore Zone
|
|
Mill
|
|
254
|
|
0.60
|
|
0.67
|
|
-
|
|
2.80
|
|
-
|
|
84.2
|
|
75.9
|
|
-
|
|
57.8
|
|
-
|
Grasberg
block cave
|
|
Mill
|
|
1,006
|
|
1.03
|
|
0.81
|
|
-
|
|
3.29
|
|
-
|
|
85.5
|
|
66.9
|
|
-
|
|
60.6
|
|
-
|
Kucing
Liar
|
|
Mill
|
|
441
|
|
1.24
|
|
1.09
|
|
-
|
|
6.90
|
|
-
|
|
85.3
|
|
45.6
|
|
-
|
|
38.4
|
|
-
|
Deep
Mill Level Zone
|
|
Mill
|
|
501
|
|
0.89
|
|
0.74
|
|
-
|
|
4.44
|
|
-
|
|
85.9
|
|
76.7
|
|
-
|
|
62.7
|
|
-
|
Big
Gossan
|
|
Mill
|
|
56
|
|
2.25
|
|
1.08
|
|
-
|
|
14.25
|
|
-
|
|
92.2
|
|
67.7
|
|
-
|
|
64.3
|
|
-
|
|
|
|
|
2,590
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Africa
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Tenke
Fungurume
|
|
Agitation
leach
|
|
135
|
|
3.13
|
|
-
|
|
-
|
|
-
|
|
0.33
|
|
89.4
|
|
-
|
|
-
|
|
-
|
|
80.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
|
13,807
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
a. Recoveries
are net of estimated mill and smelter losses.
|
b. Grade
not shown because of rounding.
|
Recoverable Proven and Probable
Reserves
|
Estimated at December 31,
2009
|
(continued)
|
|
|
|
|
|
|
Recoverable
Reserves
|
|
|
|
|
|
|
Copper
|
|
Gold
|
|
Moly
|
|
Silver
|
|
Cobalt
|
|
|
FCX’s
|
|
Processing
|
|
billion
|
|
million
|
|
billion
|
|
million
|
|
billion
|
|
|
Interest
|
|
Method
|
|
lbs.
|
|
ozs.
|
|
lbs.
|
|
ozs.
|
|
lbs.
|
North America
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Morenci
|
|
85%
|
|
Mill
|
|
1.7
|
|
-
|
|
0.03
|
|
-
|
|
-
|
|
|
|
|
Crushed
leach
|
|
3.9
|
|
-
|
|
-
|
|
-
|
|
-
|
|
|
|
|
ROM
leach
|
|
5.2
|
|
-
|
|
-
|
|
-
|
|
-
|
Sierrita
|
|
100%
|
|
Mill
|
|
6.6
|
|
0.1
|
|
0.73
|
|
34.2
|
|
-
|
|
|
|
|
ROM
leach
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
Bagdad
|
|
100%
|
|
Mill
|
|
5.1
|
|
0.1
|
|
0.26
|
|
21.6
|
|
-
|
|
|
|
|
ROM
leach
|
|
0.2
|
|
-
|
|
-
|
|
-
|
|
-
|
Safford
|
|
100%
|
|
Crushed
leach
|
|
1.6
|
|
-
|
|
-
|
|
-
|
|
-
|
Tyrone
|
|
100%
|
|
ROM
leach
|
|
0.8
|
|
-
|
|
-
|
|
-
|
|
-
|
Henderson
|
|
100%
|
|
Mill
|
|
-
|
|
-
|
|
0.47
|
|
-
|
|
-
|
Chino
|
|
100%
|
|
Mill
|
|
0.7
|
|
-
|
|
0.01
|
|
0.7
|
|
-
|
|
|
|
|
ROM
leach
|
|
0.4
|
|
-
|
|
-
|
|
-
|
|
-
|
Miami
|
|
100%
|
|
ROM
leach
|
|
0.5
|
|
-
|
|
-
|
|
-
|
|
-
|
Climax
|
|
100%
|
|
Mill
|
|
-
|
|
-
|
|
0.58
|
|
-
|
|
-
|
Cobre
|
|
100%
|
|
ROM
leach
|
|
0.4
|
|
-
|
|
-
|
|
-
|
|
-
|
|
|
|
|
|
|
27.1
|
|
0.2
|
|
2.08
|
|
56.5
|
|
-
|
Recoverable
metal in stockpiles
|
|
|
|
2.3
|
|
-
|
|
-
|
|
-
|
|
-
|
100%
operations
|
|
|
|
29.4
|
|
0.2
|
|
2.08
|
|
56.5
|
|
-
|
Consolidated
basisa
|
|
|
|
27.7
|
|
0.2
|
|
2.07
|
|
56.5
|
|
-
|
Net
equity interestb
|
|
|
|
27.7
|
|
0.2
|
|
2.07
|
|
56.5
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
South America
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cerro
Verde
|
|
53.56%
|
|
Mill
|
|
21.6
|
|
-
|
|
0.50
|
|
62.3
|
|
-
|
|
|
|
|
Crushed
leach
|
|
1.4
|
|
-
|
|
-
|
|
-
|
|
-
|
|
|
|
|
ROM
leach
|
|
0.2
|
|
-
|
|
-
|
|
-
|
|
-
|
El
Abra
|
|
51%
|
|
Crushed
leach
|
|
3.6
|
|
-
|
|
-
|
|
-
|
|
-
|
|
|
|
|
ROM
leach
|
|
0.8
|
|
-
|
|
-
|
|
-
|
|
-
|
Candelaria
|
|
80%
|
|
Mill
|
|
4.5
|
|
1.3
|
|
-
|
|
20.7
|
|
-
|
Ojos
del Salado
|
|
80%
|
|
Mill
|
|
0.2
|
|
-
|
|
-
|
|
0.6
|
|
-
|
|
|
|
|
|
|
32.3
|
|
1.3
|
|
0.50
|
|
83.6
|
|
-
|
Recoverable
metal in stockpiles
|
|
|
|
1.7
|
|
0.2
|
|
0.02
|
|
4.7
|
|
-
|
100%
operations
|
|
|
|
34.0
|
|
1.5
|
|
0.52
|
|
88.3
|
|
-
|
Consolidated
basisa
|
|
|
|
34.0
|
|
1.5
|
|
0.52
|
|
88.3
|
|
-
|
Net
equity interestb
|
|
|
|
19.6
|
|
1.2
|
|
0.28
|
|
53.7
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Indonesia
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Grasberg
open pit
|
|
(c)
|
|
Mill
|
|
5.5
|
|
8.9
|
|
-
|
|
10.4
|
|
-
|
Deep
Ore Zone
|
|
(c)
|
|
Mill
|
|
2.8
|
|
4.1
|
|
-
|
|
13.2
|
|
-
|
Grasberg
block cave
|
|
(c)
|
|
Mill
|
|
19.5
|
|
17.5
|
|
-
|
|
64.5
|
|
-
|
Kucing
Liar
|
|
(c)
|
|
Mill
|
|
10.3
|
|
7.1
|
|
-
|
|
37.6
|
|
-
|
Deep
Mill Level Zone
|
|
(c)
|
|
Mill
|
|
8.4
|
|
9.2
|
|
-
|
|
44.8
|
|
-
|
Big
Gossan
|
|
(c)
|
|
Mill
|
|
2.6
|
|
1.3
|
|
-
|
|
16.5
|
|
-
|
|
|
|
|
|
|
49.1
|
|
48.1
|
|
-
|
|
187.0
|
|
-
|
Recoverable
metal in stockpiles
|
|
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
100%
operations
|
|
|
|
49.1
|
|
48.1
|
|
-
|
|
187.0
|
|
-
|
Consolidated
basisa
|
|
|
|
34.1
|
|
35.5
|
|
-
|
|
125.6
|
|
-
|
Net
equity interestb
|
|
|
|
30.9
|
|
32.2
|
|
-
|
|
113.9
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Africa
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Tenke
Fungurume
|
|
57.75%
|
|
Agitation
leach
|
8.3
|
|
-
|
|
-
|
|
-
|
|
0.78
|
Recoverable
metal in stockpiles
|
|
|
|
0.1
|
|
-
|
|
-
|
|
-
|
|
-
|
100%
operations
|
|
|
|
8.4
|
|
-
|
|
-
|
|
-
|
|
0.78
|
Consolidated
basisa
|
|
|
|
8.4
|
|
-
|
|
-
|
|
-
|
|
0.78
|
Net
equity interestb
|
|
|
|
4.8
|
|
-
|
|
-
|
|
-
|
|
0.45
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
TOTAL
– 100% operations
|
|
|
|
120.9
|
|
49.8
|
|
2.60
|
|
331.8
|
|
0.78
|
TOTAL
– Consolidated basisa
|
|
|
|
104.2
|
|
37.2
|
|
2.59
|
|
270.4
|
|
0.78
|
TOTAL
– Net equity interestb
|
|
|
|
83.0
|
|
33.6
|
|
2.35
|
|
224.1
|
|
0.45
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
a. Consolidated
basis represents estimated metal quantities after reduction for joint
venture partner interests at the Morenci mine in North America and at the
Grasberg minerals district in Indonesia.
|
b. Net equity
interest represents estimated consolidated basis metal quantities further
reduced for noncontrolling interest ownership.
|
c. Our
joint venture agreement with Rio Tinto provides that PT Freeport Indonesia
will receive cash flow from specified annual amounts of copper, gold and
silver through 2021, calculated by reference to its proven and probable
reserves as of December 31, 1994, and 60 percent of all remaining cash
flow.
|
In
defining our open-pit reserves, we apply a “variable cutoff grade” strategy. The
objective of this strategy is to maximize the net present value of our
operations. We use a break-even cutoff grade to define the in-situ reserves for
our underground ore bodies. The break-even cutoff grade is defined for a metric
ton of ore as that equivalent copper grade, once produced and sold, that
generates sufficient revenue to cover all operating and administrative costs
associated with our production.
Our
copper mines may contain other commercially recoverable metals, such as gold,
molybdenum, silver and cobalt. We value all commercially recoverable metals in
terms of a copper equivalent percentage to determine a single cutoff grade.
Copper equivalent percentage is used to express the relative value of
multi-metal ores in terms of one metal. The calculation expresses the relative
value of the ore using estimates of contained metal quantities, metals prices as
used for reserve determination, recovery rates, treatment charges and royalties.
Our molybdenum properties use a molybdenum cutoff grade. The table below shows
the minimum cutoff grade by process for each of our existing ore bodies as of
December 31, 2009:
|
|
Copper
Equivalent Cutoff Grades
|
|
|
|
|
|
|
|
|
|
|
|
Molybdenum
|
|
|
|
|
Cutoff
Grade
|
|
|
Copper
Equivalent Cutoff Grade (Percent)
|
|
(Percent)
|
|
|
|
|
Crushed
or
|
|
ROM
|
|
|
|
|
Mill
|
|
Agitation
Leach
|
|
Leach
|
|
Mill
|
North America
|
|
|
|
|
|
|
|
|
Morenci
|
|
0.32
|
|
0.32
|
|
0.03
|
|
N/A
|
Sierrita
|
|
0.22
|
|
N/A
|
|
0.07
|
|
N/A
|
Bagdad
|
|
0.23
|
|
N/A
|
|
0.08
|
|
N/A
|
Safford
|
|
N/A
|
|
0.12
|
|
N/A
|
|
N/A
|
Tyrone
|
|
N/A
|
|
N/A
|
|
0.05
|
|
N/A
|
Henderson
|
|
N/A
|
|
N/A
|
|
N/A
|
|
0.12
|
Chino
|
|
0.31
|
|
N/A
|
|
0.08
|
|
N/A
|
Miami
|
|
N/A
|
|
N/A
|
|
0.04
|
|
N/A
|
Climax
|
|
N/A
|
|
N/A
|
|
N/A
|
|
0.06
|
Cobre
|
|
N/A
|
|
N/A
|
|
0.17
|
|
N/A
|
|
|
|
|
|
|
|
|
|
South America
|
|
|
|
|
|
|
|
|
Cerro
Verde
|
|
0.20
|
|
0.24
|
|
0.18
|
|
N/A
|
El
Abra
|
|
N/A
|
|
0.20
|
|
0.07
|
|
N/A
|
Candelaria
|
|
0.22
|
|
N/A
|
|
N/A
|
|
N/A
|
Ojos
del Salado
|
|
0.59
|
|
N/A
|
|
N/A
|
|
N/A
|
|
|
|
|
|
|
|
|
|
Indonesia
|
|
|
|
|
|
|
|
|
Grasberg
open pit
|
|
0.15
|
|
N/A
|
|
N/A
|
|
N/A
|
Deep
Ore Zone
|
|
0.65
|
|
N/A
|
|
N/A
|
|
N/A
|
Grasberg
block cave
|
|
0.53
|
|
N/A
|
|
N/A
|
|
N/A
|
Kucing
Liar
|
|
0.75
|
|
N/A
|
|
N/A
|
|
N/A
|
Deep
Mill Level Zone
|
|
0.69
|
|
N/A
|
|
N/A
|
|
N/A
|
Big
Gossan
|
|
1.41
|
|
N/A
|
|
N/A
|
|
N/A
|
|
|
|
|
|
|
|
|
|
Africa
|
|
|
|
|
|
|
|
|
Tenke
Fungurume
|
|
N/A
|
|
1.01
|
|
N/A
|
|
N/A
|
Drill
hole spacing data is used by mining professionals, such as geologists and
geological engineers, in determining the suitability of data coverage (on a
relative basis) in a given deposit type and mining method scenario so as to
achieve a given level of confidence in the resource estimate. Drill hole spacing
is only one of several criteria necessary to establish resource classification.
Drilling programs are typically designed to achieve an optimum sample spacing to
support the level of confidence in results that apply to a particular stage of
development of a mineral deposit. The following table sets forth the average
drill hole spacing based on average sample distance or drill pattern spacing for
proven and probable ore reserves by process type:
Average
Drill Hole Spacing
|
|
|
|
|
|
|
|
|
|
Average
Spacing in Meters
|
|
|
|
|
Proven
|
|
Probable
|
|
|
Mining
Unit
|
|
Mill
|
|
Leach
|
|
Mill
|
|
Leach
|
|
|
|
|
|
|
|
|
|
|
|
North America
|
|
|
|
|
|
|
|
|
|
|
Morenci
|
|
Open
Pit
|
|
86
|
|
86
|
|
122
|
|
122
|
Sierrita
|
|
Open
Pit
|
|
69
|
|
33
|
|
115
|
|
75
|
Bagdad
|
|
Open
Pit
|
|
86
|
|
86
|
|
122
|
|
122
|
Safford
|
|
Open
Pit
|
|
N/A
|
|
61
|
|
N/A
|
|
122
|
Tyrone
|
|
Open
Pit
|
|
N/A
|
|
86
|
|
N/A
|
|
86
|
Henderson
|
|
Block
Cave
|
|
38
|
|
N/A
|
|
85
|
|
N/A
|
Chino
|
|
Open
Pit
|
|
43
|
|
86
|
|
86
|
|
122
|
Miami
|
|
Open
Pit
|
|
N/A
|
|
61
|
|
N/A
|
|
91
|
Climax
|
|
Open
Pit
|
|
61
|
|
N/A
|
|
122
|
|
N/A
|
Cobre
|
|
Open
Pit
|
|
N/A
|
|
61
|
|
N/A
|
|
91
|
|
|
|
|
|
|
|
|
|
|
|
South America
|
|
|
|
|
|
|
|
|
|
|
Cerro
Verde
|
|
Open
Pit
|
|
50
|
|
50
|
|
100
|
|
100
|
El
Abra
|
|
Open
Pit
|
|
N/A
|
|
75
|
|
N/A
|
|
120
|
Candelaria
|
|
Open
Pit
|
|
35
|
|
N/A
|
|
70
|
|
N/A
|
Ojos
del Salado
|
|
Sublevel
Stoping
|
|
25
|
|
N/A
|
|
50
|
|
N/A
|
|
|
|
|
|
|
|
|
|
|
|
Indonesia
|
|
|
|
|
|
|
|
|
|
|
Grasberg
|
|
Open
Pit
|
|
36
|
|
N/A
|
|
92
|
|
N/A
|
Deep
Ore Zone
|
|
Block
Cave
|
|
20
|
|
N/A
|
|
51
|
|
N/A
|
Grasberg
|
|
Block
Cave
|
|
47
|
|
N/A
|
|
80
|
|
N/A
|
Kucing
Liar
|
|
Block
Cave
|
|
39
|
|
N/A
|
|
97
|
|
N/A
|
Deep
Mill Level Zone
|
|
Block
Cave
|
|
21
|
|
N/A
|
|
89
|
|
N/A
|
Big
Gossan
|
|
Open
Stope
|
|
13
|
|
N/A
|
|
42
|
|
N/A
|
|
|
|
|
|
|
|
|
|
|
|
Africa
|
|
|
|
|
|
|
|
|
|
|
Tenke
Fungurume
|
|
Open
Pit
|
|
N/A
|
|
50
|
|
N/A
|
|
100
|
Production
Sequencing
The
following chart illustrates our current plans for sequencing and producing the
December 31, 2009, proven and probable reserves at each of our ore bodies and
the years in which we currently expect production from each ore body. The chart
also shows the term of PT Freeport Indonesia’s COW. Production volumes are
typically lower in the first few years for each ore body as development
activities are ongoing and as the mine ramps up to full production and
production volumes may also be lower as the mine reaches the end of its life.
The ultimate timing of the start of production from our undeveloped mines is
dependent upon a number of factors, including the results of our exploration and
development efforts, and may vary from the dates shown below. In addition, we
develop our mine plans based on maximizing the net present value from the ore
bodies. Significant additional capital expenditures will be required at many of
these mines in order to achieve the life-of-mine plans reflected
below.
Mill
and Leach Stockpiles
Mill and
leach stockpiles generally contain lower-grade ores that have been extracted
from the ore body and are available for copper recovery. For mill stockpiles,
recovery is through milling, concentrating, smelting and refining or,
alternatively, by concentrate leaching. For leach stockpiles, recovery is
through exposure to acidic solutions that dissolve contained copper and deliver
it in solution to extraction processing facilities.
Because
it is generally impracticable to determine copper contained in mill and leach
stockpiles by physical count, reasonable estimation methods are employed. The
quantity of material delivered to mill and leach stockpiles is based on surveyed
volumes of mined material and daily production records. Sampling and assaying of
blasthole cuttings determine the estimated copper grades of material delivered
to mill and leach stockpiles.
Expected
copper recovery rates for mill stockpiles are determined by metallurgical
testing. The recoverable copper in mill stockpiles, once entered into the
production process, can be extracted into copper concentrate almost
immediately.
Expected
copper recovery rates for leach stockpiles are determined using small-scale
laboratory tests, small- to large-scale column testing (which simulates the
production-scale process), historical trends and other factors, including
mineralogy of the ore and rock type. Ultimate recovery of copper contained in
leach stockpiles can vary significantly from a low percentage to more than 90
percent depending on several variables, including type of copper recovery,
mineralogy and particle size of the rock. For newly placed material on active
stockpiles, as much as 70 percent of the copper ultimately recoverable may be
extracted during the first year, and the remaining copper may be recovered over
many years.
Processes
and recovery rates are monitored continuously, and recovery rate estimates are
adjusted periodically as additional information becomes available and as related
technology changes.
Following
are our stockpiles and the estimated recoverable copper contained within those
stockpiles as of December 31, 2009:
Recoverable
Copper in Stockpiles
|
|
|
|
|
|
|
|
|
Recoverable
|
|
|
Millions
of
|
|
Average
|
|
Recovery
|
|
Copper
|
|
|
Metric
Tons
|
|
Grade
(%)
|
|
Rate
(%)
|
|
(Billion
Pounds)
|
Mill stockpiles
|
|
|
|
|
|
|
|
|
Cerro
Verde
|
|
72
|
|
0.46
|
|
81.9
|
|
0.6
|
Candelaria
|
|
91
|
|
0.39
|
|
82.7
|
|
0.7
|
Subtotal
|
|
163
|
|
0.42
|
|
82.3
|
|
1.3
|
|
|
|
|
|
|
|
|
|
Leach stockpiles
|
|
|
|
|
|
|
|
|
Morenci
|
|
4,581
|
|
0.25
|
|
1.8
|
|
0.4
|
Sierrita
|
|
648
|
|
0.15
|
|
13.1
|
|
0.3
|
Bagdad
|
|
391
|
|
0.28
|
|
3.0
|
|
0.1
|
Safford
|
|
69
|
|
0.43
|
|
27.9
|
|
0.2
|
Tyrone
|
|
967
|
|
0.28
|
|
2.2
|
|
0.1
|
Chino
|
|
1,623
|
|
0.25
|
|
12.2
|
|
1.1
|
Miami
|
|
433
|
|
0.38
|
|
1.5
|
|
0.1
|
Cerro
Verde
|
|
354
|
|
0.54
|
|
2.7
|
|
0.1
|
El
Abra
|
|
278
|
|
0.33
|
|
17.5
|
|
0.3
|
Tenke
Fungurume
|
|
4
|
|
0.98
|
|
86.1
|
|
0.1
|
Subtotal
|
|
9,348
|
|
0.28
|
|
5.1
|
|
2.8
|
|
|
|
|
|
|
|
|
|
Total
100% basis
|
|
|
|
|
|
|
|
4.1
|
|
|
|
|
|
|
|
|
|
Consolidated
basisa
|
|
|
|
|
|
|
|
4.0
|
|
|
|
|
|
|
|
|
|
Net
equity interestb
|
|
|
|
|
|
|
|
3.4
|
|
|
|
|
|
|
|
|
|
a. Consolidated
basis represents estimated metal quantities after reduction for our joint
venture partner’s interest in the Morenci mine in North
America.
|
b. Net equity
interest represents estimated consolidated basis metal quantities further
reduced for noncontrolling interest ownership.
|
|
MINERALIZED
MATERIAL
We hold
various properties containing mineralized material that we believe could be
brought into production should market conditions warrant. However, permitting
and significant capital expenditures would be required before operations could
commence at these properties. Mineralized material is a mineralized body that
has been delineated by appropriately spaced drilling and/or underground sampling
to support the reported tonnage and average metal grades. Such a deposit may not
qualify as recoverable proven and probable reserves until legal and economic
feasibility are confirmed based upon a comprehensive evaluation of development
costs, unit costs, grades, recoveries and other material factors. Estimated
mineralized materials as presented on the following page were assessed using
prices of $2.00 per pound of copper, $750 per ounce of gold and $12.00 per pound
of molybdenum.
Mineralized
Material
|
Estimated
at December 31, 2009
|
|
|
|
|
Milling
Material
|
|
Leaching
Material
|
|
Total
Mineralized Material
|
|
|
|
|
Million
|
|
|
|
|
|
|
|
Million
|
|
|
|
Million
|
|
|
|
|
|
|
|
|
FCX’s
|
|
metric
|
|
Copper
|
|
Gold
|
|
Moly
|
|
metric
|
|
Copper
|
|
metric
|
|
Copper
|
|
Gold
|
|
Moly
|
|
|
Interest
|
|
tons
|
|
%
|
|
g/t
|
|
%
|
|
tons
|
|
%
|
|
tons
|
|
%
|
|
g/t
|
|
%
|
North America
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Morenci
|
|
85%
|
|
342
|
|
0.41
|
|
-
|
|
0.016
|
|
1,965
|
|
0.22
|
|
2,307
|
|
0.25
|
|
-
|
|
0.002
|
Sierritaa
|
|
100%
|
|
2,312
|
|
0.20
|
|
-
|
|
0.022
|
|
37
|
|
0.15
|
|
2,349
|
|
0.20
|
|
-
|
|
0.022
|
Bagdad
|
|
100%
|
|
589
|
|
0.35
|
|
-
|
|
0.019
|
|
118
|
|
0.13
|
|
707
|
|
0.31
|
|
-
|
|
0.016
|
Saffordb
|
|
100%
|
|
643
|
|
0.45
|
|
0.08
|
|
0.004
|
|
103
|
|
0.29
|
|
746
|
|
0.43
|
|
0.07
|
|
0.004
|
Tyrone
|
|
100%
|
|
-
|
|
-
|
|
-
|
|
-
|
|
135
|
|
0.31
|
|
135
|
|
0.31
|
|
-
|
|
-
|
Henderson
|
|
100%
|
|
65
|
|
-
|
|
-
|
|
0.131
|
|
-
|
|
-
|
|
65
|
|
-
|
|
-
|
|
0.131
|
Chino
|
|
100%
|
|
462
|
|
0.42
|
|
-
|
|
0.010
|
|
71
|
|
0.29
|
|
533
|
|
0.40
|
|
-
|
|
0.009
|
Miami
|
|
100%
|
|
-
|
|
-
|
|
-
|
|
-
|
|
41
|
|
0.45
|
|
41
|
|
0.45
|
|
-
|
|
-
|
Climax
|
|
100%
|
|
528
|
|
-
|
|
-
|
|
0.165
|
|
-
|
|
-
|
|
528
|
|
-
|
|
-
|
|
0.165
|
Cobre
|
|
100%
|
|
44
|
|
0.55
|
|
-
|
|
-
|
|
12
|
|
0.28
|
|
56
|
|
0.49
|
|
-
|
|
-
|
Ajoc
|
|
100%
|
|
639
|
|
0.36
|
|
0.07
|
|
0.007
|
|
-
|
|
-
|
|
639
|
|
0.36
|
|
0.07
|
|
0.007
|
Cochise/Bisbee
|
|
100%
|
|
-
|
|
-
|
|
-
|
|
-
|
|
301
|
|
0.44
|
|
301
|
|
0.44
|
|
-
|
|
-
|
Lone
Star
|
|
100%
|
|
-
|
|
-
|
|
-
|
|
-
|
|
767
|
|
0.44
|
|
767
|
|
0.44
|
|
-
|
|
-
|
Sanchez
|
|
100%
|
|
-
|
|
-
|
|
-
|
|
-
|
|
190
|
|
0.28
|
|
190
|
|
0.28
|
|
-
|
|
-
|
Tohono
|
|
100%
|
|
247
|
|
0.68
|
|
-
|
|
-
|
|
280
|
|
0.67
|
|
527
|
|
0.68
|
|
-
|
|
-
|
Twin
Buttesd
|
|
100%
|
|
619
|
|
0.46
|
|
-
|
|
0.026
|
|
67
|
|
0.22
|
|
686
|
|
0.43
|
|
-
|
|
0.024
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
South America
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cerro
Verde
|
|
53.56%
|
|
1,007
|
|
0.37
|
|
-
|
|
0.014
|
|
4
|
|
0.32
|
|
1,011
|
|
0.37
|
|
-
|
|
0.014
|
El
Abra
|
|
51%
|
|
762
|
|
0.44
|
|
-
|
|
-
|
|
330
|
|
0.26
|
|
1,092
|
|
0.39
|
|
-
|
|
-
|
Candelariae
|
|
80%
|
|
81
|
|
0.49
|
|
0.11
|
|
-
|
|
-
|
|
-
|
|
81
|
|
0.49
|
|
0.11
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Indonesia
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Grasberg
districtf
|
|
54.38%k
|
|
2,622
|
|
0.59
|
|
0.53
|
|
-
|
|
-
|
|
-
|
|
2,622
|
|
0.59
|
|
0.53
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Africa
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Tenke
Fungurumeg
|
|
57.75%
|
|
62
|
|
3.38
|
|
-
|
|
-
|
|
21
|
|
2.84
|
|
83
|
|
3.24
|
|
-
|
|
-
|
Kisanfuh
|
|
95%
|
|
57
|
|
2.30
|
|
-
|
|
-
|
|
50
|
|
3.01
|
|
107
|
|
2.63
|
|
-
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
100% basis
|
|
|
|
11,081
|
|
|
|
|
|
|
|
4,492
|
|
|
|
15,573
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated basisi
|
|
|
|
9,981
|
|
|
|
|
|
|
|
4,198
|
|
|
|
14,179
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net equity interestj
|
|
|
|
8,948
|
|
|
|
|
|
|
|
4,023
|
|
|
|
12,971
|
|
|
|
|
|
|
|
a.
|
Sierrita
stated tonnage also includes 1.2 grams of silver per metric
ton.
|
b.
|
Safford
stated tonnage also includes 1.4 grams of silver per metric
ton.
|
c.
|
Ajo
stated tonnage also includes 0.9 grams of silver per metric
ton.
|
d.
|
Twin
Buttes stated tonnage also includes 5.2 grams of silver per metric
ton.
|
e.
|
Candelaria
stated tonnage also includes 1.7 grams of silver per metric
ton.
|
f.
|
Grasberg
district stated tonnage also includes 3.4 grams of silver per metric
ton.
|
g.
|
Tenke
Fungurume stated tonnage also includes 0.30 percent
cobalt.
|
h.
|
Kisanfu
stated tonnage also includes 1.08 percent cobalt.
|
i.
|
Consolidated
basis represents estimated mineralized materials after reduction for our
joint ventures partners’ interest in the Morenci mine in North America and
at the Grasberg minerals district in Indonesia.
|
j.
|
Net
equity interest represents estimated consolidated basis mineralized
material further reduced for noncontrolling interest
ownership.
|
k.
|
FCX’s
interest in the Grasberg minerals district reflects our 60 percent joint
venture ownership further reduced by noncontrolling interest
ownership.
|
This
report contains “forward-looking statements” within the meaning of the federal
securities laws. Forward-looking statements are all statements other than
statements of historical facts, such as statements regarding anticipated
production volumes, unit net cash costs, sales volumes, ore grades, milling
rates, commodity prices, development and capital expenditures, mine production
and development plans, availability of power, water, labor and equipment,
environmental reclamation and closure costs and plans, environmental liabilities
and expenditures, litigation expense and results, dividend payments, reserve
estimates, exploration efforts and results, operating cash flows, copper, gold,
molybdenum and cobalt price changes, deferred intercompany profit impacts on
financial results, and anticipated political, economic and social conditions in
our areas of operations. We undertake no obligation, to update or revise any
forward-looking statements. Readers are cautioned that forward-looking
statements are not guarantees of future performance and actual results may
differ materially from those projected, anticipated or assumed in the
forward-looking statements. Important factors that could cause our actual
results to differ materially from those anticipated in the forward-looking
statements include the following.
Financial
risks
Extended
declines in the market prices of copper, gold and/or molybdenum could adversely
affect our earnings and cash flows and, if sustained, could adversely affect our
ability to repay debt. Fluctuations in the market prices of copper, gold or
molybdenum can cause significant volatility in our financial performance and
adversely affect the trading prices of our debt and equity
securities.
Our
earnings and cash flows are affected significantly by the market prices of
copper and, to a lesser extent, gold and molybdenum. The world market prices of
these commodities have fluctuated historically and are affected by numerous
factors beyond our control. For information about movements in the market prices
of these commodities, refer to Item 7. “Management’s Discussion and Analysis of
Financial Condition and Results of Operations – Copper, Gold and Molybdenum
Markets.” An extended decline in the market prices of these commodities could
(1) adversely affect our earnings and cash flows, (2) adversely affect our
ability to repay our debt and meet our other fixed obligations, and (3) depress
the trading prices of our common and preferred stock and of our publicly traded
debt securities.
In
addition, substantially all of our copper concentrate sales and some of our
copper cathode sales are provisionally priced at the time of shipment. The
provisional prices are finalized in a contractually specified future period
(generally one to four months from the shipment date) based primarily on quoted
London Metal Exchange (LME) prices. Accordingly, in times of falling copper
prices, our revenues are negatively affected by lower prices received for
contracts priced at current market rates and also from a decrease related to the
final pricing of provisionally priced sales pursuant to contracts entered into
in prior periods; in times of rising copper prices, the opposite
occurs.
There
continues to be uncertainty in the global economy, which could negatively affect
the market prices of commodities, including the metals that we produce. If
market prices for the metals we produce decline for a sustained period of time,
we may have to revise our operating plans, including curtailing production,
reducing operating costs and capital expenditures and discontinuing certain
exploration and development programs. We may be unable to decrease our costs in
an amount sufficient to offset reductions in revenues, and may incur
losses.
World
copper prices have historically fluctuated widely. During the three years ended
December 31, 2009, LME daily closing spot prices ranged from $1.26 to
$4.08 per pound for copper. The LME spot copper price closed at $3.11 per
pound on January 29, 2010. World copper prices are affected by numerous factors
beyond our control, including:
·
|
the
strength of the U.S. economy and the economies of other industrialized and
developing nations, including China, which has become the largest consumer
of refined copper in the world;
|
·
|
available
supplies of copper from mine production and
inventories;
|
·
|
sales
by holders and producers of copper;
|
·
|
demand
for industrial products containing
copper;
|
·
|
investment
activity, including speculation, in copper as a
commodity;
|
·
|
the
availability and cost of substitute materials;
and
|
·
|
currency
exchange fluctuations, including the relative strength or weakness of the
U.S. dollar.
|
World
gold prices have historically fluctuated widely. During the three years ended
December 31, 2009, the daily closing prices on the London spot market ranged
from $608 to $1,213 per ounce for gold. London gold prices closed at $1,079 per
ounce on January 29, 2010. World gold prices are affected by numerous factors
beyond our control, including:
·
|
the
strength of the U.S. economy and the economies of other
industrialized and developing nations, including
China;
|
·
|
global
or regional political or economic
crises;
|
·
|
the
relative strength or weakness of the U.S. dollar and other
currencies;
|
·
|
expectations
with respect to the rate of
inflation;
|
·
|
purchases
and sales of gold by governments, central banks and other
holders;
|
·
|
demand
for jewelry containing gold; and
|
·
|
investment
activity, including speculation, in gold as a
commodity.
|
Molybdenum
prices also fluctuate widely. Molybdenum demand depends primarily on the global
steel industry, which uses the metal as a hardening and corrosion inhibiting
agent. Approximately 80 percent of molybdenum production is used in this
application. The remainder is used in specialty chemical applications such as
catalysts, water treatment agents and lubricants. Approximately 50 percent
of global molybdenum production is a by-product of copper mining, which is
relatively insensitive to molybdenum prices. During the three years ended
December 31, 2009, the
Metals Week Dealer Oxide weekly average price for molybdenum ranged from
$7.83 to $33.88 per pound. The Metals Week Molybdenum Dealer
Oxide weekly average price was $14.88 per pound on January 29, 2010. Molybdenum
prices are affected by numerous factors beyond our control,
including:
·
|
the
worldwide balance of molybdenum demand and
supply;
|
·
|
rates
of global economic growth, especially construction and infrastructure
activity that requires significant amounts of
steel;
|
·
|
the
volume of molybdenum produced as a by-product of copper
production;
|
·
|
currency
exchange fluctuations, including the relative strength or weakness of the
U.S. dollar; and
|
·
|
production
costs of U.S. and foreign
competitors.
|
The
agreements governing our indebtedness require us to meet certain financial tests
and other covenants and as a result may limit our flexibility in the operation
of our business and our ability to pay dividends on our common
stock.
We
incurred significant debt to fund a portion of the cash consideration paid to
acquire Phelps Dodge Corporation (Phelps Dodge). As of December 31, 2009, the
outstanding principal amount of our indebtedness was $6.3 billion. The
agreements governing our indebtedness restrict, subject to certain exceptions,
our ability to:
·
|
incur
additional indebtedness;
|
·
|
engage
in transactions with affiliates;
|
·
|
create
liens on our assets;
|
·
|
make
payments in respect of equity issued by us or our subsidiaries, including
the payment of dividends on our common
stock;
|
·
|
make
investments in, or loans, to entities that we do not control, including
joint ventures;
|
·
|
merge
with or into other companies;
|
·
|
enter
into sale and leaseback
transactions;
|
·
|
enter
into unrelated businesses;
|
·
|
enter
into agreements or arrangements that restrict the ability of certain of
our subsidiaries to pay dividends or other
distributions;
|
·
|
prepay
indebtedness; and
|
·
|
enter
into hedging transactions other than in the ordinary course of
business.
|
In April
2008, Standard & Poor’s Rating Services (S&P) and Fitch Ratings raised
our corporate credit rating and the ratings on our unsecured debt to BBB-
(investment grade). As a result of the upgrade of our unsecured debt to
investment grade by S&P, the restrictions contained in our 8.375%, 8.25% and floating
rate senior notes on incurring debt, making restricted payments and
selling assets were suspended.
In
addition, our senior revolving credit facilities require that we meet certain
financial tests at any time that borrowings are outstanding under these
facilities, including a leverage ratio test (Total Debt to Consolidated EBITDA,
as those terms are defined in the facility, for the preceding four quarters
cannot exceed 5.0 to 1.0 on the last day of any fiscal quarter) and a secured
leverage ratio test (Total Secured Debt to Consolidated EBITDA, as those terms
are defined in the facility, for the preceding four quarters cannot exceed 3.0
to 1.0 on the last day of any fiscal quarter). During periods in which
copper, gold or molybdenum prices or production volumes, or other conditions
reflect the adverse impact of cyclical market trends or other factors, we may
not be able to comply with the applicable financial covenants.
Our
senior revolving credit facilities and our 8.375%, 8.25% and floating rate
senior notes contain covenants that limit our ability to make certain payments.
These restrictions vary among the instruments, but generally limit our ability
to pay certain dividends on common and preferred stock, repurchase or redeem
common and preferred equity, prepay subordinated debt and make certain
investments. To the
extent the rating is downgraded below investment grade, these covenants in our
8.375%, 8.25% and floating rate senior notes would again become
effective. At December 31, 2009, the most restrictive of these covenants
related to restricted payments allowed for payments up to approximately $7.6
billion.
Our
obligations under our senior credit facilities are (1) guaranteed by
substantially all of our domestic subsidiaries and (2) secured by a pledge of
(a) 100 percent of the equity in substantially all of our domestic subsidiaries
and (b) 66.5 percent of the equity in substantially all of our first tier
foreign subsidiaries.
Any
failure to comply with the restrictions of our senior credit facilities, senior
notes or any agreement governing our other indebtedness, after giving effect to
any applicable grace period, may result in an event of default. Such default may
allow the creditors to accelerate the related debt, which may trigger
cross-acceleration or cross-default provisions in other debt agreements. We
would not be able to fully repay when due borrowings under our debt instruments
that are accelerated upon an event of default.
If we are
unable to repay, refinance or restructure our indebtedness under, or amend the
covenants contained in, our senior credit agreements at maturity or in the event
of a default, the lenders under our senior credit facilities could terminate
their commitments thereunder, cease making further loans, declare all borrowings
outstanding (together with accrued interest and other fees) immediately due and
payable and institute foreclosure proceedings against the collateral. Any such
actions could negatively affect our financial condition and results of
operations.
Under U.S.
federal and state laws that require closure and reclamation plans for our mines,
we are required to provide financial assurance sufficient to allow a third party
to implement those plans if we are unable to do so. The U.S. Environmental
Protection Agency (EPA) and state agencies may seek financial assurance for
investigation and remediation actions taken under the Comprehensive
Environmental Response, Compensation, and Liability Act (CERCLA) or equivalent
state regulations. The failure to
comply with these requirements could have a material adverse effect on
us.
We are
required by U.S. federal and state laws to provide financial assurance
sufficient to allow a third party to implement approved closure and reclamation
plans if we are unable to do so. These laws are complex and vary from
jurisdiction to jurisdiction. The laws govern the determination of the scope and
cost of the closure and reclamation obligations and the amount and forms of
financial assurance.
In July
2009, EPA published a Priority Notice of Action identifying classes of
facilities within the hardrock mining industry for which the agency will develop
financial responsibility requirements. It is uncertain how the new requirements
will affect the amount and form of our existing and future financial assurance
obligations.
As of
December 31, 2009, our financial assurance obligations associated with closure
and reclamation costs totaled approximately $710 million, of which approximately
$414 million was in the form of parent company guarantees and financial
capability demonstrations. Our ability to continue to provide financial
assurance in the form of parent guarantees and financial capability
demonstrations in New Mexico and Arizona depends on our ability to meet
financial tests. Certain of the ratios in these tests are significantly more
rigorous for companies that do not have an investment grade rating from a
state-approved ratings service. We are currently rated investment grade by
Standard & Poor’s and Fitch, but are not rated investment grade by Moody’s.
If we fail to maintain our investment grade rating, we would be subject to these
alternate tests, in which case, the regulatory agencies may require us to
provide alternative forms of financial assurance to fully satisfy our financial
assurance obligations, such as letters of credit, surety bonds or collateral.
Depending on our financial condition and market conditions, these other forms of
financial assurance may be difficult or costly to provide. Issuance of letters
of credit under our credit facilities would reduce our available liquidity.
Failure to provide the required financial assurance could result in the closure
of mines. As of December 31, 2009, we have limited financial assurance
obligations associated with CERCLA-related actions, although EPA and certain
states are currently considering increasing the use of financial assurance
requirements. For
additional information, see the risk factor “Mine closure regulations impose
substantial costs on our operations” below.
We
need significant amounts of cash to service our debt. If we are unable to
generate sufficient cash to service our debt, our financial condition and
results of operations could be negatively affected.
As of
December 31, 2009, the outstanding principal amount of our debt was $6.3
billion. We must generate sufficient amounts of cash to service and repay our
debt. Our ability to generate cash will be affected by general economic,
financial, competitive, legislative, regulatory and other factors that are
beyond our control. Future borrowings may not be available to us under our
senior credit facilities or from the capital markets in amounts sufficient to
pay our obligations as they mature or to fund other liquidity needs. In
addition, disruptions in the credit and financial markets, such as those
beginning in late 2008, can constrain our access to capital and increase its
cost. The inability to service, repay or refinance our indebtedness could
negatively affect our financial condition and results of
operations.
If future
financing is not available to us when required, as a result of limited access to
the credit markets or otherwise, or is not available on acceptable terms, we may
be unable to invest needed capital for our development and exploration programs,
take advantage of business opportunities or respond to competitive pressures,
any of which could have an adverse effect on our operating results and financial
condition.
Movements
in foreign currency exchange rates or interest rates could negatively affect our
operating results.
Substantially
all of our revenues and a significant portion of our costs are denominated in
U.S. dollars; however, some costs, and certain asset and liability accounts
are denominated in local currencies, including the Indonesian rupiah, Australian
dollar, Chilean peso, Peruvian nuevos sol and euro. As a result, our results are
adversely affected when the U.S. dollar weakens in relation to those
foreign currencies.
At
December 31, 2009, approximately 19 percent of our outstanding debt was subject
to variable interest rates. Increases in these rates will increase our interest
costs and reduce our profits and operating cash flows.
From time
to time, we may implement currency or interest rate hedges intended to reduce
our exposure to changes in foreign currency exchange or interest rates. However,
our hedging strategies may not be successful, and any of our unhedged foreign
exchange or interest payments will continue to be subject to market
fluctuations.
Operational
risks
The
volume and grade of ore reserves that we recover and our rate of production may
be more or less than anticipated.
Our ore
reserve amounts are determined in accordance with established mining industry
practices and standards, and are estimates of the mineral deposits that can be
recovered economically and legally based on currently available data. Estimates
of recoverable proven and probable reserves are subject to considerable
uncertainty. Ore bodies may not conform to standard geological expectations, and
estimates may change as new data becomes available. Because ore bodies do not
contain uniform grades and types of minerals, our metal recovery rates will vary
from time to time.
Additionally,
because the determination of reserves is based partially on estimates of future
selling prices, a sustained decrease in such prices may result in a reduction in
economically recoverable ore reserves. These factors may result in variations in
the volumes of mineral reserves that we report from period to
period.
There are
also uncertainties inherent in estimating quantities of ore reserves and copper
recovered from stockpiles. The quantity of copper contained in mill and leach
stockpiles is based on surveyed volumes of mined material and daily production
records. The volume and grade of ore reserves recovered, rates of production and
recovered copper from stockpiles may be less than anticipated.
We
must continually replace reserves depleted by production. Our exploration
activities may not result in additional discoveries.
Our
ability to replenish our ore reserves is important to our long-term viability.
Produced ore reserves must be replaced by further delineation of existing ore
bodies or by locating new deposits in order to maintain production levels over
the long term. Open-pit operations at Grasberg are expected to continue through
mid 2016, at which time underground mining operations are scheduled to begin at
our Grasberg Block Cave mine, which is under development. Production at the DOZ
mine is expected to continue through 2020 and we plan to ramp up production at
our Deep Mill Level Zone (DMLZ) block cave mine, which is currently under
development, beginning in 2015. In addition, oxide copper production at El Abra
is expected to decline over the next several years and production from the
sulfide ore is expected to begin in 2012.
Exploration
is highly speculative in nature. Our exploration projects involve many risks,
require substantial expenditures and may not result in the discovery of
sufficient additional mineral deposits that can be mined profitably. Once a site
with mineralization is discovered, it may take several years from the initial
phases of drilling until production is possible, during which time the economic
feasibility of production may change. Substantial expenditures are required to
establish recoverable proven and probable reserves and to construct mining and
processing facilities. As a result, there is no assurance that current or future
exploration programs will be successful. There is a risk that depletion of
reserves will not be offset by discoveries or acquisitions.
Development
projects are inherently risky and may require more capital than anticipated,
which could adversely affect our business.
There are
many risks and uncertainties inherent in all development projects, including our
significant future development of underground mines at the Grasberg minerals
district and our development of a large sulfide deposit at El Abra. The economic
feasibility of development projects is based on many factors, including the
accuracy of estimated reserves, metallurgical recoveries, capital and operating
costs and future prices of the relevant minerals. The capital expenditures and
time required to develop new mines or other projects are considerable, and
changes in costs or construction schedules can affect project economics.
Moreover, underground mining is generally more expensive than surface mining as
a result of higher capital costs, including costs for modern mining equipment
and construction of extensive ventilation systems. Thus it is possible that
actual costs and economic returns may differ materially from our
estimates.
New
development projects have no operating history upon which to base estimates of
future cash flow. These development projects also require the successful
completion of feasibility studies, acquisition of governmental permits,
acquisition of land, power and water, and ensuring that appropriate community
infrastructure is developed by third parties to support such projects. It is
possible that we could fail to obtain the government approvals necessary for the
operation of a project, in which case, the project may not proceed, either on
its original timing or at all. It is not unusual for new mining operations to
experience unexpected problems during the start-up phase, resulting in delays in
producing revenue and increases in invested capital.
The
development of underground mines is subject to additional risks, including the
following:
·
|
Unanticipated
geologic, geotechnical and hydrogeologic
conditions;
|
·
|
Challenges
related to hiring and training the personnel required for the ramp-up in
underground mining activities;
|
·
|
Larger
than expected dilution of ore associated with block caving and stoping
mining methods; and
|
·
|
Unanticipated
delays in the development of major access and supporting
infrastructure due to engineering changes, late delivery of critical
components and longer than planned construction
periods.
|
Some of
these risks could result in a delay to production start-up and a loss or
reduction in minable tons. There can be no assurance that the occurrence of such
events or conditions would not have a material adverse impact on our business
and results of operations.
Our
business is subject to operational risks that could adversely affect our
business.
Mines by
their nature are subject to many operational risks, some of which are outside of
our control. These operational risks, which could adversely affect our business,
operating results and cash flows, include the following:
·
|
earthquakes,
floods and other natural disasters;
|
·
|
the
occurrence of unusual weather or operating conditions and other force
majeure events;
|
·
|
the
failure of equipment or processes to operate in accordance with
specifications, design or
expectations;
|
·
|
wall
failures and rock slides in our open pit mines, and structural collapses
in our underground mines;
|
·
|
problems
associated with the construction and management of large impoundments
containing tailings or other viscous or semi-solid materials, some of
which also contain mineral and chemical contaminants, such as structural
failures or leakages;
|
·
|
interruption
of energy supply;
|
·
|
lower
than expected ore grades or recovery
rates;
|
·
|
metallurgical
and other processing problems;
|
·
|
unanticipated
ground and water conditions;
|
·
|
adverse
claims to water rights and shortages of water to which we have
rights;
|
·
|
adjacent
land ownership or usage that results in constraints on current or future
mine operations;
|
·
|
delays
in the receipt of or failure to receive necessary government
permits;
|
·
|
delays
in transportation and disruptions of supply
routes;
|
·
|
the
inability to obtain satisfactory insurance
coverage.
|
The
failure to adequately manage some of these risks could result in significant
personal injury, loss of life, property damage and damage to the environment,
both on and outside our operating sites, as well as damage to production
facilities and delays in production.
Continuation
of our mining production is dependent on the availability of a sufficient water
supply to support our mining operations.
Our
mining operations require significant quantities of water for mining, ore
processing and related support facilities. Our operations in North and South
America are in areas where water is scarce and competition among users for
continuing access to water is significant. Continuous production at our mines is
dependent on our ability to maintain our water rights and claims and defeat
claims adverse to our current water uses in legal proceedings. At our U.S.
operations, under state law, our water rights give us only the right to use
public waters for a statutorily defined beneficial use at a designated location.
In Arizona, we are a participant in two active general stream adjudications in
which for over 30 years the State of Arizona has been attempting to quantify and
prioritize surface water claims in two of the state’s largest river systems that
affect four of our operating mines (Morenci, Sierrita, Miami and Safford). These
legal proceedings may also affect our Arizona mine at Bagdad. Groundwater is not
subject to adjudication in Arizona, but is subject to the doctrine of reasonable
use, which requires balancing the utility of the use against the gravity of the
harm to others who have rights in the same aquifer; however, wells may be
subject to adjudication to the extent they are found to produce or affect
surface water. In Colorado, our surface water and groundwater rights are subject
to adjudication and we are involved in legal proceedings to resolve disputes
regarding priority of administration of rights, including priority of some of
our rights for the Climax mine. Our surface water and groundwater rights are
fully licensed or have been fully adjudicated in New Mexico.
In South
America, water for our mining operations at Candelaria and Ojos del Salado is
drawn from the Copiapó River aquifer. Because of rapid depletion of this aquifer
in recent years, ongoing studies are assessing the available supply for our
mining operations at these sites. Due to anticipated shortages in this water
resource, plans are in place to develop new supplementary water supplies.
Construction is under way to convey treated effluent from a nearby sewage
treatment plant to the mine and permitting has begun to construct both a
desalination plant near the Pacific Ocean to treat seawater and a pipeline to
convey the desalinated water to the Candelaria mine.
Water for
our El Abra mining operations in Chile comes from the continued pumping of
groundwater from the Salar de Ascotán pursuant to regulatory approval. At El
Abra, hydrogeologic studies are ongoing to obtain regulatory approval for the
continued pumping of groundwater from the Salar de Ascotán to process sulfide
ore. We expect that the amount of water needed to develop the sulfide ore
project will represent a significant increase over current volumes used in
processing the oxide ore. El Abra is working closely with regulatory authorities
to meet these requirements. Failure to obtain the necessary regulatory approval
or receipt of approval in a less than desired amount could adversely affect our
development of the sulfide ore project as planned.
Water for
our Cerro Verde mining operations in Peru comes from a series of storage
reservoirs on the Rio Chili watershed that collect water primarily from seasonal
precipitation. Our Cerro Verde mining operations recently constructed several
new water reservoirs on the Rio Chili watershed to obtain more water rights and
to expand storage capacity. Due to occasional drought and possible effects of
climate change reducing precipitation levels, temporary supply shortages are
possible that could affect our operations as currently planned.
Although
each operation currently has sufficient water rights and claims to cover its
operational demands, we cannot predict the potential outcome of pending or
future legal proceedings on our water rights, claims and uses. The loss of some
or all water rights for any of our mines, in whole or in part, or shortages of
water to which we have rights could require us to curtail or shut down mining
production and could prevent us from pursuing expansion
opportunities.
An
interruption of energy supply could adversely affect our mining
operations.
Our
mining operations and development projects require significant amounts of
energy. Our principal energy sources are electricity, purchased petroleum
products, natural gas and coal. Our South America mining operations receive
electrical power under long-term contracts with local energy companies. Our
Africa mining operation has entered into long-term power supply and
infrastructure funding agreements with the state-owned electric utility company
serving the Katanga province of the Democratic Republic of Congo (DRC). A
disruption in the transmission of energy, inadequate energy transmission
infrastructure, or the termination of any of our energy supply contracts could
interrupt our energy supply and adversely affect our operations.
Increased
production costs could reduce our profitability and cash flow.
Energy
represents a significant portion of our production costs. An inability to
procure sufficient energy at reasonable prices could adversely affect our
profits, cash flow and growth opportunities. Our production costs are also
affected by the prices of commodities we consume or use in our operations, such
as sulphuric acid, grinding media, steel, reagents, liners, explosives and
diluents. The prices of such commodities are influenced by supply and demand
trends affecting the mining industry in general and other factors outside our
control and such prices are at times subject to volatile movements. Increases in
the cost of these commodities could make our operations less profitable.
Increases in the costs of commodities that we consume or use may also
significantly affect the capital costs of new projects.
In
addition to the usual risks encountered in the mining industry, our Indonesia
operations involve additional risks because they are located on unusually
difficult terrain in a very remote area.
Our
Grasberg mining operations are located in steep mountainous terrain in a very
remote area in Indonesia. Because of these conditions, we have had to overcome
special engineering difficulties and develop extensive infrastructure
facilities. In addition, the area receives considerable rainfall, which has led
to periodic floods and mudslides. The mine site is also in an active seismic
area and has experienced earth tremors from time to time. Our insurance may not
sufficiently cover an unexpected natural or operating disaster.
On
October 9, 2003, a slippage of material occurred in a section of the Grasberg
open pit, resulting in eight fatalities. On December 12, 2003, a debris flow
involving a relatively small amount of loose material occurred in the same
section of the open pit resulting in only minor property damage. The events
caused us to alter our short-term mine sequencing plans, which adversely
affected our 2003 and 2004 production. We resumed normal production activities
in the second quarter of 2004.
On March
23, 2006, a mud/topsoil slide involving approximately 75,000 metric tons of
material occurred from a mountain ridge above service facilities supporting PT
Freeport Indonesia’s mining facilities. Three contract workers were fatally
injured in the event. The material damaged a mess hall and an adjacent area. As
a result of investigations by PT Freeport Indonesia and the Indonesian
Department of Energy and Mineral Resources, we conducted geotechnical studies to
identify and address any potential hazards to workers and facilities from
slides. The existing early warning system for potential slides, based upon
rainfall and other factors, has also been expanded.
On
September 10, 2008, a small scale failure encompassing approximately 75,000
metric tons of material occurred at our Grasberg open pit. There were no
injuries or property damage. The event caused a delay in our access to the
high-grade section of the open pit and, as a result, a portion of the metal
expected to be mined in the second half of 2008 was deferred to future
periods.
No
assurance can be given that similar events will not occur in the
future.
Our
Africa mining operation, Tenke Fungurume, involves additional risks because it
is located in a remote area of the DRC.
Our
Africa mining operation is located in a remote area of the DRC and is subject to
additional challenges, including:
·
|
severely
limited infrastructure, including road, bridge and rail access that is in
disrepair and receives minimal
maintenance;
|
·
|
limited
and possibly unreliable energy supply from antiquated equipment and from
power distribution corridors that are not
maintained;
|
·
|
challenges
in obtaining experienced personnel;
|
·
|
limited
health care in an area plagued by disease and other potential endemic
health issues, including malaria and
cholera.
|
For
example, due to limited rail access, we currently truck a significant portion of
the production from our Africa mining operation approximately 1,900 miles to
ports in South Africa. Our Africa mining operation and future development may be
substantially affected by factors beyond our control, which could adversely
affect their contribution to our operating results and increase the cost of
future development.
Environmental
risks
Our
domestic and international operations are subject to complex and evolving
environmental laws and regulations, and compliance with environmental and
regulatory requirements involves significant costs.
Our
ongoing mining operations and exploration activities, both in the U.S. and
elsewhere, are subject to extensive laws and regulations governing exploration,
development, production, occupational health, mine safety, toxic substances,
waste disposal, protection and remediation of the environment, protection of
endangered and protected species, and other related matters. Compliance with
these laws and regulations imposes substantial costs and we expect these costs
to continue to increase in the future because of increased regulatory
enforcement, increased demand for remediation services and shortages of
equipment, supplies, labor and other factors. The Federal Clean Air Act has had
a significant impact, particularly on our domestic smelter and power plants. Any
change in waste management regulation of the mining industry under the Federal
Resource Conservation and Recovery Act could have a significant impact, both on
operational compliance and closure costs. In addition, environmental laws and
regulations may change in ways that could substantially increase compliance
costs or adversely affect our operations or expansion
opportunities.
In
addition to compliance with environmental regulation at our operating sites, we
incur significant costs for remediating environmental conditions on properties
that have not been operated in many years.
Freeport-McMoRan
Corporation (FMC, formerly Phelps Dodge Corporation), and many of its affiliates
and predecessor companies have been involved in mining, milling, and
manufacturing in the U.S. for more than a century. Activities that occurred in
the late 19th century and the 20th century prior to the advent of modern
environmental laws were not subject to environmental regulation and were
conducted before American industrial companies understood the long-term effects
of their operations on the surrounding environment. With the passage of CERCLA
in 1980, companies like Phelps Dodge became legally responsible for
environmental remediation on properties previously owned or operated by them,
irrespective of when the damage to the environment occurred or who caused it.
That liability is often shared on a joint and several basis with all other
owners
and operators, meaning that each owner or operator of the property is fully
responsible for the clean-up, although in many cases some or all of the other
historical owners or operators no longer exist, do not have the financial
ability to respond or cannot be found. As a result, because of our acquisition
of Phelps Dodge in 2007, many of the subsidiary companies we now own are
responsible for a wide variety of environmental remediation projects throughout
the U.S., and we expect to spend substantial sums annually for many years to
address these remediation issues. We are also subject to claims where the
release of hazardous substances is alleged to have damaged natural resources. As
of December 31, 2009, we had more than 100 active remediation projects in the
U.S. in approximately 25 states.
We
incurred aggregate environmental capital expenditure and other environmental
costs, (including our joint venture partners’ shares), to comply with applicable
environmental laws and regulations that affect our operations of $289 million in
2009, $377 million in 2008 and $280 million in 2007. For 2010, we expect to
incur approximately $426 million of aggregate environmental capital expenditures
and other environmental costs, which are part of our overall 2010 operating
budget.
At
December 31, 2009, $1.5 billion of environmental obligations were recorded in
our consolidated balance sheet. Our environmental obligation estimates are based
upon (1) our knowledge and beliefs about complex scientific and historical facts
and circumstances that in many cases involve events that occurred many decades
ago, (2) our beliefs and assumptions regarding the nature, extent and duration
of remediation activities that we will be required to undertake the estimated
costs of those activities, which are subject to varying interpretations, and (3)
our beliefs regarding the requirements that are imposed on us by existing laws
and regulations and, in some cases, the expected clarification of uncertain
regulatory requirements that could materially affect our environmental
obligation estimates. Significant adjustments to these estimates are likely to
occur in the future as additional information becomes available. The actual
environmental costs ultimately may exceed our current and future accruals for
these costs, and any such changes could be material. Refer to Note 14 for more
information on our environmental obligations.
An
adverse ruling in one or more pending legal proceedings involving environmental
matters could have a material adverse effect on us.
As
described in our Securities and Exchange Commission (SEC) filings, we are a
defendant in numerous and in some cases significant litigation involving
environmental cleanup costs, alleged environmental toxic torts and
interpretations of environmental regulations. An adverse ruling in one or more
of these matters could have a material adverse effect on our results of
operations, financial condition and cash flow.
Mine
closure regulations impose substantial costs on our
operations.
Our
domestic operations are subject to various federal and state permitting
requirements that include mine closure and mined-land reclamation obligations.
These requirements are complex and vary depending upon the jurisdiction. The
laws govern the determination of the scope and cost of the closure and
reclamation obligations and the amount and forms of financial assurance
sufficient to allow a third party to meet the obligations of those plans if we
are unable to do so. In general, our domestic mines are required to review
estimated closure and reclamation costs on either a periodic basis or at the
time of significant permit modifications and post increasing amounts of
financial assurance as required.
In
addition, our international mines are subject to various mine closure and
mined-land reclamation laws, and there have recently been significant changes in
closure and reclamation programs in both Peru and Chile that impose more
stringent obligations on us for closure and reclamation. Updated closure plans
for our three Chilean operations were submitted to the government in February
2009 and the Peruvian government approved Cerro Verde’s closure plan in October
2009.
Our asset
retirement obligations (AROs), determined as required by generally accepted
accounting principles (GAAP) in the U.S. totaled $731 million (including
approximately $46 million for the current portion) at December 31, 2009. At
December 31, 2009, we had accrued reclamation and closure costs of $351 million
for our New Mexico operations, $187 million for our Arizona operations and $102
million for PT Freeport Indonesia. ARO cost estimates may increase or decrease
significantly in the future as a result of changes in regulations, engineering
designs and technology, permit modifications or updates, mine plans, cost of
inflation or other factors and as actual reclamation spending
occurs.
Regulation
of greenhouse gas emissions and climate change issues may increase our costs and
adversely affect our operations and markets.
Many
scientists believe that emissions from the combustion of carbon-based fuels
contribute to greenhouse effects and therefore potentially to climate change. In
2009, our worldwide total greenhouse gas emissions, measured as carbon dioxide
equivalent emissions, were 8.9 million metric tons, nearly equally divided
between direct and indirect emissions. Most of our direct emissions are from
fuel combustion in haul trucks, followed by the combustion of fuels to provide
energy for roasting, smelting and other processes. Indirect emissions are
generally the emissions of outside providers from whom we purchase electricity
for use in our operations. Approximately 19 percent of our direct emissions are
in North America and 68 percent in Indonesia, and approximately 60 percent of
our indirect emissions are in North America and 38 percent in South
America.
A number
of governments have introduced or are contemplating regulatory changes regarding
greenhouse gas emissions. For example, in the U.S., the EPA issued final
regulations in September 2009 requiring mandatory monitoring and reporting of
greenhouse gas emissions in specified circumstances, commencing in 2010. Our
Morenci mine, Miami smelter and El Paso refinery will likely be required to
report their emissions under this program. In December 2009, the EPA issued
findings under the Clean Air Act that the current and projected concentrations
of greenhouse gases in the atmosphere threaten public health and welfare. While
the findings themselves do not impose any requirements, they form the basis for
future regulation of our greenhouse gas emissions in the U.S. In June 2009, the
U.S. House of Representatives passed the American Clean Energy and Security Act
of 2009 (ACES), also known as the Waxman-Markey Bill, which proposes to impose a
“cap and trade” program aimed at reducing greenhouse gas emissions. Several
states have also initiated action on their own or as part of regional
organizations, such as the Western Climate Initiative, to limit emissions of
greenhouse gases. The U.S. may also become a party to international agreements
to reduce greenhouse gas emissions, which could lead to new regulations
affecting our U.S. operations. The December 1997 Kyoto Protocol established a
set of greenhouse gas emission targets for developed countries that have
ratified the Protocol. Although the Kyoto Protocol, which expires in 2012, has
not been ratified by the U.S., the U.S. continues to participate in global
climate summits that may lead to an agreement in the future.
We
actively pursue ways to improve the energy efficiency of our operations and
reduce greenhouse gas emissions. In 2009, we formed a multi-departmental task
force to focus our efforts on these topics. In addition, since 2006, we have
participated in the Carbon Disclosure Project, which is a voluntary initiative
that promotes standardized reporting of greenhouse gas emissions and reduction
efforts. From a medium and long-term perspective, we are likely to see an
increase in costs relating to our assets that emit significant amounts of
greenhouse gases as a result of regulatory initiatives in the U.S. and other
countries in which we operate. In addition, the cost of electricity that we
purchase from others may increase, if they incur increased costs from the
regulation of their greenhouse gas emissions. We cannot predict the magnitude of
any increased costs at this time, given the wide scope of potential regulatory
changes in the many countries in which we operate.
The
potential physical impacts of climate change on our operations are highly
uncertain, and would be particular to the geographic circumstances. These may
include changes in rainfall patterns, water shortages, changing sea levels,
changing storm patterns and intensities, and changing temperatures. These
effects may adversely impact the cost, production and financial performance of
our operations.
Our
operating, inactive and historical U.S. mining sites and facilities may be
subject to future regulation of radioactive materials that are
commonly associated with, or result from, our mining operations.
A number
of federal and state agencies are considering new regulations to
characterize, regulate and remediate potential workplace exposures and
environmental impacts of radioactive materials commonly associated with mining
operations. For example, the EPA could promulgate rules to regulate
technologically enhanced naturally occurring radioactive materials (TENORM) and
their impacts at mining operations. In addition, several states are promulgating
groundwater quality compliance and remediation standards for radioactive
materials, including uranium. Radioactive materials can be associated with
copper mineral deposits, including both our current and discontinued operations.
Consequently, our copper operations may generate, concentrate or release
radioactive materials that may subject our operations to new and increased
regulation. The impact of such future regulation on our operating, closure,
reclamation, and remediation costs is uncertain.
Our
Indonesia mining operations create difficult and costly environmental
challenges, and future changes in environmental laws, or unanticipated
environmental impacts from those operations, could require us to incur increased
costs.
Mining
operations on the scale of our operations in Papua involve significant
environmental risks and challenges. Our primary challenge is to dispose of the
large amount of crushed and ground rock material, called tailings, that results
from the process by which we physically separate the copper-, gold- and
silver-bearing materials from the ore that we mine. Our tailings management
plan, which has been approved by the Government of Indonesia, uses the river
system near our mine to transport the tailings to an engineered area in the
lowlands where the tailings and natural sediments are managed in a deposition
area. Lateral levees have been engineered and constructed to limit and help
contain the footprint of tailings impact in the lowlands.
Another
major environmental challenge is managing overburden, which is the rock that
must be moved aside in the mining process in order to reach the ore. In the
presence of air, water and naturally occurring bacteria, some overburden can
generate acid rock drainage, or acidic water containing dissolved metals which,
if not properly managed, can have a negative impact on the
environment.
Certain
Indonesian governmental officials have from time to time raised questions with
respect to our tailings and overburden management plans, including a suggestion
that we implement a pipeline system rather than our river transport system for
tailings management and disposition. Because our mining operations are remotely
located in steep mountainous terrain and in an active seismic area, a pipeline
system would be costly, difficult to construct and maintain, and more prone to
catastrophic failure, and could therefore involve significant potentially
adverse environmental issues. Based on our own studies and others conducted by
third parties, we do not believe that a pipeline system is necessary or
practical.
In
connection with obtaining our environmental approvals from the Indonesian
government, we committed to perform a one-time environmental risk assessment on
the impacts of our tailings management plan. We completed this extensive
environmental risk assessment with more than 90 scientific studies conducted
over four years and submitted it to the Indonesian government in December 2002.
We developed the risk assessment study using internationally recognized methods
with input from an independent review panel, which included representatives from
the Indonesian government, academia and non-governmental organizations. The
risks identified during this process were in line with our impact projections of
the tailings management program contained in our environmental approval
documents.
Since
2005, PT Freeport Indonesia has participated in the Government of Indonesia’s
PROPER (Program for Pollution Control, Evaluation and Rating) program. In
October 2009, the Indonesian Ministry of Environment announced the latest
results of its PROPER environmental management audit, and gave PT Freeport
Indonesia a Blue rating acknowledging PT Freeport Indonesia’s environmental
management practices as being in compliance with the laws and regulations in
Indonesia and also making several recommendations for improvement.
International
risks
Our
International operations are subject to political, social and geographic risks
of doing business in foreign countries.
We are a
global mining company with substantial assets located outside of the U.S. We
conduct international mining operations in Indonesia, Peru, Chile and the
Democratic Republic of Congo. Accordingly, our business may be adversely
affected by political, economic and social uncertainties in each of these
countries, in addition to the usual risks associated with conducting business in
foreign countries. Such risks include (1) renegotiation, cancellation or forced
modification of existing contracts, (2) expropriation or nationalization of
property, (3) changes in a foreign country’s laws, regulations and policies,
including those relating to labor, taxation, royalties, divestment, imports,
exports, trade regulations, currency and environmental matters, (4) political
instability, bribery, extortion, corruption, civil strife, acts of war, guerilla
activities, insurrection and terrorism, (5) foreign exchange controls, and (6)
the risk of having to submit to the jurisdiction of a foreign court or
arbitration panel or having to enforce the judgment of a foreign court or
arbitration panel against a sovereign nation within its own territory. Our
insurance does not cover most losses caused by these risks. Consequently, our
exploration, development and production activities outside of the U.S. could be
substantially affected by factors beyond our control, some of which could
materially adversely affect our financial position or results of
operations.
In
December 2009, PT Freeport Indonesia was notified by the Large Taxpayer’s Office
of the Government of Indonesia that PT Freeport Indonesia is obligated to pay
value added taxes on certain goods imported after the year 2000. The amount of
taxes and penalties would be significant. PT Freeport Indonesia believes that
pursuant to the terms of its Contract of Work, it is only required to pay value
added taxes on these types of goods imported after December 30, 2009. PT
Freeport Indonesia is working cooperatively with the applicable government
authorities to resolve this matter.
In
December 2008, our Cerro Verde mining operation in Peru was notified by Peruvian
revenue authorities of their intent to assess mining royalties related to
minerals processed by the Cerro Verde concentrator. In August 2009, Cerro Verde
received a formal assessment in the amount of approximately $50 million in
connection with its alleged obligations for mining royalties and fines for the
period from October 2006 to December 2007. Cerro Verde is challenging this
assessment as it believes that royalty obligations with respect to all minerals
extracted are governed by its existing stability agreement, regardless of the
processing method applied after extraction, and believes that it owes no
royalties with respect to minerals processed through its concentrator. We are
working cooperatively with the Peruvian authorities to resolve this
matter.
Because
our Grasberg minerals district in Papua, Indonesia remains our most significant
operating asset, our business may continue to be adversely affected by
Indonesian political, economic and social uncertainties.
Indonesia
has faced political, economic and social uncertainties, including separatist
movements and civil and religious strife in a number of provinces. In
particular, several separatist groups are opposing Indonesian rule over the
province of Papua, where our Grasberg minerals district is located, and have
sought political independence for the province. In response, Indonesia enacted
regional autonomy laws, which became effective January 1, 2001. The manner
in which the new laws are being implemented and the degree of political and
economic autonomy that they may bring to individual provinces, including Papua,
are uncertain and are ongoing issues in Indonesian politics. In Papua, there
have been sporadic attacks on civilians by separatists and sporadic but highly
publicized conflicts between separatists and the Indonesian military. Social,
economic and political instability in Papua could materially and adversely
affect us if it results in damage to our property or interruption of our
activities.
Maintaining
a good working relationship with the Indonesian government is important to us
because our mining operations there are among Indonesia’s most significant
business enterprises and are conducted pursuant to a Contract of Work with the
Indonesian government. Partially because of their significance to Indonesia’s
economy, the environmentally sensitive area in which they are located, and the
number of people employed, our operations are occasionally the subject of
criticism in the Indonesian press and in political debates, and have been the
target of protests and occasional violence.
Since
July 2009, there has been a series of shooting incidents along the road leading
to our mining and milling operations at our Grasberg mining complex (including
an incident in January 2010). In connection with these incidents, there have
been three fatalities (including one PT Freeport Indonesia employee, a security
contractor and an Indonesian policeman) and several injuries. The Indonesian
government has responded with additional security forces and has expressed a
strong commitment to protect the safety of the community and of our operations.
The investigation of these matters is continuing, and we have taken
precautionary measures, including limiting use of the road to secured convoys.
Our mining and milling activities have continued uninterrupted; however,
prolonged limitations on access to the road could adversely affect operations at
the mine. In response to these events, PT Freeport Indonesia is currently
reviewing security plans with the Indonesian authorities.
Grasberg
operated at reduced mining and milling rates during a four-day period from April
18, 2007 to April 21, 2007, as a result of peaceful protests by certain workers
regarding benefits. The protests ended on April 21 with an agreement on a
framework for minimum wages for its workers and Grasberg returned to normal
operations. The impacts to production were not significant. Illegal miners have
continued to operate along the river designated to transport the tailings from
the mill to the lowlands in PT Freeport Indonesia’s government-approved tailings
management area. The illegal miners who have trespassed from time to time in the
area of our facilities have clashed with police who have attempted to move them
away from our facilities. In 2006, the illegal miners temporarily blocked the
road leading to the Grasberg mine and mill in protest, and PT Freeport Indonesia
temporarily suspended mining and milling operations as a precautionary
measure.
We cannot
predict whether additional incidents will occur that could disrupt our
Indonesian operations, or whether similar incidents may occur in other countries
that could affect our other operations. If additional protests or other
disruptive incidents occur at any of our facilities, they could adversely affect
our business and profitability in ways that we cannot predict at this
time.
We
do not expect to mine all of our Indonesian ore reserves before the initial term
of our Contract of Work in Indonesia expires.
All of
our Indonesian proven and probable ore reserves, including the Grasberg deposit,
are located in Block A. The initial term of our Contract of Work covering these
ore reserves expires at the end of 2021. We can extend this term for two
successive 10-year periods, subject to the approval of the Indonesian
government, which under our Contract of Work cannot be withheld or delayed
unreasonably. Our ore reserves reflect estimates of minerals that can be
recovered through the end of 2041 (i.e., through the expiration of the two
10-year extensions) and our current mine plan has been developed, and our
operations are based on the assumption that we will receive the two 10-year
extensions. As a result, we will not mine all of these ore reserves during the
current term of our Contract of Work, and there can be no assurance that the
Indonesian government will approve the extensions. Prior to the end of 2021, we
expect to mine approximately 33 percent of aggregate proven and probable
recoverable ore at December 31, 2009, representing approximately 39 percent
of PT Freeport Indonesia’s share of recoverable copper reserves and
approximately 52 percent of its share of recoverable gold
reserves.
In 2008,
Indonesia enacted a new mining law, which will operate under a licensing system
as opposed to the contract of work system that applies to PT Freeport Indonesia.
In 2010, the Government of Indonesia promulgated regulations under the 2008
mining law and certain provisions address existing contracts of
work. The regulations provide that contracts of work will
continue to be honored until their expiration.
However, the regulations attempt to apply certain provisions of the
new law to any extension periods of contracts of work even though our Contract
of Work provides for two ten-year extension periods under the existing terms of
the Contract of Work.
Our
Contracts of Work in Indonesia are subject to termination if we do not comply
with our contractual obligations, and if a dispute arises, we may have to submit
to the jurisdiction of a foreign court or arbitration panel.
PT
Freeport Indonesia’s Contract of Work and other Contracts of Work in which we
have an interest were entered into under Indonesia’s 1967 Foreign Capital
Investment Law, which provides guarantees of remittance rights and protection
against nationalization. Our Contracts of Work can be terminated by the
Government of Indonesia if we do not satisfy our contractual obligations, which
include the payment of royalties and taxes to the government and the
satisfaction of certain mining, environmental, safety and health
requirements.
Certain
forestry laws and designations as well as prevailing environmental laws and
regulations may conflict with or overlap with the mining rights established
under our Contract of Work. Although our Contract of Work grants to PT Freeport
Indonesia the unencumbered right to operate in accordance with the Contract of
Work, certain government agencies could seek to impose additional restrictions
on PT Freeport Indonesia that could affect exploration and operating
requirements.
At times,
certain government officials and others in Indonesia have questioned the
validity of contracts entered into by the Government of Indonesia prior to May
1998 (i.e., during the Suharto regime, which lasted over 30 years),
including PT Freeport Indonesia’s Contract of Work, which was signed in December
1991. We cannot assure you that the validity of, or our compliance with, the
Contracts of Work will not be challenged for political or other reasons. PT
Freeport Indonesia’s Contract of Work and our other Contracts of Work require
that disputes with the Indonesian government be submitted to international
arbitration. Consequently, if a dispute arises under the Contracts of Work, we
face the risk of having to submit to the jurisdiction of a foreign court or
arbitration panel, and if we prevail in such a dispute, we will face the
additional risk of having to enforce the judgment of a foreign court or
arbitration panel against Indonesia within its own territory.
Indonesian
government officials have periodically undertaken reviews regarding our
compliance with Indonesian environmental laws and regulations and the terms of
the Contracts of Work. In 2006, the Government of Indonesia created a joint team
for “Periodic Evaluation on Implementation of the PT-FI Contract of Work (COW)”
to conduct an evaluation every five years. The team consists of five working
groups, whose members are from relevant ministries or agencies, covering
production, state revenues, community development, environmental
issues
and security issues. We have conducted numerous meetings with these groups. The
joint team has indicated that it will issue a report. While we believe that we
comply with PT Freeport Indonesia’s Contract of Work in all material respects,
we cannot assure you that the report will support that conclusion. Separately,
the Indonesian House of Representatives created a working committee on PT
Freeport Indonesia. Members of this group have also visited our operations and
held a number of hearings in Jakarta. We will continue to work with these groups
to respond to their questions about our operations and our compliance with PT
Freeport Indonesia’s Contract of Work.
Any
suspension of required activities under our Contracts of Work requires the
consent of the Indonesian government.
Our
Contracts of Work permit us to suspend certain contractually required
activities, including exploration, for a period of one year by making a written
request to the Indonesian government. These requests are subject to the approval
of the Indonesian government and are renewable annually. If we do not request a
suspension or are denied a suspension, then we are required to continue our
activities under the Contract of Work or potentially be declared in default.
Moreover, if a suspension continues for more than one year for reasons other
than force majeure and the Indonesian government has not approved such
continuation, then the government would be entitled to declare a default under
the Contract of Work.
We
suspended our field exploration activities outside of Block A in recent years
because of safety and security issues and regulatory uncertainty relating to a
possible conflict between our mining and exploration rights in certain forest
areas and an Indonesian Forestry law enacted in 1999 prohibiting open-pit mining
in forest preservation areas. In 2001, we requested and received from the
Government of Indonesia, formal temporary suspensions of our obligations under
the Contracts of Work in all areas outside of Block A. Recent Indonesian
legislation permits open-pit mining in PT Freeport Indonesia’s Block B area,
subject to certain requirements. Following an assessment of these requirements
and a review of security issues, in 2007 we resumed exploration activities in
certain prospective Contract of Work areas outside of Block A.
Our
Tenke Fungurume mining operation is located in the Katanga province of the DRC,
and may be adversely affected by political, economic and social instability in
the DRC.
During
2009, we completed construction activities for the initial Tenke Fungurume
development project, which is located in the DRC. Since 1960, the DRC has
undergone outbreaks of violence, changes in national leadership and financial
crisis. These factors heighten the risk of abrupt changes in the national policy
towards foreign investors, which in turn could result in unilateral modification
of concessions or contracts, increased taxation, denial of permits or permit
renewals or expropriation of assets. Our ability to continue mining operations
and future development is currently subject to an ongoing review of our
mining convention which was part of a review of all mining contracts by the
Ministry of Mines (Ministry) in the DRC, the outcome of which cannot be
predicted. We received notification on February 20, 2008, that the Ministry
wishes to renegotiate several material provisions of our mining concessions. We
believe that the terms of the concessions are fair and that they were negotiated
transparently and are legally binding. However, we cannot predict whether the
Government of the DRC will respect our contract rights.
In July
2009, Tenke Fungurume was advised that the Minister of Justice in the DRC
authorized an inquiry regarding the alleged misappropriation of public funds in
connection with the securing of labor and immigration authorizations and the
payment of associated fees for the Tenke Fungurume project. Several government
officials and three Tenke Fungurume employees were arrested. In October 2009,
the three Tenke Fungurume employees were tried and acquitted. One government
official, the head of immigration in the Katanga province, was sentenced to five
years imprisonment on charges of embezzlement. The office of the Attorney
General of the DRC has filed a notice of appeal of the judgment, the
implications of which are not yet clear.
In July
2009, Tenke Fungurume entered into a settlement agreement with DRC tax
authorities in connection with an administrative audit regarding the payment of
fees for work permits and visas for its foreign workers and subcontractors,
including short-term workers. Pursuant to the agreement, which covers the period
from January 2007 to the date of the settlement, Tenke Fungurume paid
approximately $16 million in fees and penalties. The procedures associated with
obtaining labor and immigration authorizations for short-term workers on a
timely basis are not clearly established in the DRC, and Tenke Fungurume
continues to work proactively and cooperatively with the tax authorities to
establish approved procedures for doing so consistent with its mining convention
and local law.
Other
political, economic and social risks that are generally outside of our control
and could adversely affect our business include:
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political
risks associated with the relatively recent establishment of the present
government;
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cancellation
or renegotiation of mining contracts by the
government;
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legal
and regulatory uncertainties, governmental corruption and
bribery;
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royalty
and tax increases or claims by governmental entities, including
retroactive claims;
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security
risks due to the remote location in the southern DRC and violence in the
northeastern provinces of the DRC;
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risk
of loss of property due to expropriation or nationalization of property;
and
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risk
of loss due to civil strife, acts of war, guerrilla activities,
insurrection and terrorism.
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Consequently,
our Tenke Fungurume mining operations and future development projects may be
substantially affected by factors beyond our control, any of which could
adversely affect our financial position or results of operations.
Terrorist
attacks and violence near our operations and throughout the world and the
potential for additional future terrorist acts and violence have created
economic and political uncertainties that could materially and adversely affect
our business.
On July
17, 2009, two suicide bombers set off explosions inside of the JW Marriott and
Ritz-Carlton hotels in Jakarta, Indonesia, that are reported to have killed nine
people and injured 53 others. Two of our Indonesian-based executives were
injured in the incident.
On July
8, 2009, a small group of individuals created a disturbance on the road leading
to our mining and milling operations at our Grasberg mining complex and
vandalized vehicles and small buildings. There were no injuries. For more
information about a series of shooting incidents near our Grasberg mining
complex, see the risk factor “Because our Grasberg minerals district in Papua,
Indonesia remains our most significant operating asset, our business may
continue to be adversely affected by Indonesian political, economic and social
uncertainties” above.
On August
31, 2002, three people were killed and 11 others were wounded in an ambush by a
group of unidentified assailants on the road near Tembagapura, the mining town
where the majority of PT Freeport Indonesia’s personnel reside. The assailants
shot at several vehicles transporting international contract teachers from our
school in Tembagapura, their family members and other contractors to PT Freeport
Indonesia. The U.S. Federal Bureau of Investigation (FBI) investigated the
incident, which resulted in the U.S. indictment of an alleged operational
commander of the Free Papua Movement/National Freedom Force. In January 2006,
Indonesian police, accompanied by FBI agents, arrested the alleged operational
commander and 11 other Papuans. In November 2006, verdicts and sentencing were
announced for seven of those accused in the August 2002 shooting, including a
life sentence for the confessed leader of the attack.
On
October 12, 2002, a bombing killed 202 people in the Indonesian province of
Bali, which is 1,500 miles west of our mining and milling operations. Indonesian
authorities arrested 35 people in connection with this bombing and 29 of those
arrested have been tried and convicted. On August 5, 2003, 12 people were
killed and over 100 were injured by a car bomb detonated outside of the JW
Marriott Hotel in Jakarta, Indonesia. On September 9, 2004, 11 people were
killed and over 200 injured by a car bomb detonated in front of the Australian
embassy in Jakarta. On October 1, 2005, three suicide bombers killed 19
people and wounded over 100 in Bali. The same international terrorist
organizations are suspected in each of these incidents. In November 2005,
Indonesian police raided a house in East Java that resulted in the death of
other accused terrorists linked to the bombings discussed above. Our mining and
milling operations were not interrupted by these incidents, but PT Freeport
Indonesia’s corporate office in Jakarta had to relocate for several months
following the bombing in front of the Australian embassy. In addition to the
Bali, JW Marriott Hotel and Australian embassy bombings, there have been
anti-American demonstrations in certain sections of Indonesia reportedly led by
radical Islamic activists.
No
assurance can be given that additional terrorist incidents and acts of violence
will not occur. If there were to be additional violence, it could materially and
adversely affect our business in ways that we cannot predict at this
time.
Other
risks
If
market prices for our commodities decline, the carrying values of inventories
and long-lived assets may be further impaired, which could require charges to
operating income that could be material.
During
fourth-quarter 2008, we concluded that the then-current economic environment and
significant declines in copper and molybdenum prices represented significant
adverse changes in our business requiring us to evaluate our long-lived assets
and goodwill for impairment. As a result, we recorded impairment
charges totaling $16.9 billion ($12.6 billion to net loss attributable to FCX
common stockholders). Additionally, the declines in copper and molybdenum prices
in late 2008 resulted in lower of cost or market (LCM) inventory charges
totaling $782 million ($479 million to net loss attributable to FCX common
stockholders) in 2008. Additional LCM charges associated with molybdenum
inventories totaling $19 million ($15 million to net income attributable to FCX
common stockholders) were recorded in first-quarter 2009. Declines in the market
price of copper, among other factors, may cause us to record additional LCM
inventory adjustments and may also require us to further write down the carrying
value of long-lived assets, which would potentially have a material adverse
impact on our results of operations and stockholders' equity, but would have no
effect on cash flows.
Unanticipated
litigation or negative developments in pending litigation could have a material
adverse effect on our results of operations and financial
condition.
We are a
party to the litigation described in our SEC filings and a number of other
litigation matters, including asbestos exposure cases, disputes over the
allocation of environmental remediation obligations at Superfund and other
sites, disputes over water rights and disputes with regulatory authorities. The
outcome of litigation is inherently uncertain and adverse developments or
outcomes can result in significant monetary damages, penalties or injunctive
relief against us, limitations on our property rights, or regulatory
interpretations that increase our operating costs. If any of these disputes
results in a substantial monetary judgment against us or an adverse legal
interpretation, is settled on unfavorable terms, or otherwise affects our
operations, it could have a material adverse effect on our operating results and
financial condition.
We
depend on our senior management team and other key employees, and the loss of
any of these employees could adversely affect our business.
Our
success depends in part on our ability to attract, retain and motivate senior
management and other key employees. Achieving this objective may be difficult
due to many factors, including fluctuations in global economic and industry
conditions, competitors’ hiring practices, cost reduction activities, and the
effectiveness of our compensation programs. Competition for qualified personnel
can be very intense. We must continue to recruit, retain and motivate senior
management and other key employees sufficient to maintain our current business
and support our future projects. A loss of such personnel could prevent us from
capitalizing on business opportunities, and our operating results could be
adversely affected.
Our holding company structure may
impact your ability to receive dividends.
We are a
holding company with no material assets other than the capital stock of our
subsidiaries. As a result, our ability to repay our indebtedness and pay
dividends is dependent on the generation of cash flow by our subsidiaries and
their ability to make such cash available to us, by dividend, loan, debt
repayment or otherwise. Our subsidiaries do not have any obligation to make
funds available to us to repay our indebtedness or pay dividends. Dividends from
subsidiaries that are not wholly owned are shared with other equity owners. In
addition, cash at our international operations is subject to foreign withholding
taxes upon repatriation into the U.S.
In
addition, our subsidiaries may not be able to, or be permitted to, make
distributions to enable us to repay our indebtedness or pay dividends. Each of
our subsidiaries is a distinct legal entity and, under certain circumstances,
legal and contractual restrictions, as well as the financial condition and
operating requirements of our subsidiaries, may limit our ability to obtain cash
from our subsidiaries. Our rights to participate in any distribution of our
subsidiaries’ assets upon their liquidation, reorganization or insolvency would
generally be subject to the prior claims of the subsidiaries’ creditors,
including any trade creditors and preferred stockholders.
Anti-takeover
provisions in our charter documents and Delaware law may make an acquisition of
us more difficult.
Anti-takeover
provisions in our charter documents and Delaware law may make an acquisition of
us more difficult. These provisions:
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authorize
our board of directors to issue preferred stock without stockholder
approval and to designate the rights, preferences and privileges of each
class; if issued, such preferred stock would increase the number of
outstanding shares of our capital stock and could include terms that may
deter an acquisition of us;
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establish
advance notice requirements for nominations to the board of directors or
for proposals that can be acted on at stockholder
meetings;
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limit
who may call stockholder meetings;
and
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require
the approval of the holders of two thirds of our outstanding common stock
to enter into certain business combination transactions, subject to
certain exceptions, including if the consideration to be received by our
common stockholders in the transaction is deemed to be a fair
price.
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These
provisions may discourage potential takeover attempts, discourage bids for our
common stock at a premium over market price or adversely affect the market price
of, and the voting and other rights of the holders of, our common stock. These
provisions could also discourage proxy contests and make it more difficult for
stockholders to elect directors other than the candidates nominated by our board
of directors.
In
addition, because we are incorporated in Delaware, we are governed by the
provisions of Section 203 of the Delaware General Corporation Law, which may
prohibit large stockholders from consummating a merger with, or acquisition of,
us.
These
provisions may deter an acquisition of us that might otherwise be attractive to
stockholders.
Item 1B. Unresolved Staff Comments.
Not
applicable.
Item 3. Legal Proceedings.
We are
involved in various legal proceedings that arise in the ordinary course of our
business or are associated with environmental issues arising from legacy
operations conducted over the years by Phelps Dodge and its affiliates. We do
not believe that our potential liability in any such proceeding should have a
material adverse effect on our business, financial condition or results of
operations. We maintain liability insurance to cover some, but not all,
potential liabilities normally incident to the ordinary course of our business
as well as other insurance coverage customary in our business, with coverage
limits that we deem prudent.
Environmental
Proceedings
Pinal Creek. We are a party to
litigation entitled Pinal Creek Group, et al. v.
Newmont Mining Corporation, et al., United States District Court,
District of Arizona, Case No. CIV 91-1764 PHX DAE (LOA), filed on May 1, 1991.
The Pinal Creek site located near Miami, Arizona, was listed under the Arizona
Department of Environmental Quality’s (ADEQ) Water Quality Assurance Revolving
Fund program in 1989 for contamination in the shallow alluvial aquifers within
the Pinal Creek drainage near Miami, Arizona. Since that time, environmental
remediation has been performed by members of the Pinal Creek Group (PCG),
consisting of Phelps Dodge Miami, Inc. (Miami) (a wholly owned subsidiary of
Freeport-McMoRan Corporation, formerly Phelps Dodge Corporation) and two other
companies. In 1998, the District Court approved a Consent Decree between the PCG
members and the state of Arizona resolving all matters related to an enforcement
action contemplated by the state of Arizona against the PCG members with respect
to groundwater contamination. The Consent Decree committed the PCG members to
complete the remediation work outlined in the Consent Decree, and that work
continues at this time and is expected to continue for many years in the
future.
Remediation
costs have been paid pursuant to an interim cost sharing allocation among the
members of the PCG, with Miami’s interim allocation being approximately
two-thirds. However, there have been significant disagreements among the members
of the PCG regarding the cost allocation, with other members alleging in the
federal court proceeding that Miami should be responsible for substantially all
of the costs. In February 2010, we settled those disagreements and the
associated litigation. Pursuant to the settlement agreement, Miami paid $40
million to other members of the PCG to settle the allocation of previously
incurred costs, and agreed to take full responsibility for future groundwater
remediation at the Pinal Creek site, with limited exceptions. The settlement did
not result in an adjustment of the related environmental reserve reflected in
our financial statements.
Blackwell, Oklahoma
Litigation. On April 14, 2008, a purported class action was
filed in the District Court of Kay County, Oklahoma against us and several of
our direct and indirect subsidiaries, including Blackwell Zinc Company (BZC)
(Coffey, et al., v.
Freeport-McMoRan Copper & Gold, Inc., et al., Kay County, Oklahoma
District Court, Case No. CJ-2008-68). This suit alleges that the operations of
BZC’s zinc smelter in Blackwell, Oklahoma, from 1918 to 1974 resulted in
contamination of the soils and groundwater in Blackwell and the surrounding
area. Unspecified compensatory and punitive damages are sought on behalf of the
putative class members, consisting of current and former residents and property
owners, for alleged diminution in property values. There is also a request for
an order compelling remediation of allegedly contaminated properties and the
establishment of a monetary fund to monitor the present and future health of the
putative class members.
On
December 7, 2009, 18 individuals filed a related suit (Brown et al. v.
Freeport-McMoRan Copper & Gold Inc. et al., Kay County, Oklahoma
District Court, Case No. CJ-2009-213), alleging personal injuries resulting from
exposure to lead and seeking compensatory and punitive damages. We intend to
defend both of these matters vigorously. For more information about our
remediation activities in Blackwell, Oklahoma, refer to Note 14.
On
October 15, 2009, the City of Blackwell and the Blackwell Municipal Authority
filed an action against us and several of our direct and indirect subsidiaries,
including BZC (City of
Blackwell et al. v. Freeport-McMoRan Copper & Gold, Inc. et al., Kay County, Oklahoma
District Court, Case No. CJ-2009-15B). The suit alleged that the operations of
BZC’s zinc smelter resulted in contamination of soils and groundwater in the
City of Blackwell. The plaintiffs alleged nuisance, trespass, negligence, and
unjust enrichment and claimed unspecified actual, equitable (for unjust
enrichment) and punitive damages. In February 2010, we reached a partial
settlement with the City of Blackwell and the Blackwell Municipal Authority by
paying $54 million to settle all of the claims except for future damages
relating to the potential failure of our groundwater remediation system (which
is under construction) to prevent contamination from entering the City of
Blackwell’s wastewater treatment system.
Arizona Department of
Environmental Quality – Morenci. In October 2008,
Freeport-McMoRan Morenci Inc. (Morenci) notified state and federal authorities
that it accidentally released electrolyte solution from its solution extraction
and electrowinning (SX/EW) operation into Lower Chase Creek, an ephemeral stream
that is normally dry. Morenci conducted a thorough cleanup of the spill and
later provided authorities with information on corrective actions implemented in
response to the spill. On January 16, 2009, Morenci received Notices of
Violation (NOVs) from the Arizona Department of Environmental Quality alleging
that the spill resulted in violations of the Arizona Pollutant Discharge
Elimination System and Aquifer Protection Programs. Morenci also received a
letter dated January 28, 2010, from the Arizona Attorney General’s office
advising Morenci that the State of Arizona intends to file a civil enforcement
action. Morenci intends to meet with the Arizona Attorney General’s office to
discuss a potential settlement and expects to reach an agreement that includes
payment of an appropriate civil penalty, which may exceed $100,000, and possible
additional corrective actions to those previously implemented.
Asbestos
Claims
Since
approximately 1990, Phelps Dodge and various subsidiaries have been named as
defendants in a large number of lawsuits claiming personal injury from exposure
to asbestos contained in electrical wire products produced or marketed by Phelps
Dodge affiliates many years ago, or from asbestos contained in buildings and
facilities located at properties owned or operated by Phelps Dodge
affiliates.
Water
Rights
Water law
in the western U.S. is generally based on the doctrine of prior appropriation
(first in time, first in right) and permits the water right holder the right to
use public waters for a statutorily defined beneficial use, at a designated
location. Our operations in the western U.S. require water for mining, ore
processing and related
support
facilities. Continuous operation of these mines is dependent on our ability to
maintain our water rights and claims. The loss of water rights, in whole or in
part, could have a significant adverse affect on our mining
operations.
Two water
rights adjudications have been initiated in the State of Arizona in order to
quantify and prioritize all surface water claims in two of the State’s river
systems that include four of our operating mines (Morenci, Sierrita, Miami and
Safford). These legal proceedings may also affect our Bagdad, Arizona mine.
These adjudications have been under way for many years, and we cannot predict
when they will be concluded.
In Re the General
Adjudication of All Rights to Use Water in the Little Colorado Water System and
Sources, Apache County, Superior Court, No. 6417, filed on or about
February 17, 1978. The principal parties, in addition to us, include: the State
of Arizona; the Salt River Project; the Arizona Public Service Company; the
Navajo Nation, the Hopi Indian Tribe; the San Juan Southern Paiute Tribe; and
the United States on its own behalf, on behalf of those Indian tribes, and on
behalf of the White Mountain Apache Tribe.
In Re The General
Adjudication of All Rights to Use Water in the Gila River System and
Sources,
Maricopa
County, Superior Court, Cause Nos. W-1 (Salt), W-2 (Verde), W-3 (Upper Gila),
and W-4 (San Pedro), filed on February 17, 1978. The principal parties, in
addition to us, include: the State of Arizona; the Gila Valley Irrigation
District; the San Carlos Irrigation and Drainage District; the Salt River
Project; the San Carlos Apache Tribe; the Gila River Indian Community; and the
United States on behalf of those Tribes, on its own behalf, and on behalf of the
White Mountain Apache Tribe, the Fort McDowell Mohave-Apache Indian Community,
the Salt River Pima-Maricopa Indian Community, and the Payson Community of
Yavapai Apache Indians.
In 1998,
we entered into a water rights settlement agreement with the Gila River Indian
Community (GRIC), which was later included in a comprehensive water rights
settlement under the Arizona Water Settlements Act of 2004. The GRIC settlement
is subject to contingencies, and the comprehensive settlement has been
challenged by other parties. If we are unable to resolve the contingencies in
the GRIC settlement and defeat the third-party challenges, our water rights in
the Gila River watershed could be diminished, and our operations at Morenci,
Sierrita, Miami and Safford could be adversely affected.
Prior to
January 1, 1983, various Indian tribes filed suits in the U.S. District Court in
Arizona claiming superior rights to water being used by many other water users,
including us, and claiming damages for prior use in derogation of their
allegedly superior rights. These federal proceedings have been stayed pending
the Arizona Superior Court adjudications.
United States v. Gila Valley
Irrigation District, United States District Court, District of Arizona,
was initiated in 1925 by the United States to settle conflicting claims to water
rights in portions of the Gila River watershed. A decree settling the claims of
various parties was entered in 1935, after Morenci had been dismissed from the
case without prejudice. In 1988, the Gila River Indian Community intervened,
challenging uses of water in the Gila River watershed, which may impact water
that we have the right to divert annually from Eagle Creek, Chase Creek or the
San Francisco River for operation of our Morenci mine, pursuant to decreed
rights and an agreement between us and the Gila Valley Irrigation District. Our
Morenci operations also purchased farm lands with water rights in 1997, 1998 and
2008 that could be affected by the outcome of this proceeding. Impairment of our
water claims in the Gila River watershed could adversely affect the operations
of our Morenci and Safford mines.
Item 4. Submission of Matters to a Vote of Security
Holders.
Not
applicable.
Executive Officers of the Registrant.
Certain
information as of February 12, 2010, about our executive officers is set forth
in the following table and accompanying text:
Name
|
|
Age
|
|
Position
or Office
|
|
|
|
|
|
James
R. Moffett
|
|
71
|
|
Chairman
of the Board
|
|
|
|
|
|
Richard
C. Adkerson
|
|
63
|
|
Director,
President and Chief Executive Officer
|
|
|
|
|
|
Michael
J. Arnold
|
|
57
|
|
Executive
Vice President and Chief Administrative Officer
|
|
|
|
|
|
Kathleen
L. Quirk
|
|
46
|
|
Executive
Vice President, Chief Financial Officer and
Treasurer
|
James R. Moffett has served
as Chairman of the Board since May 1992. Mr. Moffett previously served as the
Chief Executive Officer from July 1995 until December 2003. He is also
Co-Chairman of the Board of McMoRan Exploration Co. (McMoRan).
Richard C. Adkerson has
served as President since January 2008 and also from April 1997 to March 2007,
Chief Executive Officer since December 2003 and a director since October 2006.
Mr. Adkerson previously served as Chief Financial Officer from October 2000 to
December 2003. Mr. Adkerson is also Co-Chairman of the Board of
McMoRan.
Michael J. Arnold has served
as Executive Vice President since March 2007 and Chief Administrative
Officer since December 2003.
Kathleen L. Quirk has served
as Executive Vice President since March 2007, Chief Financial Officer since
December 2003 and Treasurer since February 2000. Ms. Quirk previously served as
Senior Vice President from December 2003 to March 2007. Ms. Quirk has also
served as the Senior Vice President of McMoRan since April 2002 and as Treasurer
since January 2000.
Item 5. Market for Registrant’s Common Equity, Related
Stockholder Matters and Issuer Purchases of Equity Securities.
Unregistered
Sales of Equity Securities
None.
Common
Stock
Our
common shares trade on the New York Stock Exchange (NYSE) under the symbol
“FCX.” The FCX share price is reported daily in the financial press under “FMCG”
in most listings of NYSE securities. NYSE composite tape common share price
ranges during 2009 and 2008 follow:
|
|
2009
|
|
2008
|
|
|
High
|
|
Low
|
|
High
|
|
Low
|
First
Quarter
|
|
$
|
43.45
|
|
$
|
21.16
|
|
$
|
107.37
|
|
$
|
68.96
|
Second
Quarter
|
|
|
61.55
|
|
|
36.60
|
|
|
127.24
|
|
|
93.00
|
Third
Quarter
|
|
|
73.43
|
|
|
43.19
|
|
|
117.11
|
|
|
51.21
|
Fourth
Quarter
|
|
|
87.35
|
|
|
63.00
|
|
|
56.75
|
|
|
15.70
|
As of
February 12, 2010, there were approximately 18,000 holders of record of our
common stock.
Common
Stock Dividends
In
February 2003, the Board of Directors authorized an annual cash dividend on our
common stock of $0.36 per share payable quarterly, and authorized increases in
the annual cash dividend in October 2003 to $0.80 per share, in October 2004 to
$1.00 per share and in November 2005 to $1.25 per share. In December 2007, the
Board of Directors authorized an increase in our annual common stock dividend to
$1.75 per share and in July 2008 to $2.00 per share. Additionally, since
December 2004, we have paid eight supplemental dividends. Because of the
deterioration in copper and molybdenum prices and in general economic
conditions, in December 2008 the Board of Directors suspended the cash dividend
on our common stock; accordingly, no common stock dividends were paid in 2009.
In October 2009, the Board of Directors authorized an annual cash dividend on
our common stock of $0.60 per share, payable quarterly beginning February 1,
2010. Below is a summary of common stock cash dividends declared and paid during
2008:
|
2008
|
|
Per
Share
Amount
|
|
Record
Date
|
|
Payment
Date
|
First
Quarter
|
$
|
0.4375
|
|
Jan.
15, 2008
|
|
Feb.
1, 2008
|
Second
Quarter
|
|
0.4375
|
|
Apr.
15, 2008
|
|
May
1, 2008
|
Third
Quarter
|
|
0.4375
|
|
July
15, 2008
|
|
Aug.
1, 2008
|
Fourth
Quarter
|
|
0.5000
|
|
Oct.
15, 2008
|
|
Nov.
1, 2008
|
The
declaration and payment of dividends is at the discretion of our Board and will
depend on our financial results, cash requirements, future prospects and other
factors deemed relevant by the Board. In addition, payment of dividends on our
common stock and purchases of common stock are subject to limitations under our
senior notes and, in certain circumstances, our senior credit
facilities.
Issuer
Purchases of Equity Securities
The
following table sets forth information with respect to shares of common stock of
FCX purchased by us during the three months ended December 31,
2009:
|
|
|
|
|
|
|
|
|
(d)
Maximum Number
|
|
|
|
|
|
|
|
(c)
Total Number of
|
|
(or
Approximate
|
|
|
(a)
Total
|
|
|
|
|
Shares
(or Units)
|
|
Dollar
Value) of Shares
|
|
|
Number
of
|
|
(b)
Average
|
|
Purchased
as Part of
|
|
(or
Units) That May
|
|
|
Shares
(or Units)
|
|
Price
Paid Per
|
|
Publicly
Announced
|
|
Yet
Be Purchased Under
|
Period
|
|
Purchaseda
|
|
Share
(or Unit)
|
|
Plans
or Programsb
|
|
the
Plans or Programsb
|
October
1-31, 2009
|
|
279
|
|
$
|
64.83
|
|
-
|
|
23,685,500
|
November
1-30, 2009
|
|
103
|
|
$
|
84.24
|
|
-
|
|
23,685,500
|
December
1-31, 2009
|
|
-
|
|
$
|
-
|
|
-
|
|
23,685,500
|
Total
|
|
382
|
|
$
|
70.06
|
|
-
|
|
23,685,500
|
|
|
|
|
|
|
|
|
|
|
a.
|
Consists
of shares repurchased to satisfy tax obligations on restricted stock
awards and stock options under FCX’s applicable stock incentive
plans.
|
b.
|
On
July 21, 2008, FCX’s Board of Directors approved an increase in FCX’s
open-market share purchase program for up to 30 million shares. The
program does not have an expiration
date.
|
Item 6. Selected Financial Data.
FREEPORT-McMoRan
COPPER & GOLD INC.
SELECTED
FINANCIAL AND OPERATING DATA
|
Years
Ended December 31,
|
|
|
2009
|
|
2008 |
|
2007a
|
|
2006
|
|
2005
|
|
FCX
CONSOLIDATED FINANCIAL DATA
|
(In
Millions, Except Per Share Amounts)
|
|
Revenues
|
$
|
15,040
|
|
$
|
17,796
|
|
$
|
16,939
|
b
|
$
|
5,791
|
|
$
|
4,179
|
|
Operating
income (loss)
|
|
6,503
|
c,d
|
|
(12,710
|
)c,d,e
|
|
6,555
|
b,e
|
|
2,869
|
|
|
2,177
|
|
Income
(loss) from continuing operations
|
|
3,534
|
|
|
(10,450
|
)
|
|
3,733
|
|
|
1,625
|
|
|
1,122
|
|
Net
income (loss)
|
|
3,534
|
|
|
(10,450
|
)
|
|
3,779
|
|
|
1,625
|
|
|
1,122
|
|
Net
income attributable to noncontrolling interests
|
|
785
|
|
|
617
|
|
|
802
|
|
|
168
|
|
|
127
|
|
Net
income (loss) attributable to FCX common stockholders
|
|
2,527
|
c,d,f
|
|
(11,341
|
)c,d,e,f
|
|
2,769
|
b,e,f
|
|
1,396
|
f,g
|
|
935
|
f
|
Basic
net income (loss) per share attributable to FCX common
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
stockholders:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Continuing
operations
|
$
|
6.10
|
|
$
|
(29.72
|
)
|
$
|
8.02
|
|
$
|
7.32
|
|
$
|
5.18
|
|
Discontinued
operations
|
|
–
|
|
|
–
|
|
|
0.10
|
|
|
–
|
|
|
–
|
|
Basic
net income (loss)
|
$
|
6.10
|
|
$
|
(29.72
|
)
|
$
|
8.12
|
|
$
|
7.32
|
|
$
|
5.18
|
|
Basic
weighted-average common shares outstanding
|
|
414
|
|
|
382
|
|
|
341
|
|
|
191
|
|
|
180
|
|
Diluted
net income (loss) per share attributable to FCX common
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
stockholders:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Continuing
operations
|
$
|
5.86
|
|
$
|
(29.72
|
)
|
$
|
7.41
|
|
$
|
6.63
|
|
$
|
4.67
|
|
Discontinued
operations
|
|
–
|
|
|
–
|
|
|
0.09
|
|
|
–
|
|
|
–
|
|
Diluted
net income (loss)
|
$
|
5.86
|
c,d,f
|
$
|
(29.72
|
)c,d,e,f
|
$
|
7.50
|
b,e,f
|
$
|
6.63
|
f,g
|
$
|
4.67
|
f
|
Diluted
weighted-average common shares outstanding
|
|
469
|
|
|
382
|
|
|
397
|
|
|
221
|
|
|
220
|
|
Dividends
declared per share of common stock
|
$
|
0.15
|
|
$
|
1.375
|
|
$
|
1.375
|
|
$
|
5.0625
|
|
$
|
2.50
|
|
At
December 31:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
and cash equivalents
|
$
|
2,656
|
|
$
|
872
|
|
$
|
1,626
|
|
$
|
907
|
|
$
|
764
|
|
Property,
plant, equipment and development costs, net
|
|
16,195
|
|
|
16,002
|
|
|
25,715
|
|
|
3,099
|
|
|
3,089
|
|
Goodwill
|
|
–
|
|
|
–
|
|
|
6,105
|
|
|
–
|
|
|
–
|
|
Total
assets
|
|
25,996
|
|
|
23,353
|
|
|
40,661
|
|
|
5,390
|
g
|
|
5,550
|
|
Total
debt, including current portion and short-term borrowings
|
|
6,346
|
|
|
7,351
|
|
|
7,211
|
|
|
680
|
|
|
1,256
|
|
Total
FCX stockholders’ equity
|
|
9,119
|
|
|
5,773
|
|
|
18,234
|
|
|
2,445
|
g
|
|
1,843
|
|
The
selected consolidated financial data shown above is derived from our audited
consolidated financial statements. These historical results are not necessarily
indicative of results that you can expect for any future period. You should read
this data in conjunction with Management’s Discussion and Analysis of Financial
Condition and Results of Operations and our full consolidated financial
statements and notes thereto contained in this annual report.
a.
|
Includes
the results of Phelps Dodge Corporation (Phelps Dodge) beginning March 20,
2007.
|
b.
|
Includes
charges totaling $175 million ($106 million to net income attributable to
FCX common stockholders or $0.27 per share) for mark-to-market accounting
adjustments on the 2007 copper price protection program assumed in the
acquisition of Phelps Dodge.
|
c.
|
Includes
charges totaling $77 million ($61 million to net income attributable to
FCX common stockholders or $0.13 per share) in 2009 and $17.0 billion
($12.7 billion to net loss attributable to FCX common stockholders or
$33.21 per share) in 2008 associated with impairment, restructuring and
other charges.
|
d.
|
Includes
charges for lower of cost or market inventory adjustments totaling $19
million ($15 million to net income attributable to FCX common stockholders
or $0.03 per share) in 2009 and $782 million ($479 million to net loss
attributable to FCX common stockholders or $1.26 per share) in
2008.
|
e.
|
Includes
purchase accounting impacts related to the acquisition of Phelps Dodge
totaling $1.1 billion, including $1.0 billion to operating loss and $93
million for non-operating income and expenses ($679 million to net loss
attributable to FCX common stockholders or $1.78 per share) in 2008 and
$1.3 billion to operating income ($793 million to net income attributable
to FCX common stockholders or $2.00 per share) in
2007.
|
f.
|
Includes
net losses on early extinguishment and conversion of debt totaling $43
million ($0.09 per share) in 2009, $5 million ($0.01 per share) in 2008,
$132 million ($0.33 per share) in 2007, $30 million ($0.14 per share) in
2006 and $40 million ($0.18 per share) in 2005; 2008 also includes charges
totaling $22 million ($0.06 per share) associated with privately
negotiated transactions to induce conversion of a portion of our 5½%
Convertible Perpetual Preferred Stock into FCX common stock. Also includes
a favorable adjustment to income tax expense totaling $43 million ($0.09
per share) in 2009, resulting from completion of a review of U.S. deferred
income tax accounts.
|
g.
|
Effective
January 1, 2006, we adopted guidance associated with accounting for
stripping costs incurred during production in the mining industry, and
recorded a cumulative effect adjustment ($149 million) to reduce beginning
retained earnings for our deferred mining costs asset ($285 million) as of
December 31, 2005, net of taxes, noncontrolling interests and inventory
effects ($136 million). As a result, income from continuing operations
before income taxes and noncontrolling interests was $35 million lower and
net income was $19 million ($0.08 per share) lower than if we had not
adopted this guidance. Effective January 1, 2006, we also adopted
accounting guidance on share-based payments. As a result, income from
continuing operations before income taxes and noncontrolling interests was
$28 million lower and net income was $16 million ($0.07 per share) lower
than if we had not adopted this guidance. Results for prior years have not
been restated.
|
FREEPORT-McMoRan
COPPER & GOLD INC.
SELECTED
FINANCIAL AND OPERATING DATA (Continued)
For
comparative purposes, operating data shown below for the years ended December
31, 2007, 2006 and 2005, combines our historical data with Phelps Dodge
pre-acquisition data. As the pre-acquisition operating data represent the
results of these operations under Phelps Dodge management, such combined data is
not necessarily indicative of what past results would have been under FCX
management or of future operating results.
|
|
Years
Ended December 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
2007a
|
|
|
2006
a
|
|
|
2005
a
|
|
FCX
CONSOLIDATED MINING OPERATING DATA
|
|
Copper
(recoverable)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Production
(millions of pounds)
|
|
4,103
|
|
|
4,030
|
|
|
3,884
|
|
|
3,639
|
|
|
3,912
|
|
Production
(thousands of metric tons)
|
|
1,861
|
|
|
1,828
|
|
|
1,762
|
|
|
1,651
|
|
|
1,774
|
|
Sales,
excluding purchases (millions of pounds)
|
|
4,111
|
|
|
4,066
|
|
|
3,862
|
|
|
3,630
|
|
|
3,933
|
|
Sales,
excluding purchases (thousands of metric tons)
|
|
1,865
|
|
|
1,844
|
|
|
1,752
|
|
|
1,647
|
|
|
1,784
|
|
Average
realized price per pound
|
$
|
2.60
|
|
$
|
2.69
|
|
$
|
3.22
|
b
|
$
|
2.80
|
b
|
$
|
1.66
|
b
|
Gold
(thousands of recoverable ounces)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Production
|
|
2,664
|
|
|
1,291
|
|
|
2,329
|
|
|
1,863
|
|
|
2,923
|
|
Sales,
excluding purchases
|
|
2,639
|
|
|
1,314
|
|
|
2,320
|
|
|
1,866
|
|
|
2,925
|
|
Average
realized price per ounce
|
$
|
993
|
|
$
|
861
|
|
$
|
682
|
|
$
|
566
|
c
|
$
|
454
|
|
Molybdenum
(millions of recoverable pounds)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Production
|
|
54
|
|
|
73
|
|
|
70
|
|
|
68
|
|
|
62
|
|
Sales,
excluding purchases
|
|
58
|
|
|
71
|
|
|
69
|
|
|
69
|
|
|
60
|
|
Average
realized price per pound
|
$
|
12.36
|
|
$
|
30.55
|
|
$
|
25.87
|
|
$
|
21.87
|
|
$
|
25.89
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NORTH
AMERICA COPPER MINES
|
|
Operating
Data, Net of Joint Venture Interest
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Copper
(recoverable)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Production
(millions of pounds)
|
|
1,147
|
|
|
1,430
|
|
|
1,320
|
|
|
1,305
|
|
|
1,365
|
|
Production
(thousands of metric tons)
|
|
520
|
|
|
649
|
|
|
599
|
|
|
592
|
|
|
619
|
|
Sales,
excluding purchases (millions of pounds)
|
|
1,187
|
|
|
1,434
|
|
|
1,332
|
|
|
1,303
|
|
|
1,383
|
|
Sales,
excluding purchases (thousands of metric tons)
|
|
538
|
|
|
650
|
|
|
604
|
|
|
591
|
|
|
627
|
|
Average
realized price per pound
|
$
|
2.38
|
|
$
|
3.07
|
|
$
|
3.10
|
d
|
$
|
2.29
|
d
|
$
|
1.49
|
d
|
Molybdenum
(millions of recoverable pounds)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Production
|
|
25
|
|
|
30
|
|
|
30
|
|
|
31
|
|
|
30
|
|
100%
Operating Data
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Solution extraction/electrowinning (SX/EW)
operations
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Leach
ore placed in stockpiles (metric tons per day)
|
|
589,400
|
|
|
1,095,200
|
|
|
798,200
|
|
|
801,200
|
|
|
778,500
|
|
Average
copper ore grade (percent)
|
|
0.29
|
|
|
0.22
|
|
|
0.23
|
|
|
0.30
|
|
|
0.26
|
|
Copper
production (millions of recoverable pounds)
|
|
859
|
|
|
943
|
|
|
940
|
|
|
1,013
|
|
|
1,066
|
|
Mill operations
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ore
milled (metric tons per day)
|
|
169,900
|
|
|
249,600
|
|
|
223,800
|
|
|
199,300
|
|
|
194,800
|
|
Average
ore grade (percent):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Copper
|
|
0.33
|
|
|
0.40
|
|
|
0.35
|
|
|
0.33
|
|
|
0.33
|
|
Molybdenum
|
|
0.02
|
|
|
0.02
|
|
|
0.02
|
|
|
0.02
|
|
|
0.03
|
|
Copper
recovery rate (percent)
|
|
86.0
|
|
|
82.9
|
|
|
84.5
|
|
|
85.0
|
|
|
83.9
|
|
Production
(millions of recoverable pounds):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Copper
|
|
364
|
|
|
599
|
|
|
501
|
|
|
414
|
|
|
419
|
|
Molybdenum
|
|
25
|
|
|
30
|
|
|
30
|
|
|
31
|
|
|
30
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
SOUTH
AMERICA COPPER MINES
|
|
Copper
(recoverable)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Production
(millions of pounds)
|
|
1,390
|
|
|
1,506
|
|
|
1,413
|
|
|
1,133
|
|
|
1,091
|
|
Production
(thousands of metric tons)
|
|
631
|
|
|
683
|
|
|
641
|
|
|
514
|
|
|
495
|
|
Sales
(millions of pounds)
|
|
1,394
|
|
|
1,521
|
|
|
1,399
|
|
|
1,126
|
|
|
1,093
|
|
Sales
(thousands of metric tons)
|
|
632
|
|
|
690
|
|
|
635
|
|
|
511
|
|
|
496
|
|
Average
realized price per pound
|
$
|
2.70
|
|
$
|
2.57
|
|
$
|
3.25
|
|
$
|
3.03
|
|
$
|
1.63
|
e
|
Gold
(thousands of recoverable ounces)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Production
|
|
92
|
|
|
114
|
|
|
116
|
|
|
112
|
|
|
117
|
|
Sales
|
|
90
|
|
|
116
|
|
|
114
|
|
|
111
|
|
|
117
|
|
Average
realized price per ounce
|
$
|
982
|
|
$
|
853
|
|
$
|
683
|
|
$
|
552
|
|
$
|
425
|
|
Molybdenum
(millions of recoverable pounds)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Production
|
|
2
|
|
|
3
|
|
|
1
|
|
|
–
|
|
|
–
|
|
SX/EW operations
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Leach
ore placed in stockpiles (metric tons per day)
|
|
258,200
|
|
|
279,700
|
|
|
289,100
|
|
|
257,400
|
|
|
264,600
|
|
Average
copper ore grade (percent)
|
|
0.45
|
|
|
0.45
|
|
|
0.43
|
|
|
0.45
|
|
|
0.46
|
|
Copper
production (millions of recoverable pounds)
|
|
565
|
|
|
560
|
|
|
569
|
|
|
695
|
|
|
670
|
|
|
|
Years
Ended December 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
2007a
|
|
|
2006
a
|
|
|
2005
a
|
|
SOUTH
AMERICA COPPER MINES (continued)
|
|
Mill operations
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ore
milled (metric tons per day)
|
|
181,300
|
|
|
181,400
|
|
|
167,900
|
|
|
68,500
|
|
|
68,700
|
|
Average
ore grade (percent):f
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Copper
|
|
0.66
|
|
|
0.75
|
|
|
0.74
|
|
|
0.87
|
|
|
0.84
|
|
Molybdenum
|
|
0.02
|
|
|
0.02
|
|
|
0.02
|
|
|
–
|
|
|
–
|
|
Copper
recovery rate (percent)
|
|
88.9
|
|
|
89.2
|
|
|
87.1
|
|
|
93.8
|
|
|
93.9
|
|
Production
(recoverable):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Copper
(millions of pounds)
|
|
825
|
|
|
946
|
|
|
844
|
|
|
438
|
|
|
421
|
|
Gold
(thousands of ounces)
|
|
92
|
|
|
114
|
|
|
116
|
|
|
112
|
|
|
117
|
|
Molybdenum
(millions of pounds)
|
|
2
|
|
|
3
|
|
|
1
|
|
|
–
|
|
|
–
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
INDONESIA
MINING
|
|
Operating
Data, Net of Joint Venture Interest
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Copper
(recoverable)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Production
(millions of pounds)
|
|
1,412
|
|
|
1,094
|
|
|
1,151
|
|
|
1,201
|
|
|
1,456
|
|
Production
(thousands of metric tons)
|
|
640
|
|
|
496
|
|
|
522
|
|
|
545
|
|
|
660
|
|
Sales
(millions of pounds)
|
|
1,400
|
|
|
1,111
|
|
|
1,131
|
|
|
1,201
|
|
|
1,457
|
|
Sales
(thousands of metric tons)
|
|
635
|
|
|
504
|
|
|
513
|
|
|
545
|
|
|
661
|
|
Average
realized price per pound
|
$
|
2.65
|
|
$
|
2.36
|
|
$
|
3.32
|
|
$
|
3.13
|
|
$
|
1.85
|
|
Gold
(thousands of recoverable ounces)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Production
|
|
2,568
|
|
|
1,163
|
|
|
2,198
|
|
|
1,732
|
|
|
2,789
|
|
Sales
|
|
2,543
|
|
|
1,182
|
|
|
2,185
|
|
|
1,736
|
|
|
2,790
|
|
Average
realized price per ounce
|
$
|
994
|
|
$
|
861
|
|
$
|
681
|
|
$
|
567
|
c
|
$
|
456
|
|
100%
Operating Data
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ore
milled (metric tons per day)
|
|
238,300
|
|
|
192,900
|
|
|
212,600
|
|
|
229,400
|
|
|
216,200
|
|
Average
ore grade:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Copper
(percent)
|
|
0.98
|
|
|
0.83
|
|
|
0.82
|
|
|
0.85
|
|
|
1.13
|
|
Gold
(grams per metric ton)
|
|
1.30
|
|
|
0.66
|
|
|
1.24
|
|
|
0.85
|
|
|
1.65
|
|
Recovery
rates (percent):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Copper
|
|
90.6
|
|
|
90.1
|
|
|
90.5
|
|
|
86.1
|
|
|
89.2
|
|
Gold
|
|
83.7
|
|
|
79.9
|
|
|
86.2
|
|
|
80.9
|
|
|
83.1
|
|
Production
(recoverable):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Copper
(millions of pounds)
|
|
1,641
|
|
|
1,109
|
|
|
1,211
|
|
|
1,300
|
|
|
1,689
|
|
Gold
(thousands of ounces)
|
|
2,984
|
|
|
1,163
|
|
|
2,608
|
|
|
1,824
|
|
|
3,440
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
AFRICA
MINING
|
Copper
(millions of recoverable pounds)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Production
|
|
154
|
g
|
|
–
|
|
|
–
|
|
|
–
|
|
|
–
|
|
Sales
|
|
130
|
g
|
|
–
|
|
|
–
|
|
|
–
|
|
|
–
|
|
Average
realized price per pound
|
$
|
2.85
|
g
|
|
–
|
|
|
–
|
|
|
–
|
|
|
–
|
|
Ore
milled (metric tons per day)
|
|
7,300
|
g
|
|
–
|
|
|
–
|
|
|
–
|
|
|
–
|
|
Average
copper ore grade (percent)
|
|
3.69
|
g
|
|
–
|
|
|
–
|
|
|
–
|
|
|
–
|
|
Copper
recovery rate (percent)
|
|
92.1
|
g
|
|
–
|
|
|
–
|
|
|
–
|
|
|
–
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
MOLYBDENUM
OPERATIONS
|
Molybdenum
sales, excluding purchases (millions of pounds)h
|
|
58
|
|
|
71
|
|
|
69
|
|
|
69
|
|
|
60
|
|
Average
realized price per pound
|
$
|
12.36
|
|
$
|
30.55
|
|
$
|
25.87
|
|
$
|
21.87
|
|
$
|
25.89
|
|
Henderson
molybdenum mine
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ore
milled (metric tons per day)
|
|
14,900
|
|
|
24,100
|
|
|
24,000
|
|
|
22,200
|
|
|
20,300
|
|
Average
molybdenum ore grade (percent)
|
|
0.25
|
|
|
0.23
|
|
|
0.23
|
|
|
0.23
|
|
|
0.22
|
|
Molybdenum
production (millions of recoverable pounds)
|
|
27
|
|
|
40
|
|
|
39
|
|
|
37
|
|
|
32
|
|
a.
|
For
comparative purposes, operating data for the years ended December 31,
2007, 2006 and 2005, combines our historical data with Phelps Dodge
pre-acquisition data. As the pre-acquisition data represents the results
of these operations under Phelps Dodge management, such combined data is
not necessarily indicative of what past results would have been under FCX
management or of future operating
results.
|
b.
|
Before
charges for hedging losses related to copper price protection programs,
amounts were $3.27 per pound for 2007, $3.08 per pound for 2006 and $1.76
per pound for 2005.
|
c.
|
Amount
was approximately $606 per ounce before a loss resulting from the
redemption of FCX’s Gold-Denominated Preferred Stock, Series
II.
|
d.
|
Before
charges for hedging losses related to copper price protection programs,
amounts were $3.25 per pound for 2007, $3.06 per pound for 2006 and $1.69
per pound for 2005.
|
e.
|
Amount
was $1.75 per pound before charges for hedging losses related to copper
price protection programs.
|
f.
|
Average
ore grades of gold produced at our South America copper mines rounds to
less than 0.001 grams per metric
ton.
|
g.
|
Results
for 2009 represent mining operations that began production in March
2009.
|
h.
|
Includes
sales of molybdenum produced as a by-product at our North and South
America copper mines.
|
For the
ratio of earnings to fixed charges calculation, earnings consist of income
(loss) from continuing operations before income taxes, noncontrolling interests
in consolidated subsidiaries, equity in affiliated companies’ net earnings,
cumulative effect of accounting changes and fixed charges. Fixed charges include
interest and that portion of rent deemed representative of interest. For the
ratio of earnings to fixed charges and preferred stock dividends calculation, we
assumed that our preferred stock dividend requirements were equal to the pre-tax
earnings that would be required to cover those dividend requirements. We
computed those pre-tax earnings using the effective tax rate for each year. Our
ratio of earnings to fixed charges was as follows for the years
presented:
|
Years
Ended December 31,
|
|
2009
|
2008
|
2007
|
2006
|
2005
|
Ratio
of earnings to fixed charges
|
9.3x
|
-a
|
9.9x
|
33.1x
|
15.9x
|
Ratio
of earnings to fixed charges
|
|
|
|
|
|
and
preferred stock dividends
|
6.1x
|
-b
|
6.6x
|
14.3x
|
8.2x
|
a.
|
As
a result of the loss recorded in 2008, the ratio coverage was less than
1:1. We would have needed to generate additional earnings of $13.4 billion
to achieve coverage of 1:1 in 2008.
|
b.
|
As
a result of the loss recorded in 2008, the ratio coverage was less than
1:1. We would have needed to generate additional earnings of $13.8 billion
to achieve coverage of 1:1 in 2008.
|
Item 7. and 7A. Management's Discussion and
Analysis of Financial Condition and Results of Operations and Quantitative and
Qualitative Disclosures About Market Risk.
FREEPORT-McMoRan
COPPER & GOLD INC.
MANAGEMENT’S
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
OVERVIEW
and OUTLOOK
In
Management’s Discussion and Analysis of Financial Condition and Results of
Operations, “we,” “us” and “our” refer to Freeport-McMoRan Copper & Gold
Inc. (FCX) and its consolidated subsidiaries. The results of operations reported
and summarized below are not necessarily indicative of future operating results
(refer to “Cautionary Statement” for further discussion). In particular, the
financial results for 2007 include the operations of Phelps Dodge Corporation
(Phelps Dodge) from March 20, 2007, through December 31, 2007, not the full
twelve-month period because of the accounting treatment for the acquisition.
References to “Notes” are Notes included in our “Notes to Consolidated Financial
Statements.” Throughout Management's Discussion and Analysis of Financial
Condition and Results of Operations all references to earnings or losses per
share are on a diluted basis, unless otherwise noted.
We are
one of the world’s largest copper, gold and molybdenum mining companies in terms
of reserves and production. Our portfolio of assets includes the Grasberg
minerals district in Indonesia, which contains the largest single recoverable
copper reserve and the largest single gold reserve of any mine in the world
based on the latest available reserve data provided by third-party industry
consultants; significant mining operations in North and South America; and the
Tenke Fungurume minerals district in the Democratic Republic of Congo (DRC). We
also operate Atlantic Copper, our wholly owned copper smelting and refining unit
in Spain.
During
2009, approximately 61 percent of our consolidated copper production was from
our Grasberg, Morenci and Cerro Verde mines, and more than half of our mined
copper was sold in concentrate, approximately 25 percent as cathodes and
approximately 21 percent as rod (principally from our North America operations).
We also produce gold as a by-product at our copper mines, primarily at the
Grasberg minerals district in Indonesia, which accounted for approximately 96
percent of our consolidated gold production for 2009. For 2009, approximately
half of our consolidated molybdenum production was from the Henderson molybdenum
mine and approximately 46 percent was produced as a by-product at our North
America copper mines. Refer to “Operations” for further discussion of our mining
operations.
The
dramatic declines in copper and molybdenum prices in late 2008 and the
deterioration of the economic and credit environment limited our ability to
invest in growth projects and required us to make adjustments to our near-term
plans in late 2008 and early 2009 (refer to Note 2 for further discussion).
However, during 2009 copper prices improved from the January 2009 low of $1.38
per pound. Rising copper prices, along with higher volumes from the Grasberg
mine and a lower cost structure at the North America copper mines, have enabled
us to enhance our financial and liquidity position during 2009, allowing us to
manage volatile conditions effectively, reduce debt and reinstate cash dividends
to shareholders, while maintaining our future growth opportunities. In addition,
we have announced initiatives to resume certain project development activities
that were deferred in late 2008 (refer to “Current Development Projects” for
further discussion).
At
December 31, 2009, we had $2.7 billion in consolidated cash ($2.2 billion of
which was available to our parent company). We had no borrowings and $39 million
of letters of credit issued under our $1.5 billion revolving credit facilities,
resulting in availability of approximately $1.5 billion ($961 million of which
could be used for additional letters of credit). Our long-term debt at December
31, 2009, was $6.3 billion. Although we have no significant debt maturities in
the near-term (refer to “Capital Resources and Liquidity”), during 2009, we
repaid $1.0 billion in debt in advance of scheduled maturities (refer to Note
10). From January 1, 2010, to February 25, 2010, we have made additional
open-market debt purchases totaling $269 million for $293 million (refer to
Note 23). We may consider additional opportunities to prepay debt in advance of
scheduled maturities or redeem our currently redeemable Senior Floating Rate
Notes.
We view
the long-term outlook for our business positively, supported by limitations on
supplies of copper and by the requirements for copper in the world’s economy and
will continue to adjust our operating strategy as market conditions change.
Refer to “Consolidated Results” for further discussion of our consolidated
financial results for the years ended December 31, 2009, 2008 and
2007.
Outlook
Following
are our actual consolidated sales volumes for 2009 and our projected
consolidated sales volumes for 2010:
|
|
2009
|
|
2010
|
|
|
|
(Actual)
|
|
(Projected)
|
|
Copper
(billions of recoverable pounds):
|
|
|
|
|
|
North
America copper mines
|
|
1.2
|
|
|
1.0
|
|
South
America copper mines
|
|
1.4
|
|
|
1.3
|
|
Indonesia
mining
|
|
1.4
|
|
|
1.2
|
|
Africa
mining
|
|
0.1
|
|
|
0.2
|
|
|
|
4.1
|
|
|
3.8
|
a
|
Gold
(millions of recoverable ounces):
|
|
|
|
|
|
Indonesia
mining
|
|
2.5
|
|
|
1.7
|
|
South
America copper mines
|
|
0.1
|
|
|
0.1
|
|
|
|
2.6
|
|
|
1.8
|
|
|
|
|
|
|
|
Molybdenum
(millions of recoverable pounds)b
|
|
58
|
|
|
60
|
|
|
|
|
|
|
|
|
a.
|
Represents
the sum of projected copper sales volumes before
rounding.
|
b.
|
Includes
sales of molybdenum produced as a by-product at our North and South
America copper mines.
|
Estimated
sales volumes of approximately 3.8 billion pounds of copper for 2010 are lower
than 2009 sales of 4.1 billion pounds primarily because of lower volumes in
Indonesia as a result of transitioning to a lower-grade section of the Grasberg
open pit during 2010 and at our North America copper mines reflecting the impact
of reduced 2009 mining activities on 2010 leaching operations. Estimated sales
volumes of approximately 1.8 million ounces of gold for 2010 are lower than 2009
sales of 2.6 million ounces as a result of transitioning to a lower-grade
section of the Grasberg open pit during 2010. Estimated sales volumes of
approximately 60 million pounds of molybdenum for 2010 approximate 2009 sales of
58 million pounds. Our projected sales volumes for 2010 depend on the
achievement of targeted mining rates, the successful operation of production
facilities, the impact of weather conditions and other factors.
Assuming
average prices of $3.25 per pound of copper, $1,100 per ounce of gold and $12
per pound of molybdenum for 2010, we estimate our consolidated unit net cash
costs (net of by-product credits and excluding Africa mining) for our copper
mining operations would average approximately $0.86 per pound in 2010, compared
with $0.55 per pound in 2009. Average unit net cash costs for 2010 are estimated
to be higher than 2009 as a result of lower projected 2010 copper and gold sales
volumes from Grasberg, combined with increases in commodity-based input costs
and foreign currency exchange rates. Consolidated unit net cash costs would be
impacted by approximately $0.025 per pound for each $50 per ounce change in gold
prices and approximately $0.01 per pound for each $1 per pound change in
molybdenum prices.
Consolidated
revenues, operating cash flows and net income vary significantly with
fluctuations in the market prices of copper, gold and molybdenum, sales volumes
and other factors. Based on the above projected consolidated sales volumes and
assuming average prices of $3.25 per pound of copper, $1,100 per ounce of gold
and $12 per pound of molybdenum in 2010, our consolidated operating cash flows
would approximate $5.3 billion in 2010, net of an estimated $0.4 billion for
working capital requirements. Operating cash flows for 2010 would be impacted by
approximately $260 million for each $0.10 per pound change in copper prices, $50
million for each $50 per ounce change in gold prices and $45 million for each $1
per pound change in molybdenum prices.
Capital
expenditures for 2010 are expected to approximate $1.7 billion, including $0.9
billion for sustaining capital and $0.8 billion for major projects. For 2009,
capital expenditures totaled $1.6 billion, which included $0.8 billion for major
projects, $0.6 billion for sustaining capital and $0.2 billion for a property
acquisition adjacent to our Sierrita mine. We have announced initiatives to
resume certain project development activities that were deferred in late 2008
(refer to “Current Development Projects” for further discussion). A number of
studies are under way, which may result in increased capital spending
programs.
COPPER,
GOLD AND MOLYBDENUM MARKETS
The
graphs below illustrate the movements in metals prices from January 2000 through
January 2010. World prices for copper, gold and molybdenum have fluctuated
significantly during this period. The London Metal Exchange (LME) spot copper
price varied from a low of $0.60 per pound in 2001 to a high of $4.08 per pound
in 2008, the London gold price fluctuated from a low of $256 per ounce in 2001
to a high of $1,213 per ounce in 2009, and the Metals Week Molybdenum Dealer
Oxide weekly average price ranged from a low of $2.19 per pound in 2000 to a
high of $39.25 per pound in 2005. Copper, gold and molybdenum prices are
affected by numerous factors beyond our control as described further in our
“Risk Factors” contained in Part I, Item 1A of our Form 10-K for the year ended
December 31, 2009.
* Excludes
Shanghai stocks, producer, consumer and merchant stocks.
The graph
above presents LME spot copper prices and reported stocks of copper at the LME
and the New York Mercantile Exchange (COMEX) from January 2000 through January
2010. From 2006 through most of 2008, disruptions associated with strikes and
other operational issues, combined with growing demand from China and other
emerging economies resulted in low levels of inventory. Beginning in late 2008,
slowing consumption led to increases in inventory levels; however, China’s
increased buying activity contributed to a decline in exchange inventories
during the first half of 2009. After reaching a low for the year in July 2009,
inventories grew during the second half of 2009 with combined LME and COMEX
stocks totaling approximately 592 thousand metric tons, or approximately two
weeks of global consumption, at December 31, 2009.
Turmoil
in the United States (U.S.) financial markets and concerns about the global
economy negatively impacted copper prices in late 2008, which declined to a
four-year low of $1.26 per pound in December 2008; however, copper prices
improved during 2009 as a result of strong Chinese import activity and supply
limitations. During 2009, LME spot copper prices ranged from $1.38 per pound to
$3.33 per pound, averaged $2.34 per pound and closed at $3.33 per pound on
December 31, 2009. While the near-term outlook is uncertain, we believe the
underlying fundamentals of the copper business remain positive, supported by
limited supplies from existing mines and the absence of significant new
development projects. Future copper prices are expected to be volatile and are
likely to be influenced by demand from China, economic activity in the U.S. and
other industrialized countries, the timing of the development of new supplies of
copper and production levels of mines and copper smelters. The LME spot copper
price closed at $3.11 per pound on January 29, 2010.
The graph
above presents London gold prices from January 2000 through January 2010.
Growing investment demand and a weak U.S. dollar have continued to support gold
prices, which reached a new record high of $1,213 per ounce in December 2009.
During 2009, gold prices ranged from approximately $810 per ounce to $1,213 per
ounce, averaged approximately $972 per ounce and closed at $1,104 per ounce on
December 31, 2009. London gold prices closed at $1,079 per ounce on January 29,
2010.
The graph
above presents Metals
Week Molybdenum Dealer Oxide weekly average prices from January 2000
through January 2010. In late 2008, molybdenum prices declined significantly as
a result of the financial market turmoil and a decline in demand; however,
molybdenum prices improved during 2009 supported by Chinese imports and supply
reductions. During 2009, the weekly average price of molybdenum ranged from
$7.83 per pound to $18.00 per pound, averaged $11.08 per pound and was $11.75
per pound on December 31, 2009. The Metals Week Molybdenum Dealer
Oxide weekly average price was $14.88 per pound on January 29,
2010.
CRITICAL
ACCOUNTING ESTIMATES
Management’s
Discussion and Analysis of Financial Condition and Results of Operations is
based on our consolidated financial statements, which have been prepared in
conformity with generally accepted accounting principles (GAAP) in the U.S. The
preparation of these statements requires that we make estimates and assumptions
that affect the reported amounts of assets, liabilities, revenues and expenses.
We base these estimates on historical experience and on assumptions that we
consider reasonable under the circumstances; however, reported results could
differ from those based on the current estimates under different assumptions or
conditions. The areas requiring the use of management’s estimates are also
discussed in Note 1 under the subheading “Use of Estimates.” Management has
reviewed the following discussion of its development and selection of critical
accounting estimates with the Audit Committee of our Board of
Directors.
Mineral
Reserves. Recoverable proven
and probable reserves are the part of a mineral deposit that can be economically
and legally extracted or produced at the time of the reserve determination. The
determination of reserves involves numerous uncertainties with respect to the
ultimate geology of the ore bodies, including quantities, grades and recovery
rates. Estimating the quantity and grade of reserves requires us to determine
the size, shape and depth of our ore bodies by analyzing geological data, such
as samplings of drill holes, tunnels and other underground workings. In addition
to the geology of our mines, assumptions are required to determine the economic
feasibility of mining these reserves, including estimates of future commodity
prices and demand, the mining methods we use and the related costs incurred to
develop and mine our reserves. Our estimates of recoverable proven and probable
reserves are the responsibility of our employees, and a majority of these
estimates have been reviewed and verified by independent experts in mining,
geology and reserve determination.
The
following table summarizes changes in our estimated consolidated recoverable
proven and probable copper, gold and molybdenum reserves during 2008 and
2009:
|
Copper
|
|
Gold
|
|
Molybdenum
|
|
|
(billion
|
|
(million
|
|
(billion
|
|
|
pounds)
|
|
ounces)
|
|
pounds)
|
|
Consolidated
reserves at December 31, 2007
|
93.2
|
|
41.0
|
|
2.04
|
|
Net
additions/revisions
|
12.8
|
|
0.3
|
|
0.51
|
|
Production
|
(4.0)
|
|
(1.3)
|
|
(0.07)
|
|
Consolidated
reserves at December 31, 2008
|
102.0
|
|
40.0
|
|
2.48
|
|
Net
additions/revisions
|
6.3
|
|
(0.1)
|
|
0.16
|
|
Production
|
(4.1)
|
|
(2.7)
|
|
(0.05)
|
|
Consolidated
reserves at December 31, 2009
|
104.2
|
|
37.2
|
|
2.59
|
|
Net
additions to recoverable proven and probable copper reserves during 2008
included additions of 7.5 billion pounds at the Cerro Verde mine in South
America, 3.9 billion pounds at our North America copper mines and 1.6 billion
pounds at the Tenke Fungurume mine, partially offset by revisions at other
mines. Net additions for 2008 replaced over 300 percent of our 2008 copper
production. Net additions to recoverable copper reserves during 2009 include
additions of 1.7 billion pounds at our North America copper mines, 3.0 billion
pounds at our Cerro Verde mine in South America and 2.6 billion pounds at the
Tenke Fungurume mine, partially offset by revisions at other mines. Net
additions for 2009 replaced approximately 150 percent of current year copper
production. Net additions to recoverable copper reserves reflect analysis of
exploratory data gained through core drilling undertaken in 2007 and 2008, as
well as exploration activities during 2009. Refer to Note 21 for further
information regarding estimated recoverable proven and probable
reserves.
As
discussed in Note 1, we depreciate our life-of-mine mining and milling assets
and values assigned to proven and probable reserves using the unit-of-production
(UOP) method based on our estimated recoverable proven and probable reserves,
and also have other assets that are depreciated on a straight-line basis over
their estimated useful lives. Because the economic assumptions used to estimate
reserves change from period to period and additional geological data is
generated during the course of operations, estimates of reserves may change,
which could have a significant impact on our results of operations, including
changes to prospective depreciation rates and asset carrying values. Based on
projected copper sales volumes for 2010 (refer to “Overview and Outlook”), if
estimated copper reserves at our mines were 10 percent higher at December 31,
2009, we estimate that our annual depreciation, depletion and amortization
expense for 2010 would decrease by $31 million ($15 million to net income
attributable to FCX common stockholders), and a 10 percent decrease in copper
reserves would increase depreciation, depletion and amortization expense by $38
million ($18 million to net income attributable to FCX common stockholders). We
perform annual assessments of our existing assets in connection with the review
of mine
operating and development plans. If it is determined that assigned asset lives
do not reflect the expected remaining period of benefit, any change could affect
prospective depreciation rates.
At
December 31, 2009, our long-lived assets include amounts assigned to proven and
probable reserves totaling $4.3 billion. As discussed in Note 1, we review and
evaluate our long-lived assets for impairment when events or changes in
circumstances indicate that the related carrying amount of such assets may not
be recoverable, and changes to our estimates of recoverable proven and probable
reserves could have an impact on our assessment of asset
recoverability.
Impairment
of Assets. We evaluate our long-lived assets (to be held and used) for
impairment when events or changes in circumstances indicate that the related
carrying amount of such assets may not be recoverable. In evaluating our
long-lived assets for recoverability, estimates of after-tax undiscounted future
cash flows of our individual mining operations are used, with impairment losses
measured by reference to fair value. As quoted market prices are unavailable for
our individual mining operations, fair value is determined through the use of
discounted estimated future cash flows. The estimated cash flows used to assess
recoverability of our long-lived assets and measure fair value of our mining
operations are derived from current business plans, which are developed using
near-term price forecasts reflective of the current price environment and
management’s projections for long-term average metal prices. In addition to near
and long-term metal price assumptions, other key estimates include
commodity-based and other input costs; proven and probable reserves, including
any costs to develop the reserves and the timing of producing the reserves; and
the use of appropriate escalation and discount rates.
Because
the cash flows used to assess recoverability of our long-lived assets and
measure fair value of our mining operations require us to make several estimates
and assumptions that are subject to risk and uncertainty, changes in these
estimates and assumptions could result in the impairment of our long-lived
assets values. Events that could result in impairment of our long-lived assets
include, but are not limited to, (i) decreases in future metal prices, (ii)
decreases in estimated recoverable proven and probable reserves and
(iii) any event that might otherwise have a material adverse effect on mine
site production levels or costs.
During
fourth-quarter 2008, we concluded that the then-current economic environment and
significant declines in copper and molybdenum prices represented significant
adverse changes in our business, and therefore, evaluated our long-lived assets
for impairment. Projected metal prices represented the most significant
assumption used in the cash flow estimates to assess recoverability and measure
fair value of our individual mining operations. At the time of the March 2007
acquisition of Phelps Dodge, metal price projections used to value the net
assets acquired ranged from near-term prices of $2.98 per pound for copper
declining over an eight-year period to $1.20 per pound and $26.20 per pound for
molybdenum declining over a five-year period to $8.00 per pound; our December
31, 2008, impairment evaluations were based on price assumptions reflecting
prevailing copper futures prices for three years, which ranged from
approximately $1.40 per pound to $1.50 per pound, and a long-term average price
of $1.60 per pound. Molybdenum prices were assumed to average $8.00 per pound.
Our evaluation resulted in the recognition of asset impairment charges totaling
$10.9 billion ($6.6 billion to net loss attributable to FCX common stockholders
or $17.34 per share) for 2008. Refer to Note 2 for further discussion of these
asset impairment charges.
Additionally,
goodwill was recorded in connection with the March 2007 acquisition of Phelps
Dodge and was assigned to the reporting units, or individual mines, that were
expected to benefit from the business combination. Goodwill is required to be
evaluated at least annually and at any other time if an event or change in
circumstances indicates that the fair value of a reporting unit is below its
carrying amount. Our annual goodwill impairment test was performed in
fourth-quarter 2008, which resulted in the full impairment of goodwill and the
recognition of charges totaling $6.0 billion ($6.0 billion to net loss
attributable to FCX common stockholders or $15.69 per share). Refer to Note 6
for further discussion.
Recoverable
Copper.
We record, as inventory, applicable costs for copper contained in mill and leach
stockpiles that are expected to be processed in the future based on proven
processing technologies. Mill and leach stockpiles are evaluated periodically to
ensure that they are stated at the lower of cost or market (refer to Note 4 for
discussion of lower of cost or market (LCM) inventory adjustments recorded in
2009 and 2008). Accounting for recoverable copper from mill and leach stockpiles
represents a critical accounting estimate because (i) it is generally
impracticable to determine copper contained in mill and leach stockpiles by
physical count, and therefore, requires management to employ reasonable
estimation methods and (ii) recovery rates from leach stockpiles can vary
significantly. The quantity of material delivered to mill and leach stockpiles
is based on
surveyed
volumes of mined material and daily production records. Sampling and assaying of
blasthole cuttings determine the estimated copper grade contained in the
material delivered to the mill and leach stockpiles.
Expected
copper recovery rates for mill stockpiles are determined by metallurgical
testing. The recoverable copper in mill stockpiles, once entered into the
production process, can be extracted into copper concentrate almost
immediately.
Expected
copper recovery rates for leach stockpiles are determined using small-scale
laboratory tests, small- to large-scale column testing (which simulates the
production-scale process), historical trends and other factors, including
mineralogy of the ore and rock type. Ultimate recovery of copper contained in
leach stockpiles can vary significantly from a low percentage to more than 90
percent depending on several variables, including type of copper recovery,
mineralogy and particle size of the rock. For newly placed material on active
stockpiles, as much as 70 percent of the copper ultimately recoverable may be
extracted during the first year, and the remaining copper may be recovered over
many years.
Processes
and recovery rates are monitored regularly, and recovery rate estimates are
adjusted periodically as additional information becomes available and as related
technology changes. At December 31, 2009, estimated recoverable copper was 2.7
billion pounds in leach stockpiles (with a carrying value of $1.5 billion) and
1.3 billion pounds in mill stockpiles (with a carrying value of $488
million).
Reclamation
and Closure Costs. Reclamation is an
ongoing activity that occurs throughout the life of a mine. We record the fair
value of our estimated asset retirement obligations (AROs) associated with
tangible long-lived assets in the period incurred. Fair value is measured as the
present value of cash flow estimates after considering inflation and then
applying a market risk premium. Our cost estimates are reflected on a
third-party cost basis and comply with our legal obligation to retire tangible
long-lived assets in the period incurred. These cost estimates may differ from
financial assurance cost estimates for reclamation activities because of a
variety of factors, including obtaining updated cost estimates for reclamation
activities, the timing of reclamation activities, changes in scope and the
exclusion of certain costs not considered reclamation and closure costs. Refer
to Note 1 for further discussion of our accounting policy for reclamation and
closure costs.
Generally,
ARO activities are specified by regulations or in permits issued by the relevant
governing authority, and management judgment is required to estimate the extent
and timing of expenditures based on life-of-mine planning. Accounting for
reclamation and closure costs represents a critical accounting estimate because
(i) we will not incur most of these costs for a number of years, requiring us to
make estimates over a long period, (ii) reclamation and closure laws and
regulations could change in the future and/or circumstances affecting our
operations could change, either of which could result in significant changes to
our current plans, (iii) calculating the fair value of our AROs requires
management to estimate projected cash flows, make long-term assumptions about
inflation rates, determine our credit-adjusted, risk-free interest rates and
determine market risk premiums that are appropriate for our operations and (iv)
given the magnitude of our estimated reclamation and closure costs, changes in
any or all of these estimates could have a significant impact on our results of
operations.
At least
annually, we review our ARO estimates for changes in the projected timing of
certain reclamation costs, changes in cost estimates, and additional AROs
incurred during the period. Following is a summary of changes in our AROs for
the years ended December 31, 2009, 2008 and 2007 (in millions):
|
|
2009
|
|
2008
|
|
2007
|
|
|
Balance
at beginning of year
|
|
$
|
712
|
|
$
|
728
|
|
$
|
30
|
|
|
Liabilities
assumed in the acquisition of Phelps Dodge
|
|
|
–
|
|
|
–
|
|
|
531
|
a
|
|
Liabilities
incurred
|
|
|
12
|
|
|
5
|
|
|
1
|
|
|
Revisions
to cash flow estimates
|
|
|
(17
|
)
|
|
21
|
|
|
179
|
b
|
|
Accretion
expense
|
|
|
52
|
|
|
51
|
|
|
27
|
|
|
Spending
|
|
|
(28
|
)
|
|
(91
|
)
|
|
(40
|
)
|
|
Foreign
currency translation adjustment
|
|
|
–
|
|
|
(2
|
)
|
|
–
|
|
|
Balance
at end of year
|
|
$
|
731
|
|
$
|
712
|
|
$
|
728
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
a.
|
The
fair value of AROs assumed in the acquisition of Phelps Dodge was
estimated based on projected cash flows, an estimated long-term annual
inflation rate of 2.4 percent, a discount rate based on FCX’s estimated
credit-adjusted, risk-free interest rate of 7.8 percent and a market risk
premium of 10 percent to reflect what a third-party might require to
assume these AROs.
|
b.
|
During
2007, Chino and Tyrone each submitted updated third-party closure cost
estimates to the state of New Mexico as part of the permit renewal
process. As a result, we revised our cash flow estimates and increased our
ARO by $95 million for
|
|
Chino
and $45 million for Tyrone. During 2009, Tyrone filed an appeal regarding
the point of groundwater withdrawal. Finalized closure plan requirements,
including those resulting from resolution of the appeal, may result in
additional adjustments. Additionally, PT Freeport Indonesia updated its
cost estimates primarily for changes to its plans for the treatment of
acidic water, resulting in an increase of $33
million.
|
Refer to
Note 14 for further discussion of reclamation and closure costs.
Environmental
Obligations. Our mining,
exploration, production and historical operating activities are subject to
stringent laws and regulations governing the protection of the environment, and
compliance with those laws requires significant expenditures. Environmental
expenditures for closed facilities and closed portions of operating facilities
are expensed or capitalized depending upon their future economic benefits. The
general guidance provided by U.S. GAAP requires that liabilities for
contingencies be recorded when it is probable that a liability has been incurred
and the amount can be reasonably estimated. Refer to Note 1 for discussion of
our accounting policy for environmental expenditures.
Accounting
for environmental obligations represents a critical accounting estimate because
changes to environmental laws and regulations and/or circumstances affecting our
operations, could result in significant changes to our estimates, which could
have a significant impact on our results of operations. We review changes in
facts and circumstances associated with the environmental obligations on a
quarterly basis. Judgments and estimates are based upon available facts,
existing technology, presently enacted laws and regulations, remediation
experience, whether or not we are a potentially responsible party (PRP), the
ability of other PRPs to pay their allocated portions and take into
consideration reasonably possible outcomes. Our cost estimates can change
substantially as additional information becomes available regarding the nature
or extent of site contamination, required remediation methods and actions by or
against governmental agencies or private parties.
At
December 31, 2009, environmental obligations recorded in our consolidated
balance sheets totaled approximately $1.5 billion, which reflect obligations for
environmental liabilities attributed to the Comprehensive Environmental
Response, Compensation, and Liability Act (CERCLA) or analogous state programs
and for estimated future costs associated with environmental matters at closed
facilities and closed portions of certain operating facilities.
Following
is a summary of changes in our estimated environmental obligations for the years
ended December 31, 2009, 2008 and 2007 (in millions):
|
|
2009
|
|
2008
|
|
2007
|
|
|
Balance
at beginning of year
|
|
$
|
1,401
|
|
$
|
1,268
|
|
$
|
–
|
|
|
Liabilities
assumed in the acquisition of Phelps Dodge
|
|
|
–
|
|
|
117
|
|
|
1,334
|
|
|
Accretion
expensea
|
|
|
102
|
|
|
95
|
|
|
–
|
|
|
Additions
|
|
|
40
|
|
|
36
|
|
|
6
|
|
|
Reductions
|
|
|
(3
|
)
|
|
(1
|
)
|
|
(1
|
)
|
|
Spending
|
|
|
(76
|
)
|
|
(114
|
)
|
|
(71
|
)
|
|
Balance
at end of year
|
|
$
|
1,464
|
|
$
|
1,401
|
|
$
|
1,268
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
a.
|
Represents
accretion of the fair values of environmental obligations assumed in the
acquisition of Phelps Dodge, which were determined on a discounted cash
flow basis.
|
Refer to
Note 14 for further discussion of environmental obligations.
Deferred
Taxes.
In preparing our annual consolidated financial statements, we estimate the
actual amount of taxes currently payable or receivable as well as deferred tax
assets and liabilities attributable to temporary differences between the
financial statement carrying amounts of existing assets and liabilities and
their respective tax bases. Deferred income tax assets and liabilities are
measured using enacted tax rates expected to apply to taxable income in the
years in which these temporary differences are expected to be recovered or
settled. The effect on deferred tax assets and liabilities of a change in tax
rates or laws is recognized in income in the period in which such changes are
enacted.
A
valuation allowance is provided for those deferred tax assets for which it is
more likely than not that the related benefits will not be realized. In
determining the amount of the valuation allowance, we consider estimated future
taxable income as well as feasible tax planning strategies in each jurisdiction.
If we determine that we will not realize all or a portion of our deferred tax
assets, we will increase our valuation allowance. Conversely, if we determine
that we will ultimately be able to realize all or a portion of the related
benefits for which a valuation allowance has been provided, all or a portion of
the related valuation allowance will be reduced.
At
December 31, 2009, our valuation allowances totaled $2.2 billion and covered all
of our U.S. foreign tax credit carryforwards and U.S. state net operating loss
carryforwards, and a portion of our foreign net operating loss carryforwards and
U.S. minimum tax credit carryforwards. This valuation allowance includes $44
million relating to tax benefits that, if recognized, would be credited directly
to contributed capital. At December 31, 2008, our valuation allowances totaled
$1.8 billion and covered all of our U.S. foreign tax credit carryforwards, U.S.
minimum tax credit carryforwards, foreign net operating loss carryforwards and
U.S. state net operating loss carryforwards, and also covered a portion of our
net U.S. deferred tax assets. The $394 million increase in the valuation
allowance during 2009 was primarily the result of an increase to the foreign tax
credit carryforwards. Refer to Note 13 for further discussion.
CONSOLIDATED
RESULTS
|
Years
Ended December 31,
|
|
|
2009
|
|
2008
|
|
2007
|
|
Financial Data (in
millions, except per share amounts)
|
|
|
|
|
|
|
|
|
|
Revenuesa
|
$
|
15,040
|
b
|
$
|
17,796
|
b
|
$
|
16,939
|
b,c
|
Operating
income (loss)
|
|
6,503
|
b
|
|
(12,710
|
)b,d,e
|
|
6,555
|
b,c,e
|
Income
(loss) from continuing operations
|
|
3,534
|
|
|
(10,450
|
)
|
|
3,733
|
|
Net
income (loss)
|
|
3,534
|
|
|
(10,450
|
)
|
|
3,779
|
|
Net
income attributable to noncontrolling interests
|
|
785
|
|
|
617
|
|
|
802
|
|
Net
income (loss) attributable to FCX common stockholdersf
|
|
2,527
|
g,h
|
|
(11,341
|
)d,e,h
|
|
2,769
|
c,e,h
|
Diluted
net income (loss) per share attributable to FCX common
|
|
|
|
|
|
|
|
|
|
stockholders:
|
|
|
|
|
|
|
|
|
|
Continuing
operations
|
$
|
5.86
|
|
$
|
(29.72
|
)
|
$
|
7.41
|
|
Discontinued
operations
|
|
–
|
|
|
–
|
|
|
0.09
|
|
Diluted
net income (loss)
|
$
|
5.86
|
g,h
|
$
|
(29.72
|
)d,e,h
|
$
|
7.50
|
c,e,h
|
Diluted
weighted-average common shares outstandingi
|
|
469
|
|
|
382
|
|
|
397
|
|
|
|
|
|
|
|
|
|
|
|
Mining
Operating Data
|
|
|
|
|
|
|
|
|
|
Copper
(recoverable)
|
|
|
|
|
|
|
|
|
|
Production
(millions of pounds)
|
|
4,103
|
|
|
4,030
|
|
|
3,367
|
|
Sales,
excluding purchases (millions of pounds)
|
|
4,111
|
|
|
4,066
|
|
|
3,357
|
|
Average
realized price per pound
|
$
|
2.60
|
|
$
|
2.69
|
|
$
|
3.29
|
c
|
Site
production and delivery costs per poundj
|
$
|
1.12
|
|
$
|
1.51
|
|
$
|
1.18
|
|
Unit
net cash costs per poundj
|
$
|
0.55
|
|
$
|
1.16
|
|
$
|
0.76
|
|
Gold
(recoverable)
|
|
|
|
|
|
|
|
|
|
Production
(thousands of ounces)
|
|
2,664
|
|
|
1,291
|
|
|
2,308
|
|
Sales,
excluding purchases (thousands of ounces)
|
|
2,639
|
|
|
1,314
|
|
|
2,298
|
|
Average
realized price per ounce
|
$
|
993
|
|
$
|
861
|
|
$
|
682
|
|
Molybdenum
(recoverable)
|
|
|
|
|
|
|
|
|
|
Production
(millions of pounds)
|
|
54
|
|
|
73
|
|
|
56
|
|
Sales,
excluding purchases (millions of pounds)
|
|
58
|
|
|
71
|
|
|
52
|
|
Average
realized price per pound
|
$
|
12.36
|
|
$
|
30.55
|
|
$
|
26.81
|
|
a.
|
Includes
the impact of adjustments to provisionally priced concentrate and cathode
sales recognized in prior periods. Refer to “Revenues” and “Disclosures
About Market Risks – Commodity Price Risk” for further
discussion.
|
b.
|
Following
is a summary of revenues by operating division (in
millions):
|
|
Years
Ended December 31,
|
|
|
2009
|
|
2008
|
|
2007
|
|
North
America copper mines
|
$
|
3,235
|
|
$
|
5,265
|
|
$
|
4,093
|
|
South
America copper mines
|
|
3,839
|
|
|
4,166
|
|
|
3,879
|
|
Indonesia
mining
|
|
5,908
|
|
|
3,412
|
|
|
4,808
|
|
Africa
mining
|
|
389
|
|
|
–
|
|
|
–
|
|
Molybdenum
|
|
847
|
|
|
2,488
|
|
|
1,746
|
|
Rod
& Refining
|
|
3,356
|
|
|
5,557
|
|
|
5,140
|
|
Atlantic
Copper Smelting & Refining
|
|
1,892
|
|
|
2,341
|
|
|
2,388
|
|
Corporate,
other & eliminations
|
|
(4,426
|
)
|
|
(5,433
|
)
|
|
(5,115
|
)
|
Total
FCX revenues
|
$
|
15,040
|
|
$
|
17,796
|
|
$
|
16,939
|
|
Following
is a summary of operating income (loss) by operating division (in
millions):
|
Years
Ended December 31,
|
|
|
2009
|
|
2008
|
|
2007
|
|
North
America copper mines
|
$
|
1,020
|
|
$
|
(11,522
|
)
|
$
|
1,428
|
|
South
America copper mines
|
|
2,001
|
|
|
(694
|
)
|
|
2,224
|
|
Indonesia
mining
|
|
4,034
|
|
|
1,307
|
|
|
3,033
|
|
Africa
mining
|
|
8
|
|
|
(26
|
)
|
|
(12
|
)
|
Molybdenum
|
|
126
|
|
|
(1,473
|
)
|
|
353
|
|
Rod
& Refining
|
|
14
|
|
|
2
|
|
|
14
|
|
Atlantic
Copper Smelting & Refining
|
|
(56
|
)
|
|
10
|
|
|
3
|
|
Corporate,
other & eliminations
|
|
(644
|
)
|
|
(314
|
)
|
|
(488
|
)
|
Total
FCX operating income (loss)
|
$
|
6,503
|
|
$
|
(12,710
|
)
|
$
|
6,555
|
|
Refer to
Note 20 for further discussion of our operating divisions and business
segments.
c.
|
Includes
charges to revenues for mark-to-market accounting adjustments on the 2007
copper price protection program totaling $175 million ($106 million to net
income attributable to FCX common stockholders or $0.27 per share) and a
reduction in 2007 average realized copper prices of $0.05 per
pound.
|
d.
|
Includes
long-lived asset impairments and other charges totaling $11.0 billion
($6.7 billion to net loss attributable to FCX common stockholders or
$17.52 per share), goodwill impairment charges totaling $6.0 billion ($6.0
billion to net loss attributable to FCX common stockholders or $15.69 per
share), and charges for LCM inventory adjustments totaling $782 million
($479 million to net loss attributable to FCX common stockholders or $1.26
per share). Refer to Notes 2 and 6 and “Critical Accounting Estimates –
Asset Impairments” for further
discussion.
|
e.
|
Includes
the impacts of purchase accounting fair value adjustments associated with
the acquisition of Phelps Dodge, which were primarily because of increased
carrying values of acquired property, plant and equipment and metal
inventories, including mill and leach stockpiles, and also includes
amounts for non-operating income and expense mostly related to accretion
of the fair values of assumed environmental obligations (determined on a
discounted cash flow basis). These impacts totaled $1.1 billion, including
$1.0 billion to operating loss and $93 million for non-operating income
and expenses, ($679 million to net loss attributable to FCX common
stockholders or $1.78 per share) in 2008 and $1.3 billion to operating
income ($793 million to net income attributable to FCX common stockholders
or $2.00 per share) in 2007. Refer to Note 20 for a summary of the impacts
of purchase accounting fair value adjustments on our business segments for
the years ended December 31, 2008 and
2007.
|
f.
|
After
noncontrolling interests and preferred
dividends.
|
g.
|
Includes
charges of $43 million ($0.09 per share) for the partial settlement of the
City of Blackwell lawsuit (see Note 14), and also includes a favorable
adjustment to income tax expense totaling $43 million ($0.09 per share)
resulting from the completion of a review of U.S. deferred income tax
accounts.
|
h.
|
Includes
net losses on early extinguishment and conversions of debt totaling $43
million ($0.09 per share) in 2009 associated with the redemption of our
$340 million of 6⅞% Senior Notes and open-market purchases of our 8.25%
Senior Notes, our 8.375% Senior Notes and our 8¾% Senior Notes, $5 million
($0.01 per share) in 2008 associated with an open-market purchase of our
9½% Senior Notes and $132 million ($0.33 per share) in 2007 primarily
related to premiums paid and the accelerated recognition of deferred
financing costs associated with early repayments of debt. Refer to Note 10
for further discussion.
|
i.
|
As
applicable, reflects assumed conversion of our 5½% Convertible Perpetual
Preferred Stock (which converted into 17.9 million shares of FCX common
stock in September 2009) and 6¾% Mandatory Convertible Preferred Stock
(refer to Note 12). In addition, the 2009 period includes the
effects of the 26.8 million shares of common stock we sold in February
2009. Common shares outstanding on December 31, 2009, totaled 430
million.
|
j.
|
Reflects
per pound weighted average production and delivery costs and unit net cash
costs (net of by-product credits) for all copper mines, excluding net
noncash and nonrecurring costs and Africa mining. For reconciliations of
the per pound costs by operating division to production and delivery costs
applicable to sales reported in our consolidated financial statements,
refer to “Operations – Unit Net Cash Costs” and to “Product Revenues and
Production Costs.”
|
Revenues
Consolidated
revenues include the sale of copper concentrates, copper cathodes, copper rod,
molybdenum, gold and other metals by our North and South America copper mines,
the sale of copper concentrates (which also contain significant quantities of
gold and silver) by our Indonesia mining operation, the sale of copper cathodes
and cobalt hydroxide by our Africa mining operation, the sale of molybdenum in
various forms by our Molybdenum operations, and the sale of copper cathodes,
copper anodes, and gold in anodes and slimes by Atlantic Copper. Our mining
revenues for 2009 include sales of copper (approximately 75 percent), gold
(approximately 17 percent) and molybdenum (approximately 5
percent).
Consolidated
revenues totaled $15.0 billion in 2009, compared with $17.8 billion in 2008 and
$16.9 billion in 2007. Following is a summary of year-to-year changes in our
consolidated revenues (in millions):
|
2009
|
|
2008
|
|
Consolidated
revenues – prior year
|
$
|
17,796
|
|
$
|
16,939
|
|
Higher
(lower) sales volumes from mining operations:
|
|
|
|
|
|
|
Copper
|
|
121
|
|
|
2,367
|
|
Gold
|
|
1,141
|
|
|
(671
|
)
|
Molybdenum
|
|
(395
|
)
|
|
505
|
|
Higher
(lower) price realizations from mining operations:
|
|
|
|
|
|
|
Copper
|
|
(288
|
)
|
|
(2,631
|
)
|
Gold
|
|
349
|
|
|
235
|
|
Molybdenum
|
|
(1,056
|
)
|
|
266
|
|
Lower
purchased copper and molybdenum
|
|
(1,414
|
)
|
|
(5
|
)
|
(Lower)
higher adjustments, primarily for prior year provisionally priced
sales
|
|
(239
|
)
|
|
309
|
|
Lower
Atlantic Copper revenues
|
|
(449
|
)
|
|
(47
|
)
|
Impact
of the 2007 copper price protection program
|
|
–
|
|
|
175
|
|
Other,
including intercompany eliminations
|
|
(526
|
)
|
|
354
|
|
Consolidated
revenues – current year
|
$
|
15,040
|
|
$
|
17,796
|
|
2009
Compared with 2008
Consolidated
sales volumes totaled 4.1 billion pounds of copper, 2.6 million ounces of gold
and 58 million pounds of molybdenum in 2009, compared with 4.1 billion pounds of
copper, 1.3 million ounces of gold and 71 million pounds of molybdenum in 2008.
Higher copper sales volumes in 2009, when compared with 2008 (45 million
pounds), primarily resulted from mining in a higher grade section of the
Grasberg open pit and the contribution of 2009 sales volumes from the Tenke
Fungurume mine, partly offset by lower sales volumes as a result of production
curtailments at the North America copper mines and lower ore grades at
Candelaria. Mining in a higher-grade section of the Grasberg open pit also
resulted in substantially higher gold sales volumes in 2009. Lower molybdenum
sales volumes in 2009 reflected reduced demand in the metallurgical and chemical
sectors. Refer to “Operations” for further discussion of sales volumes at our
operating divisions.
Consolidated
revenues in 2009 were also impacted by lower copper and molybdenum prices
compared to 2008. Realized copper prices decreased in 2009 to an average of
$2.60 per pound, compared with $2.69 per pound in 2008. More significantly,
realized molybdenum prices decreased to an average of $12.36 per pound in 2009,
compared with $30.55 per pound in 2008. Partly offsetting lower copper and
molybdenum prices were higher realized gold prices, which increased to an
average of $993 per ounce in 2009, compared with $861 per ounce in
2008.
We
primarily purchase copper cathode to be processed by our Rod and Refining
segment when production from our North America copper mines does not meet
customer demand. Accordingly, the decrease in purchased copper for 2009,
compared to 2008, resulted from lower demand.
Under the
long-established structure of sales agreements prevalent in the industry,
substantially all of our concentrate and cathode sales are provisionally priced
at the time of shipment. The provisional prices are finalized in a contractually
specified future period (generally one to four months from the shipment date)
based primarily on quoted LME prices (refer to “Disclosures About Market Risks –
Commodity Price Risk” for further discussion). Adjustments to the December 31,
2008, provisionally priced copper sales resulted in a net increase to
consolidated revenues of $132 million ($61 million to net income attributable to
FCX common stockholders or
$0.13 per
share) in 2009, compared with an increase of $268 million ($114 million to net
loss attributable to FCX common stockholders or $0.30 per share) in
2008.
2008
Compared with 2007
Consolidated
sales volumes in 2008 totaled 4.1 billion pounds of copper, 1.3 million ounces
of gold and 71 million pounds of molybdenum, compared with 3.4 billion pounds of
copper, 2.3 million ounces of gold and 52 million pounds of molybdenum in 2007.
Higher copper and molybdenum sales volumes in 2008 reflected a full twelve
months of sales at our North and South America copper mines and Molybdenum
operations, compared with 2007, which included sales from these operations
beginning March 20, 2007. Higher copper sales volumes in 2008 also reflected
additional copper production from the Safford mine, which began production in
December 2007, and higher production from the Cerro Verde concentrator, which
reached design capacity in mid-2007. Gold sales volumes for 2008 were lower than
in 2007 because of mining in a lower-grade section of the Grasberg open pit
during the first nine months of 2008, which resulted in lower grades and
recovery rates. Refer to “Operations” for further discussion of sales volumes at
our operating divisions.
Realized
copper prices decreased in 2008 to an average of $2.69 per pound, compared with
$3.34 per pound (excluding the impact from the 2007 copper price protection
program) in 2007. Realized gold and molybdenum prices increased in 2008 to an
average of $861 per ounce for gold and $30.55 per pound for molybdenum, compared
with $682 per ounce for gold and $26.81 per pound for molybdenum in
2007.
Adjustments
to the December 31, 2007, provisionally priced copper sales increased
consolidated revenues by $268 million ($114 million to net loss attributable to
FCX common stockholders or $0.30 per share) in 2008, compared with a decrease of
$42 million ($18 million to net income attributable to FCX common stockholders
or $0.05 per share) in 2007.
On
limited past occasions, in response to market conditions, we have entered into
copper and gold price protection contracts for a portion of our expected future
mine production to mitigate the risk of adverse price fluctuations. Also, in
connection with the Phelps Dodge acquisition, we assumed the 2007 copper price
protection program, which resulted in charges to revenues in 2007 totaling $175
million ($106 million to net income attributable to FCX common stockholders or
$0.27 per share). The 2007 copper price protection program matured on December
31, 2007. We do not currently intend to enter into similar hedging programs in
the future.
Production
and Delivery Costs
2009
Compared with 2008
Consolidated
production and delivery costs totaled $7.0 billion in 2009 compared with $10.4
billion in 2008. Lower production and delivery costs for 2009 primarily reflect
the effects of lower operating rates at our North America copper mines, lower
commodity-based input costs and lower purchases of copper.
Our
copper mining operations require significant energy, principally electricity,
diesel, coal and natural gas. Commodity-based input costs began declining in
late 2008 and we realized the benefits of these declines in 2009. Excluding
Africa mining, energy costs approximated 20 percent of our consolidated copper
production costs in 2009, compared with approximately 25 percent in 2008, and
included purchases of approximately 190 million gallons of diesel fuel, 5,700
gigawatt hours of electricity at our North and South America mines (we generate
all of our power at our Indonesia mining operation), 800 thousand metric tons of
coal for our coal power plant in Indonesia, and 1 million MMBTU (million british
thermal units) of natural gas at certain of our North America mines. For 2010,
we estimate energy costs, excluding Africa mining, will approximate 22 percent
of our consolidated copper production costs.
Consolidated
unit site production and delivery costs for our copper mining operations,
excluding net noncash and nonrecurring costs and Africa mining, averaged $1.12
per pound of copper in 2009, compared with $1.51 per pound of copper in 2008.
Lower site production and delivery costs in 2009 reflected higher copper ore
grades at Grasberg, reduced operating rates at our North America copper mines to
suspend production of high-cost incremental volumes, achievement of cost savings
initiatives and operating efficiencies, and lower energy and other
commodity-based input costs. Refer to “Operations – Unit Net Cash
Costs” for further discussion of unit net cash costs associated with our
operating divisions, and to “Product Revenues and Production Costs” for
reconciliations of per pound costs by operating division to production and
delivery costs applicable to sales reported in our consolidated financial
statements. We will incorporate Africa mining in our consolidated unit net cash
cost disclosures upon completion of ramp-up activities, which is expected in
2010.
2008
Compared with 2007
Consolidated
production and delivery costs totaled $10.4 billion in 2008 compared with $8.5
billion in 2007. Higher production and delivery costs for 2008 reflect a full
year of costs associated with our acquired copper and molybdenum operations in
North and South America and the impact of higher costs, principally for
commodity-based input costs such as energy and sulphuric acid. Partly offsetting
these higher costs were $656 million of lower purchase accounting impacts
associated with increased inventory values that were mostly realized in
2007.
Depreciation,
Depletion and Amortization
2009
Compared with 2008
Consolidated
depreciation, depletion and amortization expense totaled $1.0 billion in 2009
compared with $1.8 billion in 2008. The decrease in depreciation, depletion and
amortization expense reflected the impact of long-lived asset impairments
recognized at December 31, 2008 (refer to “Critical Accounting Estimates –
Impairments of Assets” for further discussion).
2008
Compared with 2007
Consolidated
depreciation, depletion and amortization expense totaled $1.8 billion in 2008
compared with $1.2 billion in 2007. The increase in depreciation, depletion and
amortization expense reflected higher purchase accounting impacts of $293
million primarily related to a full twelve months in 2008, and also reflected
higher depreciation expense under the unit-of-production method resulting from a
full year of production from our North and South America copper mines in
2008.
LCM
Inventory Adjustments
Inventories
are required to be recorded at the lower of cost or market. In first-quarter
2009, we recognized charges of $19 million ($15 million to net income
attributable to FCX common stockholders or $0.03 per share) for lower of cost or
market (LCM) molybdenum inventory adjustments. There were no further LCM
inventory adjustments recorded subsequent to first-quarter 2009.
In 2008,
we recorded LCM inventory adjustments totaling $782 million ($479 million to net
loss attributable to FCX common stockholders or $1.26 per share). Inventories
acquired in connection with the acquisition of Phelps Dodge (including long-term
mill and leach stockpiles) were recorded at fair value using near-term price
forecasts reflecting the then-current price environment and management’s
projections for long-term average metal prices. The charges recognized in 2008
were based on prevailing copper futures prices for three years, which ranged
from approximately $1.40 per pound to $1.50 per pound, and a long-term average
price of $1.60 per pound. Molybdenum prices were assumed to average $8.00 per
pound.
Selling,
General and Administrative Expenses
2009
Compared with 2008
Consolidated
selling, general and administrative expenses totaled $321 million in 2009
compared with $269 million in 2008. Higher selling, general and administrative
expenses primarily reflected a net increase in incentive compensation costs,
partly offset by reductions associated with administrative costs savings
initiatives.
2008
Compared with 2007
Consolidated
selling, general and administrative expenses totaled $269 million in 2008
compared with $466 million in 2007. Lower selling, general and administrative
expenses primarily reflected lower incentive compensation costs in 2008 because
of weaker financial results.
Exploration
and Research Expenses
Exploration
activities are being conducted near our existing mines with a focus on
opportunities to expand reserves that will support additional future production
capacity in the large mineral districts where we currently operate.
Significantly expanded drilling activities during 2007 and 2008 were successful
in providing reserve additions and in identifying potential additional ore
adjacent to existing ore bodies. Results indicate opportunities for future
potential reserve additions at Morenci, Sierrita and Bagdad in North America, at
Cerro Verde in South America and in the Tenke Fungurume district.
Consolidated
exploration and research expenses totaled $90 million in 2009, $292 million in
2008 and $145 million in 2007. Throughout most of 2008, expenditures primarily
reflected increased exploration efforts in North America and also in Africa,
including targets outside the area of initial development at Tenke Fungurume.
However, in response to weak market conditions at the end of 2008, we revised
operating plans to significantly reduce exploration costs in 2009. During 2009,
we focused on analyzing exploration data gained through the core drilling
previously
undertaken in addition to conducting new activities. For 2010, exploration
expenditures are expected to approximate $100 million. Exploration activities
will continue to focus on the potential in our existing mineral
districts.
Long-Lived
Asset Impairments and Other Charges
During
2009, net restructuring and other charges totaled $77 million ($61 million to
net income attributable to FCX common stockholders or $0.13 per share), which
included charges of $54 million ($43 million to net income or $0.09 per share)
associated with the partial settlement of the City of Blackwell
lawsuit.
During
2008, we recognized charges totaling $11.0 billion ($6.7 billion to net loss
attributable to FCX common stockholders or $17.52 per share) for long-lived
asset impairments and other charges. During fourth-quarter 2008, we concluded
that the declines in copper and molybdenum prices and the deterioration of the
economic environment represented significant adverse changes in the business,
and therefore evaluated our long-lived assets for impairment as of December 31,
2008, which resulted in the recognition of asset impairment charges totaling
$10.9 billion ($6.6 billion to net loss attributable to FCX common stockholders
or $17.34 per share). In addition, during fourth-quarter 2008, we recorded net
restructuring and other charges totaling $111 million ($67 million to net loss
attributable to FCX common stockholders or $0.18 per share) associated with our
revised operating plans, including contract termination costs, other project
cancellation costs, employee severance and benefits and special retirement
benefits and curtailments.
Refer to
Note 2 for further discussion of these charges.
Goodwill
Impairment
Our
annual impairment test of goodwill at December 31, 2008, resulted in the
recognition of goodwill impairment charges totaling $6.0 billion ($6.0 billion
to net loss attributable to FCX common stockholders or $15.69 per share). Refer
to Note 6 for further discussion.
Interest
Expense, Net
Consolidated
interest expense (before capitalization) totaled $664 million in 2009, $706
million in 2008 and $660 million in 2007. Lower interest expense in 2009,
compared with 2008, primarily reflected net repayments of debt and lower
interest rates on our variable-rate debt during 2009. Higher interest expense in
2008, compared with 2007, primarily reflected the impacts associated with
accretion of the fair values of environmental obligations (determined on a
discounted cash flow basis) assumed in the acquisition of Phelps Dodge, partly
offset by lower interest expense associated with net repayments of debt during
2007. Refer to “Capital Resources and Liquidity – Financing Activities” for
discussion of debt repayments.
Capitalized
interest is primarily related to our development projects and totaled $78
million in 2009, $122 million in 2008 and $147 million in 2007. The decrease in
capitalized interest in 2009 primarily reflects the substantial completion of
development activities at our Tenke Fungurume mine. Refer to “Current
Development Projects” for further discussion.
Losses
on Early Extinguishment of Debt
During
2009, we recorded losses on early extinguishment of debt totaling $48 million
($43 million to net income attributable to FCX common stockholders or $0.09 per
share), including $14 million ($13 million to net income attributable to FCX
common stockholders) associated with the redemption of our $340 million of 6⅞%
Senior Notes and $34 million ($30 million to net income attributable to FCX
common stockholders) for open-market purchases of our 8.25% Senior Notes, 8.375%
Senior Notes and 8¾% Senior Notes.
During
2008, we recorded net losses on early extinguishment of debt totaling $6 million
($5 million to net loss attributable to FCX common stockholders or $0.01 per
share) associated with an open-market purchase of $33 million of our 9½% Senior
Notes.
During
2007, we recorded net losses on early extinguishment of debt totaling $173
million ($132 million to net income attributable to FCX common stockholders or
$0.33 per share) primarily related to the accelerated recognition of deferred
financing costs associated with early repayment of amounts under the $11.5
billion senior credit facility, including the refinancing of the Tranche B term
loan. Also included was $17 million ($10 million to net income attributable to
FCX common stockholders or $0.02 per share) related to premiums paid and the
accelerated recognition of deferred financing costs associated with the May 2007
redemption of our 10⅛% Senior Notes.
Refer to
Note 10 for further discussion of these transactions.
Gains
on Sales of Assets
Gains on
sales of assets totaled $13 million ($8 million to net loss attributable to FCX
common stockholders or $0.02 per share) in 2008 and $85 million ($52 million to
net income attributable to FCX common stockholders or $0.13 per share) in 2007
primarily associated with sales of marketable securities.
Other
(Expense) Income, Net
Other
(expense) income, net, totaled $(53) million in 2009, $(22) million in 2008 and
$157 million in 2007. The decrease in 2009, compared with 2008, primarily
related to lower interest income ($46 million). The decrease in 2008, compared
with 2007, primarily related to lower interest income ($82 million) and higher
foreign currency exchange losses ($64 million) mostly associated with estimated
Chilean tax payments.
(Provision
for) Benefit from Income Taxes
Our
income tax provision for 2009 resulted from taxes on international operations
($2.3 billion) and U.S. operations ($35 million). Our effective tax rate is
sensitive to changes in commodity prices and the mix of income between U.S. and
international operations. The difference between our consolidated effective
income tax rate of 40 percent in 2009 and the U.S. federal statutory rate of 35
percent primarily was attributable to the high proportion of income earned in
Indonesia, which was taxed at an effective tax rate of 42 percent.
Our
benefit from income taxes in 2008 resulted from U.S. operations ($3.4 billion),
partly offset by taxes on international operations ($604 million). The
difference between our consolidated effective income tax rate of 21 percent in
2008 and the U.S. federal statutory rate of 35 percent primarily was
attributable to goodwill impairment charges, which were non-deductible for tax
purposes, and the recognition of a valuation allowance against U.S. federal
alternative minimum tax credits, partly offset by benefits for percentage
depletion and U.S. state income taxes.
A summary
of the approximate amounts in the calculation of our consolidated (provision
for) benefit from income taxes for 2009 and 2008 follows (in millions, except
percentages):
|
|
Year
Ended
|
|
Year
Ended
|
|
|
|
December
31, 2009
|
|
December
31, 2008
|
|
|
|
|
|
|
|
|
|
Income
Tax
|
|
|
|
|
|
|
|
Income
Tax
|
|
|
|
Income
|
|
|
Effective
|
|
(Provision)
|
|
Income
|
|
|
Effective
|
|
(Provision)
|
|
|
|
(Loss)a
|
|
|
Tax
Rate
|
|
Benefit
|
|
(Loss)a
|
|
|
Tax
Rate
|
|
Benefit
|
|
U.S.
|
|
$
|
117
|
|
|
70%
|
|
$
|
(82
|
)
|
$
|
1,258
|
|
|
15%
|
|
$
|
(191
|
)
|
South
America
|
|
|
2,010
|
|
|
32%
|
|
|
(650
|
)
|
|
1,752
|
|
|
32%
|
|
|
(553
|
)
|
Indonesia
|
|
|
4,000
|
|
|
42%
|
|
|
(1,697
|
)
|
|
1,432
|
|
|
43%
|
|
|
(612
|
)
|
Africa
|
|
|
(60
|
)
|
|
25%
|
|
|
15
|
|
|
(187
|
)
|
|
35%
|
|
|
66
|
|
Asset
impairment charges
|
|
|
–
|
|
|
N/A
|
|
|
–
|
|
|
(10,867
|
)
|
|
39%
|
|
|
4,212
|
|
Goodwill
impairment charges
|
|
|
–
|
|
|
N/A
|
|
|
–
|
|
|
(5,987
|
)
|
|
N/A
|
|
|
–
|
|
LCM
inventory adjustments
|
|
|
(19
|
)
|
|
20%
|
|
|
4
|
|
|
(782
|
)
|
|
38%
|
|
|
299
|
|
Eliminations
and other
|
|
|
(232
|
)
|
|
N/A
|
|
|
60
|
|
|
72
|
|
|
N/A
|
|
|
(18
|
)
|
Adjustments
|
|
|
N/A
|
|
|
N/A
|
|
|
43
|
b
|
|
N/A
|
|
|
N/A
|
|
|
(359
|
)c
|
Consolidated
FCX
|
|
$
|
5,816
|
|
|
40%
|
|
$
|
(2,307
|
)
|
$
|
(13,309
|
)
|
|
21%
|
|
$
|
2,844
|
|
a.
|
Represents
income (loss) from continuing operations (by geographic location) before
income taxes and equity in affiliated companies’ net
earnings.
|
b.
|
Includes
a favorable adjustment totaling $43 million resulting from completion of a
review of U.S. deferred income tax
accounts.
|
c.
|
Represents
an adjustment to establish a valuation allowance against U.S. federal
alternative minimum tax credits.
|
Our
estimated consolidated effective tax rate for 2010 will vary with commodity
price changes and the mix of income from international and U.S. operations.
Assuming average prices of $3.25 per pound for copper, $1,100 per ounce for
gold, $12 per pound for molybdenum and current sales estimates, we estimate our
annual consolidated effective tax rate will approximate 37 percent; however, the
rate would range from approximately 40 percent at $2.50 per pound for copper to
approximately 37 percent at $3.50 per pound for copper.
Our
income tax provision from continuing operations in 2007 resulted from taxes on
international operations ($2.2 billion) and U.S. operations ($215 million). The
difference between our consolidated effective income tax rate of 39 percent for
2007 and the U.S. federal statutory rate of 35 percent primarily was
attributable to (i) withholding taxes related to earnings from Indonesia and
South America mining operations, (ii) a U.S. foreign tax credit limitation and
(iii) an adjustment associated with the reversal of the Phelps Dodge indefinite
reinvestment assertion on certain earnings in South America, partly offset by a
U.S. benefit for percentage depletion and an international tax rate
differential.
A summary
of the approximate amounts in the calculation of our consolidated provision for
income taxes for 2007 follows (in millions, except percentages):
|
|
Year
Ended
|
|
|
|
December
31, 2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income
|
|
|
Effective
|
|
Income
Tax
|
|
|
|
(Loss)a
|
|
|
Tax
Rate
|
|
Provision
|
|
U.S.
|
|
$
|
976
|
|
|
22%
|
|
$
|
(215
|
)
|
South
America
|
|
|
2,254
|
|
|
33%
|
|
|
(742
|
)
|
Indonesia
|
|
|
2,860
|
|
|
46%
|
|
|
(1,326
|
)
|
Africa
|
|
|
(3
|
)
|
|
NM*
|
|
|
(4
|
)
|
Eliminations
and other
|
|
|
24
|
|
|
N/A
|
|
|
(2
|
)
|
Adjustments
|
|
|
N/A
|
|
|
N/A
|
|
|
(111
|
)b
|
Consolidated
FCX
|
|
$
|
6,111
|
|
|
39%
|
|
$
|
(2,400
|
)
|
* NM =
Not meaningful
a.
|
Represents
income from continuing operations (by geographic location) before income
taxes and equity in affiliated companies’ net
earnings.
|
b.
|
Represents
an adjustment for a one-time charge associated with the reversal of the
Phelps Dodge indefinite reinvestment assertion on certain earnings in
South America. This adjustment was fully offset by a reduction in
noncontrolling interests’ share of net
income.
|
Refer to
Note 13 for further discussion of income taxes.
OPERATIONS
For
comparative purposes, certain of the operating data included in this section for
our North America copper mines, South America copper mines and Molybdenum
operations for the year 2007, combines our historical data beginning March 20,
2007, with Phelps Dodge pre-acquisition data through March 19, 2007. As the
pre-acquisition data represents the results of these operations under Phelps
Dodge management, such combined data is not necessarily indicative of what past
results would have been under FCX management or of future operating
results.
North
America Copper Mines
We
currently have six operating copper mines in North America – Morenci, Sierrita,
Bagdad, Safford and Miami in Arizona, and Tyrone in New Mexico. All of these
mining operations are wholly owned, except for Morenci, an unincorporated joint
venture, in which we own an 85 percent undivided interest.
The North
America copper mines include open-pit mining, sulfide ore concentrating,
leaching and solution extraction/electrowinning (SX/EW) operations. In addition
to copper, the Morenci, Sierrita and Bagdad mines produce molybdenum as a
by-product. A majority
of the copper produced at our North America copper mines is cast into copper rod
by our Rod & Refining operations. Rod and wire sales to outside wire and
cable manufacturers represented approximately 72 percent of North America copper
sales in 2009. The remainder of our North America copper sales is primarily in
the form of copper cathode or copper concentrate. Refer to Note 20 for further
discussion of our reportable segment in the North America copper mines
division.
In
response to weak market conditions, operating plans at our North America copper
mines were revised at the end of 2008 and in early 2009 primarily to reflect
curtailed production rates, capital cost reductions and the incorporation of
reduced input costs (refer to Note 2 for further discussion). In October 2009,
we announced initiatives to resume limited mining activities at the Miami mine
in Arizona. This project, which was deferred in late 2008, will improve
efficiencies of ongoing reclamation projects associated with historical mining
operations at the site. In addition, we are initiating activities to restart the
Morenci mill, which was temporarily idled in February 2009,
to
process available sulfide material currently being mined. Refer to “Current
Development Projects” for further discussion of these development projects.
Operating plans at our North America copper mines continue to be reviewed and
additional adjustments will be made in response to changes in market
conditions.
In
December 2009, we purchased property adjacent to our Sierrita operations, which
includes the Twin Buttes copper mine, that ceased operations in 1994 (refer to
“Current Development Projects” for further discussion).
Operating Data.
Following is summary operating data for the North America copper mines for the
years ended December 31, 2009, 2008 and 2007. The operating data for 2007
combines our historical data beginning March 20, 2007, with Phelps Dodge
pre-acquisition data through March 19, 2007. As the pre-acquisition data
represents the results of these operations under Phelps Dodge management, such
combined data is not necessarily indicative of what past results would have been
under FCX management or of future operating results.
|
|
2009
|
|
2008
|
|
2007a
|
|
Operating
Data, Net of Joint Venture Interest
|
|
|
|
|
|
|
|
|
|
|
Copper (millions of
recoverable pounds)
|
|
|
|
|
|
|
|
|
|
|
Production
|
|
|
1,147
|
|
|
1,430
|
|
|
1,320
|
|
Sales,
excluding purchases
|
|
|
1,187
|
|
|
1,434
|
|
|
1,332
|
|
Average
realized price per pound
|
|
$
|
2.38
|
|
$
|
3.07
|
|
$
|
3.10
|
b
|
|
|
|
|
|
|
|
|
|
|
|
Molybdenum (millions of
recoverable pounds)
|
|
|
|
|
|
|
|
|
|
|
Productionc
|
|
|
25
|
|
|
30
|
|
|
30
|
|
|
|
|
|
|
|
|
|
|
|
|
100%
Operating Data
|
|
|
|
|
|
|
|
|
|
|
SX/EW operations
|
|
|
|
|
|
|
|
|
|
|
Leach
ore placed in stockpiles (metric tons per day)
|
|
|
589,400
|
|
|
1,095,200
|
|
|
798,200
|
|
Average
copper ore grade (percent)
|
|
|
0.29
|
|
|
0.22
|
|
|
0.23
|
|
Copper
production (millions of recoverable pounds)
|
|
|
859
|
|
|
943
|
|
|
940
|
|
|
|
|
|
|
|
|
|
|
|
|
Mill operations
|
|
|
|
|
|
|
|
|
|
|
Ore
milled (metric tons per day)
|
|
|
169,900
|
|
|
249,600
|
|
|
223,800
|
|
Average
ore grade (percent):
|
|
|
|
|
|
|
|
|
|
|
Copper
|
|
|
0.33
|
|
|
0.40
|
|
|
0.35
|
|
Molybdenum
|
|
|
0.02
|
|
|
0.02
|
|
|
0.02
|
|
Copper
recovery rate (percent)
|
|
|
86.0
|
|
|
82.9
|
|
|
84.5
|
|
Production
(millions of recoverable pounds):
|
|
|
|
|
|
|
|
|
|
|
Copper
|
|
|
364
|
|
|
599
|
|
|
501
|
|
Molybdenum
|
|
|
25
|
|
|
30
|
|
|
30
|
|
a.
|
The
North America copper mines’ operating data for 2007 combines our
historical data beginning March 20, 2007, with Phelps Dodge
pre-acquisition data through March 19, 2007. As the pre-acquisition data
represents the results of these operations under Phelps Dodge management,
such combined data is not necessarily indicative of what past results
would have been under FCX management or of future operating
results.
|
b.
|
Amount
was $3.25 per pound of copper before charges for mark-to-market accounting
adjustments on the 2007 copper price protection
program.
|
c.
|
Reflects
by-product molybdenum production from the North America copper mines.
Sales of by-product molybdenum are reflected in the Molybdenum
division.
|
2009
Compared with 2008
Copper
sales volumes from our North America copper mines decreased to 1.2 billion
pounds in 2009, compared with 1.4 billion pounds in 2008. Certain of our North
America copper mines continue to operate at reduced rates in response to reduced
demand for copper in the western world. Copper sales volumes from our North
America copper mines are expected to approximate 1.0 billion pounds in 2010
which reflects the impacts of reduced 2009 mining activities on 2010 leaching
operations. By-product molybdenum production from our North America copper mines
is expected to approximate 30 million pounds in 2010.
2008
Compared with 2007
Copper
sales from the North America mines increased to 1.4 billion pounds in 2008,
compared with 1.3 billion pounds for the combined year 2007, primarily
reflecting additional copper production from the Safford mine, which began
production in December 2007 and was ramping up to design capacity during 2008
before operating plans were revised in fourth-quarter 2008 to curtail
production.
Unit Net Cash Costs.
Unit net cash costs per pound of copper is a measure intended to provide
investors with information about the cash-generating capacity of our mining
operations expressed on a basis relating to the primary metal product for our
respective operations. We use this measure for the same purpose and for
monitoring operating performance by our mining 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. This measure is presented
by other mining companies, although our measure may not be comparable to
similarly titled measures reported by other companies.
Gross Profit per Pound of
Copper and Molybdenum
The
following tables summarize unit net cash costs and gross profit per pound at the
North America copper mines for the years ended December 31, 2009 and 2008, and
for the period March 20, 2007, through December 31, 2007. Refer to “Product
Revenues and Production Costs” for an explanation of the “by-product” and
“co-product” methods and a reconciliation of unit net cash costs per pound to
production and delivery costs applicable to sales reported in our consolidated
financial statements.
2009
Compared with 2008
|
2009
|
|
2008
|
|
|
By-
|
|
Co-Product
Method
|
|
By-
|
|
Co-Product
Method
|
|
|
Product
|
|
|
|
|
Molyb-
|
|
Product
|
|
|
|
|
Molyb-
|
|
|
Method
|
|
Copper
|
|
denuma
|
|
Method
|
|
Copper
|
|
denuma
|
|
Revenues,
excluding adjustments shown below
|
$
|
2.38
|
|
$
|
2.38
|
|
$
|
10.96
|
|
$
|
3.07
|
|
$
|
3.07
|
|
$
|
30.25
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Site
production and delivery, before net noncash
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
and
nonrecurring costs shown below
|
|
1.25
|
|
|
1.15
|
|
|
5.67
|
|
|
1.88
|
|
|
1.63
|
|
|
12.67
|
|
By-product
creditsa
|
|
(0.23
|
)
|
|
–
|
|
|
–
|
|
|
(0.64
|
)
|
|
–
|
|
|
–
|
|
Treatment
charges
|
|
0.09
|
|
|
0.09
|
|
|
–
|
|
|
0.09
|
|
|
0.09
|
|
|
–
|
|
Unit
net cash costs
|
|
1.11
|
|
|
1.24
|
|
|
5.67
|
|
|
1.33
|
|
|
1.72
|
|
|
12.67
|
|
Depreciation,
depletion and amortization
|
|
0.22
|
|
|
0.21
|
|
|
0.40
|
|
|
0.53
|
|
|
0.46
|
|
|
2.81
|
|
Noncash
and nonrecurring costs, net
|
|
0.11
|
|
|
0.11
|
|
|
0.07
|
|
|
0.52
|
|
|
0.49
|
|
|
1.34
|
|
Total
unit costs
|
|
1.44
|
|
|
1.56
|
|
|
6.14
|
|
|
2.38
|
|
|
2.67
|
|
|
16.82
|
|
Revenue
adjustments, primarily for hedging
|
|
0.08
|
|
|
0.08
|
|
|
–
|
|
|
(0.05
|
)
|
|
(0.05
|
)
|
|
–
|
|
Idle
facility and other non-inventoriable costs
|
|
(0.08
|
)
|
|
(0.08
|
)
|
|
–
|
|
|
(0.06
|
)
|
|
(0.06
|
)
|
|
(0.05
|
)
|
Gross
profit per pound
|
$
|
0.94
|
|
$
|
0.82
|
|
$
|
4.82
|
|
$
|
0.58
|
|
$
|
0.29
|
|
$
|
13.38
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Copper
sales (millions of recoverable pounds)
|
|
1,185
|
|
|
1,185
|
|
|
|
|
|
1,430
|
|
|
1,430
|
|
|
|
|
Molybdenum
sales (millions of recoverable pounds)b
|
|
|
|
|
|
|
|
25
|
|
|
|
|
|
|
|
|
30
|
|
a.
|
Molybdenum
by-product credits and revenues reflect volumes produced at market-based
pricing and also include tolling revenues at
Sierrita.
|
b.
|
Reflects
molybdenum produced by the North America copper
mines.
|
Unit net
cash costs (net of by-product credits) for our North America copper mines
decreased to $1.11 per pound of copper in 2009, compared with $1.33 per pound in
2008, primarily reflecting a net decrease in site production and delivery costs
($0.63 per pound) associated with cost reduction and efficiency efforts,
including the impact of lower operating rates and reduced input costs
(principally for energy), partly offset by changes in inventory, which reflects
the impact of historical higher cost production on inventory carrying values.
The decrease in site production and delivery costs was partly offset by lower
molybdenum credits ($0.41 per pound) primarily resulting from lower molybdenum
prices and sales volumes.
Our
operating North America copper mines have varying cost structures because of
differences in ore grades and ore characteristics, processing costs, by-products
and other factors. During 2009, unit net cash costs for the North America copper
mines ranged from a net cost of $0.91 per pound to $1.66 per pound at the
individual mines and averaged $1.11 per pound. Based on current operating plans
and assuming achievement of current sales estimates and average prices of $12
per pound of molybdenum for 2010, we estimate that average unit net cash costs
(net of by-product credits) for our North America copper mines would approximate
$1.23 per pound of copper in 2010. Unit net cash costs for 2010 are expected to
be higher, compared with 2009, primarily because of higher input costs and lower
volumes, partly offset by higher molybdenum credits. Each $1 per pound change in
the average molybdenum price during the year would have an approximate $0.02 per
pound impact on the North America copper mines’ 2010 unit net cash
costs.
The
decrease in depreciation, depletion and amortization in 2009, compared with
2008, primarily reflected the impact of the long-lived asset impairment charges
recognized in fourth-quarter 2008 (refer to Note 2 for further
discussion).
Noncash
and nonrecurring costs consist of items such as LCM inventory adjustments and
other unusual charges. Noncash and nonrecurring costs for 2008 include charges
for LCM inventory adjustments, which totaled $661 million, or $0.46 per pound in
2008; there were no LCM copper inventory adjustments recorded at the North
America mines in 2009.
Revenue
adjustments primarily reflect unrealized gains (losses) on copper derivative
contracts entered into with our U.S. copper rod customers, which allow us to
receive market prices in the month of shipment while the customer pays the fixed
price they requested (refer to Note 16 for further discussion).
2008
Compared with 2007
|
2008
|
|
2007a
|
|
|
By-
|
|
Co-Product
Method
|
|
By-
|
|
Co-Product
Method
|
|
|
Product
|
|
|
|
|
Molyb-
|
|
Product
|
|
|
|
|
Molyb-
|
|
|
Method
|
|
Copper
|
|
denumb
|
|
Method
|
|
Copper
|
|
denumb
|
|
Revenues,
excluding adjustments shown below
|
$
|
3.07
|
|
$
|
3.07
|
|
$
|
30.25
|
|
$
|
3.40
|
|
$
|
3.40
|
|
$
|
30.69
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Site
production and delivery, before net noncash
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
and
nonrecurring costs shown below
|
|
1.88
|
|
|
1.63
|
|
|
12.67
|
|
|
1.46
|
|
|
1.25
|
|
|
10.85
|
|
By-product
creditsb
|
|
(0.64
|
)
|
|
–
|
|
|
–
|
|
|
(0.69
|
)
|
|
–
|
|
|
–
|
|
Treatment
charges
|
|
0.09
|
|
|
0.09
|
|
|
–
|
|
|
0.10
|
|
|
0.10
|
|
|
–
|
|
Unit
net cash costs
|
|
1.33
|
|
|
1.72
|
|
|
12.67
|
|
|
0.87
|
|
|
1.35
|
|
|
10.85
|
|
Depreciation,
depletion and amortization
|
|
0.53
|
|
|
0.46
|
|
|
2.81
|
|
|
0.47
|
|
|
0.40
|
|
|
2.89
|
|
Noncash
and nonrecurring costs, net
|
|
0.52
|
|
|
0.49
|
|
|
1.34
|
|
|
0.35
|
|
|
0.33
|
|
|
0.15
|
|
Total
unit costs
|
|
2.38
|
|
|
2.67
|
|
|
16.82
|
|
|
1.69
|
|
|
2.08
|
|
|
13.89
|
|
Revenue
adjustments, primarily for hedging
|
|
(0.05
|
)
|
|
(0.05
|
)
|
|
–
|
|
|
(0.20
|
)
|
|
(0.20
|
)
|
|
–
|
|
Idle
facility and other non-inventoriable costs
|
|
(0.06
|
)
|
|
(0.06
|
)
|
|
(0.05
|
)
|
|
(0.05
|
)
|
|
(0.05
|
)
|
|
(0.03
|
)
|
Gross
profit per pound
|
$
|
0.58
|
|
$
|
0.29
|
|
$
|
13.38
|
|
$
|
1.46
|
|
$
|
1.07
|
|
$
|
16.77
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Copper
sales (millions of recoverable pounds)
|
|
1,430
|
|
|
1,430
|
|
|
|
|
|
1,038
|
|
|
1,038
|
|
|
|
|
Molybdenum
sales (millions of recoverable pounds)c
|
|
|
|
|
|
|
|
30
|
|
|
|
|
|
|
|
|
23
|
|
a.
|
Reflects
the period from March 20, 2007, through December 31,
2007.
|
b.
|
Molybdenum
by-product credits and revenues reflect volumes produced at market-based
pricing and also include tolling revenues at
Sierrita.
|
c.
|
Reflects
molybdenum produced by the North America copper
mines.
|
Unit net
cash costs (net of by-product credits) for our North America copper mines
increased to $1.33 per pound of copper in 2008, compared with $0.87 per pound of
copper for the period March 20, 2007, through December 31, 2007, primarily
reflecting production cost increases associated with higher mining costs and
milling rates, higher energy costs and costs of other consumables and higher
costs associated with Safford as the mine ramped up to full production
rates.
The
increase in noncash and nonrecurring costs for 2008 primarily reflected charges
for LCM inventory adjustments in 2008 totaling $661 million ($0.46 per pound),
partly offset by lower purchase accounting impacts related to increased carrying
values of acquired inventory, which totaled $24 million ($0.02 per pound) in
2008 and $344 million ($0.33 per pound) in 2007.
Revenue
adjustments primarily reflect unrealized losses on copper derivative contracts
entered into with our U.S. copper rod customers. In 2007, revenue adjustments
also reflected mark-to-market accounting adjustments on the 2007 copper price
protection program totaling $175 million ($0.17 per pound).
South
America Copper Mines
We have
four operating copper mines in South America – Cerro Verde in Peru, and
Candelaria, Ojos del Salado and El Abra in Chile. We own a 53.56 percent
interest in Cerro Verde, an 80 percent interest in both Candelaria and Ojos del
Salado and a 51 percent interest in El Abra.
The South
America copper mines include open-pit and underground mining, sulfide ore
concentrating, leaching and SX/EW operations. In addition to copper, the Cerro
Verde mine produces molybdenum concentrates as a
by-product,
and the Candelaria and Ojos del Salado mines produce gold and silver as
by-products. Production from our South America copper mines is sold as copper
concentrate or copper cathode under long-term contracts. Beginning in 2008, our
South America copper mines began selling a portion of their copper concentrate
and cathode inventories to Atlantic Copper, an affiliated smelter. Refer to Note
20 for further discussion of our reportable segment in the South America copper
mines division.
In
response to weak market conditions, operating plans at our South America copper
mines were revised at the end of 2008 primarily to reflect the incorporation of
reduced input costs and a reduction in capital spending plans. We also
temporarily curtailed the molybdenum circuit at Cerro Verde (which resumed in
September 2009). In October 2009, we announced initiatives to resume certain
project development activities, including development of sulfide ores at El Abra
and an expansion of the Cerro Verde concentrator (refer to “Current Development
Projects” for further discussion).
Refer to
Note 14 for information on contingencies at our South America copper
mines.
Operating Data.
Following is summary operating data for the South America copper mines for the
years ended December 31, 2009, 2008 and 2007. The below operating data for 2007
combines our historical data beginning March 20, 2007, with Phelps Dodge
pre-acquisition data through March 19, 2007. As the pre-acquisition data
represents the results of these operations under Phelps Dodge management, such
combined data is not necessarily indicative of what past results would have been
under FCX management or of future operating results.
|
|
2009
|
|
2008
|
|
2007a
|
|
Copper (millions of
recoverable pounds)
|
|
|
|
|
|
|
|
|
|
|
Production
|
|
|
1,390
|
|
|
1,506
|
|
|
1,413
|
|
Sales
|
|
|
1,394
|
|
|
1,521
|
|
|
1,399
|
|
Average
realized price per pound
|
|
$
|
2.70
|
|
$
|
2.57
|
|
$
|
3.25
|
|
|
|
|
|
|
|
|
|
|
|
|
Gold (thousands of
recoverable ounces)
|
|
|
|
|
|
|
|
|
|
|
Production
|
|
|
92
|
|
|
114
|
|
|
116
|
|
Sales
|
|
|
90
|
|
|
116
|
|
|
114
|
|
Average
realized price per ounce
|
|
$
|
982
|
|
$
|
853
|
|
$
|
683
|
|
|
|
|
|
|
|
|
|
|
|
|
Molybdenum (millions of
recoverable pounds)
|
|
|
|
|
|
|
|
|
|
|
Productionb
|
|
|
2
|
|
|
3
|
|
|
1
|
|
|
|
|
|
|
|
|
|
|
|
|
SX/EW operations
|
|
|
|
|
|
|
|
|
|
|
Leach
ore placed in stockpiles (metric tons per day)
|
|
|
258,200
|
|
|
279,700
|
|
|
289,100
|
|
Average
copper ore grade (percent)
|
|
|
0.45
|
|
|
0.45
|
|
|
0.43
|
|
Copper
production (millions of recoverable pounds)
|
|
|
565
|
|
|
560
|
|
|
569
|
|
|
|
|
|
|
|
|
|
|
|
|
Mill operations
|
|
|
|
|
|
|
|
|
|
|
Ore
milled (metric tons per day)
|
|
|
181,300
|
|
|
181,400
|
|
|
167,900
|
|
Average
ore grade:c
|
|
|
|
|
|
|
|
|
|
|
Copper
(percent)
|
|
|
0.66
|
|
|
0.75
|
|
|
0.74
|
|
Molybdenum
(percent)
|
|
|
0.02
|
|
|
0.02
|
|
|
0.02
|
|
Copper
recovery rate (percent)
|
|
|
88.9
|
|
|
89.2
|
|
|
87.1
|
|
Production:
|
|
|
|
|
|
|
|
|
|
|
Copper
(millions of recoverable pounds)
|
|
|
825
|
|
|
946
|
|
|
844
|
|
Gold
(thousands of recoverable ounces)
|
|
|
92
|
|
|
114
|
|
|
116
|
|
Molybdenum
(millions of recoverable pounds)
|
|
|
2
|
|
|
3
|
|
|
1
|
|
a.
|
The
South America copper mines’ operating data for 2007 combines our
historical data beginning March 20, 2007, with Phelps Dodge
pre-acquisition data through March 19, 2007. As the pre-acquisition data
represents the results of these operations under Phelps Dodge management,
such combined data is not necessarily indicative of what past results
would have been under FCX management or of future operating
results.
|
b.
|
Reflects
by-product molybdenum production from our Cerro Verde copper mine. Sales
of by-product molybdenum are reflected in the Molybdenum
segment.
|
c.
|
Average
ore grades of gold produced at our South America mines rounds to less than
0.001 grams per metric ton.
|
2009
Compared with 2008
Copper
sales volumes from the South America copper mines decreased to 1.4 billion
pounds in 2009, compared with 1.5 billion for the year 2008, primarily
reflecting lower ore grades at Candelaria and downtime for mill maintenance at
Cerro Verde. Consolidated sales volumes from our South America copper mines are
expected to
approximate
1.3 billion pounds of copper and 100 thousand ounces of gold in 2010. Projected
copper sales volumes for 2010 are lower than 2009 primarily because of the
impact of anticipated lower ore grades at El Abra.
2008
Compared with 2007
Copper
sales volumes from the South America copper mines increased to 1.5 billion
pounds in 2008, compared with 1.4 billion pounds for the combined year 2007,
primarily reflecting higher production from the Cerro Verde concentrator, which
reached design capacity in mid-2007.
Unit Net Cash Costs.
Unit net cash costs per pound of copper is a measure intended to provide
investors with information about the cash-generating capacity of our mining
operations expressed on a basis relating to the primary metal product for our
respective operations. We use this measure for the same purpose and for
monitoring operating performance by our mining 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. This measure is presented
by other mining companies, although our measure may not be comparable to
similarly titled measures reported by other companies.
Gross Profit per Pound of
Copper
The
following tables summarize unit net cash costs and gross profit per pound at the
South America copper mines for the years ended December 31, 2009 and 2008, and
for the period March 20, 2007, through December 31, 2007. The below tables
reflect unit net cash costs per pound of copper under the by-product and
co-product methods as the South America copper mines also had small amounts of
molybdenum, gold and silver sales. Refer to “Product Revenues and Production
Costs” for an explanation of the “by-product” and “co-product” methods and a
reconciliation of unit net cash costs per pound to production and delivery costs
applicable to sales reported in our consolidated financial
statements.
2009
Compared with 2008
|
2009
|
|
2008
|
|
|
By-Product
|
|
Co-Product
|
|
By-Product
|
|
Co-Product
|
|
|
Method
|
|
Method
|
|
Method
|
|
Method
|
|
Revenues,
excluding adjustments shown below
|
$
|
2.70
|
|
$
|
2.70
|
|
$
|
2.57
|
|
$
|
2.57
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Site
production and delivery, before net noncash
|
|
|
|
|
|
|
|
|
|
|
|
|
and
nonrecurring costs shown below
|
|
1.08
|
|
|
1.02
|
|
|
1.13
|
|
|
1.07
|
|
By-product
credits
|
|
(0.11
|
)
|
|
–
|
|
|
(0.13
|
)
|
|
–
|
|
Treatment
charges
|
|
0.15
|
|
|
0.15
|
|
|
0.14
|
|
|
0.14
|
|
Unit
net cash costs
|
|
1.12
|
|
|
1.17
|
|
|
1.14
|
|
|
1.21
|
|
Depreciation,
depletion and amortization
|
|
0.20
|
|
|
0.19
|
|
|
0.33
|
|
|
0.32
|
|
Noncash
and nonrecurring costs, net
|
|
0.02
|
|
|
0.02
|
|
|
0.07
|
|
|
0.06
|
|
Total
unit costs
|
|
1.34
|
|
|
1.38
|
|
|
1.54
|
|
|
1.59
|
|
Revenue
adjustments, primarily for pricing on
|
|
|
|
|
|
|
|
|
|
|
|
|
prior
year open sales
|
|
0.08
|
|
|
0.08
|
|
|
0.15
|
|
|
0.15
|
|
Other
non-inventoriable costs
|
|
(0.02
|
)
|
|
(0.02
|
)
|
|
(0.02
|
)
|
|
(0.02
|
)
|
Gross
profit per pound
|
$
|
1.42
|
|
$
|
1.38
|
|
$
|
1.16
|
|
$
|
1.11
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Copper
sales (millions of recoverable pounds)
|
|
1,394
|
|
|
1,394
|
|
|
1,521
|
|
|
1,521
|
|
Unit net
cash costs (net of by-product credits) for our South America copper mines
decreased to $1.12 per pound of copper in 2009, compared with $1.14 per pound in
2008, primarily reflecting lower site production and delivery costs ($0.05 per
pound) associated with lower input costs (primarily for energy).
Our South
America copper mines have varying cost structures because of differences in ore
grades and ore characteristics, processing costs, by-products and other factors.
During 2009, unit net cash costs for the South America copper mines ranged from
$1.01 per pound to $1.24 per pound at the individual mines and averaged $1.12
per pound. Assuming achievement of current sales volumes estimates and estimates
for commodity-based inputs, we estimate that average unit net cash costs (net of
by-product credits) for our South America copper mines would approximate $1.20
per pound of copper in 2010. Unit net cash costs for 2010 are expected to be
higher, than in 2009, primarily because of lower volumes and the impact of
foreign currency exchange rates, partly offset by lower sulphuric acid
costs.
The
decrease in depreciation, depletion and amortization in 2009, compared with
2008, primarily reflected the impact of the long-lived asset impairment charges
recognized in fourth-quarter 2008 (refer to Note 2 for further discussion of
these impairment charges).
2008
Compared with 2007
|
2008
|
|
2007a
|
|
|
By-Product
|
|
Co-Product
|
|
By-Product
|
|
Co-Product
|
|
|
Method
|
|
Method
|
|
Method
|
|
Method
|
|
Revenues,
excluding adjustments shown below
|
$
|
2.57
|
|
$
|
2.57
|
|
$
|
3.30
|
|
$
|
3.30
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Site
production and delivery, before net noncash
|
|
|
|
|
|
|
|
|
|
|
|
|
and
nonrecurring costs shown below
|
|
1.13
|
|
|
1.07
|
|
|
0.92
|
|
|
0.88
|
|
By-product
credits
|
|
(0.13
|
)
|
|
–
|
|
|
(0.09
|
)
|
|
–
|
|
Treatment
charges
|
|
0.14
|
|
|
0.14
|
|
|
0.20
|
|
|
0.20
|
|
Unit
net cash costs
|
|
1.14
|
|
|
1.21
|
|
|
1.03
|
|
|
1.08
|
|
Depreciation,
depletion and amortization
|
|
0.33
|
|
|
0.32
|
|
|
0.32
|
|
|
0.32
|
|
Noncash
and nonrecurring costs, net
|
|
0.07
|
|
|
0.06
|
|
|
0.14
|
|
|
0.14
|
|
Total
unit costs
|
|
1.54
|
|
|
1.59
|
|
|
1.49
|
|
|
1.54
|
|
Revenue
adjustments, primarily for pricing on
|
|
|
|
|
|
|
|
|
|
|
|
|
prior
year open sales
|
|
0.15
|
|
|
0.15
|
|
|
0.06
|
|
|
0.06
|
|
Idle
facility and other non-inventoriable costs
|
|
(0.02
|
)
|
|
(0.02
|
)
|
|
(0.02
|
)
|
|
(0.02
|
)
|
Gross
profit per pound
|
$
|
1.16
|
|
$
|
1.11
|
|
$
|
1.85
|
|
$
|
1.80
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Copper
sales (millions of recoverable pounds)
|
|
1,521
|
|
|
1,521
|
|
|
1,177
|
|
|
1,177
|
|
a.
|
Reflects
the period from March 20, 2007, through December 31,
2007.
|
Unit net
cash costs (net of by-product credits) increased to $1.14 per pound of copper in
2008, compared with $1.03 per pound for the period March 20, 2007, through
December 31, 2007, reflecting production cost increases associated with higher
mining costs and milling rates and higher energy, sulphuric acid and other
commodity-based input costs. These increases were partly offset by higher
volumes, higher by-product credits and lower treatment charges during
2008.
The
change in noncash and nonrecurring costs for 2008 primarily reflects lower
purchase accounting impacts related to increased carrying values of acquired
inventory, which totaled $46 million ($0.03 per pound) in 2008 and $169 million
($0.14 per pound) in 2007.
Indonesia
Mining
Indonesia
mining includes PT Freeport Indonesia’s Grasberg minerals district. We own 90.64
percent of PT Freeport Indonesia, including 9.36 percent owned through our
wholly owned subsidiary, PT Indocopper Investama.
PT
Freeport Indonesia produces copper concentrates, which contain significant
quantities of gold and silver. Substantially all of PT Freeport Indonesia’s
copper concentrates are sold under long-term contracts, approximately one-half
of its concentrate production is sold to affiliated smelters, Atlantic Copper
and PT Smelting (PT Freeport Indonesia’s 25-percent owned copper smelter and
refinery in Indonesia – refer to Note 3 for further discussion), and the
remainder to other customers.
PT
Freeport Indonesia operates under an agreement, called a Contract of Work, with
the Government of Indonesia that allows us to conduct exploration, mining and
production activities in a 24,700-acre area called Block A located in Papua,
Indonesia (refer to Note 15 for further discussion). Under the Contract of Work,
PT Freeport Indonesia also conducts exploration activities in an approximate
500,000-acre area called Block B in Papua. All of PT Freeport Indonesia’s proven
and probable mineral reserves and current mining operations, including the
Grasberg minerals district, are located in Block A.
We have
established certain unincorporated joint ventures with Rio Tinto plc (Rio
Tinto), an international mining company with headquarters in London, England.
Pursuant to the joint venture agreement, Rio Tinto has a 40 percent interest in
certain assets and future production exceeding specified annual amounts of
copper, gold and silver through 2021 in Block A of PT Freeport Indonesia’s
Contract of Work, and, after 2021, a 40 percent interest in all production from
Block A. Refer to Note 3 for further discussion of joint ventures with Rio
Tinto.
As
originally reported in January 2006, we received and responded to requests for
U.S. governmental authorities related to PT Freeport Indonesia’s support of
Indonesian security institutions. In May 2009, we were notified by the SEC that
the U.S. government’s investigation has been completed and no action has been
recommended.
Since
July 2009, there have been a series of shooting incidents along the road leading
to our mining and milling operations at the Grasberg mining complex, including
an incident in January 2010. In connection with these incidents, there have been
three fatalities (including a PT Freeport Indonesia employee, a security
contractor and an Indonesian policeman) and several injuries. The Indonesian
government has responded with additional security forces and expressed a strong
commitment to protect the safety of the community and our operations. The
investigation of these matters is continuing, and we have taken precautionary
measures, including limiting use of the road to secured convoys. Our mining and
milling activities have continued uninterrupted; however, prolonged limitations
on access to the road could adversely affect operations at the mine. See “Risk
Factors” contained in Part I, Item 1A of our Form 10-K for the year ended
December 31, 2009, for further discussion of these matters.
Refer to
Note 14 for information on contingencies at our Indonesia mining
operations.
Operating Data.
Following is summary operating data for our Indonesia mining operations for the
years ended December 31, 2009, 2008 and 2007:
|
|
2009
|
|
2008
|
|
2007
|
|
Consolidated
Operating Data, Net of Joint Venture Interest
|
|
|
|
|
|
|
|
|
|
|
Copper (millions of
recoverable pounds)
|
|
|
|
|
|
|
|
|
|
|
Production
|
|
|
1,412
|
|
|
1,094
|
|
|
1,151
|
|
Sales
|
|
|
1,400
|
|
|
1,111
|
|
|
1,131
|
|
Average
realized price per pound
|
|
$
|
2.65
|
|
$
|
2.36
|
|
$
|
3.32
|
|
|
|
|
|
|
|
|
|
|
|
|
Gold (thousands of
recoverable ounces)
|
|
|
|
|
|
|
|
|
|
|
Production
|
|
|
2,568
|
|
|
1,163
|
|
|
2,198
|
|
Sales
|
|
|
2,543
|
|
|
1,182
|
|
|
2,185
|
|
Average
realized price per ounce
|
|
$
|
994
|
|
$
|
861
|
|
$
|
681
|
|
|
|
|
|
|
|
|
|
|
|
|
100%
Operating Data
|
|
|
|
|
|
|
|
|
|
|
Ore
milled (metric tons per day):
|
|
|
|
|
|
|
|
|
|
|
Grasberg
open pita
|
|
|
166,300
|
|
|
129,800
|
|
|
159,100
|
|
Deep
Ore Zone (DOZ) underground minea
|
|
|
72,000
|
|
|
63,100
|
|
|
53,500
|
|
Total
|
|
|
238,300
|
|
|
192,900
|
|
|
212,600
|
|
Average
ore grade:
|
|
|
|
|
|
|
|
|
|
|
Copper
(percent)
|
|
|
0.98
|
|
|
0.83
|
|
|
0.82
|
|
Gold
(grams per metric ton)
|
|
|
1.30
|
|
|
0.66
|
|
|
1.24
|
|
Recovery
rates (percent):
|
|
|
|
|
|
|
|
|
|
|
Copper
|
|
|
90.6
|
|
|
90.1
|
|
|
90.5
|
|
Gold
|
|
|
83.7
|
|
|
79.9
|
|
|
86.2
|
|
Production
(recoverable):
|
|
|
|
|
|
|
|
|
|
|
Copper
(millions of pounds)
|
|
|
1,641
|
|
|
1,109
|
|
|
1,211
|
|
Gold
(thousands of ounces)
|
|
|
2,984
|
|
|
1,163
|
|
|
2,608
|
|
a.
|
Amounts
represent the approximate average daily throughput processed at PT
Freeport Indonesia’s mill facilities from each producing
mine.
|
2009
Compared with 2008
At the
Grasberg mine, the sequencing in mining areas with varying ore grades causes
fluctuations in the timing of ore production resulting in varying quarterly and
annual sales of copper and gold. PT Freeport Indonesia’s share of sales
increased to 1.4 billion pounds of copper and 2.5 million ounces of gold in
2009, compared with 1.1 billion pounds of copper and 1.2 million ounces of gold
in 2008, as a result of mining in a higher grade section of the Grasberg open
pit during 2009, including accelerated mining of a higher grade section that was
previously scheduled to be mined in future periods. PT Freeport Indonesia’s
sales for 2010 are expected to approximate 1.2 billion pounds of copper and 1.7
million ounces of gold, which is lower than 2009 volumes, as a result of
transitioning to a lower grade section of the Grasberg open pit in 2010.
Anticipated changes in ore grades throughout the year are expected to result in
variability in quarterly volumes. Approximately 60 percent of PT Freeport
Indonesia’s copper and gold production is expected in the second half of
2010.
2008
Compared with 2007
PT
Freeport Indonesia’s share of sales totaled 1.1 billion pounds of copper and 1.2
million ounces of gold in 2008, compared with 1.1 billion pounds of copper and
2.2 million ounces of gold in 2007. Lower gold sales volumes in 2008 resulted
from mining in a lower-grade section of the Grasberg open pit during the first
nine months of 2008.
Unit Net Cash Costs.
Unit net cash costs per pound of copper is a measure intended to provide
investors with information about the cash-generating capacity of our mining
operations expressed on a basis relating to the primary metal product for our
respective operations. We use this measure for the same purpose and for
monitoring operating performance by our mining 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. This measure is presented
by other mining companies, although our measure may not be comparable to
similarly titled measures reported by other companies.
Gross Profit per Pound of
Copper/per Ounce of Gold
The
following tables summarize the unit net cash (credits) costs and gross profit
per pound of copper and per ounce of gold at our Indonesia mining operations for
the years ended December 31, 2009, 2008 and 2007. Refer to “Production Revenues
and Production Costs” for an explanation of “by-product” and “co-product”
methods and a reconciliation of unit net cash costs per pound to production and
delivery costs applicable to sales reported in our consolidated financial
statements.
2009
Compared with 2008
|
2009
|
|
2008
|
|
|
By-
|
|
Co-Product
Method
|
|
By-
|
|
Co-Product
Method
|
|
|
Product
|
|
|
|
|
|
|
Product
|
|
|
|
|
|
|
|
Method
|
|
Copper
|
|
Gold
|
|
Method
|
|
Copper
|
|
Gold
|
|
Revenues,
after adjustments shown below
|
$
|
2.65
|
|
$
|
2.65
|
|
$
|
993.72
|
|
$
|
2.36
|
|
$
|
2.36
|
|
$
|
861.43
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Site
production and delivery, before net noncash
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
and
nonrecurring costs shown below
|
|
1.05
|
|
|
0.62
|
|
|
231.57
|
|
|
1.59
|
|
|
1.13
|
|
|
412.72
|
|
Gold
and silver credits
|
|
(1.86
|
)
|
|
–
|
|
|
–
|
|
|
(0.97
|
)
|
|
–
|
|
|
–
|
|
Treatment
charges
|
|
0.22
|
|
|
0.13
|
|
|
49.18
|
|
|
0.24
|
|
|
0.17
|
|
|
62.69
|
|
Royalty
on metals
|
|
0.10
|
|
|
0.06
|
|
|
23.18
|
|
|
0.10
|
|
|
0.07
|
|
|
26.50
|
|
Unit
net cash (credits) costs
|
|
(0.49
|
)
|
|
0.81
|
|
|
303.93
|
|
|
0.96
|
|
|
1.37
|
|
|
501.91
|
|
Depreciation
and amortization
|
|
0.20
|
|
|
0.11
|
|
|
43.36
|
|
|
0.20
|
|
|
0.14
|
|
|
52.09
|
|
Noncash
and nonrecurring costs, net
|
|
0.03
|
|
|
0.02
|
|
|
5.93
|
|
|
0.03
|
|
|
0.02
|
|
|
7.18
|
|
Total
unit (credits) costs
|
|
(0.26
|
)
|
|
0.94
|
|
|
353.22
|
|
|
1.19
|
|
|
1.53
|
|
|
561.18
|
|
Revenue
adjustments, primarily for pricing on
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
prior
year open sales
|
|
0.04
|
|
|
0.04
|
|
|
2.12
|
|
|
0.09
|
|
|
0.09
|
|
|
5.86
|
|
PT
Smelting intercompany profit
|
|
(0.04
|
)
|
|
(0.02
|
)
|
|
(8.45
|
)
|
|
0.01
|
|
|
0.01
|
|
|
4.18
|
|
Gross
profit per pound/ounce
|
$
|
2.91
|
|
$
|
1.73
|
|
$
|
634.17
|
|
$
|
1.27
|
|
$
|
0.93
|
|
$
|
310.29
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated
sales
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Copper
(millions of recoverable pounds)
|
|
1,400
|
|
|
1,400
|
|
|
|
|
|
1,111
|
|
|
1,111
|
|
|
|
|
Gold
(thousands of recoverable ounces)
|
|
|
|
|
|
|
|
2,543
|
|
|
|
|
|
|
|
|
1,182
|
|
Because
of the fixed nature of a large portion of PT Freeport Indonesia’s costs, unit
costs vary significantly from period to period depending on volumes of copper
and gold sold during the period. Unit net cash costs (net of gold and silver
credits) decreased to a net credit of $0.49 per pound of copper in 2009,
compared with a net cost of $0.96 per pound in 2008, reflecting higher gold and
silver credits ($0.89 per pound) resulting from higher gold sales volumes and
prices in 2009, and lower site production and delivery costs ($0.54 per pound)
primarily associated with higher copper sales volumes and lower commodity-based
input costs.
Treatment
charges vary with the volume of metals sold and the price of copper, and
royalties vary with the volume of metals sold and the prices of copper and
gold.
Because
the majority of PT Freeport Indonesia’s costs are fixed, unit costs vary with
volumes sold and the price of gold. Assuming achievement of current sales volume
estimates, average gold prices of $1,100 per ounce in 2010, and estimates for
energy costs, currency exchange rates and other cost factors, we estimate that
average unit net cash costs for PT Freeport Indonesia (net of gold and silver
credits) would approximate $0.21 per pound of copper in 2010. Unit net cash
costs for 2010 are expected to be higher, compared with 2009, primarily because
of lower
projected
sales volumes and higher commodity-based input costs. Each $50 per ounce change
in average gold prices during the year would have an approximate $0.07 per pound
impact on PT Freeport Indonesia’s 2010 unit net cash costs.
2008
Compared with 2007
|
2008
|
|
2007
|
|
|
By-
|
|
Co-Product
Method
|
|
By-
|
|
Co-Product
Method
|
|
|
Product
|
|
|
|
|
|
|
Product
|
|
|
|
|
|
|
|
Method
|
|
Copper
|
|
Gold
|
|
Method
|
|
Copper
|
|
Gold
|
|
Revenues,
after adjustments shown below
|
$
|
2.36
|
|
$
|
2.36
|
|
$
|
861.43
|
|
$
|
3.32
|
|
$
|
3.32
|
|
$
|
680.74
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Site
production and delivery, before net noncash
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
and
nonrecurring costs shown below
|
|
1.59
|
|
|
1.13
|
|
|
412.72
|
|
|
1.19
|
|
|
0.85
|
|
|
172.23
|
|
Gold
and silver credits
|
|
(0.97
|
)
|
|
–
|
|
|
–
|
|
|
(1.36
|
)
|
|
–
|
|
|
–
|
|
Treatment
charges
|
|
0.24
|
|
|
0.17
|
|
|
62.69
|
|
|
0.34
|
|
|
0.24
|
|
|
49.45
|
|
Royalty
on metals
|
|
0.10
|
|
|
0.07
|
|
|
26.50
|
|
|
0.12
|
|
|
0.08
|
|
|
17.05
|
|
Unit
net cash costs
|
|
0.96
|
|
|
1.37
|
|
|
501.91
|
|
|
0.29
|
|
|
1.17
|
|
|
238.73
|
|
Depreciation
and amortization
|
|
0.20
|
|
|
0.14
|
|
|
52.09
|
|
|
0.17
|
|
|
0.12
|
|
|
25.54
|
|
Noncash
and nonrecurring costs, net
|
|
0.03
|
|
|
0.02
|
|
|
7.18
|
|
|
0.04
|
|
|
0.03
|
|
|
5.90
|
|
Total
unit costs
|
|
1.19
|
|
|
1.53
|
|
|
561.18
|
|
|
0.50
|
|
|
1.32
|
|
|
270.17
|
|
Revenue
adjustments, primarily for pricing on
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
prior
year open sales
|
|
0.09
|
|
|
0.09
|
|
|
5.86
|
|
|
0.03
|
|
|
0.03
|
|
|
1.07
|
|
PT
Smelting intercompany profit
|
|
0.01
|
|
|
0.01
|
|
|
4.18
|
|
|
0.01
|
|
|
0.01
|
|
|
1.71
|
|
Gross
profit per pound/ounce
|
$
|
1.27
|
|
$
|
0.93
|
|
$
|
310.29
|
|
$
|
2.86
|
|
$
|
2.04
|
|
$
|
413.35
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated
sales
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Copper
(millions of recoverable pounds)
|
|
1,111
|
|
|
1,111
|
|
|
|
|
|
1,131
|
|
|
1,131
|
|
|
|
|
Gold
(thousands of recoverable ounces)
|
|
|
|
|
|
|
|
1,182
|
|
|
|
|
|
|
|
|
2,185
|
|
Unit net
cash costs (net of gold and silver credits) increased to $0.96 per pound of
copper in 2008, compared with $0.29 per pound in 2007, reflecting lower gold and
silver credits associated with lower gold volumes in 2008, higher input costs,
including higher mining rates and energy costs, and also reflected the impact of
changes in cost sharing with our joint venture partner. Partly offsetting these
increases were lower treatment charges, which vary with the volume of metals
sold and the price of copper.
Africa
Mining
Africa
mining includes the Tenke Fungurume (Tenke) copper and cobalt mining concessions
in the Katanga province of the DRC. We own an effective 57.75 percent interest
in Tenke and are the operator of the project. The Tenke mine includes open-pit
mining, leaching and SX/EW operations. Copper production from the Tenke mine is
sold as copper cathode. In addition to copper, the Tenke mine produces cobalt
hydroxide.
Construction
activities for the initial development project are complete. Copper production
commenced in March 2009 and Tenke achieved targeted copper production rates in
September 2009. Start-up and quality issues continue to be addressed in the
cobalt circuit and sustained targeted production rates are expected to be
reached during 2010. Current operations are designed to produce approximately
250 million pounds of copper and 18 million pounds of cobalt per year. Refer to
“Current Development Projects” for further discussion of the Tenke Fungurume
project.
We are
continuing to work cooperatively with the DRC government to resolve the ongoing
contract review but cannot predict the timing or the outcome of this process.
The contract review process has not affected our development schedule and we are
continuing to operate pursuant to the terms of our contract. We believe that the
contract is fair and equitable, complies with Congolese law and is enforceable
without modifications. Refer to Note 15 for further discussion. See “Risk
Factors” contained in Part I, Item 1A of our Form 10-K for the year ended
December 31, 2009, for further discussion of these matters.
Operating Data.
Following is summary operating data for our Africa mining operations for the
year ended December 31, 2009.
|
|
2009a
|
|
Copper (millions of
recoverable pounds)
|
|
|
|
|
Production
|
|
|
154
|
|
Sales
|
|
|
130
|
|
Average
realized price per pound
|
|
$
|
2.85
|
|
|
|
|
|
|
Ore
milled (metric tons per day)
|
|
|
7,300
|
|
|
|
|
|
|
Average
ore grade (percent)
|
|
|
3.69
|
|
Copper
recovery rate (percent)
|
|
|
92.1
|
|
a.
Results for 2009 represent mining operations which began production in March
2009.
Tenke’s
sales volumes are expected to approximate 240 million pounds of copper and over
20 million pounds of cobalt for the year 2010. The high grades of copper and
cobalt in the ore at the Tenke mine are expected to result in an attractive cost
structure once the full operation reaches design capacity. Upon reaching design
capacity in the copper and cobalt circuits and assuming average cobalt prices of
$10 per pound, average unit net cash costs for Tenke are targeted to be $0.50
per pound of copper. Each $2 per pound change in average cobalt prices would
have an approximate $0.12 per pound impact on Tenke’s unit net cash costs. We
will incorporate Tenke in our consolidated unit net cash cost disclosure upon
completion of ramp-up activities, expected during 2010.
Pursuant
to our agreement with Lundin Mining Corporation (Lundin), we were responsible
for funding our share (70 percent) of project development costs and 100 percent
of certain cost overruns on the initial Tenke Fungurume project. We and Lundin
will be repaid our advances prior to distributions to shareholders of Tenke
Fungurume. Accordingly, we will receive a disproportionate share of cash flow
until the cost overrun financing and advances are repaid.
Molybdenum
Our
Molybdenum operation is an integrated producer of molybdenum, with mining,
sulfide ore concentrating, roasting and processing facilities that produce
high-purity, molybdenum-based chemicals, molybdenum metal powder and
metallurgical products, which are sold to customers around the world, and
includes the wholly owned Henderson molybdenum mine in Colorado and related
conversion facilities. The Henderson underground mine produces high-purity,
chemical-grade molybdenum concentrates, which are typically further processed
into value-added molybdenum chemical products. The Molybdenum operation also
includes the wholly owned Climax molybdenum mine in Colorado, which has been on
care-and-maintenance status since 1995; a sales company that purchases and sells
molybdenum from our Henderson mine and from our North and South America copper
mines that produce molybdenum as a by-product; and related conversion facilities
that, at times, roast and/or process material on a toll basis. Toll arrangements
require the tolling customer to deliver appropriate molybdenum-bearing material
to our facilities for processing into a product that is returned to the
customer, who pays us for processing their material into the specified
products.
In
response to market conditions during fourth-quarter 2008, we suspended
construction activities associated with the project to restart the Climax
molybdenum mine, which would have an annual capacity of 30 million pounds with
expansion options. We will continue to monitor market conditions to determine
timing for restarting construction of this project; once a decision is made to
resume construction activities, the project could be completed within 18 months.
Estimated remaining costs for the project approximate $350 million.
Operating Data.
Following is summary operating data for the Molybdenum operations for the years
ended December 31, 2009, 2008 and 2007. The operating data for 2007 combines our
historical data beginning March 20, 2007, with Phelps Dodge pre-acquisition data
through March 19, 2007. As the pre-acquisition data represents the results of
these operations under Phelps Dodge management, such combined data is not
necessarily indicative of what past results would have been under FCX management
or of future operating results.
|
|
2009
|
|
2008
|
|
2007a
|
|
Molybdenum (millions of
recoverable pounds)
|
|
|
|
|
|
|
|
|
|
|
Productionb
|
|
|
27
|
|
|
40
|
|
|
39
|
|
Sales,
excluding purchasesc
|
|
|
58
|
|
|
71
|
|
|
69
|
|
Average
realized price per pound
|
|
$
|
12.36
|
|
$
|
30.55
|
|
$
|
25.87
|
|
|
|
|
|
|
|
|
|
|
|
|
Henderson
molybdenum mine
|
|
|
|
|
|
|
|
|
|
|
Ore
milled (metric tons per day)
|
|
|
14,900
|
|
|
24,100
|
|
|
24,000
|
|
Average
molybdenum ore grade (percent)
|
|
|
0.25
|
|
|
0.23
|
|
|
0.23
|
|
Molybdenum
production (millions of recoverable pounds)
|
|
|
27
|
|
|
40
|
|
|
39
|
|
a.
|
The
Molybdenum operating data for 2007 combines our historical data beginning
March 20, 2007, with Phelps Dodge pre-acquisition data through March 19,
2007. As the pre-acquisition data represents the results of these
operations under Phelps Dodge management, such combined data is not
necessarily indicative of what past results would have been under FCX
management or of future operating
results.
|
b.
|
Reflects
production at the Henderson molybdenum
mine.
|
c.
|
Includes
sales of molybdenum produced as a by-product at our North and South
America copper mines.
|
Beginning
in fourth-quarter 2008, molybdenum markets were significantly affected by the
downturn in economic conditions, which required us to operate the Henderson
molybdenum mine at reduced rates during 2009. However, conditions have begun to
improve and as a result Henderson was operating at 80 percent capacity at
December 31, 2009, compared with 60 percent capacity during most of 2009.
Molybdenum sales volumes decreased to 58 million pounds in 2009, compared with
71 million pounds in 2008, because of lower demand. For 2010, molybdenum sales
volumes are expected to approximate 60 million pounds. We will continue to
review operating plans and adjust operating rates to reflect market
conditions.
Unit Net Cash Costs.
Unit net cash costs per pound of molybdenum is a measure intended to provide
investors with information about the cash-generating capacity of our mining
operations expressed on a basis relating to the primary metal product for our
respective operations. We use this measure for the same purpose and for
monitoring operating performance by our mining 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. This measure is presented
by other mining companies, although our measure may not be comparable to
similarly titled measures reported by other companies.
Gross Profit per Pound of
Molybdenum
The
following tables summarize the unit net cash costs and gross profit per pound of
molybdenum at our Henderson molybdenum mine for the years ended December 31,
2009 and 2008, and for the period March 20, 2007, through December 31, 2007.
Refer to “Product Revenues and Production Costs” for a reconciliation of unit
net cash costs per pound to production and delivery costs applicable to sales
reported in our consolidated financial statements.
|
2009
|
|
2008
|
|
2007a
|
|
Revenues
|
$
|
11.69
|
|
$
|
29.27
|
|
$
|
27.12
|
|
|
|
|
|
|
|
|
|
|
|
Site
production and delivery, before net noncash
|
|
|
|
|
|
|
|
|
|
and
nonrecurring costs shown below
|
|
5.44
|
|
|
5.36
|
|
|
4.37
|
|
Unit
net cash costs
|
|
5.44
|
|
|
5.36
|
|
|
4.37
|
|
Depreciation,
depletion and amortization
|
|
0.98
|
|
|
4.25
|
|
|
2.55
|
|
Noncash
and nonrecurring costs, net
|
|
0.03
|
|
|
0.18
|
b
|
|
0.05
|
|
Total
unit costs
|
|
6.45
|
|
|
9.79
|
|
|
6.97
|
|
Gross
profit per poundc
|
$
|
5.24
|
|
$
|
19.48
|
|
$
|
20.15
|
|
|
|
|
|
|
|
|
|
|
|
Molybdenum
sales (millions of recoverable pounds)d
|
|
27
|
|
|
40
|
|
|
31
|
|
a.
|
Reflects
the period from March 20, 2007, through December 31,
2007.
|
b.
|
Includes
charges of $0.03 per pound in 2008 associated with LCM inventory
adjustments.
|
c.
|
Gross
profit reflects sales of Henderson products based on volumes produced at
market-based pricing. On a consolidated basis, the Molybdenum segment
includes profits on sales as they are made to third parties and
realizations based on actual contract terms. As a result, the actual gross
profit realized will differ from the amounts reported in this
table.
|
d.
|
Reflects
molybdenum produced by the Henderson molybdenum
mine.
|
Henderson’s
unit net cash costs were $5.44 per pound of molybdenum in 2009, $5.36 per pound
in 2008 and $4.37 per pound in 2007. Henderson’s unit net cash costs were
unfavorably impacted in 2009 by lower production volumes, partly offset by the
impact of cost reduction efforts. Higher costs in 2008, compared with 2007,
primarily reflected higher input costs, including outside services, supplies and
energy.
Assuming
achievement of current 2010 sales estimates, we estimate that the 2010 average
unit net cash costs for Henderson would approximate $5.50 per pound of
molybdenum.
The
decrease in Henderson’s depreciation, depletion and amortization in 2009,
compared with 2008, reflects the impact of long-lived asset impairment charges
recognized in fourth-quarter 2008 (refer to Note 2 for further
discussion).
The
increase in Henderson’s depreciation, depletion and amortization in 2008,
compared with 2007, primarily reflected changes in purchase accounting impacts
associated with adjustments to the estimated fair values of acquired property,
plant and equipment, which were based on preliminary estimates in 2007 and
finalized in first-quarter 2008.
Atlantic
Copper Smelting & Refining
Atlantic
Copper, our wholly owned subsidiary located in Spain, smelts and refines copper
concentrates and markets refined copper and precious metals in slimes. PT
Freeport Indonesia sells copper concentrate and the South America copper mines
sell copper concentrate and copper cathode to Atlantic Copper. Through
downstream integration, we are assured placement of a significant portion of our
concentrate production. During 2009, Atlantic Copper purchased approximately 35
percent of its concentrate requirements from PT Freeport Indonesia and
approximately 25 percent from our South America mines.
Smelting
and refining charges consist of a base rate and, in certain contracts, price
participation based on copper prices. Treatment charges for smelting and
refining copper concentrates represent a cost to PT Freeport Indonesia and our
South America copper mines and income to Atlantic Copper and PT Smelting, our 25
percent owned smelter and refinery in Gresik, Indonesia. Thus, higher treatment
and refining charges benefit our smelter operations at Atlantic Copper and
adversely affect our mining operations in Indonesia and South America. Our North
America copper mines are not significantly affected by changes in treatment and
refining charges because these operations are fully integrated with our Miami
smelter located in Arizona.
Atlantic
Copper had an operating loss of $56 million in 2009 compared to operating income
of $10 million in 2008 and $3 million in 2007. The decrease in Atlantic Copper’s
operating results during 2009 primarily reflected lower sulphuric acid revenues
resulting from lower prices.
We defer
recognizing profits on PT Freeport Indonesia’s and our South America copper
mines’ sales to Atlantic Copper and on 25 percent of PT Freeport Indonesia’s
sales to PT Smelting until final sales to third parties occur. Changes in these
net deferrals resulted in net reductions to net income attributable to FCX
common stockholders totaling $109 million ($0.23 per share) in 2009, compared
with net additions of $65 million ($0.17 per share) in 2008 and $8 million
($0.02 per share) in 2007. At December 31, 2009, our net deferred profits on PT
Freeport Indonesia’s and the South America copper mines’ inventories at Atlantic
Copper and PT Smelting to be recognized in future periods’ net income after
taxes and noncontrolling interests totaled $137 million.
CURRENT
DEVELOPMENT PROJECTS
We have
several projects and potential opportunities to expand our production volumes,
extend mine lives and develop large-scale ore bodies. During fourth-quarter
2008, we deferred several project development activities because of the downturn
in global economic conditions. Major development projects for 2009 consisted of
underground development in the Grasberg minerals district and the Tenke
Fungurume project (for which
construction
activities on the initial project are complete). During fourth-quarter 2009, we
announced that we are resuming certain project development activities. Capital
spending plans will continue to be reviewed and adjusted in response to changes
in market conditions.
North
America Copper Mines
Miami Restart. During
fourth-quarter 2009, we initiated plans to restart limited mining activities at
the Miami copper mine in Arizona, which will improve efficiencies of ongoing
reclamation projects associated with historical mining operations at the site.
During the approximate five-year mine life, we expect to ramp up production to
approximately 100 million pounds of copper per year by the second half of 2011.
The capital investment for this project is expected to approximate $40 million,
which is lower that the initial estimate of $100 million because we intend to
transfer existing mining equipment from other North America sites, rather than
purchasing new equipment.
Morenci Mill Restart.
We are initiating activities to restart the Morenci mill in Arizona, which was
temporarily idled in February 2009 in response to market conditions, to process
available sulfide material currently being mined. Copper concentrate production
is expected to begin in second-quarter 2010, with mill throughput initially
expected to approximate 30,000 metric tons per day, or approximately 60 percent
of total mill capacity.
Twin Buttes. In
December 2009, we purchased property adjacent to our Sierrita operations
primarily from Twin Buttes Properties, Inc. for $200 million. The property
includes the Twin Buttes copper mine, which ceased operations in 1994 and
contains mineralized material of approximately 0.7 billion metric tons with
average grades of 0.43 percent for copper and 0.024 percent for
molybdenum. The purchase provides significant synergies in the Sierrita
district, including the potential for expanded mining activities and access to
material that can be used for Sierrita tailings and stockpile reclamation
purposes. We plan to conduct studies to incorporate the Twin Buttes resources in
our future plans to determine the optimum development plans for the
district.
South
America Copper Mines
El Abra Sulfide
Ore. We
have resumed construction activities associated with the development of a large
sulfide deposit at El Abra that will extend the mine life by over ten years.
Production from the sulfide ore, which will ramp-up to approximately 300 million
pounds of copper per year, is expected to begin in 2012 and will replace the
current oxide ore copper production that is expected to decline over the next
several years. The project will use a portion of the existing facilities to
process the additional sulfide ore. The total aggregate capital investment for
this project (which has been updated to incorporate recent foreign currency
exchange rates and other cost increases) is expected to total $700 million
through 2015, of which approximately $500 million is for the initial phase of
the project that is expected to be completed in 2012. Aggregate project costs of
$75 million have been incurred as of December 31, 2009 (most of which were
incurred prior to the end of 2008).
Cerro Verde
Expansion. We have commenced a project to optimize throughput at the
existing Cerro Verde concentrator. This project, which is expected to be
completed by the end of 2010, is designed to add 30 million pounds of additional
copper production per year by increasing mill throughput from 108,000 metric
tons of ore per day to 120,000 metric tons of ore per day. The aggregate capital
investment for this project is expected to total approximately $50 million. We
continue to study the potential for a major expansion at Cerro
Verde.
Indonesia
We have
several projects in progress in the Grasberg minerals district, including
development of the large-scale, high-grade underground ore bodies located
beneath and adjacent to the Grasberg open pit. In addition, we have completed
the feasibility study for the Deep Mill Level Zone (DMLZ). Based on current
estimates, we expect aggregate expenditures for underground mine development in
the Grasberg minerals district to average approximately $450 million annually
during the next 15 years. These costs will be shared with Rio Tinto in
accordance with our joint venture agreement. Considering the long-term nature
and large size of these projects, actual costs could differ materially from
these estimates.
In
addition to the mine development costs above, our current mine development plans
include approximately $3 billion of capital expenditures at our processing
facilities to optimize the handling of underground ore types once Grasberg
open-pit operations cease. Substantially all of these expenditures will be made
between 2017 and 2029. We continue to review our mine development and processing
plans to maximize the value of our reserves.
The
following discussion provides additional information on these current projects,
including the continued development of the Common Infrastructure project, the
Grasberg Block Cave and Big Gossan underground mines, a further expansion of the
DOZ underground mine and development of the DMLZ ore body.
Common Infrastructure and
Grasberg Block Cave. In 2004, PT Freeport
Indonesia commenced its Common Infrastructure project to provide access to its
large undeveloped underground ore bodies located in the Grasberg minerals
district through a tunnel system located approximately 400 meters deeper than
its existing underground tunnel system. In addition to providing access to our
underground ore bodies, the tunnel system will enable PT Freeport Indonesia to
conduct future exploration in prospective areas associated with currently
identified ore bodies. The tunnel system has reached the Big Gossan terminal and
we are proceeding with development of the lower Big Gossan infrastructure. We
have also advanced development of the Grasberg spur and have completed the
tunneling required to reach the Grasberg underground ore body. During 2009, we
continued development of the Grasberg Block Cave terminal infrastructure and
mine access.
In 2008,
we completed the feasibility study for the development of the Grasberg Block
Cave underground mine, which accounts for over one-third of our reserves in
Indonesia. Production at the Grasberg Block Cave mine is currently scheduled to
commence at the end of mining the Grasberg open pit, which is expected to
continue until mid-2016. The timing of the
underground Grasberg Block Cave mine development will continue to be
assessed.
Based on
the 2008 feasibility study, aggregate mine development capital for the Grasberg
Block Cave mine and associated Common Infrastructure is expected to approximate
$3.6 billion to be incurred between 2008 and 2021, with PT Freeport Indonesia’s
share totaling approximately $3.4 billion. These estimates are higher than the
aggregate $3.1 billion previously reported as certain costs previously
considered as operating in the feasibility study were determined to be capital
costs to conform with our current accounting policies for underground mines.
Aggregate project costs totaling $127 million have been incurred through
December 31, 2009, of which $83 million was incurred during 2009. Targeted
production rates once the Grasberg Block Cave mining operation reaches full
capacity are expected to approximate 150,000 metric tons of ore per
day.
Big Gossan. The Big Gossan
underground mine is a high-grade deposit located near PT Freeport Indonesia’s
existing milling complex. The Big Gossan mine is being developed as an
open-stope mine with backfill consisting of mill tailings and cement, an
established mining methodology expected to be higher cost than the block-cave
method used at the DOZ mine. Production is designed to ramp up to 7,000 metric
tons of ore per day by late 2012 (equal to average annual aggregate incremental
production of 125 million pounds of copper and 65,000 ounces of gold, with PT
Freeport Indonesia receiving 60 percent of these amounts). The aggregate capital
investment for this project is currently estimated at approximately $480
million, of which $377 million has been incurred through December 31, 2009,
including $41 million during 2009.
DOZ Expansion. In mid-2007, PT
Freeport Indonesia completed an expansion of the DOZ underground operation to
allow a sustained rate of 50,000 metric tons of ore per day. PT Freeport
Indonesia’s further expansion of the DOZ mine to 80,000 metric tons of ore per
day is substantially complete. The capital cost for this expansion approximated
$100 million, with PT Freeport Indonesia’s 60 percent share totaling
approximately $60 million. The success of the development of the DOZ mine, one
of the world’s largest underground mines, provides confidence in the future
development of PT Freeport Indonesia’s large-scale undeveloped underground ore
bodies.
DMLZ. The DMLZ ore
body lies below the DOZ mine at the 2,590-meter elevation and represents the
downward continuation of mineralization in the Ertsberg East Skarn system and
neighboring Ertsberg porphyry. The DMLZ feasibility study was completed in
fourth-quarter 2009. We plan to mine the ore body using a block-cave method with
production beginning in 2020, near completion of mining at the DOZ. Drilling
efforts continue to determine the extent of this ore body. We continue to
develop the Common Infrastructure project and tunnels from mill level. In 2009,
we completed a portion of the spur to the DMLZ mine and reached the edge of the
DMLZ terminal. Aggregate mine development capital costs for the DMLZ are
expected to approximate $2.1 billion with PT Freeport Indonesia’s share totaling
approximately $1.2 billion, which are expected to be incurred from 2009 to 2020.
Aggregate project costs totaling $25 million have been incurred through December
31, 2009. Targeted production rates once the DMLZ mining operation reaches full
capacity are expected to approximate 80,000 metric tons of ore per
day.
Africa
Mining
Tenke Fungurume.
Construction activities for the approximate $2 billion initial project are
complete. Copper production commenced in March 2009 and achieved targeted copper
production rates in September 2009. Start-up and quality issues continue to be
addressed in the cobalt circuit and sustained targeted production rates are
expected to be reached during 2010. Current operations are designed to produce
approximately 250 million pounds of copper and 18 million pounds of cobalt per
year.
The
initial Tenke Fungurume project was designed and constructed in a world-class
fashion, using modern technology and following international standards for
environmental management, occupational safety and social responsibility. The
facilities include impermeable lined tailing storage and waste-water treatment
ponds, and we have made significant investments in infrastructure in the region,
including a national road and improvements in power generation and transmission
systems. Our social programs include local micro-enterprise businesses,
agricultural capacity building initiatives, malaria abatement, potable drinking
water wells, new medical facilities and several new schools. The project will
continue to provide important benefits to the Congolese through employment and
the provision of local services and to the DRC government through substantial
tax, royalty and dividend payments.
We
continue to engage in drilling activities, exploration analyses and
metallurgical testing to evaluate the potential of this highly prospective
district. These analyses are being incorporated in future plans to evaluate
opportunities for expansion. In our recoverable proven and probable reserve
estimates for 2009, we were successful in adding 2.6 billion pounds of copper
reserves and 0.08 billion pounds of cobalt reserves. Recoverable proven and
probable reserves at December 31, 2009, approximate 135 million metric tons of
ore with average grades of 3.13 percent for copper and 0.33 percent for cobalt,
which equates to recoverable reserves of 8.4 billion pounds of copper and 0.78
billion pounds of cobalt.
We
commenced a feasibility study in fourth-quarter 2009 to evaluate a second phase
of the project, which would include optimizing the current plant and potentially
increasing capacity by approximately 50 percent. The feasibility study is
expected to be completed by mid-year 2010.
CAPITAL
RESOURCES AND LIQUIDITY
Our
operating cash flows vary with prices realized from copper, gold and molybdenum
sales, our production levels, production costs, cash payments for income taxes
and interest, other working capital changes and other factors. As a result of
weak economic conditions, we revised our operating plans at the end of 2008 and
in early 2009 to protect liquidity while preserving our large mineral resources
and growth options for the longer term (refer to Note 2 for further discussion).
However, strong operating performance and rising copper prices have enabled us
to enhance our financial and liquidity position during 2009, allowing us to
manage volatile conditions effectively, reduce debt and reinstate cash dividends
to shareholders, while maintaining our future growth opportunities. In addition,
we have announced initiatives to resume certain project development activities
that were deferred in late 2008 (refer to “Current Development Projects” for
further discussion). We view the long-term outlook for our business positively,
supported by limitations on supplies of copper and by the requirement for copper
in the world’s economy and will continue to adjust our operating strategy as
market conditions change.
Based on
current mine plans and subject to future copper, gold and molybdenum prices, we
expect estimated 2010 operating cash flows to be greater than our budgeted
capital expenditures, expected debt payments, dividends, noncontrolling interest
distributions and other cash requirements.
Cash
and Cash Equivalents
At
December 31, 2009, we had consolidated cash and cash equivalents of $2.7
billion. The following table reflects the U.S. and international components of
consolidated cash and cash equivalents at December 31, 2009 and 2008 (in
millions):
|
2009
|
|
2008
|
|
Cash
at domestic companiesa
|
$
|
1,522
|
|
$
|
95
|
|
Cash
at international operations
|
|
1,134
|
|
|
777
|
|
Total
consolidated cash and cash equivalents
|
|
2,656
|
|
|
872
|
|
Less:
Noncontrolling interests’ share
|
|
(300
|
)
|
|
(267
|
)
|
Cash,
net of noncontrolling interests’ share
|
|
2,356
|
|
|
605
|
|
Less:
Withholding taxes and other
|
|
(171
|
)
|
|
(151
|
)
|
Net
cash available to FCX
|
$
|
2,185
|
|
$
|
454
|
|
a.
|
Includes
cash at our parent company and North America
operations.
|
Operating
Activities
During
2009, we generated operating cash flows totaling $4.4 billion, net of $770
million used for working capital requirements, which included approximately $600
million related to settlement of final pricing with customers on 2008
provisionally priced copper sales. Operating cash flows in 2008 totaled $3.4
billion, net of $965 million used for working capital requirements, which
included $598 million to settle the 2007 copper price protection program
contract, and operating cash flows in 2007 totaled $6.2 billion, including $1.1
billion from working capital sources.
Operating
cash flows for 2009 were higher than in 2008 primarily because of lower
operating costs and higher gold prices and sales volumes. Operating cash flows
for 2008 were lower than in 2007 primarily because of higher operating costs and
higher working capital requirements.
Consolidated
revenues, operating cash flows and net income vary significantly with
fluctuations in the market prices of copper, gold and molybdenum, sales volumes
and other factors. Refer to “Overview and Outlook” for further discussion of
projected 2010 operating cash flows.
Investing
Activities
Capital Expenditures.
Capital expenditures, including capitalized interest, totaled $1.6 billion in
2009 (including $1.0 billion for major projects and a property acquisition),
$2.7 billion in 2008 (including $1.6 billion for major projects) and $1.8
billion in 2007 (including $0.8 billion for major projects). The decrease in
capital expenditures in 2009, compared with 2008, primarily reflected the
effects of the decision to defer capital spending for several projects, lower
capital spending for the initial Tenke Fungurume development project (for which
construction activities are complete) and reduced spending for sustaining
capital. The increase in capital expenditures in 2008, compared with 2007,
primarily reflected higher costs associated with our major development
projects.
During
fourth-quarter 2009, we announced initiatives to resume certain project
development activities that were deferred in late 2008 (refer to “Current
Development Projects” for further discussion of these projects). Capital
spending plans will continue to be reviewed and adjusted in response to changes
in market conditions and other factors. Refer to “Overview and Outlook” for
further discussion of projected 2010 capital expenditures.
Other Investing
Activities. During 2008, our global reclamation and remediation trusts
decreased by $430 million resulting primarily from reimbursement of previously
incurred costs for reclamation and environmental activities.
On March
19, 2007, we issued 136.9 million shares of common stock and paid $13.9 billion
(net of cash acquired) to acquire Phelps Dodge (refer to Note 18 for further
discussion).
During
2007, we received net proceeds of $597 million associated with the sale of
Phelps Dodge International Corporation (PDIC) (refer to Note 19 for further
discussion), and also received proceeds totaling $260 million primarily related
to sales of marketable securities.
Financing
Activities
Equity and Debt
Transactions. In February 2009, we completed a public offering of 26.8
million shares of our common stock at an average price of $28.00 per share,
which generated gross proceeds of $750 million (net proceeds of approximately
$740 million). Net proceeds were used for general corporate purposes, including
the repayment of amounts outstanding under our revolving credit facilities,
working capital and capital expenditures.
In
December 2008, through privately negotiated transactions, we induced conversion
of 0.3 million shares of our 5½% Convertible Perpetual Preferred Stock into 5.8
million shares of FCX common stock. To induce conversion of these shares, we
issued to the holders an additional 1.0 million shares of FCX common stock
valued at $22 million. In September 2009, we called for the redemption of the
remaining 0.8 million shares of our 5½% Convertible Perpetual Preferred Stock,
which converted into 17.9 million shares of FCX common stock; the remaining
1,025 shares were redeemed for approximately $1 million in cash. Refer to Note
12 for further discussion of these transactions.
In July
2008, our Board of Directors (the Board) approved an increase in the open-market
share purchase program for up to 30 million shares. During third-quarter 2008,
we purchased 6.3 million shares of our common stock for $500 million ($79.15 per
share average) under this program; however, because of financial market turmoil
and the declines in copper and molybdenum prices, in September 2008, we
suspended purchases of our
common
stock under the program. There are 23.7 million shares remaining under this
program, and the timing of future purchases of our common stock is dependent on
many factors, including our operating results; cash flows and financial
position; copper, gold and molybdenum prices; the price of our common shares;
and general economic and market conditions.
At
December 31, 2009, we had 430 million common shares outstanding; assuming
conversion of our 6¾% Mandatory Convertible Preferred Stock, which automatically
converts on May 1, 2010, we would have between 469 and 477 million common shares
outstanding, depending on the applicable average market price of our common
stock (refer to Note 12 for further discussion).
Total
debt approximated $6.3 billion at December 31, 2009, $7.4 billion at December
31, 2008, and $7.2 billion at December 31, 2007.
We have
revolving credit facilities available through March 2012, which are composed of
(i) a $1.0 billion revolving credit facility available to FCX and (ii) a $0.5
billion revolving credit facility available to both FCX and PT Freeport
Indonesia. Interest on the revolving credit facilities accrues at the London
Interbank Offered Rate (LIBOR) plus 1.00 percent, subject to an increase or
decrease in the interest rate margin based on the credit ratings assigned by
Standard & Poor’s Rating Services and Moody’s Investor Services. At December
31, 2009, we had no borrowings and $39 million of letters of credit issued under
the facilities, resulting in availability of approximately $1.5 billion ($961
million of which could be used for additional letters of credit). The revolving
credit facilities contain restrictions on the amount available for dividend
payments, purchases of our common stock and certain debt prepayments (refer to
Note 10 for further discussion). However, these restrictions do not apply as
long as availability under the revolvers plus domestic cash exceeds $750
million. At December 31, 2009, we had availability under the revolvers plus
available domestic cash (as defined by the revolving credit facility) totaling
approximately $3.4 billion.
In
addition, the indenture governing our senior notes used to finance the Phelps
Dodge acquisition contains restrictions on incurring debt, making restricted
payments and selling assets (refer to Note 10 for further discussion). In April
2008, Standard & Poor’s Rating Services and Fitch Ratings raised our
corporate credit rating and the ratings on our unsecured debt to BBB-
(investment grade). As a result of the upgrade of our unsecured debt to
investment grade, these covenants are currently suspended. However, to the
extent the rating is downgraded below investment grade, the covenants would
again become effective.
During
2009, we repaid $1.0 billion in debt, including $727 million of senior debt at a
cost of $768 million, consisting of the August 2009 redemption of 6⅞% Senior
Notes and the open market purchases of our 8.25% Senior Notes, our 8.375% Senior
Notes and our 8¾% Senior Notes (refer to Note 10 for further discussion of these
transactions). These transactions will result in annual interest cost savings of
approximately $56 million. Losses on early extinguishment of debt totaled $48
million ($43 million to net income attributable to FCX common stockholders or
$0.09 per share) for 2009.
From
January 1, 2010, through February 25, 2010, we repaid an additional $269
million of our 8.25% Senior Notes and our 8.375% Senior Notes through
open-market purchases at a cost of $293 million. Losses on early extinguishment
of debt are expected to total $27 million in first-quarter 2010 for these 2010
transactions.
In
February 2008, we purchased, in an open market transaction, $33 million of our
9½% Senior Notes for $46 million.
As shown
in the summary table below, we have no significant debt maturities in the near
term; however, we may consider additional opportunities to prepay debt in
advance of scheduled maturities or redeem our currently redeemable Senior
Floating Rate Notes (in millions).
|
|
2010
|
|
2011
|
|
2012
|
|
2013
|
|
2014
|
|
Thereafter
|
Senior
notes
|
|
$
|
–
|
|
$
|
89
|
|
$
|
–
|
|
$
|
–
|
|
$
|
–
|
|
$
|
6,064
|
Equipment
loans and other
|
|
|
16
|
|
|
4
|
|
|
14
|
|
|
1
|
|
|
1
|
|
|
157
|
|
|
$
|
16
|
|
$
|
93
|
|
$
|
14
|
|
$
|
1
|
|
$
|
1
|
|
$
|
6,221
|
March 2007 Acquisition of
Phelps Dodge. In connection with financing the acquisition of Phelps
Dodge, we used $2.5 billion of available cash (including acquired cash) and
funded the remainder with term loan borrowings totaling $10.0 billion under a
new $11.5 billion senior credit facility and from the offering of $6.0 billion
in senior notes (which generated net proceeds of $5.9 billion). Following the
close of the acquisition of Phelps Dodge and in
accordance
with our plan to reduce debt, during 2007, we fully repaid the $10.0 billion in
term loans (including incremental
borrowings and payments of approximately $2.5 billion) using a combination of
equity proceeds and internally generated cash flows. The equity transactions
included the sale of 47.15 million shares of common stock at $61.25 per share
for net proceeds of $2.8 billion and 28.75 million shares of 6¾% Mandatory
Convertible Preferred Stock for net proceeds of $2.8 billion. In addition to
repaying the term loans, we had net repayments of other debt totaling $325
million in 2007.
Cash Dividends. The
declaration and payment of dividends is at the discretion of the Board. The
amount of our cash dividend on our common stock is dependent upon our financial
results, cash requirements, future prospects and other factors deemed relevant
by the Board. In December 2007, the Board increased the annual cash dividend on
our common stock from $1.25 per share to $1.75 per share, and again in July 2008
to $2.00 per share. Because of the deterioration in copper and molybdenum prices
and in general economic conditions, in December 2008, the Board suspended the
cash dividend on our common stock; accordingly, there were no common stock
dividends paid in 2009, compared with $693 million ($1.8125 per share) in 2008
and $421 million ($1.25 per share) in 2007. In October 2009, the Board
reinstated an annual cash dividend on our common stock of $0.60 per share. On
December 30, 2009, FCX declared a quarterly dividend of $0.15 per share, which
was paid on February 1, 2010, to common shareholders of record at the close of
business on January 15, 2010. The Board will continue to review our financial
policy on an ongoing basis.
Preferred
stock dividends paid totaled $229 million in 2009, $255 million in 2008 and $175
million in 2007 representing dividends on our 5½% Convertible Perpetual
Preferred Stock and 6¾% Mandatory Convertible Preferred Stock (refer to Note 12
for further discussion). On December 30, 2009, FCX declared a regular quarterly
dividend of $1.6785 per share on our 6¾% Mandatory Convertible Preferred Stock,
which was paid on February 1, 2010, to shareholders of record at the close of
business on January 15, 2010. On May 1, 2010, our 6¾% Mandatory Convertible
Preferred Stock will automatically convert into between 39 million and 47
million shares of FCX common stock, depending on the applicable average market
price of our common stock (refer to Note 12 for further
discussion).
Cash
dividends and distributions paid to noncontrolling interests totaled $535
million in 2009, $730 million in 2008 and $967 million in 2007, reflecting
dividends and distributions paid to the noncontrolling interest owners of PT
Freeport Indonesia and our South America copper mines.
OTHER
CONTRACTUAL OBLIGATIONS
In
addition to debt maturities, we have other contractual obligations, which we
expect to fund with projected operating cash flows, availability under our
revolving credit facilities or future financing transactions, if necessary. A
summary of these various obligations at December 31, 2009, follows (in
millions):
|
|
|
|
|
2011
to
|
|
2013
to
|
|
|
|
Total
|
|
2010
|
|
2012
|
|
2014
|
|
Thereafter
|
Scheduled
interest payment obligationsa
|
$
|
3,669
|
|
$
|
471
|
|
$
|
931
|
|
$
|
927
|
|
$
|
1,340
|
Reclamation
and environmental obligationsb
|
|
4,849
|
|
|
206
|
|
|
312
|
|
|
249
|
|
|
4,082
|
Take-or-pay
contractsc
|
|
2,447
|
|
|
1,390
|
|
|
675
|
|
|
242
|
|
|
140
|
Operating
lease obligations
|
|
198
|
|
|
27
|
|
|
47
|
|
|
25
|
|
|
99
|
Atlantic
Copper obligation to insurance companyd
|
|
72
|
|
|
10
|
|
|
20
|
|
|
20
|
|
|
22
|
PT
Freeport Indonesia mine closure and reclamation funde
|
|
18
|
|
|
1
|
|
|
1
|
|
|
1
|
|
|
15
|
Total
contractual cash obligationsf
|
$
|
11,253
|
|
$
|
2,105
|
|
$
|
1,986
|
|
$
|
1,464
|
|
$
|
5,698
|
a.
|
Scheduled
interest payment obligations were calculated using stated coupon rates for
fixed-rate debt and interest rates applicable at December 31, 2009, for
variable-rate debt.
|
b.
|
Represents
estimated cash payments, on an undiscounted and unescalated basis,
associated with reclamation and environmental activities. The timing and
the amount of these payments could change as a result of changes in
regulatory requirements, changes in scope and costs of reclamation
activities and as actual spending occurs. Refer to Note 14 for additional
discussion of environmental and reclamation
matters.
|
c.
|
Represents
contractual obligations for purchases of goods or services that are
defined by us as agreements that are enforceable and legally binding and
that specify all significant terms. Take-or-pay contracts primarily
comprise the procurement of copper concentrates and cathodes ($1.9
billion), transportation ($227 million) and oxygen ($178 million). Some of
our take-or-pay contracts are settled based on the prevailing market rate
for the service or commodity purchased, and in some cases, the amount of
the actual obligation may change over time because of market conditions.
Obligations for copper concentrates and cathodes provide for deliveries of
specified volumes, at market-based prices, primarily to Atlantic Copper
and the North America copper mines. Transportation obligations are
primarily for South
|
|
America
contracted ocean freight rates and for North America natural gas
transportation. Oxygen obligations provide for deliveries of specified
volumes, at fixed prices, primarily to Atlantic
Copper.
|
d.
|
In
August 2002, Atlantic Copper complied with Spanish legislation by agreeing
to fund 7.2 million euros annually for 15 years to an approved insurance
company for an estimated 72 million euro contractual obligation to
supplement amounts paid to certain retired employees. Atlantic Copper had
$58 million recorded for this obligation at December 31,
2009.
|
e.
|
Represents
PT Freeport Indonesia’s commitments to contribute amounts to a cash fund
designed to accumulate at least $100 million, including interest, by the
end of our Indonesian mining activities to pay for mine closure and
reclamation.
|
f.
|
This
table excludes certain other obligations in our consolidated balance
sheets, including estimated funding for pension obligations as the funding
may vary from year-to-year based on changes in the fair value of plan
assets and actuarial assumptions and accrued liabilities totaling $157
million that relate to unrecognized tax benefits where the timing of
settlement is not determinable. This table also excludes purchase orders
for the purchase of inventory and other goods and services, as purchase
orders typically represent authorizations to purchase rather than binding
agreements.
|
In
addition to our debt maturities and other contractual obligations, we have other
commitments, which we expect to fund with projected operating cash flows,
available credit facilities or future financing transactions, if necessary.
These include (i) PT Freeport Indonesia’s commitment to provide one percent of
its annual revenue for the development of the local people in its area of
operations through the Freeport Partnership Fund for Community Development, (ii)
Cerro Verde’s local mining fund contributions equal to 3.75 percent of after-tax
profits, (iii) Tenke Fungurume’s commitment to provide 0.3 percent of its annual
revenue for the development of the local people in its area of operations and
(iv) other commercial commitments, including standby letters of credit, surety
bonds and guarantees (refer to Notes 14 and 15 for further
discussion).
ENVIRONMENTAL
AND RECLAMATION MATTERS
Environmental
The cost
of complying with environmental laws is a fundamental and substantial cost of
our business. We had $1.5 billion at December 31, 2009, and $1.4 billion at
December 31, 2008, recorded in our consolidated balance sheets for environmental
obligations attributed to CERCLA or analogous state programs and for estimated
future costs associated with environmental matters at closed facilities and
closed portions of certain operating facilities. Refer to Note 14 for further
information about environmental regulation, including significant environmental
matters.
During
2009, we incurred environmental capital expenditures and other environmental
costs (including our joint venture partners’ shares) of $289 million for
programs to comply with applicable environmental laws and regulations that
affect our operations, compared to $377 million in 2008 and $280 million in 2007
(which included $188 million incurred from March 20, 2007, through December 31,
2007, related to the acquired Phelps Dodge operations). The decrease in
environmental capital spending for 2009, compared with 2008, primarily related
to completion of large projects in 2008, combined with reduced discretionary
spending and extended project timelines. The increase in environmental capital
spending for 2008, compared with 2007, primarily related to a full twelve months
of Phelps Dodge expenditures in 2008, combined with
increased expenditures for accelerated remediation efforts.
For 2010, we expect to incur approximately $400 million of aggregate
environmental capital expenditures and other environmental costs, which are part
of our overall 2010 operating budget. Projected environmental capital
expenditures and other environmental costs for 2010 include a $40 million
payment for settlement of litigation associated with Pinal Creek (refer to Note
14) made in 2010 and increases in discretionary project spending carried over
from 2009.
Asset
Retirement Obligations
We
recognize AROs as liabilities when incurred, with the initial measurement at
fair value. These liabilities, which are initially estimated based on discounted
cash flow estimates, are accreted to full value over time through charges to
income. Reclamation costs for future disturbances are recorded as an ARO in the
period of disturbance. Our cost estimates are reflected on a third-party cost
basis and comply with our legal obligation to retire tangible, long-lived
assets. We had recorded AROs totaling $731 million at December 31, 2009, and
$712 million at December 31, 2008, in current and long-term liabilities on the
consolidated balance sheets. Spending on AROs totaled $28 million in 2009, $91
million in 2008 and $40 million in 2007. The decrease in ARO spending for 2009,
compared with 2008, primarily related to extended project timelines which
resulted in reduced required expenditures for 2009. The increase in ARO
spending for 2008, compared with 2007, primarily related to a full twelve months
of Phelps Dodge expenditures in 2008, combined with increased spending for
large projects in 2008. For 2010, we expect to incur approximately $38 million
for aggregate ARO payments. Refer to Note 14 for further discussion of
reclamation and closure costs.
DISCLOSURES
ABOUT MARKET RISKS
Commodity
Price Risk
Our
consolidated revenues include the sale of copper concentrates, copper cathodes,
copper rod, molybdenum, gold and other metals by our North and South America
copper mines, the sale of copper concentrates (which also contain significant
quantities of gold and silver) by our Indonesia mining operation, the sale of
copper cathodes and cobalt hydroxide by our Africa mining operations, the sale
of molybdenum in various forms by our Molybdenum operations, and the sale of
copper cathodes, copper anodes and gold in anodes and slimes by Atlantic Copper.
Consolidated revenues, operating cash flows and net income vary significantly
with fluctuations in the market prices of copper, gold and molybdenum, sales
volumes and other factors. Based on projected 2010 consolidated sales volumes
and assuming average prices of $3.25 per pound of copper, $1,100 per ounce of
gold and $12 per pound of molybdenum for the year, our consolidated operating
cash flows for 2010 would approximate $5.3 billion, net of an estimated $0.4
billion of working capital requirements. Operating cash flows would be impacted
by approximately $260 million for each $0.10 per pound change in copper prices,
$50 million for each $50 per ounce change in gold prices and $45 million for
each $1 per pound change in molybdenum prices.
For 2009,
more than half of our mined copper was sold in concentrate, approximately 25
percent as cathodes and approximately 21 percent as rod (principally from our
North America operations). Substantially all concentrate and cathode sales
contracts provide final copper pricing in a specified future period (generally
one to four months from the shipment date) based primarily on quoted LME prices.
We receive market prices based on prices in the specified future period, which
results in price fluctuations recorded through revenues until the date of
settlement. We record revenues and invoice customers at the time of shipment
based on then-current LME prices, which results in an embedded derivative on our
provisional priced concentrate and cathode sales that is adjusted to fair value
through earnings each period, using the period-end forward prices, until the
date of final pricing. To the extent final prices are higher or lower than what
was recorded on a provisional basis, an increase or decrease to revenues is
recorded each reporting period until the date of final pricing. Accordingly, in
times of rising copper prices, our revenues benefit from higher prices received
for contracts priced at current market rates and also from an increase related
to the final pricing of provisionally priced sales pursuant to contracts entered
into in prior years; in times of falling copper prices, the opposite
occurs.
At
December 31, 2008, we had provisionally priced copper sales totaling 508 million
pounds at our copper mining operations (net of intercompany sales and
noncontrolling interests) recorded at an average of $1.39 per pound.
Consolidated revenues for 2009 include net additions for adjustments related to
these prior year copper sales of $132 million ($61 million to net income
attributable to FCX common stockholders or $0.13 per share), compared with an
increase of $268 million ($114 million to net loss attributable to FCX common
stockholders or $0.30 per share) in 2008 and a decrease of $42 million ($18
million to net income attributable to FCX common stockholders or $0.05 per
share) in 2007.
At
December 31, 2009, we had provisionally priced copper sales totaling 378 million
pounds of copper at our copper mining operations (net of intercompany sales and
noncontrolling interests) recorded at an average price of $3.34 per pound,
subject to final pricing over the next several months. We estimate that each
$0.05 change in the price realized from the December 31, 2009, provisional price
recorded would have a net impact on our 2010 consolidated revenues of
approximately $25 million ($12 million to net income attributable to FCX common
stockholders). The LME spot copper price closed at $3.11 per pound on January
29, 2010.
On
limited past occasions, in response to market conditions, we have entered into
copper and gold price protection contracts for a portion of our expected future
mine production to mitigate the risk of adverse price fluctuations. We do not
currently intend to enter into similar hedging programs in the
future.
Foreign
Currency Exchange Risk
The
functional currency for most of our operations is the U.S. dollar. All of our
revenues and a significant portion of our costs are denominated in U.S. dollars;
however, some costs and certain assets and liability accounts are denominated in
local currencies, including the Indonesian rupiah, Australian dollar, Chilean
peso, Peruvian nuevo sol and euro. Generally, our results are positively
affected when the U.S. dollar strengthens in relation to those foreign
currencies and adversely affected when the U.S. dollar weakens in relation to
those foreign currencies. Following is a summary of estimated annual payments
and the impact of changes in foreign currency rates on our annual operating
costs:
|
|
|
|
|
10%
Change in
|
|
|
Exchange
Rate per $1
|
|
|
|
Exchange
Rate
|
|
|
at
December 31,
|
|
Estimated
Annual Payments
|
|
(in
millions)b
|
|
|
2009
|
|
2008
|
|
2007
|
|
(in
local currency)
|
|
(in
millions)a
|
|
Increase
|
|
Decrease
|
|
Indonesia
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Rupiah
|
9,420
|
|
10,850
|
|
9,390
|
|
2.5
trillion
|
|
$
|
265
|
|
$
|
(24
|
)
|
$
|
30
|
|
Australian
dollar
|
1.12
|
|
1.43
|
|
1.14
|
|
200
million
|
|
$
|
178
|
|
$
|
(16
|
)
|
$
|
20
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
South
America
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Chilean
peso
|
506
|
|
648
|
|
498
|
|
250
billion
|
|
$
|
494
|
|
$
|
(45
|
)
|
$
|
55
|
|
Peruvian
nuevo sol
|
2.89
|
|
3.17
|
|
3.05
|
|
250
million
|
|
$
|
87
|
|
$
|
(8
|
)
|
$
|
10
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Atlantic
Copper
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Euro
|
0.69
|
|
0.72
|
|
0.68
|
|
120
million
|
|
$
|
173
|
|
$
|
(16
|
)
|
$
|
19
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
a.
|
Based
on December 31, 2009, exchange
rates.
|
b.
|
Reflects
the estimated impact on annual operating costs assuming a 10 percent
increase or decrease in the exchange rate reported at December 31,
2009.
|
Interest
Rate Risk
At
December 31, 2009, we had total debt of $6.3 billion, of which approximately 19
percent was variable-rate debt with interest rates based on LIBOR or the Euro
Interbank Offered Rate (EURIBOR). The table below presents average interest
rates for our scheduled maturities of principal for our outstanding debt and the
related fair values at December 31, 2009 (in millions, except
percentages):
|
2010
|
|
2011
|
|
2012
|
|
2013
|
|
2014
|
|
Thereafter
|
|
Fair
Value
|
|
Fixed-rate
debt
|
$
|
–
|
|
$
|
89
|
|
$
|
1
|
|
$
|
1
|
|
$
|
1
|
|
$
|
5,066
|
|
$
|
5,552
|
|
Average
interest rate
|
|
–
|
|
|
8.7
|
%
|
|
5.8
|
%
|
|
5.7
|
%
|
|
5.7
|
%
|
|
8.3
|
%
|
|
8.3
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Variable-rate
debt
|
$
|
16
|
|
$
|
4
|
|
$
|
13
|
|
$
|
–
|
|
$
|
–
|
|
$
|
1,155
|
|
$
|
1,183
|
|
Average
interest rate
|
|
1.4
|
%
|
|
2.1
|
%
|
|
1.0
|
%
|
|
–
|
|
|
–
|
|
|
4.3
|
%
|
|
4.2
|
%
|
We do not
expect the impact of recently issued accounting standards to have a significant
impact on our future financial statements and disclosures.
OFF-BALANCE
SHEET ARRANGEMENTS
Refer to
Note 15 for information on off-balance sheet arrangements.
PRODUCT
REVENUES AND PRODUCTION 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 our mining
operations expressed on a basis relating to the primary metal product for the
respective operations. We use this measure for the same purpose and for
monitoring operating performance by our mining 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. This measure is presented
by other mining companies, although our measure may not be comparable to
similarly titled measures reported by other companies.
We
present gross profit per pound of copper using both a “by-product” method and a
“co-product” method. We use the by-product method in our presentation of gross
profit per pound of copper because (i) the majority of our revenues are copper
revenues, (ii) we mine ore, which contains copper, gold, molybdenum and other
metals, (iii) it is not possible to specifically assign all of our costs to
revenues from the copper, gold, molybdenum and other metals we produce, (iv) it
is the method used to compare mining operations in certain industry publications
and (v) it is the method used by our management and Board of Directors to
monitor operations. In the co-product method presentation below, costs are
allocated to the different products based on their relative revenue values,
which will vary to the extent our metals sales volumes and realized prices
change.
In both
the by-product and the co-product method calculations, we show adjustments to
copper revenues for prior period open sales as separate line items. Because the
copper pricing adjustments do not result from current period sales, we have
reflected these separately from revenues on current period sales. Noncash and
nonrecurring costs consist of items such as LCM inventory adjustments,
stock-based compensation costs, write-offs of equipment or unusual charges. They
are removed from site production and delivery costs in the calculation of unit
net cash costs. Gold, molybdenum and other metal revenues at copper mines are
reflected as credits against site production and delivery costs in the
by-product method. Presentations under both the by-product and co-product
methods are shown below together with reconciliations to amounts reported in our
consolidated financial statements.
North America Copper Mines
Product Revenues and Production Costs
Year Ended December 31,
2009
|
|
|
|
|
|
By-Product
|
|
Co-Product
Method
|
|
(In
millions)
|
Method
|
|
Copper
|
|
Molybdenuma
|
|
Otherb
|
|
Total
|
|
Revenues,
excluding adjustments shown below
|
$
|
2,823
|
|
$
|
2,823
|
|
$
|
274
|
|
$
|
45
|
|
$
|
3,142
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Site
production and delivery, before net noncash
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
and
nonrecurring costs shown below
|
|
1,483
|
|
|
1,364
|
|
|
142
|
|
|
22
|
|
|
1,528
|
|
By-product
creditsa
|
|
(274
|
)
|
|
–
|
|
|
–
|
|
|
–
|
|
|
–
|
|
Treatment
charges
|
|
102
|
|
|
100
|
|
|
–
|
|
|
2
|
|
|
102
|
|
Net
cash costs
|
|
1,311
|
|
|
1,464
|
|
|
142
|
|
|
24
|
|
|
1,630
|
|
Depreciation,
depletion and amortization
|
|
264
|
|
|
251
|
|
|
10
|
|
|
3
|
|
|
264
|
|
Noncash
and nonrecurring costs, net
|
|
129
|
|
|
127
|
|
|
2
|
|
|
–
|
|
|
129
|
|
Total
costs
|
|
1,704
|
|
|
1,842
|
|
|
154
|
|
|
27
|
|
|
2,023
|
|
Revenue
adjustments, primarily for pricing on prior
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
period
open sales and hedging
|
|
92
|
|
|
92
|
|
|
–
|
|
|
–
|
|
|
92
|
|
Idle
facility and other non-inventoriable costs
|
|
(100
|
)
|
|
(100
|
)
|
|
–
|
|
|
–
|
|
|
(100
|
)
|
Gross
profit
|
$
|
1,111
|
|
$
|
973
|
|
$
|
120
|
|
$
|
18
|
|
$
|
1,111
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reconciliation
to Amounts Reported
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(In
millions)
|
|
|
|
|
|
|
Depreciation,
|
|
|
|
|
|
|
|
|
|
|
|
Production
|
|
|
Depletion
and
|
|
|
|
|
|
|
|
|
Revenues
|
|
and
Delivery
|
|
|
Amortization
|
|
|
|
|
|
|
|
Totals
presented above
|
$
|
3,142
|
|
$
|
1,528
|
|
$
|
264
|
|
|
|
|
|
|
|
Net
noncash and nonrecurring costs per above
|
|
N/A
|
|
|
129
|
|
|
N/A
|
|
|
|
|
|
|
|
Treatment
charges per above
|
|
N/A
|
|
|
102
|
|
|
N/A
|
|
|
|
|
|
|
|
Revenue
adjustments, primarily for pricing on prior
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
period
open sales and hedging per above
|
|
92
|
|
|
N/A
|
|
|
N/A
|
|
|
|
|
|
|
|
Eliminations
and other
|
|
1
|
|
|
152
|
|
|
16
|
|
|
|
|
|
|
|
North
America copper mines
|
|
3,235
|
|
|
1,911
|
|
|
280
|
|
|
|
|
|
|
|
South
America copper mines
|
|
3,839
|
|
|
1,563
|
|
|
275
|
|
|
|
|
|
|
|
Indonesia
mining
|
|
5,908
|
|
|
1,505
|
|
|
275
|
|
|
|
|
|
|
|
Africa
mining
|
|
389
|
|
|
315
|
|
|
66
|
|
|
|
|
|
|
|
Molybdenum
|
|
847
|
|
|
660
|
c
|
|
49
|
|
|
|
|
|
|
|
Rod
& Refining
|
|
3,356
|
|
|
3,336
|
|
|
8
|
|
|
|
|
|
|
|
Atlantic
Copper Smelting & Refining
|
|
1,892
|
|
|
1,895
|
|
|
36
|
|
|
|
|
|
|
|
Corporate,
other & eliminations
|
|
(4,426
|
)
|
|
(4,150
|
)
|
|
25
|
|
|
|
|
|
|
|
As
reported in FCX’s consolidated financial statements
|
$
|
15,040
|
|
$
|
7,035
|
c
|
$
|
1,014
|
|
|
|
|
|
|
|
a.
|
Molybdenum
by-product credits and revenues reflect volumes produced at market-based
pricing and also include tolling revenues at
Sierrita.
|
b.
|
Includes
gold and silver product revenues and production
costs.
|
c.
|
Includes
LCM molybdenum inventory adjustments of $19
million.
|
North America Copper Mines
Product Revenues and Production Costs (continued)
Year Ended December 31,
2008
|
|
|
|
|
|
By-Product
|
|
Co-Product
Method
|
|
(In
millions)
|
Method
|
|
Copper
|
|
Molybdenuma
|
|
Otherb
|
|
Total
|
|
Revenues,
excluding adjustments shown below
|
$
|
4,382
|
|
$
|
4,382
|
|
$
|
892
|
|
$
|
72
|
|
$
|
5,346
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Site
production and delivery, before net noncash
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
and
nonrecurring costs shown below
|
|
2,681
|
|
|
2,326
|
|
|
374
|
|
|
35
|
|
|
2,735
|
|
By-product
creditsa
|
|
(910
|
)
|
|
–
|
|
|
–
|
|
|
–
|
|
|
–
|
|
Treatment
charges
|
|
134
|
|
|
130
|
|
|
–
|
|
|
4
|
|
|
134
|
|
Net
cash costs
|
|
1,905
|
|
|
2,456
|
|
|
374
|
|
|
39
|
|
|
2,869
|
|
Depreciation,
depletion and amortization
|
|
753
|
|
|
664
|
|
|
83
|
|
|
6
|
|
|
753
|
|
Noncash
and nonrecurring costs, net
|
|
743
|
c
|
|
701
|
|
|
39
|
|
|
3
|
|
|
743
|
|
Total
costs
|
|
3,401
|
|
|
3,821
|
|
|
496
|
|
|
48
|
|
|
4,365
|
|
Revenue
adjustments, primarily for pricing on prior
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
period
open sales and hedging
|
|
(71
|
)
|
|
(71
|
)
|
|
–
|
|
|
–
|
|
|
(71
|
)
|
Idle
facility and other non-inventoriable costs
|
|
(85
|
)
|
|
(83
|
)
|
|
(2
|
)
|
|
–
|
|
|
(85
|
)
|
Gross
profit
|
$
|
825
|
|
$
|
407
|
|
$
|
394
|
|
$
|
24
|
|
$
|
825
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reconciliation
to Amounts Reported
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(In
millions)
|
|
|
|
|
|
|
Depreciation,
|
|
|
|
|
|
|
|
|
|
|
|
Production
|
|
|
Depletion
and
|
|
|
|
|
|
|
|
|
Revenues
|
|
and
Delivery
|
|
|
Amortization
|
|
|
|
|
|
|
|
Totals
presented above
|
$
|
5,346
|
|
$
|
2,735
|
|
$
|
753
|
|
|
|
|
|
|
|
Net
noncash and nonrecurring costs per above
|
|
N/A
|
|
|
743
|
c
|
|
N/A
|
|
|
|
|
|
|
|
Treatment
charges per above
|
|
N/A
|
|
|
134
|
|
|
N/A
|
|
|
|
|
|
|
|
Revenue
adjustments, primarily for pricing on prior
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
period
open sales and hedging per above
|
|
(71
|
)
|
|
N/A
|
|
|
N/A
|
|
|
|
|
|
|
|
Eliminations
and other
|
|
(10
|
)
|
|
96
|
|
|
17
|
|
|
|
|
|
|
|
North
America copper mines
|
|
5,265
|
|
|
3,708
|
|
|
770
|
|
|
|
|
|
|
|
South
America copper mines
|
|
4,166
|
|
|
1,854
|
|
|
511
|
|
|
|
|
|
|
|
Indonesia
mining
|
|
3,412
|
|
|
1,792
|
|
|
222
|
|
|
|
|
|
|
|
Africa
mining
|
|
–
|
|
|
16
|
|
|
6
|
|
|
|
|
|
|
|
Molybdenum
|
|
2,488
|
|
|
1,629
|
|
|
192
|
|
|
|
|
|
|
|
Rod
& Refining
|
|
5,557
|
|
|
5,527
|
|
|
8
|
|
|
|
|
|
|
|
Atlantic
Copper Smelting & Refining
|
|
2,341
|
|
|
2,276
|
|
|
35
|
|
|
|
|
|
|
|
Corporate,
other & eliminations
|
|
(5,433
|
)
|
|
(5,604
|
)
|
|
38
|
|
|
|
|
|
|
|
As
reported in FCX’s consolidated financial statements
|
$
|
17,796
|
|
$
|
11,198
|
d
|
$
|
1,782
|
|
|
|
|
|
|
|
a.
|
Molybdenum
by-product credits and revenues reflect volumes produced at market-based
pricing and also include tolling revenues at
Sierrita.
|
b.
|
Includes
gold and silver product revenues and production
costs.
|
c.
|
Includes
charges totaling $661 million for LCM inventory
adjustments.
|
d.
|
Includes
LCM inventory adjustments of $782
million.
|
North America Copper Mines
Product Revenues and Production Costs (continued)
March 20, 2007, through December 31,
2007a
|
|
|
|
|
|
By-Product
|
|
Co-Product
Method
|
|
(In
millions)
|
Method
|
|
Copper
|
|
Molybdenumb
|
|
Otherc
|
|
Total
|
|
Revenues,
excluding adjustments shown below
|
$
|
3,526
|
|
$
|
3,526
|
|
$
|
717
|
|
$
|
47
|
|
$
|
4,290
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Site
production and delivery, before net noncash
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
and
nonrecurring costs shown below
|
|
1,516
|
|
|
1,296
|
|
|
253
|
|
|
18
|
|
|
1,567
|
|
By-product
creditsb
|
|
(713
|
)
|
|
–
|
|
|
–
|
|
|
–
|
|
|
–
|
|
Treatment
charges
|
|
100
|
|
|
98
|
|
|
–
|
|
|
2
|
|
|
100
|
|
Net
cash costs
|
|
903
|
|
|
1,394
|
|
|
253
|
|
|
20
|
|
|
1,667
|
|
Depreciation,
depletion and amortization
|
|
487
|
|
|
418
|
|
|
67
|
|
|
2
|
|
|
487
|
|
Noncash
and nonrecurring costs, net
|
|
361
|
|
|
341
|
|
|
4
|
|
|
16
|
|
|
361
|
|
Total
costs
|
|
1,751
|
|
|
2,153
|
|
|
324
|
|
|
38
|
|
|
2,515
|
|
Revenue
adjustments, primarily for pricing on prior
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
period
open sales and hedging
|
|
(203
|
)
|
|
(203
|
)
|
|
–
|
|
|
–
|
|
|
(203
|
)
|
Idle
facility and other non-inventoriable costs
|
|
(56
|
)
|
|
(55
|
)
|
|
(1
|
)
|
|
–
|
|
|
(56
|
)
|
Gross
profit
|
$
|
1,516
|
|
$
|
1,115
|
|
$
|
392
|
|
$
|
9
|
|
$
|
1,516
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reconciliation
to Amounts Reported for the Year Ended December 31, 2007
|
|
|
|
|
|
|
|
|
|
|
(In
millions)
|
|
|
|
|
|
|
Depreciation,
|
|
|
|
|
|
|
|
|
|
|
|
Production
|
|
|
Depletion
and
|
|
|
|
|
|
|
|
|
Revenues
|
|
and
Delivery
|
|
|
Amortization
|
|
|
|
|
|
|
|
Totals
presented above
|
$
|
4,290
|
|
$
|
1,567
|
|
$
|
487
|
|
|
|
|
|
|
|
Net
noncash and nonrecurring costs per above
|
|
N/A
|
|
|
361
|
|
|
N/A
|
|
|
|
|
|
|
|
Treatment
charges per above
|
|
N/A
|
|
|
100
|
|
|
N/A
|
|
|
|
|
|
|
|
Revenue
adjustments, primarily for pricing on prior
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
period
open sales and hedging per above
|
|
(203
|
)
|
|
N/A
|
|
|
N/A
|
|
|
|
|
|
|
|
Eliminations
and other
|
|
6
|
|
|
138
|
|
|
12
|
|
|
|
|
|
|
|
North
America copper mines
|
|
4,093
|
|
|
2,166
|
|
|
499
|
|
|
|
|
|
|
|
South
America copper mines
|
|
3,879
|
|
|
1,277
|
|
|
378
|
|
|
|
|
|
|
|
Indonesia
mining
|
|
4,808
|
|
|
1,388
|
|
|
199
|
|
|
|
|
|
|
|
Africa
mining
|
|
–
|
|
|
10
|
|
|
2
|
|
|
|
|
|
|
|
Molybdenum
|
|
1,746
|
|
|
1,287
|
|
|
94
|
|
|
|
|
|
|
|
Rod
& Refining
|
|
5,140
|
|
|
5,119
|
|
|
7
|
|
|
|
|
|
|
|
Atlantic
Copper Smelting & Refining
|
|
2,388
|
|
|
2,329
|
|
|
36
|
|
|
|
|
|
|
|
Corporate,
other & eliminations
|
|
(5,115
|
)
|
|
(5,049
|
)
|
|
31
|
|
|
|
|
|
|
|
As
reported in FCX’s consolidated financial statements
|
$
|
16,939
|
|
$
|
8,527
|
|
$
|
1,246
|
|
|
|
|
|
|
|
a.
|
Reflects
the results of the North America copper mines under FCX
management.
|
b.
|
Molybdenum
by-product credits and revenues reflect volumes produced at market-based
pricing and also include tolling revenues at
Sierrita.
|
c.
|
Includes
gold and silver product revenues and production
costs.
|
South America Copper Mines
Product Revenues and Production Costs
Year Ended December 31,
2009
|
|
|
|
|
|
|
|
|
|
By-Product
|
|
Co-Product
Method
|
|
(In
millions)
|
Method
|
|
Copper
|
|
Other
a
|
|
Total
|
|
Revenues,
excluding adjustments shown below
|
$
|
3,768
|
|
$
|
3,768
|
|
$
|
167
|
|
$
|
3,935
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Site
production and delivery, before net noncash
|
|
|
|
|
|
|
|
|
|
|
|
|
and
nonrecurring costs shown below
|
|
1,512
|
|
|
1,429
|
|
|
91
|
|
|
1,520
|
|
By-product
credits
|
|
(159
|
)
|
|
–
|
|
|
–
|
|
|
–
|
|
Treatment
charges
|
|
206
|
|
|
206
|
|
|
–
|
|
|
206
|
|
Net
cash costs
|
|
1,559
|
|
|
1,635
|
|
|
91
|
|
|
1,726
|
|
Depreciation,
depletion and amortization
|
|
275
|
|
|
267
|
|
|
8
|
|
|
275
|
|
Noncash
and nonrecurring costs, net
|
|
28
|
|
|
28
|
|
|
–
|
|
|
28
|
|
Total
costs
|
|
1,862
|
|
|
1,930
|
|
|
99
|
|
|
2,029
|
|
Revenue
adjustments, primarily for pricing on prior
|
|
|
|
|
|
|
|
|
|
|
|
|
period
open sales
|
|
109
|
|
|
109
|
|
|
–
|
|
|
109
|
|
Other
non-inventoriable costs
|
|
(31
|
)
|
|
(26
|
)
|
|
(5
|
)
|
|
(31
|
)
|
Gross
profit
|
$
|
1,984
|
|
$
|
1,921
|
|
$
|
63
|
|
$
|
1,984
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reconciliation
to Amounts Reported
|
|
|
|
|
|
|
|
|
|
|
|
|
(In
millions)
|
|
|
|
|
|
Depreciation,
|
|
|
|
|
|
|
|
|
Production
|
|
Depletion
and
|
|
|
|
|
|
Revenues
|
|
and
Delivery
|
|
Amortization
|
|
|
|
|
Totals
presented above
|
$
|
3,935
|
|
$
|
1,520
|
|
$
|
275
|
|
|
|
|
Net
noncash and nonrecurring costs per above
|
|
N/A
|
|
|
28
|
|
|
N/A
|
|
|
|
|
Less:
Treatment charges per above
|
|
(206
|
)
|
|
N/A
|
|
|
N/A
|
|
|
|
|
Revenue
adjustments, primarily for pricing on prior
|
|
|
|
|
|
|
|
|
|
|
|
|
period
open sales per above
|
|
109
|
|
|
N/A
|
|
|
N/A
|
|
|
|
|
Eliminations
and other
|
|
1
|
|
|
15
|
|
|
–
|
|
|
|
|
South
America copper mines
|
|
3,839
|
|
|
1,563
|
|
|
275
|
|
|
|
|
North
America copper mines
|
|
3,235
|
|
|
1,911
|
|
|
280
|
|
|
|
|
Indonesia
mining
|
|
5,908
|
|
|
1,505
|
|
|
275
|
|
|
|
|
Africa
mining
|
|
389
|
|
|
315
|
|
|
66
|
|
|
|
|
Molybdenum
|
|
847
|
|
|
660
|
b
|
|
49
|
|
|
|
|
Rod
& Refining
|
|
3,356
|
|
|
3,336
|
|
|
8
|
|
|
|
|
Atlantic
Copper Smelting & Refining
|
|
1,892
|
|
|
1,895
|
|
|
36
|
|
|
|
|
Corporate,
other & eliminations
|
|
(4,426
|
)
|
|
(4,150
|
)
|
|
25
|
|
|
|
|
As
reported in FCX’s consolidated financial statements
|
$
|
15,040
|
|
$
|
7,035
|
b
|
$
|
1,014
|
|
|
|
|
a.
|
Includes
gold, silver and molybdenum product revenues and production
costs.
|
b.
|
Includes
LCM molybdenum inventory adjustments of $19
million.
|
South America Copper Mines
Product Revenues and Production Costs (continued)
Year Ended December 31,
2008
|
|
|
|
|
|
|
|
|
|
By-Product
|
|
Co-Product
Method
|
|
(In
millions)
|
Method
|
|
Copper
|
|
Other
a
|
|
Total
|
|
Revenues,
excluding adjustments shown below
|
$
|
3,910
|
|
$
|
3,910
|
|
$
|
216
|
|
$
|
4,126
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Site
production and delivery, before net noncash
|
|
|
|
|
|
|
|
|
|
|
|
|
and
nonrecurring costs shown below
|
|
1,711
|
|
|
1,631
|
|
|
102
|
|
|
1,733
|
|
By-product
credits
|
|
(194
|
)
|
|
–
|
|
|
–
|
|
|
–
|
|
Treatment
charges
|
|
211
|
|
|
211
|
|
|
–
|
|
|
211
|
|
Net
cash costs
|
|
1,728
|
|
|
1,842
|
|
|
102
|
|
|
1,944
|
|
Depreciation,
depletion and amortization
|
|
508
|
|
|
483
|
|
|
25
|
|
|
508
|
|
Noncash
and nonrecurring costs, net
|
|
103
|
b
|
|
100
|
|
|
3
|
|
|
103
|
|
Total
costs
|
|
2,339
|
|
|
2,425
|
|
|
130
|
|
|
2,555
|
|
Revenue
adjustments, primarily for pricing on prior
|
|
|
|
|
|
|
|
|
|
|
|
|
period
open sales
|
|
230
|
|
|
230
|
|
|
–
|
|
|
230
|
|
Other
non-inventoriable costs
|
|
(37
|
)
|
|
(34
|
)
|
|
(3
|
)
|
|
(37
|
)
|
Gross
profit
|
$
|
1,764
|
|
$
|
1,681
|
|
$
|
83
|
|
$
|
1,764
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reconciliation
to Amounts Reported
|
|
|
|
|
|
|
|
|
|
|
|
|
(In
millions)
|
|
|
|
|
|
Depreciation,
|
|
|
|
|
|
|
|
|
Production
|
|
Depletion
and
|
|
|
|
|
|
Revenues
|
|
and
Delivery
|
|
Amortization
|
|
|
|
|
Totals
presented above
|
$
|
4,126
|
|
$
|
1,733
|
|
$
|
508
|
|
|
|
|
Net
noncash and nonrecurring costs per above
|
|
N/A
|
|
|
103
|
b
|
|
N/A
|
|
|
|
|
Less:
Treatment charges per above
|
|
(211
|
)
|
|
N/A
|
|
|
N/A
|
|
|
|
|
Revenue
adjustments, primarily for pricing on prior
|
|
|
|
|
|
|
|
|
|
|
|
|
period
open sales per above
|
|
230
|
|
|
N/A
|
|
|
N/A
|
|
|
|
|
Eliminations
and other
|
|
21
|
|
|
18
|
|
|
3
|
|
|
|
|
South
America copper mines
|
|
4,166
|
|
|
1,854
|
|
|
511
|
|
|
|
|
North
America copper mines
|
|
5,265
|
|
|
3,708
|
|
|
770
|
|
|
|
|
Indonesia
mining
|
|
3,412
|
|
|
1,792
|
|
|
222
|
|
|
|
|
Africa
mining
|
|
–
|
|
|
16
|
|
|
6
|
|
|
|
|
Molybdenum
|
|
2,488
|
|
|
1,629
|
|
|
192
|
|
|
|
|
Rod
& Refining
|
|
5,557
|
|
|
5,527
|
|
|
8
|
|
|
|
|
Atlantic
Copper Smelting & Refining
|
|
2,341
|
|
|
2,276
|
|
|
35
|
|
|
|
|
Corporate,
other & eliminations
|
|
(5,433
|
)
|
|
(5,604
|
)
|
|
38
|
|
|
|
|
As
reported in FCX’s consolidated financial statements
|
$
|
17,796
|
|
$
|
11,198
|
c
|
$
|
1,782
|
|
|
|
|
a.
|
Includes
gold, silver and molybdenum product revenues and production
costs.
|
b.
|
Includes
charges totaling $10 million for LCM inventory
adjustments.
|
c.
|
Includes
LCM inventory adjustments of $782
million.
|
South America Copper Mines
Product Revenues and Production Costs (continued)
March 20, 2007, through December 31,
2007a
|
|
|
|
|
|
|
|
|
|
By-Product
|
|
Co-Product
Method
|
|
(In
millions)
|
Method
|
|
Copper
|
|
Other
b
|
|
Total
|
|
Revenues,
excluding adjustments shown below
|
$
|
3,882
|
|
$
|
3,882
|
|
$
|
123
|
|
$
|
4,005
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Site
production and delivery, before net noncash
|
|
|
|
|
|
|
|
|
|
|
|
|
and
nonrecurring costs shown below
|
|
1,078
|
|
|
1,040
|
|
|
52
|
|
|
1,092
|
|
By-product
credits
|
|
(109
|
)
|
|
–
|
|
|
–
|
|
|
–
|
|
Treatment
charges
|
|
240
|
|
|
239
|
|
|
1
|
|
|
240
|
|
Net
cash costs
|
|
1,209
|
|
|
1,279
|
|
|
53
|
|
|
1,332
|
|
Depreciation,
depletion and amortization
|
|
377
|
|
|
364
|
|
|
13
|
|
|
377
|
|
Noncash
and nonrecurring costs, net
|
|
171
|
|
|
170
|
|
|
1
|
|
|
171
|
|
Total
costs
|
|
1,757
|
|
|
1,813
|
|
|
67
|
|
|
1,880
|
|
Revenue
adjustments, primarily for pricing on prior
|
|
|
|
|
|
|
|
|
|
|
|
|
period
open sales
|
|
75
|
|
|
75
|
|
|
–
|
|
|
75
|
|
Other
non-inventoriable costs
|
|
(28
|
)
|
|
(27
|
)
|
|
(1
|
)
|
|
(28
|
)
|
Gross
profit
|
$
|
2,172
|
|
$
|
2,117
|
|
$
|
55
|
|
$
|
2,172
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reconciliation
to Amounts Reported for the Year Ended December 31, 2007
|
|
|
|
|
|
|
|
|
(In
millions)
|
|
|
|
|
|
Depreciation,
|
|
|
|
|
|
|
|
|
Production
|
|
Depletion
and
|
|
|
|
|
|
Revenues
|
|
and
Delivery
|
|
Amortization
|
|
|
|
|
Totals
presented above
|
$
|
4,005
|
|
$
|
1,092
|
|
$
|
377
|
|
|
|
|
Net
noncash and nonrecurring costs per above
|
|
N/A
|
|
|
171
|
|
|
N/A
|
|
|
|
|
Less:
Treatment charges per above
|
|
(240
|
)
|
|
N/A
|
|
|
N/A
|
|
|
|
|
Revenue
adjustments, primarily for pricing on prior
|
|
|
|
|
|
|
|
|
|
|
|
|
period
open sales per above
|
|
75
|
|
|
N/A
|
|
|
N/A
|
|
|
|
|
Eliminations
and other
|
|
39
|
|
|
14
|
|
|
1
|
|
|
|
|
South
America copper mines
|
|
3,879
|
|
|
1,277
|
|
|
378
|
|
|
|
|
North
America copper mines
|
|
4,093
|
|
|
2,166
|
|
|
499
|
|
|
|
|
Indonesia
mining
|
|
4,808
|
|
|
1,388
|
|
|
199
|
|
|
|
|
Africa
mining
|
|
–
|
|
|
10
|
|
|
2
|
|
|
|
|
Molybdenum
|
|
1,746
|
|
|
1,287
|
|
|
94
|
|
|
|
|
Rod
& Refining
|
|
5,140
|
|
|
5,119
|
|
|
7
|
|
|
|
|
Atlantic
Copper Smelting & Refining
|
|
2,388
|
|
|
2,329
|
|
|
36
|
|
|
|
|
Corporate,
other & eliminations
|
|
(5,115
|
)
|
|
(5,049
|
)
|
|
31
|
|
|
|
|
As
reported in FCX’s consolidated financial statements
|
$
|
16,939
|
|
$
|
8,527
|
|
$
|
1,246
|
|
|
|
|
a.
|
Reflects
the results of the South America copper mines under FCX
management.
|
b.
|
Includes
gold, silver and molybdenum product revenues and production
costs.
|
Indonesia Mining Product
Revenues and Production Costs
Year Ended December 31,
2009
|
|
|
|
|
|
By-Product
|
|
Co-Product
Method
|
|
(In
millions)
|
Method
|
|
Copper
|
|
Gold
|
|
Silver
|
|
Total
|
|
Revenues,
after adjustments shown below
|
$
|
3,708
|
|
$
|
3,708
|
|
$
|
2,532
|
|
$
|
74
|
|
$
|
6,314
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Site
production and delivery, before net noncash
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
and
nonrecurring costs shown below
|
|
1,468
|
|
|
862
|
|
|
589
|
|
|
17
|
|
|
1,468
|
|
Gold
and silver credits
|
|
(2,606
|
)
|
|
–
|
|
|
–
|
|
|
–
|
|
|
–
|
|
Treatment
charges
|
|
312
|
|
|
183
|
|
|
125
|
|
|
4
|
|
|
312
|
|
Royalty
on metals
|
|
147
|
|
|
86
|
|
|
59
|
|
|
2
|
|
|
147
|
|
Net
cash costs
|
|
(679
|
)
|
|
1,131
|
|
|
773
|
|
|
23
|
|
|
1,927
|
|
Depreciation
and amortization
|
|
275
|
|
|
162
|
|
|
110
|
|
|
3
|
|
|
275
|
|
Noncash
and nonrecurring costs, net
|
|
37
|
|
|
22
|
|
|
15
|
|
|
–
|
|
|
37
|
|
Total
costs
|
|
(367
|
)
|
|
1,315
|
|
|
898
|
|
|
26
|
|
|
2,239
|
|
Revenue
adjustments, primarily for pricing on prior
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
period
open sales
|
|
53
|
|
|
53
|
|
|
–
|
|
|
–
|
|
|
53
|
|
PT
Smelting intercompany profit
|
|
(54
|
)
|
|
(32
|
)
|
|
(21
|
)
|
|
(1
|
)
|
|
(54
|
)
|
Gross
profit
|
$
|
4,074
|
|
$
|
2,414
|
|
$
|
1,613
|
|
$
|
47
|
|
$
|
4,074
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reconciliation
to Amounts Reported
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(In
millions)
|
|
|
|
|
Depreciation,
|
|
|
|
|
|
|
|
|
|
|
Production
|
|
Depletion
and
|
|
|
|
|
|
|
|
|
Revenues
|
|
and
Delivery
|
|
Amortization
|
|
|
|
|
|
|
|
Totals
presented above
|
$
|
6,314
|
|
$
|
1,468
|
|
$
|
275
|
|
|
|
|
|
|
|
Net
noncash and nonrecurring costs per above
|
|
N/A
|
|
|
37
|
|
|
N/A
|
|
|
|
|
|
|
|
Less:
Treatment charges per above
|
|
(312
|
)
|
|
N/A
|
|
|
N/A
|
|
|
|
|
|
|
|
Less:
Royalty per above
|
|
(147
|
)
|
|
N/A
|
|
|
N/A
|
|
|
|
|
|
|
|
Revenue
adjustments, primarily for pricing on prior
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
period
open sales per above
|
|
53
|
|
|
N/A
|
|
|
N/A
|
|
|
|
|
|
|
|
Indonesia
mining
|
|
5,908
|
|
|
1,505
|
|
|
275
|
|
|
|
|
|
|
|
North
America copper mines
|
|
3,235
|
|
|
1,911
|
|
|
280
|
|
|
|
|
|
|
|
South
America copper mines
|
|
3,839
|
|
|
1,563
|
|
|
275
|
|
|
|
|
|
|
|
Africa
mining
|
|
389
|
|
|
315
|
|
|
66
|
|
|
|
|
|
|
|
Molybdenum
|
|
847
|
|
|
660
|
a
|
|
49
|
|
|
|
|
|
|
|
Rod
& Refining
|
|
3,356
|
|
|
3,336
|
|
|
8
|
|
|
|
|
|
|
|
Atlantic
Copper Smelting & Refining
|
|
1,892
|
|
|
1,895
|
|
|
36
|
|
|
|
|
|
|
|
Corporate,
other & eliminations
|
|
(4,426
|
)
|
|
(4,150
|
)
|
|
25
|
|
|
|
|
|
|
|
As
reported in FCX’s consolidated financial statements
|
$
|
15,040
|
|
$
|
7,035
|
a
|
$
|
1,014
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
a.
|
Includes
LCM molybdenum inventory adjustments of $19
million.
|
Indonesia Mining Product
Revenues and Production Costs (continued)
Year Ended December 31,
2008
|
|
|
|
|
|
By-Product
|
|
Co-Product
Method
|
|
(In
millions)
|
Method
|
|
Copper
|
|
Gold
|
|
Silver
|
|
Total
|
|
Revenues,
after adjustments shown below
|
$
|
2,628
|
|
$
|
2,628
|
|
$
|
1,025
|
|
$
|
50
|
|
$
|
3,703
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Site
production and delivery, before net noncash
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
and
nonrecurring costs shown below
|
|
1,762
|
|
|
1,252
|
|
|
487
|
|
|
23
|
|
|
1,762
|
|
Gold
and silver credits
|
|
(1,075
|
)
|
|
–
|
|
|
–
|
|
|
–
|
|
|
–
|
|
Treatment
charges
|
|
268
|
|
|
190
|
|
|
74
|
|
|
4
|
|
|
268
|
|
Royalty
on metals
|
|
113
|
|
|
80
|
|
|
31
|
|
|
2
|
|
|
113
|
|
Net
cash costs
|
|
1,068
|
|
|
1,522
|
|
|
592
|
|
|
29
|
|
|
2,143
|
|
Depreciation
and amortization
|
|
222
|
|
|
158
|
|
|
61
|
|
|
3
|
|
|
222
|
|
Noncash
and nonrecurring costs, net
|
|
30
|
|
|
22
|
|
|
8
|
|
|
–
|
|
|
30
|
|
Total
costs
|
|
1,320
|
|
|
1,702
|
|
|
661
|
|
|
32
|
|
|
2,395
|
|
Revenue
adjustments, primarily for pricing on prior
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
period
open sales
|
|
90
|
|
|
90
|
|
|
–
|
|
|
–
|
|
|
90
|
|
PT
Smelting intercompany profit
|
|
17
|
|
|
12
|
|
|
5
|
|
|
–
|
|
|
17
|
|
Gross
profit
|
$
|
1,415
|
|
$
|
1,028
|
|
$
|
369
|
|
$
|
18
|
|
$
|
1,415
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reconciliation
to Amounts Reported
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(In
millions)
|
|
|
|
|
Depreciation,
|
|
|
|
|
|
|
|
|
|
|
Production
|
|
Depletion
and
|
|
|
|
|
|
|
|
|
Revenues
|
|
and
Delivery
|
|
Amortization
|
|
|
|
|
|
|
|
Totals
presented above
|
$
|
3,703
|
|
$
|
1,762
|
|
$
|
222
|
|
|
|
|
|
|
|
Net
noncash and nonrecurring costs per above
|
|
N/A
|
|
|
30
|
|
|
N/A
|
|
|
|
|
|
|
|
Less:
Treatment charges per above
|
|
(268
|
)
|
|
N/A
|
|
|
N/A
|
|
|
|
|
|
|
|
Less:
Royalty per above
|
|
(113
|
)
|
|
N/A
|
|
|
N/A
|
|
|
|
|
|
|
|
Revenue
adjustments, primarily for pricing on prior
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
period
open sales per above
|
|
90
|
|
|
N/A
|
|
|
N/A
|
|
|
|
|
|
|
|
Indonesia
mining
|
|
3,412
|
|
|
1,792
|
|
|
222
|
|
|
|
|
|
|
|
North
America copper mines
|
|
5,265
|
|
|
3,708
|
|
|
770
|
|
|
|
|
|
|
|
South
America copper mines
|
|
4,166
|
|
|
1,854
|
|
|
511
|
|
|
|
|
|
|
|
Africa
mining
|
|
–
|
|
|
16
|
|
|
6
|
|
|
|
|
|
|
|
Molybdenum
|
|
2,488
|
|
|
1,629
|
|
|
192
|
|
|
|
|
|
|
|
Rod
& Refining
|
|
5,557
|
|
|
5,527
|
|
|
8
|
|
|
|
|
|
|
|
Atlantic
Copper Smelting & Refining
|
|
2,341
|
|
|
2,276
|
|
|
35
|
|
|
|
|
|
|
|
Corporate,
other & eliminations
|
|
(5,433
|
)
|
|
(5,604
|
)
|
|
38
|
|
|
|
|
|
|
|
As
reported in FCX’s consolidated financial statements
|
$
|
17,796
|
|
$
|
11,198
|
a
|
$
|
1,782
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
a.
|
Includes
LCM inventory adjustments of $782
million.
|
Indonesia Mining Product
Revenues and Production Costs (continued)
Year Ended December 31,
2007
|
|
|
|
|
|
By-Product
|
|
Co-Product
Method
|
|
(In
millions)
|
Method
|
|
Copper
|
|
Gold
|
|
Silver
|
|
Total
|
|
Revenues,
after adjustments shown below
|
$
|
3,777
|
|
$
|
3,777
|
|
$
|
1,490
|
|
$
|
48
|
|
$
|
5,315
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Site
production and delivery, before net noncash
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
and
nonrecurring costs shown below
|
|
1,342
|
|
|
954
|
|
|
376
|
|
|
12
|
|
|
1,342
|
|
Gold
and silver credits
|
|
(1,538
|
)
|
|
–
|
|
|
–
|
|
|
–
|
|
|
–
|
|
Treatment
charges
|
|
385
|
|
|
274
|
|
|
108
|
|
|
3
|
|
|
385
|
|
Royalty
on metals
|
|
133
|
|
|
94
|
|
|
38
|
|
|
1
|
|
|
133
|
|
Net
cash costs
|
|
322
|
|
|
1,322
|
|
|
522
|
|
|
16
|
|
|
1,860
|
|
Depreciation
and amortization
|
|
199
|
|
|
141
|
|
|
56
|
|
|
2
|
|
|
199
|
|
Noncash
and nonrecurring costs, net
|
|
46
|
|
|
33
|
|
|
12
|
|
|
1
|
|
|
46
|
|
Total
costs
|
|
567
|
|
|
1,496
|
|
|
590
|
|
|
19
|
|
|
2,105
|
|
Revenue
adjustments, primarily for pricing on prior
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
period
open sales
|
|
11
|
|
|
11
|
|
|
–
|
|
|
–
|
|
|
11
|
|
PT
Smelting intercompany profit
|
|
13
|
|
|
10
|
|
|
3
|
|
|
–
|
|
|
13
|
|
Gross
profit
|
$
|
3,234
|
|
$
|
2,302
|
|
$
|
903
|
|
$
|
29
|
|
$
|
3,234
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reconciliation
to Amounts Reported
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(In
millions)
|
|
|
|
|
Depreciation,
|
|
|
|
|
|
|
|
|
|
|
Production
|
|
Depletion
and
|
|
|
|
|
|
|
|
|
Revenues
|
|
and
Delivery
|
|
Amortization
|
|
|
|
|
|
|
|
Totals
presented above
|
$
|
5,315
|
|
$
|
1,342
|
|
$
|
199
|
|
|
|
|
|
|
|
Net
noncash and nonrecurring costs per above
|
|
N/A
|
|
|
46
|
|
|
N/A
|
|
|
|
|
|
|
|
Less:
Treatment charges per above
|
|
(385
|
)
|
|
N/A
|
|
|
N/A
|
|
|
|
|
|
|
|
Less:
Royalty per above
|
|
(133
|
)
|
|
N/A
|
|
|
N/A
|
|
|
|
|
|
|
|
Revenue
adjustments, primarily for pricing on prior
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
period
open sales per above
|
|
11
|
|
|
N/A
|
|
|
N/A
|
|
|
|
|
|
|
|
Indonesia
mining
|
|
4,808
|
|
|
1,388
|
|
|
199
|
|
|
|
|
|
|
|
North
America copper mines
|
|
4,093
|
|
|
2,166
|
|
|
499
|
|
|
|
|
|
|
|
South
America copper mines
|
|
3,879
|
|
|
1,277
|
|
|
378
|
|
|
|
|
|
|
|
Africa
mining
|
|
–
|
|
|
10
|
|
|
2
|
|
|
|
|
|
|
|
Molybdenum
|
|
1,746
|
|
|
1,287
|
|
|
94
|
|
|
|
|
|
|
|
Rod
& Refining
|
|
5,140
|
|
|
5,119
|
|
|
7
|
|
|
|
|
|
|
|
Atlantic
Copper Smelting & Refining
|
|
2,388
|
|
|
2,329
|
|
|
36
|
|
|
|
|
|
|
|
Corporate,
other & eliminations
|
|
(5,115
|
)
|
|
(5,049
|
)
|
|
31
|
|
|
|
|
|
|
|
As
reported in FCX’s consolidated financial statements
|
$
|
16,939
|
|
$
|
8,527
|
|
$
|
1,246
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Henderson Molybdenum Mine
Product Revenues and Production Costs
|
Years
Ended December 31,
|
|
(In
millions)
|
2009
|
|
2008
|
|
2007
a
|
|
Revenues
|
$
|
317
|
|
$
|
1,182
|
|
$
|
853
|
|
|
|
|
|
|
|
|
|
Site
production and delivery, before net noncash
|
|
|
|
|
|
|
|
and
nonrecurring costs shown below
|
|
148
|
|
216
|
|
137
|
|
Net
cash costs
|
|
148
|
|
216
|
|
137
|
|
Depreciation,
depletion and amortization
|
|
26
|
|
172
|
|
80
|
|
Noncash
and nonrecurring costs, net
|
|
1
|
|
7
|
b
|
2
|
|
Total
costs
|
|
175
|
|
395
|
|
219
|
|
Gross
profitc
|
$
|
142
|
|
$
|
787
|
|
$
|
634
|
|
|
|
|
|
|
|
|
|
Reconciliation
to Amounts Reported
|
|
|
|
Production
|
|
Depreciation,
|
|
(In
millions)
|
|
|
|
and
|
|
Depletion
and
|
|
|
|
Revenues
|
|
Delivery
|
|
Amortization
|
|
Year Ended December 31,
2009
|
|
|
|
|
|
|
|
|
|
Totals
presented above
|
$
|
317
|
|
$
|
148
|
|
$
|
26
|
|
Net
noncash and nonrecurring costs per above
|
|
N/A
|
|
|
1
|
|
|
N/A
|
|
Henderson
mine
|
|
317
|
|
|
149
|
|
|
26
|
|
Other
molybdenum operations and eliminationsd
|
|
530
|
|
|
511
|
e
|
|
23
|
|
Molybdenum
|
|
847
|
|
|
660
|
|
|
49
|
|
North
America copper mines
|
|
3,235
|
|
|
1,911
|
|
|
280
|
|
South
America copper mines
|
|
3,839
|
|
|
1,563
|
|
|
275
|
|
Indonesia
mining
|
|
5,908
|
|
|
1,505
|
|
|
275
|
|
Africa
mining
|
|
389
|
|
|
315
|
|
|
66
|
|
Rod
& Refining
|
|
3,356
|
|
|
3,336
|
|
|
8
|
|
Atlantic
Copper Smelting & Refining
|
|
1,892
|
|
|
1,895
|
|
|
36
|
|
Corporate,
other & eliminations
|
|
(4,426
|
)
|
|
(4,150
|
)
|
|
25
|
|
As
reported in FCX’s consolidated financial statements
|
$
|
15,040
|
|
$
|
7,035
|
e
|
$
|
1,014
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
2008
|
|
|
|
|
|
|
|
|
|
Totals
presented above
|
$
|
1,182
|
|
$
|
216
|
|
$
|
172
|
|
Net
noncash and nonrecurring costs per above
|
|
N/A
|
|
|
7
|
b
|
|
N/A
|
|
Henderson
mine
|
|
1,182
|
|
|
223
|
|
|
172
|
|
Other
molybdenum operations and eliminationsd
|
|
1,306
|
|
|
1,406
|
e
|
|
20
|
|
Molybdenum
|
|
2,488
|
|
|
1,629
|
|
|
192
|
|
North
America copper mines
|
|
5,265
|
|
|
3,708
|
|
|
770
|
|
South
America copper mines
|
|
4,166
|
|
|
1,854
|
|
|
511
|
|
Indonesia
mining
|
|
3,412
|
|
|
1,792
|
|
|
222
|
|
Africa
mining
|
|
–
|
|
|
16
|
|
|
6
|
|
Rod
& Refining
|
|
5,557
|
|
|
5,527
|
|
|
8
|
|
Atlantic
Copper Smelting & Refining
|
|
2,341
|
|
|
2,276
|
|
|
35
|
|
Corporate,
other & eliminations
|
|
(5,433
|
)
|
|
(5,604
|
)
|
|
38
|
|
As
reported in FCX’s consolidated financial statements
|
$
|
17,796
|
|
$
|
11,198
|
f
|
$
|
1,782
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
2007
|
|
|
|
|
|
|
|
|
|
Totals
presented above
|
$
|
853
|
|
$
|
137
|
|
$
|
80
|
|
Net
noncash and nonrecurring costs per above
|
|
N/A
|
|
|
2
|
|
|
N/A
|
|
Henderson
mine
|
|
853
|
|
|
139
|
|
|
80
|
|
Other
molybdenum operations and eliminationsd
|
|
893
|
|
|
1,148
|
|
|
14
|
|
Molybdenum
|
|
1,746
|
|
|
1,287
|
|
|
94
|
|
North
America copper mines
|
|
4,093
|
|
|
2,166
|
|
|
499
|
|
South
America copper mines
|
|
3,879
|
|
|
1,277
|
|
|
378
|
|
Indonesia
mining
|
|
4,808
|
|
|
1,388
|
|
|
199
|
|
Africa
mining
|
|
–
|
|
|
10
|
|
|
2
|
|
Rod
& Refining
|
|
5,140
|
|
|
5,119
|
|
|
7
|
|
Atlantic
Copper Smelting & Refining
|
|
2,388
|
|
|
2,329
|
|
|
36
|
|
Corporate,
other & eliminations
|
|
(5,115
|
)
|
|
(5,049
|
)
|
|
31
|
|
As
reported in FCX’s consolidated financial statements
|
$
|
16,939
|
|
$
|
8,527
|
|
$
|
1,246
|
|
|
|
|
|
|
|
|
|
|
|
a.
|
Reflects
the period from March 20, 2007, through December 31, 2007, which
represents the results of the Henderson molybdenum mine under FCX
management.
|
b.
|
Includes
charges totaling $1 million for LCM inventory
adjustments.
|
c.
|
Gross
profit reflects sales of Henderson products based on volumes produced at
market-based pricing. On a consolidated basis, the Molybdenum segment
includes profits on sales as they are made to third parties and
realizations based on actual contract terms. As a result, the actual gross
profit realized will differ from the amounts reported in this
table.
|
d.
|
Primarily
includes amounts associated with the molybdenum sales company, which
includes sales of molybdenum produced as a by-product at our North and
South America copper mines.
|
e.
|
Includes
LCM molybdenum inventory adjustments of $19 million in 2009 and $100
million in 2008.
|
f.
|
Includes
LCM inventory adjustments of $782
million.
|
CAUTIONARY
STATEMENT
Our
discussion and analysis contains forward-looking statements in which we discuss
factors we believe may affect our performance in the future. Forward-looking
statements are all statements other than historical facts, such as statements
regarding projected ore grades and milling rates, production and sales volumes,
unit net cash costs, operating cash flows, capital expenditures, mine production
and development plans, availability of power, water, labor and equipment,
anticipated environmental reclamation and closure costs and plans, environmental
liabilities, the impact of copper, gold, molybdenum and cobalt price changes,
reserve estimates, the impact of deferred intercompany profits on earnings,
liquidity, other financial commitments and tax rates, potential prepayments of
debt and future dividend payments.
Our
discussion and analysis also includes forward-looking statements regarding
mineralized material not included in reserves. The mineralized material
described in our discussion and analysis will not qualify as reserves until
comprehensive engineering studies establish their economic feasibility.
Accordingly, no assurance can be given that the estimated mineralized material
not included in reserves will become proven and probable reserves.
Accuracy
of the forward-looking statements depends on assumptions about events that
change over time and is thus susceptible to periodic change based on actual
experience and new developments. We caution readers that we assume no obligation
to update the forward-looking statements in this discussion and analysis and we
do not intend to update the forward-looking statements more frequently than
quarterly.
Additionally,
important factors that might cause future results to differ from results
anticipated by forward-looking statements include mine sequencing, production
rates, industry risks, commodity prices, political risks, the potential effects
of violence in Indonesia, potential outcomes of the contract review process in
the Democratic Republic of Congo, weather-related risks, labor relations,
currency translation risks and other factors described in more detail under the
heading “Risk Factors” in our annual report on Form 10-K for the year ended
December 31, 2009.
Item 8. Financial Statements and Supplementary
Data.
REPORT
OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
TO THE
BOARD OF DIRECTORS AND STOCKHOLDERS OF
FREEPORT-McMoRan
COPPER & GOLD INC.
We have
audited the accompanying consolidated balance sheets of Freeport-McMoRan Copper
& Gold Inc. as of December 31, 2009 and 2008, and the related consolidated
statements of operations, equity, and cash flows for each of the three years in
the period ended December 31, 2009. These financial statements are the
responsibility of the Company’s management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We
conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our
opinion, the financial statements referred to above present fairly, in all
material respects, the consolidated financial position of Freeport-McMoRan
Copper & Gold Inc. at December 31, 2009 and 2008, and the consolidated
results of its operations and its cash flows for each of the three years in the
period ended December 31, 2009, in conformity with U.S. generally accepted
accounting principles.
As
discussed in Note 1 to the consolidated financial statements, the Company
changed its method of accounting for noncontrolling interests with the adoption
of the guidance originally issued in FASB Statement No. 160, Noncontrolling Interests in
Consolidated Financial Statements (codified in FASB ASC Topic 810, Consolidation) effective
January 1, 2009.
We also
have audited, in accordance with the standards of the Public Company Accounting
Oversight Board (United States), Freeport-McMoRan Copper & Gold Inc.’s
internal control over financial reporting as of December 31, 2009, based on
criteria established in Internal Control-Integrated Framework issued by the
Committee of Sponsoring Organizations of the Treadway Commission and our report
dated February 26, 2010 expressed an unqualified opinion thereon.
/s/ Ernst
& Young LLP
Phoenix,
Arizona
February
26, 2010
MANAGEMENT’S
REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING
Freeport-McMoRan
Copper & Gold Inc.’s (the Company’s) management is responsible for
establishing and maintaining adequate internal control over financial reporting.
Internal control over financial reporting is defined in Rule 13a-15(f) or
15d-15(f) under the Securities Exchange Act of 1934 as a process designed by, or
under the supervision of, the Company’s principal executive and principal
financial officers and effected by the Company’s Board of Directors, management
and other personnel, to provide reasonable assurance regarding the reliability
of financial reporting and the preparation of financial statements for external
purposes in accordance with generally accepted accounting principles and
includes those policies and procedures that:
·
|
Pertain
to the maintenance of records that in reasonable detail accurately and
fairly reflect the transactions and dispositions of the Company’s
assets;
|
·
|
Provide
reasonable assurance that transactions are recorded as necessary to permit
preparation of financial statements in accordance with generally accepted
accounting principles, and that receipts and expenditures of the Company
are being made only in accordance with authorizations of management and
directors of the Company; and
|
·
|
Provide
reasonable assurance regarding prevention or timely detection of
unauthorized acquisition, use or disposition of the Company’s assets that
could have a material effect on the financial
statements.
|
Because
of its inherent limitations, internal control over financial reporting may not
prevent or detect misstatements. Projections of any evaluation of effectiveness
to future periods are subject to the risk that controls may become inadequate
because of changes in conditions, or that the degree of compliance with the
policies or procedures may deteriorate.
Our
management, including our principal executive officer and principal financial
officer, assessed the effectiveness of our internal control over financial
reporting as of the end of the fiscal year covered by this annual report on Form
10-K. In making this assessment, our management used the criteria set forth in
Internal Control-Integrated Framework issued by the Committee of Sponsoring
Organizations of the Treadway Commission (COSO). Based on our management’s
assessment, management concluded that, as of December 31, 2009, our Company’s
internal control over financial reporting is effective based on the COSO
criteria.
Ernst
& Young LLP, an independent registered public accounting firm, who audited
the Company’s consolidated financial statements included in this Form 10-K, has
issued an attestation report on the Company’s internal control over financial
reporting, which is included herein.
/s/
Richard C. Adkerson
|
|
/s/
Kathleen L. Quirk
|
Richard
C. Adkerson
|
|
Kathleen
L. Quirk
|
President
and Chief Executive Officer
|
|
Executive
Vice President,
|
|
|
Chief
Financial Officer and Treasurer
|
REPORT
OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
TO THE
BOARD OF DIRECTORS AND STOCKHOLDERS OF
FREEPORT-McMoRan
COPPER & GOLD INC.
We have
audited Freeport-McMoRan Copper & Gold Inc.’s internal control over
financial reporting as of December 31, 2009, based on criteria established
in Internal
Control-Integrated Framework issued by the Committee of Sponsoring Organizations
of the Treadway Commission (the COSO criteria). Freeport-McMoRan Copper &
Gold Inc.’s management is responsible for maintaining effective internal control
over financial reporting, and for its assessment of the effectiveness of
internal control over financial reporting included in the accompanying
Management’s Report on Internal Control Over Financial Reporting. Our
responsibility is to express an opinion on the company’s internal control over
financial reporting based on our audit.
We
conducted our audit in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether effective
internal control over financial reporting was maintained in all material
respects. Our audit included obtaining an understanding of internal control over
financial reporting, assessing the risk that a material weakness exists, testing
and evaluating the design and operating effectiveness of internal control based
on the assessed risk, and performing such other procedures as we considered
necessary in the circumstances. We believe that our audit provides a reasonable
basis for our opinion.
A
company’s internal control over financial reporting is a process designed to
provide reasonable assurance regarding the reliability of financial reporting
and the preparation of financial statements for external purposes in accordance
with generally accepted accounting principles. A company’s internal control over
financial reporting includes those policies and procedures that (1) pertain to
the maintenance of records that, in reasonable detail, accurately and fairly
reflect the transactions and dispositions of the assets of the company; (2)
provide reasonable assurance that transactions are recorded as necessary to
permit preparation of financial statements in accordance with generally accepted
accounting principles, and that receipts and expenditures of the company are
being made only in accordance with authorizations of management and directors of
the company; and (3) provide reasonable assurance regarding prevention or timely
detection of unauthorized acquisition, use or disposition of the company’s
assets that could have a material effect on the financial
statements.
Because
of its inherent limitations, internal control over financial reporting may not
prevent or detect misstatements. Also, projections of any evaluation of
effectiveness to future periods are subject to the risk that controls may become
inadequate because of changes in conditions, or that the degree of compliance
with the policies or procedures may deteriorate.
In our
opinion, Freeport-McMoRan Copper & Gold Inc. maintained, in all material
respects, effective internal control over financial reporting as of December 31,
2009, based on the COSO criteria.
We also
have audited, in accordance with the standards of the Public Company Accounting
Oversight Board (United States), the consolidated balance sheets of
Freeport-McMoRan Copper & Gold Inc. as of December 31, 2009 and 2008 and the
related consolidated statements of operations, equity and cash flows for each of
the three years in the period ended December 31, 2009, and our report dated
February 26, 2010 expressed an unqualified opinion thereon.
/s/ Ernst
& Young LLP
Phoenix,
Arizona
February
26, 2010
FREEPORT-McMoRan
COPPER & GOLD INC.
CONSOLIDATED
STATEMENTS OF OPERATIONS
|
Years
Ended December 31,
|
|
|
2009
|
|
2008
|
|
2007
|
|
|
(In
Millions, Except Per Share Amounts)
|
|
Revenues
|
$
|
15,040
|
|
$
|
17,796
|
|
$
|
16,939
|
|
Cost
of sales:
|
|
|
|
|
|
|
|
|
|
Production
and delivery
|
|
7,016
|
|
|
10,416
|
|
|
8,527
|
|
Depreciation,
depletion and amortization
|
|
1,014
|
|
|
1,782
|
|
|
1,246
|
|
Lower
of cost or market inventory adjustments
|
|
19
|
|
|
782
|
|
|
–
|
|
Total
cost of sales
|
|
8,049
|
|
|
12,980
|
|
|
9,773
|
|
Selling,
general and administrative expenses
|
|
321
|
|
|
269
|
|
|
466
|
|
Exploration
and research expenses
|
|
90
|
|
|
292
|
|
|
145
|
|
Long-lived
asset impairments and other charges
|
|
77
|
|
|
10,978
|
|
|
–
|
|
Goodwill
impairment
|
|
–
|
|
|
5,987
|
|
|
–
|
|
Total
costs and expenses
|
|
8,537
|
|
|
30,506
|
|
|
10,384
|
|
Operating
income (loss)
|
|
6,503
|
|
|
(12,710
|
)
|
|
6,555
|
|
Interest
expense, net
|
|
(586
|
)
|
|
(584
|
)
|
|
(513
|
)
|
Losses
on early extinguishment of debt
|
|
(48
|
)
|
|
(6
|
)
|
|
(173
|
)
|
Gains
on sales of assets
|
|
–
|
|
|
13
|
|
|
85
|
|
Other
(expense) income, net
|
|
(53
|
)
|
|
(22
|
)
|
|
157
|
|
Income
(loss) from continuing operations before income taxes
|
|
|
|
|
|
|
|
|
|
and
equity in affiliated companies’ net earnings
|
|
5,816
|
|
|
(13,309
|
)
|
|
6,111
|
|
(Provision
for) benefit from income taxes
|
|
(2,307
|
)
|
|
2,844
|
|
|
(2,400
|
)
|
Equity
in affiliated companies’ net earnings
|
|
25
|
|
|
15
|
|
|
22
|
|
Income
(loss) from continuing operations
|
|
3,534
|
|
|
(10,450
|
)
|
|
3,733
|
|
Income
from discontinued operations, net of taxes
|
|
–
|
|
|
–
|
|
|
46
|
|
Net
income (loss)
|
|
3,534
|
|
|
(10,450
|
)
|
|
3,779
|
|
Net
income attributable to noncontrolling interests
|
|
(785
|
)
|
|
(617
|
)
|
|
(802
|
)
|
Preferred
dividends and losses on induced conversions
|
|
(222
|
)
|
|
(274
|
)
|
|
(208
|
)
|
Net
income (loss) attributable to FCX common stockholders
|
$
|
2,527
|
|
$
|
(11,341
|
)
|
$
|
2,769
|
|
|
|
|
|
|
|
|
|
|
|
Basic
net income (loss) per share attributable to
|
|
|
|
|
|
|
|
|
|
FCX
common stockholders:
|
|
|
|
|
|
|
|
|
|
Continuing
operations
|
$
|
6.10
|
|
$
|
(29.72
|
)
|
$
|
8.02
|
|
Discontinued
operations
|
|
–
|
|
|
–
|
|
|
0.10
|
|
Basic
net income (loss)
|
$
|
6.10
|
|
$
|
(29.72
|
)
|
$
|
8.12
|
|
|
|
|
|
|
|
|
|
|
|
Diluted
net income (loss) per share attributable to
|
|
|
|
|
|
|
|
|
|
FCX
common stockholders:
|
|
|
|
|
|
|
|
|
|
Continuing
operations
|
$
|
5.86
|
|
$
|
(29.72
|
)
|
$
|
7.41
|
|
Discontinued
operations
|
|
–
|
|
|
–
|
|
|
0.09
|
|
Diluted
net income (loss)
|
$
|
5.86
|
|
$
|
(29.72
|
)
|
$
|
7.50
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-average
common shares outstanding:
|
|
|
|
|
|
|
|
|
|
Basic
|
|
414
|
|
|
382
|
|
|
341
|
|
Diluted
|
|
469
|
|
|
382
|
|
|
397
|
|
|
|
|
|
|
|
|
|
|
|
Dividends
declared per share of common stock
|
$
|
0.15
|
|
$
|
1.375
|
|
$
|
1.375
|
|
|
|
|
|
|
|
|
|
|
|
The
accompanying Notes to Consolidated Financial Statements are an integral part of
these financial statements.
FREEPORT-McMoRan
COPPER & GOLD INC.
CONSOLIDATED
STATEMENTS OF CASH FLOWS
|
|
Years
Ended December 31,
|
|
|
|
2009
|
|
2008
|
|
2007
|
|
|
|
(In
Millions)
|
|
Cash
flow from operating activities:
|
|
|
|
|
|
|
|
|
|
|
Net
income (loss)
|
|
$
|
3,534
|
|
$
|
(10,450
|
)
|
$
|
3,779
|
|
Adjustments
to reconcile net income (loss) to net cash provided by
|
|
|
|
|
|
|
|
|
|
|
operating
activities:
|
|
|
|
|
|
|
|
|
|
|
Depreciation,
depletion and amortization
|
|
|
1,014
|
|
|
1,782
|
|
|
1,264
|
|
Asset
impairments, including goodwill
|
|
|
–
|
|
|
16,854
|
|
|
–
|
|
Lower
of cost or market inventory adjustments
|
|
|
19
|
|
|
782
|
|
|
–
|
|
Stock-based
compensation
|
|
|
102
|
|
|
98
|
|
|
144
|
|
Charges
for reclamation and environmental obligations, including
accretion
|
|
|
191
|
|
|
181
|
|
|
32
|
|
Payments
of reclamation and environmental obligations
|
|
|
(104
|
)
|
|
(205
|
)
|
|
(111
|
)
|
Unrealized
losses on copper price protection program
|
|
|
–
|
|
|
–
|
|
|
175
|
|
Losses
on early extinguishment of debt
|
|
|
48
|
|
|
6
|
|
|
173
|
|
Deferred
income taxes
|
|
|
135
|
|
|
(4,653
|
)
|
|
(288
|
)
|
Gains
on sales of assets
|
|
|
–
|
|
|
(13
|
)
|
|
(85
|
)
|
Increase
in long-term mill and leach stockpiles
|
|
|
(96
|
)
|
|
(225
|
)
|
|
(48
|
)
|
Changes
in other assets and liabilities
|
|
|
201
|
|
|
89
|
|
|
78
|
|
Amortization
of intangible assets/liabilities and other, net
|
|
|
123
|
|
|
89
|
|
|
(33
|
)
|
(Increases)
decreases in working capital, excluding amounts
|
|
|
|
|
|
|
|
|
|
|
acquired
from Phelps Dodge Corporation:
|
|
|
|
|
|
|
|
|
|
|
Accounts
receivable
|
|
|
(962
|
)
|
|
542
|
|
|
428
|
|
Inventories
|
|
|
(159
|
)
|
|
(478
|
)
|
|
272
|
|
Other
current assets
|
|
|
87
|
|
|
(91
|
)
|
|
21
|
|
Accounts
payable and accrued liabilities
|
|
|
(438
|
)
|
|
(171
|
)
|
|
400
|
|
Accrued
income and other taxes
|
|
|
702
|
|
|
(767
|
)
|
|
24
|
|
Net
cash provided by operating activities
|
|
|
4,397
|
|
|
3,370
|
|
|
6,225
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
flow from investing activities:
|
|
|
|
|
|
|
|
|
|
|
Capital
expenditures:
|
|
|
|
|
|
|
|
|
|
|
North
America copper mines
|
|
|
(345
|
)
|
|
(609
|
)
|
|
(856
|
)
|
South
America copper mines
|
|
|
(164
|
)
|
|
(323
|
)
|
|
(123
|
)
|
Indonesia
|
|
|
(266
|
)
|
|
(444
|
)
|
|
(368
|
)
|
Africa
|
|
|
(659
|
)
|
|
(1,058
|
)
|
|
(266
|
)
|
Other
|
|
|
(153
|
)
|
|
(274
|
)
|
|
(142
|
)
|
Acquisition
of Phelps Dodge, net of cash acquired
|
|
|
–
|
|
|
(1
|
)
|
|
(13,910
|
)
|
Net
proceeds from the sale of Phelps Dodge International
Corporation
|
|
|
–
|
|
|
–
|
|
|
597
|
|
Proceeds
from sales of assets
|
|
|
25
|
|
|
47
|
|
|
260
|
|
Decrease
in global reclamation and remediation trust assets
|
|
|
–
|
|
|
430
|
|
|
–
|
|
Other,
net
|
|
|
(39
|
)
|
|
(86
|
)
|
|
(53
|
)
|
Net
cash used in investing activities
|
|
|
(1,601
|
)
|
|
(2,318
|
)
|
|
(14,861
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Cash
flow from financing activities:
|
|
|
|
|
|
|
|
|
|
|
Proceeds
from term loans under bank credit facility
|
|
|
–
|
|
|
–
|
|
|
12,450
|
|
Repayments
of term loans under bank credit facility
|
|
|
–
|
|
|
–
|
|
|
(12,450
|
)
|
Net
proceeds from sales of senior notes
|
|
|
–
|
|
|
–
|
|
|
5,880
|
|
Net
proceeds from sale of 6¾% Mandatory Convertible Preferred
Stock
|
|
|
–
|
|
|
–
|
|
|
2,803
|
|
Net
proceeds from sale of common stock
|
|
|
740
|
|
|
–
|
|
|
2,816
|
|
Proceeds
from revolving credit facility and other debt
|
|
|
330
|
|
|
890
|
|
|
744
|
|
Repayments
of revolving credit facility and other debt
|
|
|
(1,380
|
)
|
|
(766
|
)
|
|
(1,069
|
)
|
Purchases
of FCX common stock
|
|
|
–
|
|
|
(500
|
)
|
|
–
|
|
Cash
dividends and distributions paid:
|
|
|
|
|
|
|
|
|
|
|
Common
stock
|
|
|
–
|
|
|
(693
|
)
|
|
(421
|
)
|
Preferred
stock
|
|
|
(229
|
)
|
|
(255
|
)
|
|
(175
|
)
|
Noncontrolling
interests
|
|
|
(535
|
)
|
|
(730
|
)
|
|
(967
|
)
|
Contributions
from noncontrolling interests
|
|
|
57
|
|
|
201
|
|
|
4
|
|
Net
proceeds from (payments for) stock-based awards
|
|
|
6
|
|
|
22
|
|
|
(14
|
)
|
Excess
tax benefit from stock-based awards
|
|
|
3
|
|
|
25
|
|
|
16
|
|
Bank
credit facilities fees and other, net
|
|
|
(4
|
)
|
|
–
|
|
|
(262
|
)
|
Net
cash (used in) provided by financing activities
|
|
|
(1,012
|
)
|
|
(1,806
|
)
|
|
9,355
|
|
Net
increase (decrease) in cash and cash equivalents
|
|
|
1,784
|
|
|
(754
|
)
|
|
719
|
|
Cash
and cash equivalents at beginning of year
|
|
|
872
|
|
|
1,626
|
|
|
907
|
|
Cash
and cash equivalents at end of year
|
|
$
|
2,656
|
|
$
|
872
|
|
$
|
1,626
|
|
|
|
|
|
|
|
|
|
|
|
|
The
accompanying Notes to Consolidated Financial Statements are an integral part of
these financial statements.
FREEPORT-McMoRan
COPPER & GOLD INC.
CONSOLIDATED
BALANCE SHEETS
|
|
December
31,
|
|
|
|
2009
|
|
|
2008
|
|
|
|
(In
Millions, Except Par Values)
|
|
ASSETS
|
|
|
|
|
|
|
|
|
Current
assets:
|
|
|
|
|
|
|
|
|
Cash
and cash equivalents
|
|
$
|
2,656
|
|
|
$
|
872
|
|
Trade
accounts receivable
|
|
|
1,517
|
|
|
|
374
|
|
Income
tax receivables
|
|
|
139
|
|
|
|
611
|
|
Other
accounts receivable
|
|
|
147
|
|
|
|
227
|
|
Inventories:
|
|
|
|
|
|
|
|
|
Product
|
|
|
1,110
|
|
|
|
1,028
|
|
Materials
and supplies, net
|
|
|
1,093
|
|
|
|
1,124
|
|
Mill
and leach stockpiles
|
|
|
667
|
|
|
|
611
|
|
Other
current assets
|
|
|
104
|
|
|
|
386
|
|
Total
current assets
|
|
|
7,433
|
|
|
|
5,233
|
|
Property,
plant, equipment and development costs, net
|
|
|
16,195
|
|
|
|
16,002
|
|
Long-term
mill and leach stockpiles
|
|
|
1,321
|
|
|
|
1,145
|
|
Intangible
assets, net
|
|
|
347
|
|
|
|
364
|
|
Other
assets
|
|
|
700
|
|
|
|
609
|
|
Total
assets
|
|
$
|
25,996
|
|
|
$
|
23,353
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES
AND EQUITY
|
|
|
|
|
|
|
|
|
Current
liabilities:
|
|
|
|
|
|
|
|
|
Accounts
payable and accrued liabilities
|
|
$
|
2,038
|
|
|
$
|
2,722
|
|
Accrued
income taxes
|
|
|
474
|
|
|
|
163
|
|
Current
portion of reclamation and environmental obligations
|
|
|
214
|
|
|
|
162
|
|
Rio
Tinto share of joint venture cash flows
|
|
|
161
|
|
|
|
–
|
|
Dividends
payable
|
|
|
99
|
|
|
|
44
|
|
Current
portion of long-term debt and short-term borrowings
|
|
|
16
|
|
|
|
67
|
|
Total
current liabilities
|
|
|
3,002
|
|
|
|
3,158
|
|
Long-term
debt, less current portion
|
|
|
6,330
|
|
|
|
7,284
|
|
Deferred
income taxes
|
|
|
2,503
|
|
|
|
2,339
|
|
Reclamation
and environmental obligations, less current portion
|
|
|
1,981
|
|
|
|
1,951
|
|
Other
liabilities
|
|
|
1,423
|
|
|
|
1,520
|
|
Total
liabilities
|
|
|
15,239
|
|
|
|
16,252
|
|
|
|
|
|
|
|
|
|
|
Equity:
|
|
|
|
|
|
|
|
|
FCX
stockholders’ equity:
|
|
|
|
|
|
|
|
|
5½%
Convertible Perpetual Preferred Stock, 1 shares issued
|
|
|
|
|
|
|
|
|
and
outstanding at December 31, 2008
|
|
|
–
|
|
|
|
832
|
|
6¾%
Mandatory Convertible Preferred Stock, 29 shares issued
|
|
|
|
|
|
|
|
|
and
outstanding
|
|
|
2,875
|
|
|
|
2,875
|
|
Common
stock, par value $0.10, 552 shares and 505 shares
|
|
|
|
|
|
|
|
|
issued,
respectively
|
|
|
55
|
|
|
|
51
|
|
Capital
in excess of par value
|
|
|
15,680
|
|
|
|
13,989
|
|
Accumulated
deficit
|
|
|
(5,805
|
)
|
|
|
(8,267
|
)
|
Accumulated
other comprehensive loss
|
|
|
(273
|
)
|
|
|
(305
|
)
|
Common
stock held in treasury – 122 shares and 121 shares,
|
|
|
|
|
|
|
|
|
at
cost
|
|
|
(3,413
|
)
|
|
|
(3,402
|
)
|
Total
FCX stockholders’ equity
|
|
|
9,119
|
|
|
|
5,773
|
|
Noncontrolling
interests
|
|
|
1,638
|
|
|
|
1,328
|
|
Total
equity
|
|
|
10,757
|
|
|
|
7,101
|
|
Total
liabilities and equity
|
|
$
|
25,996
|
|
|
$
|
23,353
|
|
|
|
|
|
|
|
|
|
|
The
accompanying Notes to Consolidated Financial Statements are an integral part of
these financial statements.
FREEPORT-McMoRan
COPPER & GOLD INC.
CONSOLIDATED
STATEMENTS OF EQUITY
|
|
FCX
Stockholders’ Equity
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumu-
|
|
|
|
|
|
|
|
|
|
|
|
|
Convertible
|
|
Mandatory
|
|
|
|
|
|
|
|
lated
|
|
|
|
|
|
|
|
|
|
|
|
|
Perpetual
|
|
Convertible
|
|
|
|
|
|
Retained
|
|
Other
|
|
Common
Stock
|
|
|
|
|
|
|
|
|
|
|
Preferred
Stock
|
|
Preferred
Stock
|
|
Common
Stock
|
|
|
|
Earnings
|
|
Compre-
|
|
Held
in Treasury
|
|
Total
FCX
|
|
|
|
|
|
|
|
|
Number
|
|
|
|
Number
|
|
|
|
Number
|
|
|
|
Capital
in
|
|
(Accumu-
|
|
hensive
|
|
Number
|
|
|
|
Stock-
|
|
Non-
|
|
|
|
|
|
|
of
|
|
At
Par
|
|
of
|
|
At
Par
|
|
of
|
|
At
Par
|
|
Excess
of
|
|
lated
|
|
Income
|
|
of
|
|
At
|
|
holders’
|
|
controlling
|
|
Total
|
|
|
|
Shares
|
|
Value
|
|
Shares
|
|
Value
|
|
Shares
|
|
Value
|
|
Par
Value
|
|
Deficit)
|
|
(Loss)
|
|
Shares
|
|
Cost
|
|
Equity
|
|
Interests
|
|
Equity
|
|
|
|
(In
Millions)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance
at January 1, 2007
|
|
1
|
|
$
|
1,100
|
|
|
–
|
|
$
|
–
|
|
|
310
|
|
$
|
31
|
|
$
|
2,668
|
|
$
|
1,415
|
|
$
|
(20
|
)
|
|
113
|
|
$
|
(2,749
|
)
|
$
|
2,445
|
|
$
|
213
|
|
$
|
2,658
|
|
Sale
of 6¾% Mandatory Convertible
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Preferred
Stock
|
|
–
|
|
|
–
|
|
|
29
|
|
|
2,875
|
|
|
–
|
|
|
–
|
|
|
(72
|
)
|
|
–
|
|
|
–
|
|
|
–
|
|
|
–
|
|
|
2,803
|
|
|
–
|
|
|
2,803
|
|
Acquisition
of Phelps Dodge
|
|
–
|
|
|
–
|
|
|
–
|
|
|
–
|
|
|
137
|
|
|
14
|
|
|
7,767
|
|
|
–
|
|
|
–
|
|
|
–
|
|
|
–
|
|
|
7,781
|
|
|
1,233
|
|
|
9,014
|
|
Sale
of common stock
|
|
–
|
|
|
–
|
|
|
–
|
|
|
–
|
|
|
47
|
|
|
5
|
|
|
2,811
|
|
|
–
|
|
|
–
|
|
|
–
|
|
|
–
|
|
|
2,816
|
|
|
–
|
|
|
2,816
|
|
Conversions
of 7% Convertible Senior Notes
|
|
–
|
|
|
–
|
|
|
–
|
|
|
–
|
|
|
–
|
|
|
–
|
|
|
6
|
|
|
–
|
|
|
–
|
|
|
–
|
|
|
–
|
|
|
6
|
|
|
–
|
|
|
6
|
|
Exercised
and issued stock-based awards
|
|
–
|
|
|
–
|
|
|
–
|
|
|
–
|
|
|
3
|
|
|
–
|
|
|
131
|
|
|
–
|
|
|
–
|
|
|
–
|
|
|
–
|
|
|
131
|
|
|
–
|
|
|
131
|
|
Stock-based
compensation
|
|
–
|
|
|
–
|
|
|
–
|
|
|
–
|
|
|
–
|
|
|
–
|
|
|
86
|
|
|
–
|
|
|
–
|
|
|
–
|
|
|
–
|
|
|
86
|
|
|
–
|
|
|
86
|
|
Tax
benefit for stock-based awards
|
|
–
|
|
|
–
|
|
|
–
|
|
|
–
|
|
|
–
|
|
|
–
|
|
|
10
|
|
|
–
|
|
|
–
|
|
|
–
|
|
|
–
|
|
|
10
|
|
|
–
|
|
|
10
|
|
Tender
of shares for stock-based awards
|
|
–
|
|
|
–
|
|
|
–
|
|
|
–
|
|
|
–
|
|
|
–
|
|
|
–
|
|
|
–
|
|
|
–
|
|
|
1
|
|
|
(92
|
)
|
|
(92
|
)
|
|
–
|
|
|
(92
|
)
|
Cumulative
effect adjustment to initially
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
apply
new accounting guidance
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
associated
with income taxes
|
|
–
|
|
|
–
|
|
|
–
|
|
|
–
|
|
|
–
|
|
|
–
|
|
|
–
|
|
|
4
|
|
|
–
|
|
|
–
|
|
|
–
|
|
|
4
|
|
|
1
|
|
|
5
|
|
Purchase
of additional interest in subsidiaries
|
|
–
|
|
|
–
|
|
|
–
|
|
|
–
|
|
|
–
|
|
|
–
|
|
|
–
|
|
|
–
|
|
|
–
|
|
|
–
|
|
|
–
|
|
|
–
|
|
|
(11
|
)
|
|
(11
|
)
|
Dividends
on common stock
|
|
–
|
|
|
–
|
|
|
–
|
|
|
–
|
|
|
–
|
|
|
–
|
|
|
–
|
|
|
(587
|
)
|
|
–
|
|
|
–
|
|
|
–
|
|
|
(587
|
)
|
|
–
|
|
|
(587
|
)
|
Dividends
on preferred stock
|
|
–
|
|
|
–
|
|
|
–
|
|
|
–
|
|
|
–
|
|
|
–
|
|
|
–
|
|
|
(208
|
)
|
|
–
|
|
|
–
|
|
|
–
|
|
|
(208
|
)
|
|
–
|
|
|
(208
|
)
|
Distributions
to noncontrolling interests
|
|
–
|
|
|
–
|
|
|
–
|
|
|
–
|
|
|
–
|
|
|
–
|
|
|
–
|
|
|
–
|
|
|
–
|
|
|
–
|
|
|
–
|
|
|
–
|
|
|
(967
|
)
|
|
(967
|
)
|
Contributions
from noncontrolling interests
|
|
–
|
|
|
–
|
|
|
–
|
|
|
–
|
|
|
–
|
|
|
–
|
|
|
–
|
|
|
–
|
|
|
–
|
|
|
–
|
|
|
–
|
|
|
–
|
|
|
4
|
|
|
4
|
|
Sale
of Phelps Dodge International
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Corporation
|
|
–
|
|
|
–
|
|
|
–
|
|
|
–
|
|
|
–
|
|
|
–
|
|
|
–
|
|
|
–
|
|
|
–
|
|
|
–
|
|
|
–
|
|
|
–
|
|
|
(38
|
)
|
|
(38
|
)
|
Comprehensive
income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
income
|
|
–
|
|
|
–
|
|
|
–
|
|
|
–
|
|
|
–
|
|
|
–
|
|
|
–
|
|
|
2,977
|
|
|
–
|
|
|
–
|
|
|
–
|
|
|
2,977
|
|
|
802
|
|
|
3,779
|
|
Other
comprehensive income (loss),
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
net
of taxes:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unrealized
gains on securities
|
|
–
|
|
|
–
|
|
|
–
|
|
|
–
|
|
|
–
|
|
|
–
|
|
|
–
|
|
|
–
|
|
|
2
|
|
|
–
|
|
|
–
|
|
|
2
|
|
|
–
|
|
|
2
|
|
Translation
adjustment
|
|
–
|
|
|
–
|
|
|
–
|
|
|
–
|
|
|
–
|
|
|
–
|
|
|
–
|
|
|
–
|
|
|
(3
|
)
|
|
–
|
|
|
–
|
|
|
(3
|
)
|
|
1
|
|
|
(2
|
)
|
Change
in unrealized derivatives’
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
fair
value
|
|
–
|
|
|
–
|
|
|
–
|
|
|
–
|
|
|
–
|
|
|
–
|
|
|
–
|
|
|
–
|
|
|
(3
|
)
|
|
–
|
|
|
–
|
|
|
(3
|
)
|
|
(1
|
)
|
|
(4
|
)
|
Reclassification
to earnings
|
|
–
|
|
|
–
|
|
|
–
|
|
|
–
|
|
|
–
|
|
|
–
|
|
|
–
|
|
|
–
|
|
|
7
|
|
|
–
|
|
|
–
|
|
|
7
|
|
|
1
|
|
|
8
|
|
Defined
benefit plans:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
gain during period, net of
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
taxes
of $34 million
|
|
–
|
|
|
–
|
|
|
–
|
|
|
–
|
|
|
–
|
|
|
–
|
|
|
–
|
|
|
–
|
|
|
53
|
|
|
–
|
|
|
–
|
|
|
53
|
|
|
1
|
|
|
54
|
|
Amortization
of unrecognized amounts
|
|
–
|
|
|
–
|
|
|
–
|
|
|
–
|
|
|
–
|
|
|
–
|
|
|
–
|
|
|
–
|
|
|
6
|
|
|
–
|
|
|
–
|
|
|
6
|
|
|
–
|
|
|
6
|
|
Other
comprehensive income
|
|
–
|
|
|
–
|
|
|
–
|
|
|
–
|
|
|
–
|
|
|
–
|
|
|
–
|
|
|
–
|
|
|
62
|
|
|
–
|
|
|
–
|
|
|
62
|
|
|
2
|
|
|
64
|
|
Total
comprehensive income
|
|
–
|
|
|
–
|
|
|
–
|
|
|
–
|
|
|
–
|
|
|
–
|
|
|
–
|
|
|
–
|
|
|
–
|
|
|
–
|
|
|
–
|
|
|
3,039
|
|
|
804
|
|
|
3,843
|
|
Balance
at December 31, 2007
|
|
1
|
|
$
|
1,100
|
|
|
29
|
|
$
|
2,875
|
|
|
497
|
|
$
|
50
|
|
$
|
13,407
|
|
$
|
3,601
|
|
$
|
42
|
|
|
114
|
|
$
|
(2,841
|
)
|
$
|
18,234
|
|
$
|
1,239
|
|
$
|
19,473
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
FREEPORT-McMoRan
COPPER & GOLD INC.
CONSOLIDATED
STATEMENTS OF EQUITY
(continued)
|
FCX
Stockholders’ Equity
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumu-
|
|
|
|
|
|
|
|
|
|
|
|
Convertible
|
|
Mandatory
|
|
|
|
|
|
|
|
lated
|
|
|
|
|
|
|
|
|
|
|
|
Perpetual
|
|
Convertible
|
|
|
|
|
|
Retained
|
|
Other
|
|
Common
Stock
|
|
|
|
|
|
|
|
|
|
Preferred
Stock
|
|
Preferred
Stock
|
|
Common
Stock
|
|
|
|
Earnings
|
|
Compre-
|
|
Held
in Treasury
|
|
Total
FCX
|
|
|
|
|
|
|
|
Number
|
|
|
|
Number
|
|
|
|
Number
|
|
|
|
Capital
in
|
|
(Accumu-
|
|
hensive
|
|
Number
|
|
|
|
Stock-
|
|
Non-
|
|
|
|
|
|
of
|
|
At
Par
|
|
of
|
|
At
Par
|
|
of
|
|
At
Par
|
|
Excess
of
|
|
lated
|
|
Income
|
|
of
|
|
At
|
|
holders’
|
|
controlling
|
|
Total
|
|
|
Shares
|
|
Value
|
|
Shares
|
|
Value
|
|
Shares
|
|
Value
|
|
Par
Value
|
|
Deficit)
|
|
(Loss)
|
|
Shares
|
|
Cost
|
|
Equity
|
|
Interests
|
|
Equity
|
|
|
(In
Millions)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance
at December 31, 2007
|
1
|
|
$
|
1,100
|
|
|
29
|
|
$
|
2,875
|
|
|
497
|
|
$
|
50
|
|
$
|
13,407
|
|
$
|
3,601
|
|
$
|
42
|
|
|
114
|
|
$
|
(2,841
|
)
|
$
|
18,234
|
|
$
|
1,239
|
|
$
|
19,473
|
|
Conversions
of 5½% Convertible
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Perpetual
Preferred Stock
|
–
|
|
|
(268
|
)
|
|
–
|
|
|
–
|
|
|
7
|
|
|
1
|
|
|
290
|
|
|
–
|
|
|
–
|
|
|
–
|
|
|
–
|
|
|
23
|
|
|
–
|
|
|
23
|
|
Exercised
and issued stock-based awards
|
–
|
|
|
–
|
|
|
–
|
|
|
–
|
|
|
1
|
|
|
–
|
|
|
179
|
|
|
–
|
|
|
–
|
|
|
–
|
|
|
–
|
|
|
179
|
|
|
–
|
|
|
179
|
|
Stock-based
compensation
|
–
|
|
|
–
|
|
|
–
|
|
|
–
|
|
|
–
|
|
|
–
|
|
|
100
|
|
|
–
|
|
|
–
|
|
|
–
|
|
|
–
|
|
|
100
|
|
|
–
|
|
|
100
|
|
Tax
benefit for stock-based awards
|
–
|
|
|
–
|
|
|
–
|
|
|
–
|
|
|
–
|
|
|
–
|
|
|
13
|
|
|
–
|
|
|
–
|
|
|
–
|
|
|
–
|
|
|
13
|
|
|
–
|
|
|
13
|
|
Tender
of shares for stock-based awards
|
–
|
|
|
–
|
|
|
–
|
|
|
–
|
|
|
–
|
|
|
–
|
|
|
–
|
|
|
–
|
|
|
–
|
|
|
1
|
|
|
(61
|
)
|
|
(61
|
)
|
|
–
|
|
|
(61
|
)
|
Common
stock purchased
|
–
|
|
|
–
|
|
|
–
|
|
|
–
|
|
|
–
|
|
|
–
|
|
|
–
|
|
|
–
|
|
|
–
|
|
|
6
|
|
|
(500
|
)
|
|
(500
|
)
|
|
–
|
|
|
(500
|
)
|
Dividends
on common stock
|
–
|
|
|
–
|
|
|
–
|
|
|
–
|
|
|
–
|
|
|
–
|
|
|
–
|
|
|
(527
|
)
|
|
–
|
|
|
–
|
|
|
–
|
|
|
(527
|
)
|
|
–
|
|
|
(527
|
)
|
Dividends
on preferred stock
|
–
|
|
|
–
|
|
|
–
|
|
|
–
|
|
|
–
|
|
|
–
|
|
|
–
|
|
|
(274
|
)
|
|
–
|
|
|
–
|
|
|
–
|
|
|
(274
|
)
|
|
–
|
|
|
(274
|
)
|
Distributions
to noncontrolling interests
|
–
|
|
|
–
|
|
|
–
|
|
|
–
|
|
|
–
|
|
|
–
|
|
|
–
|
|
|
–
|
|
|
–
|
|
|
–
|
|
|
–
|
|
|
–
|
|
|
(730
|
)
|
|
(730
|
)
|
Contributions
from noncontrolling interests
|
–
|
|
|
–
|
|
|
–
|
|
|
–
|
|
|
–
|
|
|
–
|
|
|
–
|
|
|
–
|
|
|
–
|
|
|
–
|
|
|
–
|
|
|
–
|
|
|
201
|
|
|
201
|
|
Comprehensive
income (loss):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
income (loss)
|
–
|
|
|
–
|
|
|
–
|
|
|
–
|
|
|
–
|
|
|
–
|
|
|
–
|
|
|
(11,067
|
)
|
|
–
|
|
|
–
|
|
|
–
|
|
|
(11,067
|
)
|
|
617
|
|
|
(10,450
|
)
|
Other
comprehensive income (loss),
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
net
of taxes:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unrealized
losses on securities
|
–
|
|
|
–
|
|
|
–
|
|
|
–
|
|
|
–
|
|
|
–
|
|
|
–
|
|
|
–
|
|
|
(9
|
)
|
|
–
|
|
|
–
|
|
|
(9
|
)
|
|
–
|
|
|
(9
|
)
|
Translation
adjustment
|
–
|
|
|
–
|
|
|
–
|
|
|
–
|
|
|
–
|
|
|
–
|
|
|
–
|
|
|
–
|
|
|
(4
|
)
|
|
–
|
|
|
–
|
|
|
(4
|
)
|
|
–
|
|
|
(4
|
)
|
Defined
benefit plans:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
gain (loss) during period, net
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
of
taxes of $190 million
|
–
|
|
|
–
|
|
|
–
|
|
|
–
|
|
|
–
|
|
|
–
|
|
|
–
|
|
|
–
|
|
|
(341
|
)
|
|
–
|
|
|
–
|
|
|
(341
|
)
|
|
1
|
|
|
(340
|
)
|
Amortization
of unrecognized amounts
|
–
|
|
|
–
|
|
|
–
|
|
|
–
|
|
|
–
|
|
|
–
|
|
|
–
|
|
|
–
|
|
|
7
|
|
|
–
|
|
|
–
|
|
|
7
|
|
|
–
|
|
|
7
|
|
Other
comprehensive income (loss)
|
–
|
|
|
–
|
|
|
–
|
|
|
–
|
|
|
–
|
|
|
–
|
|
|
–
|
|
|
–
|
|
|
(347
|
)
|
|
–
|
|
|
–
|
|
|
(347
|
)
|
|
1
|
|
|
(346
|
)
|
Total
comprehensive income (loss)
|
–
|
|
|
–
|
|
|
–
|
|
|
–
|
|
|
–
|
|
|
–
|
|
|
–
|
|
|
–
|
|
|
–
|
|
|
–
|
|
|
–
|
|
|
(11,414
|
)
|
|
618
|
|
|
(10,796
|
)
|
Balance
at December 31, 2008
|
1
|
|
$
|
832
|
|
|
29
|
|
$
|
2,875
|
|
|
505
|
|
$
|
51
|
|
$
|
13,989
|
|
$
|
(8,267
|
)
|
$
|
(305
|
)
|
|
121
|
|
$
|
(3,402
|
)
|
$
|
5,773
|
|
$
|
1,328
|
|
$
|
7,101
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
FREEPORT-McMoRan
COPPER & GOLD INC.
CONSOLIDATED
STATEMENTS OF EQUITY
(continued)
|
|
FCX
Stockholders’ Equity
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumu-
|
|
|
|
|
|
|
|
|
|
|
|
|
Convertible
|
|
Mandatory
|
|
|
|
|
|
|
|
lated
|
|
|
|
|
|
|
|
|
|
|
|
|
Perpetual
|
|
Convertible
|
|
|
|
|
|
Retained
|
|
Other
|
|
Common
Stock
|
|
|
|
|
|
|
|
|
|
|
Preferred
Stock
|
|
Preferred
Stock
|
|
Common
Stock
|
|
|
|
Earnings
|
|
Compre-
|
|
Held
in Treasury
|
|
Total
FCX
|
|
|
|
|
|
|
|
|
Number
|
|
|
|
Number
|
|
|
|
Number
|
|
|
|
Capital
in
|
|
(Accumu-
|
|
hensive
|
|
Number
|
|
|
|
Stock-
|
|
Non-
|
|
|
|
|
|
|
of
|
|
At
Par
|
|
of
|
|
At
Par
|
|
of
|
|
At
Par
|
|
Excess
of
|
|
lated
|
|
Income
|
|
of
|
|
At
|
|
holders’
|
|
controlling
|
|
Total
|
|
|
|
Shares
|
|
Value
|
|
Shares
|
|
Value
|
|
Shares
|
|
Value
|
|
Par
Value
|
|
Deficit)
|
|
(Loss)
|
|
Shares
|
|
Cost
|
|
Equity
|
|
Interests
|
|
Equity
|
|
|
|
(In
Millions)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance
at December 31, 2008
|
|
1
|
|
$
|
832
|
|
|
29
|
|
$
|
2,875
|
|
|
505
|
|
$
|
51
|
|
$
|
13,989
|
|
$
|
(8,267
|
)
|
$
|
(305
|
)
|
|
121
|
|
$
|
(3,402
|
)
|
$
|
5,773
|
|
$
|
1,328
|
|
$
|
7,101
|
|
Conversions
and redemptions of 5½%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Convertible
Perpetual Preferred Stock
|
|
(1
|
)
|
|
(832
|
)
|
|
–
|
|
|
–
|
|
|
18
|
|
|
2
|
|
|
829
|
|
|
–
|
|
|
–
|
|
|
–
|
|
|
–
|
|
|
(1
|
)
|
|
–
|
|
|
(1
|
)
|
Sale
of common stock
|
|
–
|
|
|
–
|
|
|
–
|
|
|
–
|
|
|
27
|
|
|
2
|
|
|
738
|
|
|
–
|
|
|
–
|
|
|
–
|
|
|
–
|
|
|
740
|
|
|
–
|
|
|
740
|
|
Exercised
and issued stock-based awards
|
|
–
|
|
|
–
|
|
|
–
|
|
|
–
|
|
|
2
|
|
|
–
|
|
|
18
|
|
|
–
|
|
|
–
|
|
|
–
|
|
|
–
|
|
|
18
|
|
|
–
|
|
|
18
|
|
Stock-based
compensation
|
|
–
|
|
|
–
|
|
|
–
|
|
|
–
|
|
|
–
|
|
|
–
|
|
|
100
|
|
|
–
|
|
|
–
|
|
|
–
|
|
|
–
|
|
|
100
|
|
|
–
|
|
|
100
|
|
Tax
benefit for stock-based awards
|
|
–
|
|
|
–
|
|
|
–
|
|
|
–
|
|
|
–
|
|
|
–
|
|
|
6
|
|
|
–
|
|
|
–
|
|
|
–
|
|
|
–
|
|
|
6
|
|
|
–
|
|
|
6
|
|
Tender
of shares for stock-based awards
|
|
–
|
|
|
–
|
|
|
–
|
|
|
–
|
|
|
–
|
|
|
–
|
|
|
–
|
|
|
–
|
|
|
–
|
|
|
1
|
|
|
(11
|
)
|
|
(11
|
)
|
|
–
|
|
|
(11
|
)
|
Dividends
on common stock
|
|
–
|
|
|
–
|
|
|
–
|
|
|
–
|
|
|
–
|
|
|
–
|
|
|
–
|
|
|
(65
|
)
|
|
–
|
|
|
–
|
|
|
–
|
|
|
(65
|
)
|
|
–
|
|
|
(65
|
)
|
Dividends
on preferred stock
|
|
–
|
|
|
–
|
|
|
–
|
|
|
–
|
|
|
–
|
|
|
–
|
|
|
–
|
|
|
(222
|
)
|
|
–
|
|
|
–
|
|
|
–
|
|
|
(222
|
)
|
|
–
|
|
|
(222
|
)
|
Distributions
to noncontrolling interests
|
|
–
|
|
|
–
|
|
|
–
|
|
|
–
|
|
|
–
|
|
|
–
|
|
|
–
|
|
|
–
|
|
|
–
|
|
|
–
|
|
|
–
|
|
|
–
|
|
|
(535
|
)
|
|
(535
|
)
|
Contributions
from noncontrolling interests
|
|
–
|
|
|
–
|
|
|
–
|
|
|
–
|
|
|
–
|
|
|
–
|
|
|
–
|
|
|
–
|
|
|
–
|
|
|
–
|
|
|
–
|
|
|
–
|
|
|
59
|
|
|
59
|
|
Comprehensive
income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
income
|
|
–
|
|
|
–
|
|
|
–
|
|
|
–
|
|
|
–
|
|
|
–
|
|
|
–
|
|
|
2,749
|
|
|
–
|
|
|
–
|
|
|
–
|
|
|
2,749
|
|
|
785
|
|
|
3,534
|
|
Other
comprehensive income,
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
net
of taxes:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unrealized
gains on securities
|
|
–
|
|
|
–
|
|
|
–
|
|
|
–
|
|
|
–
|
|
|
–
|
|
|
–
|
|
|
–
|
|
|
3
|
|
|
–
|
|
|
–
|
|
|
3
|
|
|
–
|
|
|
3
|
|
Translation
adjustment
|
|
–
|
|
|
–
|
|
|
–
|
|
|
–
|
|
|
–
|
|
|
–
|
|
|
–
|
|
|
–
|
|
|
3
|
|
|
–
|
|
|
–
|
|
|
3
|
|
|
–
|
|
|
3
|
|
Defined
benefit plans:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
gain during period, net of
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
taxes
of $51 million
|
|
–
|
|
|
–
|
|
|
–
|
|
|
–
|
|
|
–
|
|
|
–
|
|
|
–
|
|
|
–
|
|
|
8
|
|
|
–
|
|
|
–
|
|
|
8
|
|
|
1
|
|
|
9
|
|
Amortization
of unrecognized amounts
|
|
–
|
|
|
–
|
|
|
–
|
|
|
–
|
|
|
–
|
|
|
–
|
|
|
–
|
|
|
–
|
|
|
18
|
|
|
–
|
|
|
–
|
|
|
18
|
|
|
–
|
|
|
18
|
|
Other
comprehensive income
|
|
–
|
|
|
–
|
|
|
–
|
|
|
–
|
|
|
–
|
|
|
–
|
|
|
–
|
|
|
–
|
|
|
32
|
|
|
–
|
|
|
–
|
|
|
32
|
|
|
1
|
|
|
33
|
|
Total
comprehensive income
|
|
–
|
|
|
–
|
|
|
–
|
|
|
–
|
|
|
–
|
|
|
–
|
|
|
–
|
|
|
–
|
|
|
–
|
|
|
–
|
|
|
–
|
|
|
2,781
|
|
|
786
|
|
|
3,567
|
|
Balance
at December 31, 2009
|
|
–
|
|
$
|
–
|
|
|
29
|
|
$
|
2,875
|
|
|
552
|
|
$
|
55
|
|
$
|
15,680
|
|
$
|
(5,805
|
)
|
$
|
(273
|
)
|
|
122
|
|
$
|
(3,413
|
)
|
$
|
9,119
|
|
$
|
1,638
|
|
$
|
10,757
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The
accompanying Notes to Consolidated Financial Statements are an integral part of
these financial statements.
FREEPORT-McMoRan
COPPER & GOLD INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1. SUMMARY OF SIGNIFICANT
ACCOUNTING POLICIES
Basis of
Presentation. The consolidated financial statements of
Freeport-McMoRan Copper & Gold Inc. (FCX) include the accounts of those
subsidiaries where FCX directly or indirectly has more than 50 percent of the
voting rights and has the right to control significant management decisions. The
most significant entities that FCX consolidates include its 90.64 percent-owned
subsidiary PT Freeport Indonesia and its wholly owned subsidiaries,
Freeport-McMoRan Corporation and Atlantic Copper, S.A. (Atlantic Copper). FCX
acquired Phelps Dodge Corporation (Phelps Dodge) on March 19, 2007. FCX’s
results of operations include Phelps Dodge’s results beginning March 20, 2007
(refer to Note 18 for further discussion). FCX changed Phelps Dodge’s legal name
to Freeport-McMoRan Corporation (FMC) in 2008; therefore, references to FMC and
Phelps Dodge in these notes represent the same entity. FCX’s unincorporated
joint ventures with Rio Tinto plc (Rio Tinto) and Sumitomo Metal Mining Arizona,
Inc. (Sumitomo) are reflected using the proportionate consolidation method
(refer to Note 3 for further discussion). All significant intercompany
transactions have been eliminated. Dollar amounts in tables are stated in
millions, except per share amounts.
Investments
in unconsolidated companies owned 20 percent or more are recorded using the
equity method. Investments in companies owned less than 20 percent, and for
which FCX does not exercise significant influence, are carried at
cost.
Use of
Estimates. The preparation of FCX’s financial statements in
conformity with accounting principles generally accepted in the United States
(U.S.) requires management to make estimates and assumptions that affect the
amounts reported in these financial statements and accompanying notes. The more
significant areas requiring the use of management estimates include fair values
of assets acquired and liabilities assumed in the acquisition of Phelps Dodge;
mineral reserve estimation; useful asset lives for depreciation, depletion and
amortization; reclamation and closure costs; environmental obligations;
estimates of recoverable copper in mill and leach stockpiles; pension,
postretirement, postemployment and other employee benefits; deferred taxes and
valuation allowances; reserves for contingencies and litigation; and asset
impairment, including estimates used to derive future cash flows associated with
those assets. Actual results could differ from those estimates.
Foreign
Currencies. For foreign subsidiaries whose functional currency
is the U.S. dollar, monetary assets and liabilities denominated in the local
currency are translated at current exchange rates, and non-monetary assets and
liabilities, such as inventories, property, plant, equipment and development
costs, are translated at historical rates. Gains and losses resulting from
translation of such account balances are included in operating results, as are
gains and losses from foreign currency transactions.
For
foreign subsidiaries whose functional currency is the local currency, assets and
liabilities are translated at current exchange rates, while revenues and
expenses are translated at average rates in effect for the period. The related
translation gains and losses are included in accumulated other comprehensive
income (loss) within equity.
Cash
Equivalents. Highly liquid investments purchased with
maturities of three months or less are considered cash equivalents.
Inventories. The
largest components of inventories include finished goods (primarily concentrates
and cathodes) at mining operations, concentrates and work-in-process at Atlantic
Copper’s smelting and refining operations, and materials and supplies
inventories (refer to Note 4 for further discussion). Inventories of materials
and supplies, as well as salable products, are stated at the lower of
weighted-average cost or market. Costs of finished goods and work-in-process
(i.e., not materials
and supplies) inventories include labor and benefits, supplies, energy,
depreciation, depletion, amortization, site overhead costs, and other necessary
costs associated with the extraction and processing of ore, including, depending
on the process, mining, haulage, milling, concentrating, smelting, leaching,
solution extraction, refining, roasting and chemical processing. Corporate
general and administrative costs are not included in inventory
costs.
Work-in-Process. In-process
inventories represent materials that are currently in the process of being
converted to a salable product. Conversion processes for mining operations vary
depending on the nature of the copper ore and the specific mining operation. For
sulfide ores, processing includes milling and concentrating and results in
the
production of copper and molybdenum concentrates or, alternatively, copper
cathode by concentrate leaching. For oxide ores and certain secondary sulfide
ores, processing includes leaching of stockpiles, solution extraction and
electrowinning (SX/EW) and results in the production of copper cathodes.
In-process material is measured based on assays of the material included in
these processes and projected recoveries. In-process inventories are valued
based on the costs incurred to various points in the process, including
depreciation relating to associated process facilities. For Atlantic Copper,
in-process inventories represent copper concentrates at various stages of
conversion into anodes and cathodes. Atlantic Copper’s in-process inventories
are valued at the weighted-average cost of the material fed to the smelting and
refining process plus in-process conversion costs.
Finished Goods. Finished
goods include salable products (e.g., copper and molybdenum
concentrates, copper anodes, copper cathodes, copper rod, copper wire,
molybdenum oxide, high-purity molybdenum chemicals and other metallurgical
products). Finished goods are valued based on the weighted-average cost of
source material plus applicable conversion costs relating to associated process
facilities.
Mill and Leach
Stockpiles. Mill and leach stockpiles are stated at the lower
of weighted-average cost or market. Both mill and leach stockpiles generally
contain lower-grade ores that have been extracted from the ore body and are
available for copper recovery. For mill stockpiles, recovery is through milling,
concentrating, smelting and refining or, alternatively, by concentrate leaching.
For leach stockpiles, recovery is through exposure to acidic solutions that
dissolve contained copper and deliver it in solution to extraction processing
facilities. The recorded cost of mill and leach stockpiles includes mining and
haulage costs incurred to deliver ore to stockpiles, depreciation, depletion,
amortization and site overhead costs.
Because
it is generally impracticable to determine copper contained in mill and leach
stockpiles by physical count, reasonable estimation methods are employed. The
quantity of material delivered to mill and leach stockpiles is based on surveyed
volumes of mined material and daily production records. Sampling and assaying of
blasthole cuttings determine the estimated copper grade of the material
delivered to mill and leach stockpiles.
Expected
copper recovery rates for mill stockpiles are determined by metallurgical
testing. The recoverable copper in mill stockpiles, once entered into the
production process, can be produced into copper concentrate almost
immediately.
Expected
copper recovery rates for leach stockpiles are determined using small-scale
laboratory tests, small- to large-scale column testing (which simulates the
production-scale process), historical trends and other factors, including
mineralogy of the ore and rock type. Ultimate recovery of copper contained in
leach stockpiles can vary significantly from a low percentage to more than 90
percent depending on several variables, including type of copper recovery,
mineralogy and particle size of the rock. For newly placed material on active
stockpiles, as much as 70 percent of the copper ultimately recoverable may be
extracted during the first year, and the remaining copper may be recovered over
many years.
Processes
and recovery rates are monitored regularly, and recovery rate estimates are
adjusted periodically as additional information becomes available and as related
technology changes.
Property, Plant, Equipment and
Development Costs. Property, plant, equipment and development
costs are carried at cost. Mineral exploration costs, as well as drilling and
other costs incurred for the purpose of converting mineral resources to proven
and probable reserves or identifying new mineral resources at development or
production stage properties, are charged to expense as incurred. Development
costs are capitalized beginning after proven and probable reserves have been
established. Development costs include costs incurred resulting from mine
pre-production activities undertaken to gain access to proven and probable
reserves including shafts, adits, drifts, ramps, permanent excavations,
infrastructure and removal of overburden. Additionally, interest expense
allocable to the cost of developing mining properties and to constructing new
facilities is capitalized until assets are ready for their intended
use.
Expenditures
for replacements and improvements are capitalized. Costs related to periodic
scheduled maintenance (i.e., turnarounds) are
expensed as incurred. Depreciation for mining and milling life-of-mine assets,
infrastructure and other common costs is determined using the unit-of-production
method based on total estimated recoverable proven and probable copper reserves
(for primary copper mines) and proven and probable molybdenum reserves (for the
primary molybdenum mine). Development costs and acquisition costs for proven and
probable reserves that relate to a specific ore body are depreciated using the
unit-of-production method based on estimated recoverable proven and probable
reserves for the ore body benefited. Depreciation, depletion and
amortization
using the unit-of-production method is recorded upon extraction of the
recoverable copper or molybdenum from the ore body, at which time it is
allocated to inventory cost and then included as a component of cost of goods
sold. Other assets are depreciated on a straight-line basis over estimated
useful lives of up to 30 years for buildings and three to 20 years for machinery
and equipment, and mobile equipment.
Included
in property, plant, equipment and development costs is value beyond proven and
probable reserves (VBPP) primarily resulting from FCX’s acquisition of Phelps
Dodge. The concept of VBPP has been interpreted differently by different mining
companies. FCX’s VBPP is attributable to (i) mineralized material, which
includes measured and indicated amounts, that FCX believes could be brought into
production with the establishment or modification of required permits and should
market conditions and technical assessments warrant, (ii) inferred mineral
resources and (iii) exploration potential, as further defined
below.
Mineralized
material is a mineralized body that has been delineated by appropriately spaced
drilling and/or underground sampling to support reported tonnage and average
grade of minerals. Such a deposit does not qualify as proven and probable
reserves until legal and economic feasibility are confirmed based upon a
comprehensive evaluation of development costs, unit costs, grades, recoveries
and other material factors. Inferred mineral resources are that part of a
mineral resource for which the overall tonnages, grades and mineral contents can
be estimated with a reasonable level of confidence based on geological evidence
and apparent geological and grade continuity after applying economic parameters.
An inferred mineral resource has a lower level of confidence than that applying
to an indicated mineral resource. Exploration potential is the estimated value
of potential mineral deposits that FCX has the legal right to access. The value
assigned to exploration potential was determined by interpreting the known
exploration information and exploration results, including geological data
and/or geological information, that were available as of the acquisition
date.
Carrying
amounts assigned to VBPP are not charged to expense until the VBPP becomes
associated with additional proven and probable reserves and they are produced or
the VBPP is determined to be impaired. Additions to proven and probable reserves
for properties with VBPP will carry with them the value assigned to VBPP at the
date acquired, less any impairment amounts.
Goodwill. FCX
recorded goodwill as a result of the acquisition of Phelps Dodge. Goodwill had
an indefinite useful life and was not amortized, but rather was tested for
impairment at least annually, unless events occurred or circumstances changed
between annual tests that would more likely than not reduce the fair value of a
related reporting unit below its carrying amount. FCX used discounted cash flow
models to determine if the carrying value of the reporting unit was less than
the fair value of the reporting unit. FCX’s annual impairment test in the fourth
quarter of 2008 resulted in the full impairment of goodwill (refer to Note 6 for
further discussion).
Intangible Assets and
Liabilities. FCX recorded intangible assets and liabilities as
a result of the acquisition of Phelps Dodge. Indefinite-lived intangibles
primarily include water rights. Definite-lived intangibles include favorable and
unfavorable contracts (primarily related to molybdenum sales contracts,
treatment and refining contract rates, power contracts and tire contracts),
royalty payments, patents and process technology. The fair value of identifiable
intangible assets was estimated based principally upon comparable market
transactions and discounted future cash flow projections. The ranges for
estimated useful lives are one to 10 years for molybdenum sales, treatment and
refining, power and tire contracts; one to 12 years for royalty payments; and
principally 10 to 20 years for patents and process technology. All
indefinite-lived intangible assets are subject to impairment testing at least
annually, unless events occur or circumstances change between annual tests that
would more likely than not reduce the indefinite-lived intangible asset’s fair
value below its carrying value.
Asset
Impairment. FCX reviews and evaluates its long-lived assets
for impairment when events or changes in circumstances indicate that the related
carrying amounts may not be recoverable. Long-lived assets, other than goodwill
and indefinite-lived intangible assets, are evaluated for impairment under the
two-step model. An impairment is considered to exist if total estimated future
cash flows on an undiscounted basis are less than the carrying amount of the
asset. Once it is determined that an impairment exists, an impairment loss is
measured as the amount by which the asset carrying value exceeds its fair value.
Fair value is generally determined using valuation techniques such as estimated
future cash flows.
In
evaluating mining operations’ long-lived assets for recoverability, estimates of
after-tax undiscounted future cash flows of FCX’s individual mining operations
are used, with impairment losses measured by reference to fair value. As quoted
market prices are unavailable for FCX’s individual mining operations, fair value
is determined through the use of discounted estimated future cash flows.
Estimated cash flows used to assess recoverability of
long-lived
assets and measure the fair value of FCX’s mining operations are derived from
current business plans developed using near-term price forecasts reflective of
the current price environment and management’s projections for long-term average
metal prices. Estimates of future cash flows include near and long-term metal
price assumptions; estimates of commodity-based and other input costs; proven
and probable reserve estimates, including any costs to develop the reserves and
the timing of producing the reserves; and the use of appropriate current
escalation and discount rates.
Deferred Mining
Costs. Stripping costs (i.e., the costs of removing
overburden and waste material to access mineral deposits) incurred during the
production phase of a mine are considered variable production costs and are
included as a component of inventory produced during the period in which
stripping costs are incurred. Major development expenditures, including
stripping costs to prepare unique and identifiable areas outside the current
mining area for future production that are considered to be pre-production mine
development, are capitalized and amortized on the unit-of-production method
based on estimated recoverable proven and probable reserves for the ore body
benefited. However, where a second or subsequent pit or major expansion is
considered to be a continuation of existing mining activities, stripping costs
are accounted for as a current production cost and a component of the associated
inventory.
Environmental
Expenditures. Environmental expenditures are expensed or
capitalized, depending upon their future economic benefits. Accruals for such
expenditures are recorded when it is probable that obligations have been
incurred and the costs can be reasonably estimated. For closed facilities and
closed portions of operating facilities with environmental obligations, an
environmental obligation is accrued when a decision to close a facility, or a
portion of a facility, is made by management and the environmental obligation is
considered to be probable. Environmental obligations attributed to the
Comprehensive Environmental Response, Compensation, and Liability Act (CERCLA)
or analogous state programs are considered probable when a claim is asserted, or
is probable of assertion, and FCX, or any of its subsidiaries, have been
associated with the site. Other environmental remediation obligations are
considered probable based on specific facts and circumstances. FCX’s estimates
of these costs are based on an evaluation of various factors, including
currently available facts, existing technology, presently enacted laws and
regulations, remediation experience, whether or not FCX is a potentially
responsible party (PRP) and the ability of other PRPs to pay their allocated
portions. With the exception of those obligations assumed in the acquisition of
Phelps Dodge that were recorded at estimated fair values (refer to Note 14 for
further discussion), environmental obligations are recorded on an undiscounted
basis. Where the available information is sufficient to estimate the amount of
the obligation, that estimate has been used. Where the information is only
sufficient to establish a range of probable liability and no point within the
range is more likely than any other, the lower end of the range has been used.
Possible recoveries of some of these costs from other parties are not recognized
in the consolidated financial statements until they become probable. Legal costs
associated with environmental remediation (such as fees to outside law firms for
work relating to determining the extent and type of remedial actions and the
allocation of costs among PRPs) are included as part of the estimated
obligation. Environmental obligations assumed in the acquisition of Phelps
Dodge, which were initially estimated on a discounted basis, are accreted to
full value over time through charges to interest expense. Adjustments to the
obligations are charged to operating income.
Asset Retirement
Obligations. FCX records the fair value of estimated asset
retirement obligations (AROs) associated with tangible long-lived assets in the
period incurred. Retirement obligations associated with long-lived assets are
those for which there is a legal obligation to settle under existing or enacted
law, statute, written or oral contract or by legal construction. These
obligations, which are initially estimated based on discounted cash flow
estimates, are accreted to full value over time through charges to cost of
sales. In addition, asset retirement costs (ARCs) are capitalized as part of the
related asset’s carrying value and are depreciated (primarily on a
unit-of-production basis) over the asset’s respective useful life. Reclamation
costs for future disturbances are recognized as an ARO and as a related ARC in
the period of the disturbance. FCX’s AROs consist primarily of costs associated
with mine reclamation and closure activities. These activities, which are site
specific, generally include costs for earthwork, revegetation, water treatment
and demolition (refer to Note 14 for further discussion).
Income Taxes. FCX
accounts for deferred income taxes utilizing an asset and liability method,
whereby deferred tax assets and liabilities are recognized based on the tax
effects of temporary differences between the financial statements and the tax
basis of assets and liabilities, as measured by current enacted tax rates (refer
to Note 13 for further discussion). When appropriate, FCX evaluates the need for
a valuation allowance to reduce deferred tax assets to estimated recoverable
amounts. The effect on deferred income tax assets and liabilities of a change in
tax rates or laws is recognized in income in the period in which such changes
are enacted.
On
January 1, 2007, FCX adopted new accounting guidance associated with accounting
for uncertainty in income taxes, which prescribes a recognition threshold and
measurement attribute for the financial statement recognition and measurement of
a tax position taken or expected to be taken in a tax return. This guidance also
addresses derecognition, classification, interest and penalties, accounting in
interim periods, disclosure and transition. Upon adoption of this guidance, FCX
recorded a cumulative effect adjustment of $4 million to increase beginning
retained earnings. FCX’s policy associated with uncertain tax positions is to
record accrued interest in interest expense and accrued penalties in other
income and expenses rather than in the provision for income taxes.
Derivative
Instruments. FCX and its subsidiaries have entered into
derivative contracts to manage certain risks resulting from fluctuations in
commodity prices (primarily copper and gold), foreign currency exchange rates
and interest rates by creating offsetting market exposures. Every derivative
instrument (including certain derivative instruments embedded in other
contracts) is recorded in the balance sheet as either an asset or liability
measured at its fair value. The accounting for changes in the fair value of a
derivative instrument depends on the intended use of the derivative and the
resulting designation. Refer to Note 16 for a summary of FCX’s outstanding
derivative instruments at December 31, 2009, and a discussion of FCX’s risk
management strategies for those designated as hedges.
Revenue
Recognition. FCX sells its products pursuant to sales
contracts entered into with its customers. Revenue for all FCX’s products is
recognized when title and risk of loss pass to the customer and when
collectibility is reasonably assured. The passing of title and risk of loss to
the customer is based on terms of the sales contract, generally upon shipment or
delivery of product.
Revenues
from FCX’s concentrate and cathodes sales are recorded based on either 100
percent of a provisional sales price or a final sales price calculated in
accordance with the terms specified in the relevant sales contract. Revenues
from concentrate sales are recorded net of treatment and all refining charges
(including price participation, if applicable, as discussed below) and the
impact of derivative contracts, including the impact of the copper collars
acquired from Phelps Dodge (refer to Note 16 for further discussion). Moreover,
because a portion of the metals contained in copper concentrates is
unrecoverable as a result of the smelting process, FCX’s revenues from
concentrate sales are also recorded net of allowances based on the quantity and
value of these unrecoverable metals. These allowances are a negotiated term of
FCX’s contracts and vary by customer. Treatment and refining charges represent
payments or price adjustments to smelters and refiners and are either fixed or,
in certain cases, vary with the price of copper (referred to as price
participation).
Under the
long-established structure of sales agreements prevalent in the industry, copper
contained in concentrates and cathodes is generally provisionally priced at the
time of shipment. The provisional prices are finalized in a specified future
period (generally one to four months from the shipment date) based on the quoted
London Metal Exchange (LME) or the New York Mercantile Exchange (COMEX) prices.
FCX receives market prices based on prices in the specified future period, and
these sales result in changes recorded to revenues until the specified future
period. FCX records revenues and invoices customers at the time of shipment
based on then-current LME or COMEX prices, which results in an embedded
derivative (i.e., a
pricing mechanism that is finalized after the time of delivery) that is required
to be bifurcated from the host contract. The host contract is the sale of the
metals contained in the concentrates or cathodes at the then-current LME or
COMEX price. FCX applies the normal purchases and normal sales scope exception
in accordance with derivatives and hedge accounting guidance to the host
contract in its concentrate or cathode sales agreements since these contracts do
not allow for net settlement and always result in physical delivery. The
embedded derivative does not qualify for hedge accounting. At December 31, 2009,
consolidated revenues for outstanding provisionally priced copper sales totaled
$1.6 billion. At December 31, 2009, FCX had outstanding provisionally priced
copper sales at its copper mining operations of 378 million pounds of
copper (net of noncontrolling interests), priced at an average of $3.34 per
pound, subject to final pricing over the first several months of 2010 pursuant
to the terms of the sales contracts.
Gold
sales are priced according to individual contract terms, generally the average
London Bullion Market Association price for a specified month near the month of
shipment.
Approximately
90 percent of FCX’s 2009 molybdenum sales were priced based on prices published
in Platts Metals Week,
Ryan’s Notes or Metal Bulletin, plus
conversion premiums for products that undergo additional processing, such as
ferromolybdenum and molybdenum chemical products. The majority of these sales
use the average of the previous month. FCX’s remaining molybdenum sales
generally have pricing that is either based on a fixed price or adjusts within
certain price ranges.
PT
Freeport Indonesia concentrate sales and Tenke Fungurume metal sales are subject
to certain royalties, which are recorded as a reduction to revenues (refer to
Note 15 for further discussion).
Stock-Based
Compensation. As of December 31, 2009, FCX has four
stock-based employee compensation plans and one stock-based director
compensation plan. Compensation costs for share-based payments to employees,
including stock options, are measured at fair value and expensed over the
requisite service period for awards that are expected to vest. Effective January
1, 2006, FCX applied the modified prospective transition method to all past
awards outstanding and unvested as of January 1, 2006, and is recognizing
the associated expense over the remaining vesting period of such awards based on
the fair values previously determined in accordance with the original accounting
guidance for stock-based compensation. The fair value of stock options is
determined using the Black-Scholes-Merton option valuation model. In addition,
for other stock-based awards under the plans, compensation costs are recognized
based on the fair value on the date of grant for restricted stock units and the
intrinsic value on the reporting or exercise date for cash-settled stock
appreciation rights (SARs). FCX includes estimated forfeitures at the time of
grant and revises those estimates in subsequent periods if actual forfeitures
differ from those estimates through the final vesting date of the awards. Refer
to Note 12 for further discussion.
Earnings Per
Share. FCX’s basic net income (loss) per share of common stock
was calculated by dividing net income (loss) attributable to common stockholders
by the weighted-average shares of common stock outstanding during the year. A
reconciliation of net income (loss) and weighted-average shares of common stock
outstanding for purposes of calculating diluted net income (loss) per share for
the years ended December 31, 2009, 2008 and 2007, follows:
|
|
2009
|
|
2008
|
|
2007
|
|
|
|
|
|
|
|
|
|
|
|
|
Income
(loss) from continuing operations
|
|
$
|
3,534
|
|
$
|
(10,450
|
)
|
$
|
3,733
|
|
Income
from continuing operations attributable to
|
|
|
|
|
|
|
|
|
|
|
noncontrolling
interests
|
|
|
(785
|
)
|
|
(617
|
)
|
|
(791
|
)a
|
Preferred
dividends and losses on induced conversions
|
|
|
(222
|
)
|
|
(274
|
)
|
|
(208
|
)
|
Income
from continuing operations attributable to FCX
|
|
|
|
|
|
|
|
|
|
|
common
stockholders
|
|
|
2,527
|
|
|
(11,341
|
)
|
|
2,734
|
|
Plus
income impact of assumed conversion of:
|
|
|
|
|
|
|
|
|
|
|
6¾%
Mandatory Convertible Preferred Stock
|
|
|
194
|
|
|
–
|
b
|
|
147
|
|
5½%
Convertible Perpetual Preferred Stock
|
|
|
28
|
|
|
–
|
c
|
|
61
|
|
Diluted
net income (loss) from continuing operations
|
|
|
|
|
|
|
|
|
|
|
attributable
to FCX common stockholders
|
|
|
2,749
|
|
|
(11,341
|
)
|
|
2,942
|
|
Income
from discontinued operations attributable to FCX
|
|
|
|
|
|
|
|
|
|
|
common
stockholders
|
|
|
–
|
|
|
–
|
|
|
35
|
a
|
Diluted
net income (loss) attributable to FCX common
|
|
|
|
|
|
|
|
|
|
|
stockholders
|
|
$
|
2,749
|
|
$
|
(11,341
|
)
|
$
|
2,977
|
|
Weighted-average
shares of common stock outstanding
|
|
|
414
|
|
|
382
|
|
|
341
|
|
Add
stock issuable upon conversion, exercise or vesting of:
|
|
|
|
|
|
|
|
|
|
|
(refer
to Note 12)
|
|
|
|
|
|
|
|
|
|
|
6¾%
Mandatory Convertible Preferred Stock
|
|
|
39
|
|
|
–
|
b
|
|
30
|
|
5½%
Convertible Perpetual Preferred Stock
|
|
|
13
|
|
|
–
|
c
|
|
23
|
|
Dilutive
stock options
|
|
|
2
|
|
|
–
|
d
|
|
2
|
|
Restricted
stock
|
|
|
1
|
|
|
–
|
e
|
|
1
|
|
Weighted-average
shares of common stock outstanding for
|
|
|
|
|
|
|
|
|
|
|
purposes
of calculating diluted net income (loss) per share
|
|
|
469
|
|
|
382
|
|
|
397
|
|
Diluted
net income (loss) per share attributable to FCX
|
|
|
|
|
|
|
|
|
|
|
common
stockholders:
|
|
|
|
|
|
|
|
|
|
|
Continuing
operations
|
|
$
|
5.86
|
|
$
|
(29.72
|
)
|
$
|
7.41
|
|
Discontinued
operations
|
|
|
–
|
|
|
–
|
|
|
0.09
|
|
Diluted
net income (loss) per share
|
|
$
|
5.86
|
|
$
|
(29.72
|
)
|
$
|
7.50
|
|
|
|
|
|
|
|
|
|
|
|
|
a.
|
Income
from discontinued operations attributable to noncontrolling interests was
$11 million.
|
b.
|
Potential
income impact of $146 million and additional shares of common stock of
approximately 39 million shares were excluded because they were
anti-dilutive.
|
c.
|
Potential
income impact of $45 million and additional shares of common stock of
approximately 23 million shares were excluded because they were
anti-dilutive.
|
d.
|
Potential
additional shares of common stock of approximately 2 million were
anti-dilutive.
|
e.
|
Potential
additional shares of common stock of approximately 1 million were
anti-dilutive.
|
FCX’s
convertible instruments are excluded from the computation of diluted net income
(loss) per share of common stock when including the conversion of these
instruments results in an anti-dilutive effect on earnings per share (refer to
footnotes b and c in the table above).
Outstanding
stock options with exercise prices greater than the average market price of
FCX’s common stock during the period are excluded from the computation of
diluted net income (loss) per share of common stock. There were approximately
six million stock options with a weighted-average exercise price of $72.54
excluded in 2009, approximately two million stock options with a
weighted-average exercise price of $69.89 in 2008 and none in 2007.
New Accounting
Standards. Noncontrolling Interests in
Consolidated Financial Statements. In December 2007, the Financial
Accounting Standards Board (FASB) issued accounting guidance associated with
noncontrolling interests in consolidated financial statements, which clarifies
that noncontrolling interests (minority interests) are to be treated as a
separate component of equity and any changes in the ownership interest (in which
control is retained) are to be accounted for as capital transactions. However, a
change in ownership of a consolidated subsidiary that results in a loss of
control is considered a significant event that triggers gain or loss
recognition, with the establishment of a new fair value basis in any remaining
ownership interests. This guidance also provides additional disclosure
requirements for each reporting period. This guidance applies to fiscal years
beginning on or after December 15, 2008, with early adoption prohibited. This
guidance is required to be adopted prospectively, except for the following
provisions, which are expected to be applied retrospectively: (i) the
reclassification of noncontrolling interests to equity in the consolidated
balance sheets and (ii) the adjustment to consolidated net income to include net
income attributable to both the controlling and noncontrolling interests. FCX
adopted this guidance effective January 1, 2009, and adjusted its December 31,
2008, consolidated balance sheet to reflect noncontrolling interests in the
amount of $1,328 million as a component of equity. FCX also adjusted its
consolidated statements of equity for the years ended December 31, 2007 and
2008, to reflect noncontrolling interests as a component of equity. In addition,
FCX revised its consolidated statements of operations for the years ended
December 31, 2008 and 2007, to include net income attributable to both the
controlling and noncontrolling interests.
Employers’ Disclosures about
Postretirement Benefit Plan Assets. In December 2008, FASB issued
enhanced guidance for an employer’s disclosures about plan assets of a defined
benefit pension or other postretirement plan. This guidance revises disclosure
requirements on pension and postretirement plan assets. The disclosures about
plan assets required by this guidance are effective for fiscal years ending
after December 15, 2009, with early application permitted. Upon initial
application, disclosures are not required for earlier periods that are presented
for comparative purposes. FCX adopted this guidance for the year ended December
31, 2009.
Subsequent Events. In May
2009, FASB issued accounting guidance that requires disclosure of the date
through which an entity has evaluated subsequent events and whether that
represents the date the financial statements were issued or were available to be
issued. This guidance sets forth: (i) the period after the balance sheet during
which management of a reporting entity shall evaluate events or transactions
that may occur for potential recognition or disclosure in the financial
statements; (ii) the circumstances under which an entity shall recognize events
or transactions occurring after the balance sheet date in its financial
statements; and (iii) the disclosures that an entity shall make about events or
transactions that occurred after the balance sheet date. This guidance is
effective for interim and fiscal years ending after June 15, 2009, and shall be
applied prospectively. FCX adopted this guidance effective second-quarter
2009.
Reclassifications. For
comparative purposes, primarily the adoption of new accounting guidance for
noncontrolling interests and the revision to FCX’s presentation of its business
segments, certain prior year amounts have been reclassified to conform with the
current year presentation.
NOTE 2. ASSET IMPAIRMENTS AND
OTHER CHARGES
A summary
of long-lived asset impairments, other than goodwill, and other charges recorded
during the years ended December 31, 2009 and 2008, follows (refer to Note
20 for long-lived asset impairments and other charges by FCX’s reportable
segments):
|
|
2009
|
|
2008
|
|
City
of Blackwell partial litigation settlement
|
|
$
|
54
|
|
$
|
–
|
|
Restructuring
costs
|
|
|
32
|
|
|
50
|
|
Pension
and postretirement special benefits and curtailments
|
|
|
(9
|
)
|
|
61
|
|
Long-lived
asset impairments
|
|
|
–
|
|
|
10,867
|
|
Total
long-lived asset impairments and other charges
|
|
$
|
77
|
|
$
|
10,978
|
|
|
|
|
|
|
|
|
|
In 2009,
FCX recognized a charge of $54 million ($43 million to net income attributable
to FCX common stockholders or $0.09 per diluted share) for the partial
settlement of the City of Blackwell lawsuit (refer to Note 14 for further
discussion).
Also in
2009, FCX recognized charges relating to its revised operating plans in the
fourth quarter of 2008 and January 2009 (as discussed below) for (i)
restructuring costs totaling $32 million ($25 million to net income attributable
to FCX common stockholders or $0.06 per diluted share) for contract termination
costs, other project cancellation costs, and employee severance and benefit
costs and (ii) gains of $9 million ($7 million to net income attributable
to FCX common stockholders or $0.02 per diluted share) for pension and
postretirement special retirement benefits and curtailments.
During
the fourth quarter of 2008, there was a dramatic decline in copper and
molybdenum prices. After averaging $3.23 per pound in 2007 and $3.61 per pound
for the first nine months of 2008, LME spot copper prices declined to a
four-year low of $1.26 per pound in December 2008, averaged $1.78 per pound in
the fourth quarter of 2008 and closed at $1.32 per pound on December 31, 2008.
Additionally, while molybdenum markets had been strong in recent years with
prices averaging approximately $30 per pound in 2007 and $33 per pound for the
first nine months of 2008, molybdenum prices declined significantly to a
four-year low of $8.75 per pound in November 2008, averaged approximately $16
per pound in the fourth quarter of 2008 and closed at $9.50 per pound on
December 31, 2008.
While
FCX’s long-term strategy of developing its resources to their full potential
remains in place,
the decline in copper and molybdenum prices in the fourth quarter of 2008
and the deterioration of the economic and credit environment limited FCX’s
ability to invest in growth projects and required FCX to make adjustments to its
near-term operating plans. FCX responded to the sudden downturn and uncertain
near-term outlook by revising its near-term strategy to protect liquidity while
preserving its mineral resources and growth options for the longer term.
Accordingly, operating plans were revised in the fourth quarter of 2008 and
January 2009 to reflect: (i) curtailment of copper production at high-cost
North America operations and of molybdenum production at the Henderson
molybdenum mine; (ii) capital cost reductions; (iii) aggressive cost
control, including workforce reductions, reduced equipment purchases that were
planned to support expansion projects, a reduction in material and supplies
inventory and reductions in exploration, research and administrative costs; and
(iv) suspension of FCX’s annual common stock dividend.
In
connection with these significant adverse changes during the fourth quarter of
2008, FCX evaluated its long-lived assets, other than goodwill and
indefinite-lived intangible assets, for impairment as of December 31, 2008.
Goodwill and indefinite-lived intangible assets are evaluated for impairment
annually as of December 31.
FCX’s
asset impairment evaluations, including its annual goodwill impairment test,
required FCX to make several assumptions in determining estimates of future cash
flows to determine fair value of its individual mining operations, including:
near and long-term metal price assumptions; estimates of commodity-based and
other input costs; proven and probable reserve estimates, including any costs to
develop the reserves and the timing of producing the reserves; and the use of
appropriate current escalation and discount rates. Projected long-term average
metal prices represented the most significant assumption used in the cash flow
estimates. In connection with the March 2007 acquisition of Phelps Dodge, FCX
allocated the $25.8 billion purchase price to the estimated fair values of
net assets acquired, including $6.2 billion for goodwill. Metal price
projections used to value the net assets acquired at the acquisition date ranged
from near-term prices of $2.98 per pound for copper declining over an eight-year
period to $1.20 per pound and $26.20 per pound for molybdenum declining over a
five-year period to $8.00 per pound, reflecting price expectations at that time.
FCX’s impairment evaluations at December 31, 2008,
were
based on price assumptions reflecting prevailing copper futures prices for three
years, which ranged from approximately $1.40 per pound to $1.50 per pound, and a
long-term average price of $1.60 per pound. Molybdenum prices were assumed to
average $8.00 per pound.
FCX’s
evaluation of long-lived assets (other than goodwill) for impairment resulted in
the recognition of asset impairment charges totaling $10.9 billion ($6.6 billion
to net loss attributable to FCX common stockholders or $17.34 per diluted share)
for 2008. Refer to Note 6 for discussion of impairment charges related to
goodwill.
In 2008,
FCX recognized charges relating to its revised operating plans in the fourth
quarter of 2008 for special pension and postretirement benefits and curtailments
totaling $61 million ($37 million to net loss attributable to FCX common
stockholders or $0.10 per diluted share) and restructuring costs of $50 million
($30 million to net loss attributable to FCX common stockholders or $0.08 per
diluted share) for employee severance and benefit costs, contract termination
costs and other project cancellation costs. The restructuring charges reflect
workforce reductions (approximately 3,000 employees related to fourth-quarter
2008 revised operating plans and approximately 1,500 employees related to
January 2009 revised operating plans) and other charges that reflect an
approximate 50 percent total reduction in mining and crushed-leach rates at the
Morenci mine in Arizona, an approximate 50 percent reduction in mining and
stacking rates at the Safford mine in Arizona, an approximate 50 percent
reduction in the mining rate at the Tyrone mine in New Mexico, suspension of
mining and milling activities at the Chino mine in New Mexico (with limited
residual copper production from leach operations), and an approximate 40 percent
reduction in annual production (an approximate 25 percent reduction began in the
fourth quarter of 2008) at the Henderson molybdenum mine in Colorado. In
addition, the revised operating plans included decisions at that time to defer
certain capital projects, including the (i) incremental expansion projects
at the Sierrita and Bagdad mines in Arizona, the Cerro Verde mine in Peru and
the sulfide project at the El Abra mine in Chile, (ii) the restart of the
Miami mine in Arizona and (iii) the restart of the Climax molybdenum mine
in Colorado.
The
following table summarizes the liabilities (included in accounts payable and
accrued liabilities) incurred in connection with the fourth-quarter 2008 and
January 2009 restructuring activities:
|
Employee
|
|
Contract
|
|
|
|
|
Severance
|
|
Cancellation
|
|
Total
|
|
|
and
Benefit
|
|
and
Other
|
|
Restructuring
|
|
|
Costs
|
|
Costs
|
|
Costs
|
|
Balance
at January 1, 2008
|
$
|
–
|
|
$
|
–
|
|
$
|
–
|
|
Fourth-quarter
2008 program:
|
|
|
|
|
|
|
|
|
|
Additions
|
|
35
|
|
|
15
|
|
|
50
|
|
Payments
|
|
(2
|
)
|
|
(10
|
)
|
|
(12
|
)
|
Balance
at December 31, 2008
|
|
33
|
|
|
5
|
|
|
38
|
|
Fourth-quarter
2008 program:
|
|
|
|
|
|
|
|
|
|
Additions
and adjustments
|
|
(4
|
)
|
|
16
|
a
|
|
12
|
a
|
Payments
|
|
(29
|
)
|
|
(21
|
)
|
|
(50
|
)
|
January
2009 program:
|
|
|
|
|
|
|
|
|
|
Additions
|
|
13
|
|
|
4
|
|
|
17
|
|
Payments
|
|
(12
|
)
|
|
(4
|
)
|
|
(16
|
)
|
Balance
at December 31, 2009
|
$
|
1
|
|
$
|
–
|
|
$
|
1
|
|
|
|
|
|
|
|
|
|
|
|
a.
|
Excludes
$3 million for the write off of other current assets in connection with a
lease cancellation.
|
NOTE 3. OWNERSHIP IN
SUBSIDIARIES, JOINT VENTURES AND INVESTMENT IN PT SMELTING
Ownership in
Subsidiaries. On March 19, 2007, FMC became a wholly owned
subsidiary of FCX. FMC is a fully integrated producer of copper and molybdenum,
with mines in North America, South America and the Tenke Fungurume minerals
district in the Democratic Republic of Congo (DRC), copper and molybdenum
conversion facilities, and several development projects. At December 31, 2009,
FMC’s major operating copper mines in North America were Morenci, Sierrita,
Bagdad, Safford and Miami located in Arizona, and Tyrone located in New Mexico.
FCX has an 85 percent interest in Morenci (refer to “Joint Ventures – Sumitomo”)
and owns 100 percent of the other North America mines. FMC also owns the
Henderson molybdenum mine and the Climax molybdenum mine (on
care-and-maintenance status), which are located in Colorado. At December 31,
2009, operating copper mines in South America were Cerro Verde (53.56 percent
owned) located in Peru and Candelaria (80 percent owned), Ojos del Salado (80
percent owned) and El Abra (51 percent owned) located in Chile. In addition to
copper and molybdenum, certain mines produce other minerals as by-products, such
as gold, silver and rhenium. At December 31, 2009, FMC owns an effective 57.75
percent interest in the Tenke Fungurume minerals district in
the DRC,
which commenced copper production in March 2009 and achieved targeted rates in
September 2009. The Tenke Fungurume minerals district also produces cobalt
hydroxide, with the cobalt and sulphuric acid plants commissioned in
third-quarter 2009. At December 31, 2009, FMC’s net assets totaled $11.6 billion
and its accumulated deficit totaled $15.4 billion. As of December 31, 2009, FCX
had no loans outstanding to FMC.
FCX’s
direct ownership in PT Freeport Indonesia totals 81.28 percent. PT Indocopper
Investama, an Indonesian company, owns 9.36 percent of PT Freeport Indonesia and
FCX owns 100 percent of PT Indocopper Investama. At December 31, 2009, PT
Freeport Indonesia’s net assets totaled $2.7 billion and its retained earnings
totaled $2.5 billion. As of December 31, 2009, FCX had no outstanding loans to
PT Freeport Indonesia.
FCX owns
100 percent of the outstanding Atlantic Copper common stock. At December 31,
2009, Atlantic Copper’s net assets totaled $88 million and its accumulated
deficit totaled $302 million. FCX had $381 million in loans outstanding to
Atlantic Copper, and Atlantic Copper’s debt under financing arrangements that
are guaranteed by FCX totaled $13 million at December 31, 2009.
In 2003,
FCX acquired the 85.71 percent ownership interest in PT Puncakjaya Power
(Puncakjaya Power) owned by affiliates of Duke Energy Corporation for $68
million cash, net of $10 million of cash acquired. Puncakjaya Power is the owner
of assets supplying power to PT Freeport Indonesia’s operations, including the
3x65 megawatt coal-fired power facilities. PT Freeport Indonesia purchases power
from Puncakjaya Power under infrastructure asset financing arrangements. In
2005, FCX prepaid $187 million of bank debt associated with Puncakjaya
Power’s operations. At December 31, 2009, FCX did not have any loan outstanding
to Puncakjaya Power, PT Freeport Indonesia had infrastructure asset financing
obligations payable to Puncakjaya Power totaling $96 million and Puncakjaya
Power had a receivable from PT Freeport Indonesia for $127 million, including
Rio Tinto’s share. FCX consolidates PT Freeport Indonesia and Puncakjaya
Power. FCX’s consolidated balance sheets reflect receivables of $27 million ($2
million in other accounts receivable and $25 million in long-term assets) at
December 31, 2009, and $37 million ($10 million in other accounts
receivable and $27 million in long-term assets) at December 31, 2008, for Rio
Tinto’s share of Puncakjaya Power’s receivable as provided for in FCX’s joint
venture agreement with Rio Tinto.
Joint Ventures. FCX
has the following unincorporated joint ventures with third parties.
Rio Tinto. FCX and Rio Tinto
have established certain unincorporated joint ventures. Under the joint venture
arrangements, Rio Tinto has a 40 percent interest in PT Freeport Indonesia’s
Contract of Work and the option to participate in 40 percent of any other future
exploration projects in Papua, Indonesia.
Pursuant
to the joint venture agreement, Rio Tinto has a 40 percent interest in certain
assets and future production exceeding specified annual amounts of copper, gold
and silver through 2021 in Block A of PT Freeport Indonesia’s Contract of Work,
and, after 2021, a 40 percent interest in all production from Block A. All of PT
Freeport Indonesia’s proven and probable reserves and its mining operations are
located in the Block A area. Operating, nonexpansion capital and administrative
costs are shared proportionately between PT Freeport Indonesia and Rio Tinto
based on the ratio of (i) the incremental revenues from production from PT
Freeport Indonesia’s most recent expansion completed in 1998 to (ii) total
revenues from production from Block A, including production from PT Freeport
Indonesia’s previously existing reserves. PT Freeport Indonesia will continue to
receive 100 percent of the cash flow from specified annual amounts of copper,
gold and silver through 2021 calculated by reference to its proven and probable
reserves as of December 31, 1994, and 60 percent of all remaining cash flow. The
payable to Rio Tinto for its share of joint venture cash flows was $161 million
at December 31, 2009, and less than $1 million at December 31,
2008.
Under the
joint venture arrangements, Rio Tinto funded $100 million in 1996 for approved
exploration costs in the areas covered by Contracts of Work held by FCX
subsidiaries. Agreed-upon exploration costs in the joint venture areas are
shared 60 percent by FCX and 40 percent by Rio Tinto. Since September 2008, Rio
Tinto is no longer participating in exploration joint ventures in the PT Nabire
Bakti Mining and PT Irja Eastern Minerals Contract of Work areas in Indonesia.
As a result, as long as Rio Tinto continues not to fund these exploration
projects, FCX has the option to fund 100 percent of future exploration costs in
these areas and Rio Tinto's interest in these areas will decline over time in
accordance with the joint venture agreement. Rio Tinto has the option to resume
participation in PT Irja Eastern Minerals on a monthly basis and in PT Nabire
Bakti Mining on an annual basis. Rio Tinto continues to participate in
exploration joint ventures in PT Freeport Indonesia's Contract of Work
areas.
Sumitomo. FCX owns an 85
percent undivided interest in Morenci via an unincorporated joint venture. The
remaining 15 percent is owned by Sumitomo, a jointly owned subsidiary of
Sumitomo Metal Mining Co., Ltd. and Sumitomo Corporation. Each partner takes in
kind its share of Morenci’s production. FMC purchased 75 million pounds of
Morenci’s copper cathode from Sumitomo for $175 million during 2009, 90 million
pounds for $281 million during 2008 and 87 million pounds for $299 million
during the period March 20, 2007, to December 31, 2007. FCX had a net receivable
from Sumitomo of $6 million at December 31, 2009, and $2 million at
December 31, 2008.
Investment in PT
Smelting. PT Smelting, an Indonesian company, operates a
smelter and refinery in Gresik, Indonesia. During 2006, PT Smelting completed an
expansion of its production capacity to 275,000 metric tons of copper per year
from 250,000 metric tons. PT Freeport Indonesia, Mitsubishi Materials
Corporation (Mitsubishi Materials), Mitsubishi Corporation (Mitsubishi) and
Nippon Mining & Metals Co., Ltd. (Nippon) own 25 percent, 60.5 percent, 9.5
percent and 5 percent, respectively, of the outstanding PT Smelting common
stock.
PT
Freeport Indonesia’s contract with PT Smelting provides for the supply of 100
percent of the copper concentrate requirements necessary for PT Smelting to
produce 205,000 metric tons of copper annually (essentially the smelter’s
original design capacity) on a priority basis. For the first 15 years of PT
Smelting’s commercial operations, beginning December 1998, PT Freeport Indonesia
agreed that the combined treatment and refining charges (fees paid to smelters
by miners) would approximate market rates, but will not fall below specified
minimum rates. The minimum rate, applicable to the period April 27, 2008 to
April 27, 2014, is to be determined annually and be sufficient to cover PT
Smelting’s annual cash operating costs (net of credits and including costs of
debt service) for 205,000 metric tons of copper. The maximum rate is $0.30 per
pound. The agreement is an amendment to the long-term sales contract, which was
approved by the Department of Energy and Mineral Resources of the Government of
Indonesia. PT Freeport Indonesia also sells copper concentrate to PT Smelting at
market rates, which are not subject to a minimum or maximum rate, for quantities
in excess of 205,000 metric tons of copper annually.
FCX’s
investment in PT Smelting totaled $55 million at December 31, 2009, and $99
million at December 31, 2008. PT Smelting had project-specific debt, nonrecourse
to PT Freeport Indonesia, totaling $250 million at December 31, 2009, and
$240 million at December 31, 2008. PT Freeport Indonesia had a trade receivable
from PT Smelting totaling $300 million at December 31, 2009, and $37 million at
December 31, 2008.
NOTE 4. INVENTORIES, AND MILL AND
LEACH STOCKPILES
The
components of inventories follow:
|
|
December
31,
|
|
|
|
2009
|
|
2008
|
|
Mining
Operations:
|
|
|
|
|
|
|
|
Raw
materials
|
|
$
|
1
|
|
$
|
1
|
|
Work-in-process
|
|
|
108
|
|
|
88
|
|
Finished
goodsa
|
|
|
588
|
|
|
703
|
|
Atlantic
Copper:
|
|
|
|
|
|
|
|
Raw
materials (concentrates)
|
|
|
171
|
|
|
164
|
|
Work-in-process
|
|
|
227
|
|
|
71
|
|
Finished
goods
|
|
|
15
|
|
|
1
|
|
Total
product inventories
|
|
|
1,110
|
|
|
1,028
|
|
Total
materials and supplies, netb
|
|
|
1,093
|
|
|
1,124
|
|
Total
inventories
|
|
$
|
2,203
|
|
$
|
2,152
|
|
|
|
|
|
|
|
|
|
a.
|
Primarily
includes copper concentrates, anodes, cathodes and rod, and
molybdenum.
|
b.
|
Materials
and supplies inventory is net of obsolescence reserves totaling $21
million at December 31, 2009, and $22 million at December 31,
2008.
|
A summary
of mill and leach stockpiles follows:
|
December
31, 2009
|
|
|
North
|
|
South
|
|
|
|
|
|
|
|
|
America
|
|
America
|
|
Indonesia
|
|
Africa
|
|
Total
|
|
Current:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mill
stockpiles
|
$
|
–
|
|
$
|
7
|
|
$
|
39
|
|
$
|
–
|
|
$
|
46
|
|
Leach
stockpiles
|
|
547
|
|
|
74
|
|
|
–
|
|
|
–
|
|
|
621
|
|
Total
current mill and leach
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
stockpiles
|
$
|
547
|
|
$
|
81
|
|
$
|
39
|
|
$
|
–
|
|
$
|
667
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-terma:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mill
stockpiles
|
$
|
15
|
|
$
|
427
|
|
$
|
–
|
|
$
|
–
|
|
$
|
442
|
|
Leach
stockpiles
|
|
637
|
|
|
220
|
|
|
–
|
|
|
22
|
|
|
879
|
|
Total
long-term mill and leach
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
stockpiles
|
$
|
652
|
|
$
|
647
|
|
$
|
–
|
|
$
|
22
|
|
$
|
1,321
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December
31, 2008
|
|
|
North
|
|
South
|
|
|
|
|
|
|
|
|
America
|
|
America
|
|
Indonesia
|
|
Africa
|
|
Total
|
|
Current:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mill
stockpiles
|
$
|
–
|
|
$
|
10
|
|
$
|
40
|
|
$
|
–
|
|
$
|
50
|
|
Leach
stockpiles
|
|
489
|
|
|
72
|
|
|
–
|
|
|
–
|
|
|
561
|
|
Total
current mill and leach
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
stockpiles
|
$
|
489
|
|
$
|
82
|
|
$
|
40
|
|
$
|
–
|
|
$
|
611
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-terma:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mill
stockpiles
|
$
|
2
|
|
$
|
335
|
|
$
|
–
|
|
$
|
3
|
|
$
|
340
|
|
Leach
stockpiles
|
|
625
|
|
|
180
|
|
|
–
|
|
|
–
|
|
|
805
|
|
Total
long-term mill and leach
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
stockpiles
|
$
|
627
|
|
$
|
515
|
|
$
|
–
|
|
$
|
3
|
|
$
|
1,145
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
a.
|
Materials
in stockpiles not expected to be recovered within the next 12
months.
|
FCX
recorded charges for lower of cost or market (LCM) molybdenum inventory
adjustments of $19 million ($15 million to net income attributable to FCX
common stockholders or $0.03 per diluted share) during first-quarter 2009
resulting from lower molybdenum prices.
In 2008,
FCX recorded charges of $782 million ($479 million to net loss attributable to
FCX common stockholders or $1.26 per diluted share) for LCM inventory
adjustments as a result of the declines in copper and molybdenum prices in the
fourth quarter of 2008 and the impact of higher operating costs on inventory
balances.
NOTE 5. PROPERTY, PLANT,
EQUIPMENT AND DEVELOPMENT COSTS, NET
The
components of net property, plant, equipment and development costs, along with
2008 impairment charges, follow:
|
|
December
31,
|
|
|
2008
|
|
|
|
2009
|
|
2008
|
|
|
Impairments
|
|
Proven
and probable reserves
|
|
$
|
4,303
|
|
$
|
4,052
|
|
|
$
|
10,056
|
|
VBPP
|
|
|
1,297
|
|
|
1,341
|
|
|
|
471
|
|
Development
and other
|
|
|
2,983
|
|
|
2,572
|
|
|
|
279
|
|
Buildings
and infrastructure
|
|
|
2,703
|
|
|
2,381
|
|
|
|
167
|
|
Machinery
and equipment
|
|
|
7,282
|
|
|
5,713
|
|
|
|
938
|
|
Mobile
equipment
|
|
|
2,136
|
|
|
1,801
|
|
|
|
393
|
|
Construction
in progress
|
|
|
1,084
|
|
|
2,686
|
|
|
|
27
|
|
Property,
plant, equipment and
|
|
|
|
|
|
|
|
|
|
|
|
development
costs
|
|
|
21,788
|
|
|
20,546
|
|
|
|
12,331
|
|
Accumulated
depreciation, depletion and
|
|
|
|
|
|
|
|
|
|
|
|
amortization
|
|
|
(5,593
|
)
|
|
(4,544
|
)
|
|
|
(1,583
|
)
|
Property,
plant, equipment and
|
|
|
|
|
|
|
|
|
|
|
|
development
costs, net
|
|
$
|
16,195
|
|
$
|
16,002
|
|
|
$
|
10,748
|
|
|
|
|
|
|
|
|
|
|
|
|
|
FCX
recorded $2.2 billion for VBPP in connection with the Phelps Dodge acquisition
in 2007 and transferred $159 million during 2009, $287 million during 2008
and $93 million during 2007 to proven and probable reserves.
During
the fourth quarter of 2009, FCX purchased property adjacent to its Sierrita mine
from Twin Buttes Properties, Inc. for $200 million, including $12 million for
water rights that is recorded as an intangible asset.
FCX
capitalized interest totaling $78 million in 2009, $122 million in 2008 and $147
million in 2007. Capitalized interest primarily related to development projects
at Tenke Fungurume in 2009 and 2008 and Safford and Tenke Fungurume in
2007.
In
connection with the decline in copper and molybdenum prices and the
deterioration of the economic environment during the fourth quarter of 2008, FCX
evaluated its long-lived assets for impairment as of December 31, 2008. FCX’s
evaluations were based on current business plans developed using near-term price
forecasts reflective of the current price environment and management’s
projections for long-term average metal prices. These evaluations resulted in
the recognition of asset impairment charges of $10.9 billion ($6.6 billion to
net loss attributable to FCX common stockholders or $17.34 per diluted share),
consisting of $10,748 million to reduce the carrying values of property, plant,
equipment and development costs and $119 million to reduce the carrying values
of definite-lived intangible assets (refer to Note 2 for further
discussion).
NOTE 6. GOODWILL, AND INTANGIBLE
ASSETS AND LIABILITIES
Goodwill. Changes
in the carrying amount of goodwill for the year ended December 31, 2008,
follow:
Balance
at December 31, 2007
|
|
$
|
6,105
|
|
Purchase
accounting adjustment
|
|
|
(57
|
)
|
Deferred
tax liability adjustment associated with the
|
|
|
|
|
purchase
of Phelps Dodgea
|
|
|
(61
|
)
|
Impairment
losses
|
|
|
(5,987
|
)
|
Balance
at December 31, 2008
|
|
$
|
–
|
|
|
|
|
|
|
a.
|
Adjustment
was allocated to the Morenci mine.
|
FCX
recorded goodwill in 2007 in connection with the Phelps Dodge acquisition, which
primarily related to the requirement to recognize a deferred tax liability for
the difference between the assigned values and the tax basis of assets acquired
and liabilities assumed in a business combination. In accordance with accounting
rules, goodwill resulting from a business combination is assigned to the
acquiring entity's reporting units that are expected to benefit from the
business combination. The allocation of goodwill to the reporting units, which
FCX determined included its individual mines, was completed in the first quarter
of 2008.
Goodwill
had an indefinite useful life and was not amortized, but rather was tested for
impairment at least annually, unless events occurred or circumstances changed
between annual tests that would more likely than not reduce the fair value of a
related reporting unit below its carrying amount. FCX performed its annual
goodwill impairment testing in the fourth quarter of 2008. FCX’s evaluations
were based on current business plans developed using near-term price forecasts
reflective of the current price environment and management’s projections for
long-term average metal prices. These evaluations resulted in the recognition of
impairment charges of $6.0 billion ($6.0 billion to net loss attributable to FCX
common stockholders or $15.69 per diluted share) to eliminate the full carrying
value of goodwill (refer to Note 2 for further discussion of assumptions used in
determining fair value).
Intangible Assets and
Liabilities. The components of intangible assets and
intangible liabilities (included in other liabilities) follow:
|
December
31, 2009
|
|
|
Gross
|
|
|
|
Net
|
|
|
Carrying
|
|
Accumulated
|
|
Book
|
|
|
Valuea
|
|
Amortizationa
|
|
Value
|
|
Indefinite-lived
water rights
|
$
|
253
|
|
$
|
–
|
|
$
|
253
|
|
Patents
and process technology
|
|
48
|
|
|
(8
|
)
|
|
40
|
|
Royalty
payments
|
|
38
|
|
|
(15
|
)
|
|
23
|
|
Power
contracts
|
|
25
|
|
|
(14
|
)
|
|
11
|
|
Other
intangibles
|
|
25
|
|
|
(5
|
)
|
|
20
|
|
Total
intangible assets
|
$
|
389
|
|
$
|
(42
|
)
|
$
|
347
|
|
|
|
|
|
|
|
|
|
|
|
Total
intangible liabilities:
|
|
|
|
|
|
|
|
|
|
Treatment
and refining terms in
|
|
|
|
|
|
|
|
|
|
sales
contracts
|
$
|
52
|
|
$
|
(21
|
)
|
$
|
31
|
|
|
|
|
|
|
|
|
|
|
|
|
December
31, 2008
|
|
|
Gross
|
|
|
|
Net
|
|
|
Carrying
|
|
Accumulated
|
|
Book
|
|
|
Valuea
|
|
Amortizationa
|
|
Value
|
|
Indefinite-lived
water rights
|
$
|
256
|
|
$
|
–
|
|
$
|
256
|
|
Patents
and process technology
|
|
48
|
|
|
(6
|
)
|
|
42
|
|
Royalty
payments
|
|
47
|
|
|
(7
|
)
|
|
40
|
|
Power
contracts
|
|
26
|
|
|
(11
|
)
|
|
15
|
|
Other
intangibles
|
|
13
|
|
|
(2
|
)
|
|
11
|
|
Total
intangible assets
|
$
|
390
|
|
$
|
(26
|
)
|
$
|
364
|
|
|
|
|
|
|
|
|
|
|
|
Treatment
and refining terms in
|
|
|
|
|
|
|
|
|
|
sales
contracts
|
$
|
52
|
|
$
|
(15
|
)
|
$
|
37
|
|
Molybdenum
sales contracts
|
|
108
|
|
|
(108
|
)
|
|
–
|
|
Total
intangible liabilities
|
$
|
160
|
|
$
|
(123
|
)
|
$
|
37
|
|
|
|
|
|
|
|
|
|
|
|
a.
|
After
impairments recorded in 2008.
|
In
connection with the decline in copper and molybdenum prices and the
deterioration of the economic environment during the fourth quarter of 2008, FCX
evaluated its long-lived assets for impairment as of December 31, 2008. FCX’s
evaluations were based on current business plans developed using near-term price
forecasts reflective of the current price environment and management’s
projections for long-term average metal prices. These evaluations resulted in
the recognition of asset impairment charges of $119 million ($74 million to
net loss attributable to FCX common stockholders or $0.19 per diluted share) to
reduce the carrying values of definite-lived intangible assets (refer to Note 2
for further discussion).
Indefinite-lived
intangible assets are tested for impairment at least annually, unless events
occur or circumstances change between annual tests that would more likely than
not reduce the indefinite-lived intangible asset’s fair value below its carrying
value. FCX performed its annual impairment testing of indefinite-lived
intangible assets in the fourth quarters of 2009 and 2008 and concluded that
there were no impairments.
Amortization
of intangible assets recognized in production and delivery costs was $16 million
in 2009, $63 million in 2008 and $47 million in 2007. Amortization of
intangible liabilities recognized in revenues was $6 million in 2009,
$3 million in 2008 and $120 million in 2007. The estimated net amortization
expense for the next five years totals $6 million in 2010, $4 million in
2011, $5 million in 2012, $3 million in 2013 and $2 million in
2014.
NOTE
7. OTHER ASSETS
The
components of other assets follow:
|
December
31,
|
|
|
2009
|
|
2008
|
|
Notes
and other receivables
|
$
|
168
|
|
$
|
119
|
|
Trust
assetsa,
b
|
|
140
|
|
|
142
|
|
Deferred
tax assets
|
|
126
|
|
|
–
|
|
Debt
issue costs
|
|
95
|
|
|
121
|
|
Available
for sale securities
|
|
62
|
|
|
72
|
|
Equity-basis
investments:
|
|
|
|
|
|
|
PT
Smelting
|
|
55
|
|
|
99
|
|
Other
|
|
39
|
|
|
28
|
|
Other
|
|
15
|
|
|
28
|
|
Total
other assets
|
$
|
700
|
|
$
|
609
|
|
|
|
|
|
|
|
|
a.
|
Includes
$129 million in 2009 and $114 million in 2008 of legally restricted funds
for AROs at the Chino, Tyrone and Cobre mines (refer to Note 14 for
further discussion).
|
b.
|
The
current portion, which is included in other current assets, was $6 million
at December 31, 2009, and $118 million at December 31,
2008.
|
NOTE 8. ACCOUNTS PAYABLE AND
ACCRUED LIABILITIES
Additional
information regarding accounts payable and accrued liabilities
follows:
|
|
December
31,
|
|
|
|
2009
|
|
2008
|
|
Accounts
payable
|
|
$
|
890
|
|
$
|
1,164
|
|
Current
deferred tax liability
|
|
|
201
|
|
|
78
|
|
Salaries,
wages and other compensation
|
|
|
188
|
|
|
129
|
|
Community
development programs
|
|
|
148
|
|
|
74
|
|
Pension,
postretirement, postemployment and other
|
|
|
|
|
|
|
|
employee
benefitsb
|
|
|
127
|
|
|
156
|
|
Accrued
interestc
|
|
|
113
|
|
|
136
|
|
Provisionally
priced sales adjustmentsa
|
|
|
54
|
|
|
698
|
|
Other
|
|
|
317
|
|
|
287
|
|
Total
accounts payable and accrued liabilities
|
|
$
|
2,038
|
|
$
|
2,722
|
|
|
|
|
|
|
|
|
|
a.
|
Represents
payables to customers as a result of adjusting embedded derivatives in
provisionally priced sales to market prices (refer to “Revenue
Recognition” in Note 1 for further
discussion).
|
b.
|
Refer
to Note 9 for long-term portion and Note 11 for further
discussion.
|
c.
|
Third-party
interest paid by FCX was $504 million in 2009, $741 million in 2008 and
$504 million in 2007.
|
NOTE 9. OTHER
LIABILITIES
Additional
information regarding other liabilities follows:
|
|
December
31,
|
|
|
|
2009
|
|
2008
|
|
Pension,
postretirement, postemployment and other
|
|
|
|
|
|
|
|
employment
benefitsa
|
|
$
|
950
|
|
$
|
964
|
|
Reserve
for uncertain tax benefits
|
|
|
157
|
|
|
159
|
|
Atlantic
Copper contractual obligation to
|
|
|
|
|
|
|
|
insurance
company (refer to Note 11)
|
|
|
58
|
|
|
62
|
|
Insurance
claim reserve
|
|
|
50
|
|
|
50
|
|
Other
|
|
|
208
|
|
|
285
|
|
Total
other liabilities
|
|
$
|
1,423
|
|
$
|
1,520
|
|
|
|
|
|
|
|
|
|
a.
|
Refer
to Note 8 for short-term portion and Note 11 for further
discussion.
|
The
components of debt follow:
|
|
December
31,
|
|
|
|
2009
|
|
2008
|
|
Senior
Credit Facility
|
|
$
|
–
|
|
$
|
150
|
|
Senior
Notes:
|
|
|
|
|
|
|
|
8.375%
Senior Notes due 2017
|
|
|
3,340
|
|
|
3,500
|
|
8.25%
Senior Notes due 2015
|
|
|
1,297
|
|
|
1,500
|
|
Senior
Floating Rate Notes due 2015
|
|
|
1,000
|
|
|
1,000
|
|
9½%
Senior Notes due 2031
|
|
|
198
|
|
|
198
|
|
6⅛%
Senior Notes due 2034
|
|
|
115
|
|
|
115
|
|
7⅛%
Debentures due 2027
|
|
|
115
|
|
|
115
|
|
8¾%
Senior Notes due 2011
|
|
|
87
|
|
|
115
|
|
7%
Convertible Senior Notes due 2011
|
|
|
1
|
|
|
1
|
|
6⅞%
Senior Notes due 2014
|
|
|
–
|
|
|
340
|
|
Other
(including equipment capital leases and
|
|
|
|
|
|
|
|
short-term
borrowings)
|
|
|
193
|
|
|
317
|
|
Total
debt
|
|
|
6,346
|
|
|
7,351
|
|
Less
current portion of long-term debt and
|
|
|
|
|
|
|
|
short-term
borrowings
|
|
|
(16
|
)
|
|
(67
|
)
|
Long-term
debt
|
|
$
|
6,330
|
|
$
|
7,284
|
|
|
|
|
|
|
|
|
|
Senior Credit
Facility. In connection with financing FCX’s acquisition of
Phelps Dodge, FCX used proceeds from its borrowings under its $11.5 billion
senior credit facility. At the close of the Phelps Dodge acquisition, the senior
credit facility consisted of a $2.5 billion senior term loan due March 2012, a
$7.5 billion Tranche B term loan due March 2014 and $1.5 billion in revolving
credit facilities due March 2012, with no amounts drawn on the revolving credit
facilities. The revolving credit facilities are composed of (i) a $1.0 billion
revolving credit facility available to FCX and (ii) a $0.5 billion revolving
credit facility available to both FCX and PT Freeport Indonesia. FCX used
proceeds from equity offerings, operating cash flows and asset sales to prepay
the $10 billion of term loans by December 31, 2007. At December 31, 2009, FCX
had no borrowings and $39 million of letters of credit issued under the
revolving credit facilities, resulting in availability of approximately $1.5
billion, of which $961 million could be used for additional letters of
credit.
Interest
on the revolving credit facilities is based on the London Interbank Offered Rate
(LIBOR) plus 1.00 percent, subject to an increase or decrease in the interest
rate margin based on the credit ratings assigned by Standard & Poor’s Rating
Services and Moody’s Investor Services.
The
senior credit facility is guaranteed by certain wholly owned subsidiaries of FCX
and is secured by the pledge of equity in substantially all of these subsidiary
guarantors and certain other non-guarantor subsidiaries of FCX, and intercompany
indebtedness owed to FCX. Borrowings by FCX and PT Freeport Indonesia under the
$0.5 billion revolver are also secured with a pledge of 50.1 percent of the
outstanding stock of PT Freeport Indonesia,
over 90
percent of the assets of PT Freeport Indonesia and, with respect to borrowings
by PT Freeport Indonesia, a pledge of the Contract of Work.
During
2007, FCX recorded net charges totaling $154 million ($120 million to net income
attributable to FCX common stockholders or $0.30 per diluted share) for early
extinguishment of debt related to the accelerated recognition of deferred
financing costs associated with the repayment of amounts under the senior credit
facility.
Senior Notes. In
March 2007, in connection with financing FCX’s acquisition of Phelps Dodge, FCX
sold $3.5 billion of 8.375% Senior Notes due April 2017, $1.5 billion of 8.25%
Senior Notes due April 2015 and $1.0 billion of Senior Floating Rate Notes due
April 2015 for total net proceeds of $5.9 billion. Interest on the senior notes
is payable semiannually on April 1 and October 1. Interest on the Senior
Floating Rate Notes accrues at six-month LIBOR plus 3.25 percent. The interest
rate on the Senior Floating Rate Notes was 3.88 percent at December 31,
2009. These notes are redeemable in whole or in part, at the option of FCX, at
make-whole redemption prices prior to the redemption dates, and afterwards at
stated redemption prices. The terms of the agreements allow for optional
make-whole redemptions prior to April 1, 2011, for the 8.25% Senior Notes; and
April 1, 2012, for the 8.375% Senior Notes. The Senior Floating Rate Notes are
redeemable at stated redemption prices. During 2009, FCX purchased in
open-market transactions $203 million of the 8.25% Senior Notes for $218 million
and $160 million of the 8.375% Senior Notes for $172 million. These
open-market purchases resulted in losses on early extinguishment of debt
totaling $33 million ($29 million to net income attributable to FCX common
stockholders or $0.06 per diluted share).
The 9½%
Senior Notes due June 2031 and the 8¾% Senior Notes due June 2011 bear interest
payable semiannually on June 1 and December 1. These notes are redeemable in
whole or in part, at the option of FCX, at a make-whole redemption price. In
March 2007, in connection with the acquisition of Phelps Dodge, FCX assumed
these senior notes with a stated value of $306 million, which was increased by
$54 million to reflect the fair market value of these obligations at the
acquisition date. The increase in value is being amortized over the term of the
notes and recorded as a reduction of interest expense. In 2008, FCX purchased in
an open-market transaction $33 million of the 9½% Senior Notes for $46 million
and recorded losses on early extinguishment of debt of $6 million ($5 million to
net loss attributable to FCX common stockholders or $0.01 per diluted share). In
fourth-quarter 2009, FCX purchased in an open-market transaction $24 million of
the 8¾% Senior Notes for $26 million and recorded losses on early
extinguishment of debt of $1 million ($1 million to net income attributable to
FCX common stockholders or less than $0.01 per diluted share). At December 31,
2009, the outstanding principal amount of the 9½% Senior Notes was $161 million
and the 8¾% Senior Notes was $84 million.
The 6⅛% Senior Notes due March
2034 bear interest payable semiannually on March 15 and September 15. These
notes are redeemable in whole or in part, at the option of FCX, at a make-whole
redemption price. In March 2007, in connection with the acquisition of Phelps
Dodge, FCX assumed these senior notes with a stated value of $150 million, which
was reduced by $11 million to reflect the fair market value of these obligations
at the acquisition date. The decrease in value is being amortized over the term
of the notes and recorded as additional interest expense. During 2007, FCX
purchased in an open-market transaction $26 million of these notes and
recorded losses on early extinguishment of debt of $2 million ($2 million to net
income attributable to FCX common stockholders or less than $0.01 per diluted
share). At December 31, 2009, the outstanding principal amount of these senior
notes was $124 million.
The 7⅛%
Debentures due November 2027 bear interest payable semiannually on May 1 and
November 1. The debentures are redeemable in whole or in part, at the option of
FCX, at a make-whole redemption price. In March 2007, in connection with the
acquisition of Phelps Dodge, FCX assumed these debentures with a stated and fair
value of $115 million. At December 31, 2009, the outstanding principal amount of
these debentures was $115 million.
In February 2004, FCX sold $350
million of 6⅞% Senior Notes due February 2014 for net proceeds of
$344 million. Interest on the notes was payable semiannually on February 1
and August 1. During 2004, FCX purchased in open-market transactions $10 million
of its 6⅞% Senior Notes. On August 20, 2009, FCX redeemed the remaining $340
million of these notes for $352 million for a redemption price of 103.439
percent of the principal amount (plus accrued and unpaid interest). FCX recorded
losses on early extinguishment of debt of $14 million ($13 million to
net income attributable to FCX common stockholders or $0.03 per diluted share)
in 2009 associated with the redemption of the 6⅞% Senior Notes.
In
January 2003, FCX sold $500 million of 10⅛% Senior Notes due 2010 for net
proceeds of $487 million. In 2005, FCX purchased in open-market transactions
$216 million of these notes. In 2006, FCX purchased in an open-market
transaction $11 million of these notes. During 2007, FCX purchased in an
open-market transaction the remaining $273 million of these notes and recorded
losses on early extinguishment of debt of $17 million ($10 million to net income
attributable to FCX common stockholders or $0.02 per diluted
share).
All of
FCX’s senior notes are unsecured.
Restrictive
Covenants. The senior credit facility and the senior notes
used to finance the acquisition of Phelps Dodge contain covenants that limit
FCX’s ability to make certain payments. These restrictions vary among the
instruments, but generally limit FCX’s ability to pay certain dividends on
common and preferred stock, repurchase or redeem common and preferred equity,
prepay subordinated debt and make certain investments. In April 2008, Standard
& Poor’s Rating Services (S&P) and Fitch Ratings raised FCX’s corporate
credit rating and the ratings on FCX’s unsecured debt to BBB- (investment
grade). As a result of the upgrade of FCX’s unsecured notes to investment grade
by S&P, the restrictions contained in FCX’s 8.375%, 8.25% and the floating
rate senior notes on incurring debt, making restricted payments and selling
assets were suspended. To the extent the rating is downgraded below investment
grade, the covenants would again become effective. At December 31, 2009, the
most restrictive of the covenants related to restricted payments allowed for
payments up to approximately $7.6 billion.
Maturities. Maturities
of debt instruments based on the amounts and terms outstanding at December 31,
2009, total $16 million in 2010, $93 million in 2011, $14 million in 2012, $1
million in 2013, $1 million in 2014 and $6,221 million thereafter.
NOTE 11. EMPLOYEE
BENEFITS
Pension
Plans. Following is a discussion of FCX’s pension
plans.
FMC Plans. FCX has trusteed,
non-contributory pension plans covering substantially all of FMC’s U.S.
employees and some employees of its international subsidiaries. The applicable
FMC plan design determines the manner in which benefits are calculated for any
particular group of employees. For certain of these plans, benefits are
calculated based on final average monthly compensation and years of service. In
the case of other plans, benefits are calculated based on a fixed amount for
each year of service. Participants in the FMC plans generally vest in their
accrued benefits after five years of service. Non-bargained FMC employees hired
after December 31, 2006, are not eligible to participate in the FMC U.S. pension
plan.
FCX’s
funding policy for these plans provides that contributions to pension trusts
shall be at least equal to the minimum funding requirements of the Employee
Retirement Income Security Act of 1974, as amended, for U.S. plans; or, in the
case of international plans, the minimum legal requirements that may be
applicable in the various countries. Additional contributions also may be made
from time to time.
FCX’s
policy for determining asset-mix targets for the Freeport-McMoRan Corporation
Defined Benefit Master Trust (Master Trust) includes the periodic development of
asset/liability studies to determine expected long-term rates of return and
expected risk for various investment portfolios. Management considers these
studies in the formal establishment of asset-mix targets that are reviewed by
FCX’s retirement plan administration and investment committee. FCX’s investment
objective emphasizes the need to maintain a well-diversified investment program
through both the allocation of the Master Trust assets among asset classes and
the selection of investment managers whose various styles are fundamentally
complementary to one another and serve to achieve satisfactory rates of return.
Diversification, by asset class and by investment manager, is FCX’s principal
means of reducing volatility and exercising prudent investment judgment. FCX’s
present target asset allocation is about 54 percent equity investments (35
percent U.S. equities, 12 percent international equities and 7 percent emerging
markets equities), 35 percent fixed income (18 percent U.S. fixed income, 5
percent international fixed income, 5 percent high yield, 4 percent
treasury inflation-protection securities and 3 percent emerging markets fixed
income) and 11 percent alternative investments (5 percent private equity, 3
percent private real estate and 3 percent real estate investment
trusts).
The
expected rate of return on plan assets is evaluated at least annually, taking
into consideration its asset allocation, historical returns on the types of
assets held in the Master Trust and the current economic environment. For U.S.
plans, the determination of the expected long-term rate of return on plan assets
is based on expected future performance of the plan asset mix and active plan
asset management. Based on these factors, FCX
expects
the pension assets will earn an average of 8.5 percent per annum during the
10 years beginning January 1, 2010. The 8.5 percent estimation was
based on a passive return on a compound basis of 8.0 percent and a premium
for active management of 0.5 percent reflecting the target asset allocation and
current investment array.
For
estimation purposes, FCX assumes the long-term asset mix for these plans
generally will be consistent with the current mix. Changes in the asset mix
could impact the amount of recorded pension income or expense, the funded status
of the plans and the need for future cash contributions. A lower-than-expected
return on assets also would decrease plan assets and increase the amount of
recorded pension expense in future years. When calculating the expected return
on plan assets, FCX uses the market value of assets.
Among the
assumptions used to estimate the benefit obligation is a discount rate used to
calculate the present value of expected future benefit payments for service to
date. The discount rate assumption for FCX’s U.S. plans is designed to reflect
yields on high-quality, fixed-income investments for a given duration. The
determination of the discount rate for these plans is based on expected future
benefit payments for service to date together with the Citibank Pension Discount
Curve. Changes in this assumption are reflected in FCX’s benefit obligation and,
therefore, in the liabilities and income or expense that are
recorded.
Other FCX Plans. In February
2004, FCX established an unfunded Supplemental Executive Retirement Plan (SERP)
for its two most senior executive officers. The SERP provides for retirement
benefits payable in the form of a joint and survivor annuity or an equivalent
lump sum. The annuity will equal a percentage of the executive’s highest average
compensation for any consecutive three-year period during the five years
immediately preceding the earlier of the executive’s retirement or completion of
25 years of credited service. The SERP benefit will be reduced by the value of
all benefits paid or due under any defined benefit or defined contribution plan
sponsored by FM Services Company, FCX’s wholly owned subsidiary, FCX or its
predecessor, but not including accounts funded exclusively by deductions from
participant’s pay. FCX also has an unfunded pension plan for its directors and
an excess benefits plan for its executives.
PT Freeport Indonesia Plan.
PT Freeport Indonesia has a defined benefit pension plan denominated in
Indonesian rupiah covering substantially all of its Indonesian national
employees. PT Freeport Indonesia funds the plan and invests the assets in
accordance with Indonesian pension guidelines. The pension obligation was valued
at an exchange rate of 9,420 rupiah to one U.S. dollar on December 31, 2009, and
10,850 rupiah to one U.S. dollar on December 31, 2008. Indonesian labor laws
enacted in 2003 require that companies provide a minimum level of benefits to
employees upon employment termination based on the reason for termination and
the employee’s years of service. PT Freeport Indonesia’s pension benefit
disclosures include benefits related to this law. PT Freeport Indonesia’s
expected rate of return on plan assets is evaluated at least annually, taking
into consideration its historical yield and the long range estimated return for
the plan based on the asset mix.
Atlantic Copper Plan.
Atlantic Copper has a contractual obligation denominated in euros to supplement
amounts paid to certain retired Spanish national employees. As required by
Spanish law, beginning in August 2002, Atlantic Copper began funding 7.2 million
euros ($10 million based on a December 31, 2009, exchange rate of $1.44 per
euro) annually for 15 years to an approved insurance company for its estimated
72 million euro contractual obligation to the retired employees. The insurance
company invests the plan assets in accordance with Spanish regulations, and
Atlantic Copper has no control over these investments.
Plan Information. FCX uses a
measurement date of December 31 for its plans. In some plans, the plan assets
exceed the accumulated benefit obligations, while in the remainder, the
accumulated benefit obligations exceed the plan assets. Information as of
December 31, 2009 and 2008, for those plans where the accumulated benefit
obligations exceed the plan assets follows:
|
|
December
31,
|
|
|
|
2009
|
|
2008
|
|
Projected
benefit obligation
|
|
$
|
1,544
|
|
$
|
1,486
|
|
Accumulated
benefit obligation
|
|
|
1,450
|
|
|
1,403
|
|
Fair
value of plan assets
|
|
|
1,076
|
|
|
968
|
|
Information
as of December 31, 2009 and 2008, on the FCX (including FMC’s plans; and FCX’s
SERP, director and excess benefits plans), PT Freeport Indonesia and Atlantic
Copper plans follows:
|
|
|
PT
Freeport
|
|
|
|
|
FCX
|
|
Indonesia
|
|
Atlantic
Copper
|
|
|
2009
|
|
2008
|
|
2009
|
|
2008
|
|
2009
|
|
2008
|
|
Change
in benefit obligation:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Benefit
obligation at beginning
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
of
year
|
$
|
1,412
|
|
$
|
1,342
|
|
$
|
59
|
|
$
|
65
|
|
$
|
81
|
|
$
|
87
|
|
Service
cost
|
|
26
|
|
|
29
|
|
|
5
|
|
|
6
|
|
|
–
|
|
|
–
|
|
Interest
cost
|
|
85
|
|
|
80
|
|
|
7
|
|
|
6
|
|
|
4
|
|
|
4
|
|
Amendments
|
|
–
|
|
|
(6
|
)
|
|
–
|
|
|
–
|
|
|
–
|
|
|
–
|
|
Actuarial
losses (gains)
|
|
64
|
|
|
62
|
|
|
4
|
|
|
(5
|
)
|
|
–
|
|
|
1
|
|
Foreign
exchange losses (gains)
|
|
1
|
|
|
(4
|
)
|
|
10
|
|
|
(9
|
)
|
|
2
|
|
|
(3
|
)
|
Curtailmentsa
|
|
(5
|
)
|
|
(19
|
)
|
|
–
|
|
|
–
|
|
|
–
|
|
|
–
|
|
Special
retirement benefitsa
|
|
(3
|
)
|
|
39
|
|
|
–
|
|
|
–
|
|
|
–
|
|
|
–
|
|
Benefits
paid
|
|
(108
|
)
|
|
(111
|
)
|
|
(5
|
)
|
|
(4
|
)
|
|
(8
|
)
|
|
(8
|
)
|
Benefit
obligation at end of year
|
|
1,472
|
|
|
1,412
|
|
|
80
|
|
|
59
|
|
|
79
|
|
|
81
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Change
in plan assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair
value of plan assets at
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
beginning
of year
|
|
959
|
|
|
1,442
|
|
|
42
|
|
|
38
|
|
|
19
|
|
|
15
|
|
Actual
return on plan assets
|
|
209
|
|
|
(390
|
)
|
|
13
|
|
|
(2
|
)
|
|
–
|
|
|
–
|
|
Employer
contributionsb
|
|
6
|
|
|
21
|
|
|
19
|
|
|
15
|
|
|
10
|
|
|
12
|
|
Foreign
exchange gains (losses)
|
|
1
|
|
|
(3
|
)
|
|
9
|
|
|
(6
|
)
|
|
–
|
|
|
–
|
|
Benefits
paid
|
|
(108
|
)
|
|
(111
|
)
|
|
(5
|
)
|
|
(3
|
)
|
|
(8
|
)
|
|
(8
|
)
|
Fair
value of plan assets at end
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
of
year
|
|
1,067
|
|
|
959
|
|
|
78
|
|
|
42
|
|
|
21
|
|
|
19
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Funded
status
|
$
|
(405
|
)
|
$
|
(453
|
)
|
$
|
(2
|
)
|
$
|
(17
|
)
|
$
|
(58
|
)
|
$
|
(62
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated
benefit obligation
|
$
|
1,378
|
|
$
|
1,329
|
|
$
|
48
|
|
$
|
37
|
|
$
|
79
|
|
$
|
81
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-average
assumptions
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
used
to determine benefit
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
obligations:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Discount
ratec
|
|
5.80
|
%
|
|
6.10
|
%
|
|
10.50
|
%
|
|
12.00
|
%
|
|
6.77
|
%
|
|
6.77
|
%
|
Rate
of compensation increased
|
|
4.25
|
%
|
|
4.25
|
%
|
|
8.00
|
%
|
|
8.00
|
%
|
|
N/A
|
|
|
N/A
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance
sheet classification of
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
funded
status:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
assets
|
$
|
5
|
|
$
|
3
|
|
$
|
–
|
|
$
|
–
|
|
$
|
–
|
|
$
|
–
|
|
Accounts
payable and
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
accrued
liabilities
|
|
(4
|
)
|
|
(5
|
)
|
|
–
|
|
|
–
|
|
|
–
|
|
|
–
|
|
Other
liabilities
|
|
(406
|
)
|
|
(451
|
)
|
|
(2
|
)
|
|
(17
|
)
|
|
(58
|
)
|
|
(62
|
)
|
Total
|
$
|
(405
|
)
|
$
|
(453
|
)
|
$
|
(2
|
)
|
$
|
(17
|
)
|
$
|
(58
|
)
|
$
|
(62
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
a.
|
Resulted
from revised mine operating plans and reductions in the workforce (refer
to Note 2 for further discussion).
|
b.
|
Employer
contributions for 2010 are expected to approximate $5 million for the
FCX plans, $6 million for the PT Freeport Indonesia plan (based on a
December 31, 2009, exchange rate of 9,420 Indonesian rupiah to one
U.S. dollar) and $10 million for the Atlantic Copper plan (based on a
December 31, 2009, exchange rate of $1.44 per
euro).
|
c.
|
The
discount rate shown in 2009 and 2008 for the FCX plans relates to all
plans except the SERP plan. The SERP plan’s discount rate in 2009 and 2008
was 4.00 percent.
|
d.
|
The
rate of compensation increase shown for the FCX plans only relates to the
FMC plans.
|
The
weighted-average assumptions used to determine net periodic benefit cost and the
components of net periodic benefit cost for FCX’s pension plans (FMC’s plans;
and FCX’s SERP, director and excess benefits plans) for the years ended December
31, 2009, 2008 and 2007 (FMC’s plans for the year ended December 31, 2007,
includes the period March 20, 2007, through December 31, 2007),
follow:
|
2009
|
|
2008
|
|
2007
|
|
Weighted-average
assumptions:
|
|
|
|
|
|
|
|
|
|
Discount
rate
|
|
|
|
|
|
|
|
|
|
FCX
SERP
|
|
4.00
|
%
|
|
4.00
|
%
|
|
4.00
|
%
|
FMC
plans
|
|
6.10
|
%
|
|
6.30
|
%
|
|
5.78
|
%
|
Expected
return on plan assetsa
|
|
8.50
|
%
|
|
8.50
|
%
|
|
8.50
|
%
|
Rate
of compensation increasea
|
|
4.25
|
%
|
|
4.25
|
%
|
|
4.25
|
%
|
|
|
|
|
|
|
|
|
|
|
Service
cost
|
$
|
26
|
|
$
|
29
|
|
$
|
24
|
|
Interest
cost
|
|
85
|
|
|
80
|
|
|
62
|
|
Expected
return on plan assets
|
|
(73
|
)
|
|
(118
|
)
|
|
(90
|
)
|
Amortization
of prior service cost
|
|
–
|
|
|
4
|
|
|
4
|
|
Amortization
of net actuarial losses
|
|
26
|
|
|
–
|
|
|
–
|
|
Curtailmentsb
|
|
(1
|
)
|
|
–
|
|
|
–
|
|
Special
retirement benefitsb
|
|
(3
|
)
|
|
39
|
|
|
–
|
|
Net
periodic benefit cost
|
$
|
60
|
|
$
|
34
|
|
$
|
–
|
|
|
|
|
|
|
|
|
|
|
|
a.
|
The
assumptions shown only relate to the FMC
plans.
|
b.
|
Resulted
from revised mine operating plans and reductions in the workforce (refer
to Note 2 for further discussion).
|
The
weighted-average assumptions used to determine net periodic benefit cost and the
components of net periodic benefit cost for PT Freeport Indonesia’s and Atlantic
Copper’s pension plans for the years ended December 31, 2009, 2008 and 2007,
follow:
|
PT
Freeport Indonesia
|
|
|
2009
|
|
2008
|
|
2007
|
|
Weighted-average
assumptions:
|
|
|
|
|
|
|
|
|
|
Discount
rate
|
|
12.00
|
%
|
|
10.25
|
%
|
|
10.50
|
%
|
Expected
return on plan assets
|
|
10.00
|
%
|
|
9.00
|
%
|
|
10.00
|
%
|
Rate
of compensation increase
|
|
8.00
|
%
|
|
8.00
|
%
|
|
9.00
|
%
|
|
|
|
|
|
|
|
|
|
|
Service
cost
|
$
|
5
|
|
$
|
6
|
|
$
|
5
|
|
Interest
cost
|
|
7
|
|
|
6
|
|
|
5
|
|
Expected
return on plan assets
|
|
(5
|
)
|
|
(3
|
)
|
|
(3
|
)
|
Amortization
of prior service cost
|
|
1
|
|
|
1
|
|
|
1
|
|
Amortization
of net actuarial loss
|
|
1
|
|
|
1
|
|
|
1
|
|
Net
periodic benefit cost
|
$
|
9
|
|
$
|
11
|
|
$
|
9
|
|
|
|
|
|
|
|
|
|
|
|
|
Atlantic
Copper
|
|
|
2009
|
|
2008
|
|
2007
|
|
Weighted-average
assumption:
|
|
|
|
|
|
|
|
|
|
Discount
rate
|
|
6.77
|
%
|
|
6.77
|
%
|
|
6.77
|
%
|
|
|
|
|
|
|
|
|
|
|
Interest
cost
|
$
|
4
|
|
$
|
4
|
|
$
|
5
|
|
Amortization
of net actuarial loss
|
|
1
|
|
|
2
|
|
|
–
|
|
Net
periodic benefit cost
|
$
|
5
|
|
$
|
6
|
|
$
|
5
|
|
|
|
|
|
|
|
|
|
|
|
Included
in accumulated other comprehensive income (loss) are the following amounts that
have not been recognized in net periodic pension cost: unrecognized prior
service credits of $2 million ($1 million net of tax and noncontrolling
interests) and unrecognized actuarial losses of $363 million ($264 million net
of tax and noncontrolling interests) at December 31, 2009; and unrecognized
prior service credits of $3 million ($2 million net
of tax
and noncontrolling interests) and unrecognized actuarial losses of $470 million
($305 million net of tax and noncontrolling interests) at December 31, 2008. The
amounts expected to be recognized in net periodic pension cost for 2010 are less
than $1 million for prior service credits and $22 million ($14 million
net of tax and noncontrolling interests) for actuarial losses.
FCX does
not expect to have any plan assets returned to it in 2010.
Plan
assets are classified within a fair value hierarchy that prioritizes the inputs
to valuation techniques used to measure fair value. The hierarchy gives the
highest priority to unadjusted quoted prices in active markets for identical
assets or liabilities (Level 1), then to significant observable inputs (Level 2)
and the lowest priority to significant unobservable inputs (Level 3). For
further discussion of the different levels of the fair value hierarchy, refer to
Note 17.
A summary
of the fair value hierarchy for pension plan assets associated with the FCX
plans follows:
|
Fair
Value at December 31, 2009
|
|
|
Total
|
|
Level
1
|
|
Level
2
|
|
Level
3
|
|
Cash
and cash equivalents
|
$
|
41
|
|
$
|
41
|
|
$
|
–
|
|
$
|
–
|
|
Equity
securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S.
large-cap core
|
|
270
|
|
|
141
|
|
|
129
|
|
|
–
|
|
Emerging
markets equity core
|
|
90
|
|
|
90
|
|
|
–
|
|
|
–
|
|
U.S.
small-cap core
|
|
83
|
|
|
51
|
|
|
32
|
|
|
–
|
|
International
equity core
|
|
64
|
|
|
–
|
|
|
64
|
|
|
–
|
|
International
equity value
|
|
54
|
|
|
54
|
|
|
–
|
|
|
–
|
|
Other
|
|
7
|
|
|
7
|
|
|
–
|
|
|
–
|
|
Fixed
income securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Corporate
bonds
|
|
258
|
|
|
3
|
|
|
255
|
|
|
–
|
|
Government
bonds
|
|
35
|
|
|
–
|
|
|
35
|
|
|
–
|
|
Government
mortgage-backed
|
|
|
|
|
|
|
|
|
|
|
|
|
securities
|
|
29
|
|
|
–
|
|
|
29
|
|
|
–
|
|
Commercial
mortgaged-backed
|
|
|
|
|
|
|
|
|
|
|
|
|
securities
|
|
12
|
|
|
–
|
|
|
12
|
|
|
–
|
|
Asset-backed
securities
|
|
10
|
|
|
–
|
|
|
10
|
|
|
–
|
|
Other
|
|
12
|
|
|
1
|
|
|
11
|
|
|
–
|
|
Other
types of investments:
|
|
|
|
|
|
|
|
|
|
|
|
|
Private
equity funds
|
|
40
|
|
|
–
|
|
|
–
|
|
|
40
|
|
Real
estate
|
|
62
|
|
|
37
|
|
|
–
|
|
|
25
|
|
Total
|
$
|
1,067
|
|
$
|
425
|
|
$
|
577
|
|
$
|
65
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Following
is a description of the valuation techniques used for pension plan assets
measured at fair value associated with the FCX plans. There have been no changes
in the techniques used at December 31, 2009.
Common
stocks are valued at the closing price reported on the active market on which
the individual securities are traded.
Commingled
funds are valued based on the underlying investments, which include common and
preferred stocks, and fixed income securities.
Mutual
funds and cash equivalents are valued at the net realizable value of shares held
at year end.
Fixed
income securities are valued using a bid evaluation or a mid evaluation. A bid
evaluation is an estimated price at which a dealer would pay for a security. A
mid evaluation is the average of the estimated price at which a dealer would
sell a security and the estimated price which a dealer would pay for a security.
These evaluations are based on quoted prices, if available, or models that use
observable inputs.
Private
equity funds are valued at net realizable value using information from general
partners or at the closing price reported on the active market on which the
investments are traded.
Real
estate interests include real estate investment trusts and property funds. Real
estate investments are valued using quoted market prices reported on the active
market on which the investments are traded, if available, or based at net
realizable value using information from independent appraisal firms, who have
knowledge and expertise in the current market values of real property in the
same vicinity as the investments.
A summary
of the fair value hierarchy for pension plan assets associated with the PT
Freeport Indonesia plan follows:
|
Fair
Value at December 31, 2009
|
|
|
Total
|
|
Level
1
|
|
Level
2
|
|
Level
3
|
|
Cash
and cash equivalents
|
$
|
44
|
|
$
|
44
|
|
$
|
–
|
|
$
|
–
|
|
Government
bonds
|
|
18
|
|
|
18
|
|
|
–
|
|
|
–
|
|
Common
stocks
|
|
16
|
|
|
16
|
|
|
–
|
|
|
–
|
|
Total
|
$
|
78
|
|
$
|
78
|
|
$
|
–
|
|
$
|
–
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Following
is a description of the valuation techniques used for pension plan assets
measured at fair value associated with the PT Freeport Indonesia plan. There
have been no changes in the techniques used at December 31, 2009.
Cash
equivalents, which primarily consist of time deposits, are valued at the net
realizable value of shares held at year end.
Government
bonds and common stocks are valued at the closing price reported on the active
market on which the individual securities are traded.
The
techniques described above may produce a fair value calculation that may not be
indicative of net realizable value or reflective of future fair values.
Furthermore, while FCX believes its valuation techniques are appropriate and
consistent with other market participants, the use of different techniques or
assumptions to determine the fair value of certain financial instruments could
result in a different fair value measurement at the reporting date.
A summary
of changes in the fair value of FCX’s level 3 pension plan assets for the year
ended December 31, 2009, follows:
|
|
|
Private
|
|
|
|
|
Real
|
|
Equity
|
|
|
|
|
Estate
|
|
Funds
|
|
Total
|
|
Balance
at January 1, 2009
|
$
|
45
|
|
$
|
42
|
|
$
|
87
|
|
Actual
return on plans assets:
|
|
|
|
|
|
|
|
|
|
Realized
gains/(losses)
|
|
–
|
|
|
2
|
|
|
2
|
|
Unrealized
gains/(losses) related to
|
|
|
|
|
|
|
|
|
|
assets
still held at the end of the year
|
|
(20
|
)
|
|
(6
|
)
|
|
(26
|
)
|
Purchases,
sales and settlements, net
|
|
–
|
|
|
2
|
|
|
2
|
|
Balance
at December 31, 2009
|
$
|
25
|
|
$
|
40
|
|
$
|
65
|
|
|
|
|
|
|
|
|
|
|
|
Atlantic
Copper’s plan is administered by a third-party insurance company, and Atlantic
Copper is not provided asset allocations.
The
expected benefit payments for FCX’s (including FMC’s plans; and FCX’s SERP,
director and excess benefits plans), PT Freeport Indonesia’s and Atlantic
Copper’s pension plans follow:
|
|
|
PT
Freeport
|
|
Atlantic
|
|
|
FCX
|
|
Indonesiaa
|
|
Copperb
|
|
2010
|
$
|
85
|
|
$
|
9
|
|
$
|
8
|
|
2011
|
|
86
|
|
|
7
|
|
|
8
|
|
2012
|
|
136
|
|
|
8
|
|
|
8
|
|
2013
|
|
88
|
|
|
8
|
|
|
8
|
|
2014
|
|
91
|
|
|
9
|
|
|
8
|
|
2015
through 2019
|
|
494
|
|
|
62
|
|
|
42
|
|
|
|
|
|
|
|
|
|
|
|
a.
|
Based
on a December 31, 2009, exchange rate of 9,420 Indonesian rupiah to
one U.S. dollar.
|
b.
|
Based
on a December 31, 2009, exchange rate of $1.44 per
euro.
|
Postretirement and Other
Benefits. FCX also provides postretirement medical and life
insurance benefits for certain U.S. employees and, in some cases, employees of
certain international subsidiaries. These postretirement benefits vary among
plans, and many plans require contributions from retirees. The expected cost of
providing such postretirement benefits is accrued during the years employees
render service.
As a
result of the acquisition of Phelps Dodge, FCX acquired postretirement
obligations that had plan assets consisting of two Voluntary Employees’
Beneficiary Association (VEBA) trusts. One trust was dedicated to funding
postretirement medical obligations and the other to funding postretirement life
insurance obligations for eligible U.S. retirees of FMC. During 2008, the VEBA
trusts were amended to allow FCX to pay benefits for both active employees and
retirees from the trusts. As a result, in accordance with accounting guidance,
the VEBA trusts no longer qualified as plan assets for purposes of FCX’s
postretirement medical and life insurance benefit obligations.
The
discount rate for FCX’s postretirement medical and life insurance benefit plans
was determined on the same basis as FCX’s pension plans.
Information
as of December 31, 2009 and 2008, on the postretirement benefit plans
follows:
|
2009
|
|
2008
|
|
Change
in benefit obligation:
|
|
|
|
|
|
|
Benefit
obligation at beginning of year
|
$
|
257
|
|
$
|
256
|
|
Service
cost
|
|
1
|
|
|
1
|
|
Interest
cost
|
|
15
|
|
|
14
|
|
Actuarial
losses (gains)
|
|
20
|
|
|
(8
|
)
|
Curtailmentsa
|
|
(3
|
)
|
|
23
|
|
Special
retirement benefitsa
|
|
2
|
|
|
–
|
|
Benefits
paid, net of employee and partner contributions,
|
|
|
|
|
|
|
and
Medicare Part D subsidy
|
|
(27
|
)
|
|
(29
|
)
|
Benefit
obligation at end of year
|
|
265
|
|
|
257
|
|
|
|
|
|
|
|
|
Change
in plan assets:
|
|
|
|
|
|
|
Fair
value of plan assets at beginning of year
|
|
–
|
|
|
150
|
|
Actual
return on plans assets
|
|
–
|
|
|
3
|
|
Employer
and partner contributions
|
|
30
|
|
|
2
|
|
Employee
contributions
|
|
9
|
|
|
–
|
|
Benefits
paid
|
|
(39
|
)
|
|
(40
|
)
|
Transfer
of plan assetsb
|
|
–
|
|
|
(115
|
)
|
Fair
value of plan assets at end of year
|
|
–
|
|
|
–
|
|
|
|
|
|
|
|
|
Funded
status
|
$
|
(265
|
)
|
$
|
(257
|
)
|
|
|
|
|
|
|
|
Discount
rate assumption
|
|
5.20
|
%
|
|
6.30
|
%
|
|
|
|
|
|
|
|
|
2009
|
|
2008
|
|
Balance
sheet classification of funded status:
|
|
|
|
|
|
|
Accounts
payable and accrued liabilities
|
$
|
(29
|
)
|
$
|
(32
|
)
|
Other
liabilities
|
|
(236
|
)
|
|
(225
|
)
|
Total
|
$
|
(265
|
)
|
$
|
(257
|
)
|
|
|
|
|
|
|
|
a.
|
Resulted
from revised mine operating plans and reductions in the workforce (refer
to Note 2 for further discussion).
|
b.
|
During
2008, the VEBA trusts were amended to allow benefit payments for both
active employees and retirees; therefore, the VEBA trusts no longer
qualified as plan assets.
|
Included
in accumulated other comprehensive income (loss) are the following amounts that
have not been recognized in net periodic benefit cost: unrecognized prior
service credits of less than $1 million and unrecognized actuarial losses of $15
million ($12 million net of tax and noncontrolling interests) at December 31,
2009; and unrecognized prior service credits of less than $1 million and
unrecognized actuarial gains of $4 million ($2 million net of tax and
noncontrolling interests) at December 31, 2008. The amount expected to be
recognized in net periodic benefit cost for 2010 is less than $1 million for
prior service credits.
Expected
benefit payments for these plans total $29 million for 2010,
$28 million for 2011, $26 million for 2012, $25 million for 2013,
$23 million for 2014, and $97 million for 2015 through
2019.
The
weighted-average assumptions used to determine net periodic benefit cost and the
components of net periodic benefit cost for FCX’s postretirement benefits for
the years ended December 31, 2009, 2008 and 2007 (FMC’s plans for the year ended
December 31, 2007, includes the period March 20, 2007, through December 31,
2007, because of the Phelps Dodge acquisition), follow:
|
2009
|
|
2008
|
|
2007
|
|
Weighted-average
assumptionsa:
|
|
|
|
|
|
|
|
|
|
Discount
rate – medical retiree
|
|
6.30
|
%
|
|
6.00
|
%
|
|
5.62
|
%
|
Discount
rate – life retiree
|
|
6.30
|
%
|
|
6.00
|
%
|
|
5.66
|
%
|
Expected
return on plan assets – medical retiree
|
|
N/A
|
|
|
3.30
|
%
|
|
3.70
|
%
|
Expected
return on plan assets – life retiree
|
|
N/A
|
|
|
4.30
|
%
|
|
4.50
|
%
|
|
|
|
|
|
|
|
|
|
|
Service
cost
|
$
|
1
|
|
$
|
1
|
|
$
|
1
|
|
Interest
cost
|
|
15
|
|
|
14
|
|
|
11
|
|
Expected
return on plan assets
|
|
–
|
|
|
(4
|
)
|
|
(5
|
)
|
Curtailmentsb
|
|
(3
|
)
|
|
23
|
|
|
–
|
|
Special
retirement benefitsb
|
|
2
|
|
|
–
|
|
|
–
|
|
Net
periodic benefit cost
|
$
|
15
|
|
$
|
34
|
|
$
|
7
|
|
|
|
|
|
|
|
|
|
|
|
a.
|
The
assumptions shown only relate to the FMC
plans.
|
b.
|
Resulted
from revised mine operating plans and reductions in the workforce (refer
to Note 2 for further discussion).
|
The
assumed medical-care trend rates at December 31, 2009 and 2008,
follow:
|
2009
|
|
2008
|
|
Medical-care
cost trend rate assumed for
|
|
|
|
|
|
|
the
next year
|
|
8.5
|
%
|
|
9.0
|
%
|
Rate
to which the cost trend rate is assumed
|
|
|
|
|
|
|
to
decline (the ultimate trend rate)
|
|
5.0
|
%
|
|
5.0
|
%
|
Year
that the rate reaches the ultimate trend rate
|
|
2020
|
|
|
2013
|
|
The
effect of a one percent increase or decrease in the medical-care cost trend
rates assumed for postretirement medical benefits would result in increases or
decreases of approximately $1 million in the aggregate service and interest
cost components; for the postretirement benefit obligation, the effect of a
one-percent increase is approximately $9 million and the effect of a one-percent
decrease is approximately $8 million.
FCX has a
number of postemployment plans covering severance, long-term disability income,
continuation of health and life insurance coverage for disabled employees or
other welfare benefits. The accumulated postemployment benefit consisted of a
current portion of $7 million (included in accounts payable and accrued
liabilities) and a long-term portion of $49 million (included in other
liabilities) at December 31, 2009, and a current portion of $6 million and a
long-term portion of $41 million at December 31, 2008.
FCX also
sponsors savings plans for the majority of its U.S. employees. The plans allow
employees to contribute a portion of their pre-tax and/or after-tax income in
accordance with specified guidelines. These savings plans are principally
qualified 401(k) plans for all U.S. salaried and non-bargained hourly employees.
In these plans, participants exercise control and direct the investment of their
contributions and account balances among various investment options. FCX matches
a percentage of employee pre-tax deferral contributions up to certain limits,
which varies by plan. In addition, prior to January 1, 2009, the FMC principal
savings plan included a profit sharing feature for its non-bargained employees.
Effective January 1, 2009, the FMC principal savings plan was merged into the
FCX savings plan, which does not include a profit sharing feature.
During
2000, FCX and FM Services Company enhanced their primary savings plan for
substantially all their employees following their decision to terminate their
defined benefit pension plans. Subsequent to the enhancement, FCX and FM
Services Company contribute amounts to individual accounts totaling either 4
percent or 10 percent of each employee’s pay, depending on a combination of each
employee’s age and years of service as of June 30, 2000. For employees whose
eligible compensation exceeds certain levels, FCX provides an unfunded defined
contribution plan. The balance of this liability totaled $43 million on December
31, 2009 and 2008.
Prior to
January 1, 2009, FMC had a defined contribution plan for its eligible employees
hired on or after January 1, 2007. Under this plan, FMC contributed amounts to
individual accounts ranging from 3 percent to 6 percent of each eligible
employee’s earnings, depending on years of service. Effective January 1, 2009,
this plan was merged into the FCX savings plan. Subsequent to January 1, 2009,
FMC contributes enhanced amounts for its eligible employees hired on or after
January 1, 2007, totaling 4 percent of each eligible employee’s earnings,
regardless of years of service. However, most eligible FMC employees who were
receiving more than 4 percent of their eligible earnings under the previous FMC
defined contribution plan will continue to receive the higher percentage of
their eligible earnings.
The costs
charged to operations for FCX’s, FM Services Company’s, and FMC’s employee
savings plans and defined contribution plans totaled $30 million in 2009, $58
million in 2008 and $43 million in 2007.
FCX has
other employee benefit plans, certain of which are related to FCX’s financial
results, which are recognized in operating costs.
NOTE 12. STOCKHOLDERS’ EQUITY
AND STOCK-BASED COMPENSATION
Common Stock. At
the 2008 annual stockholder meeting, FCX’s stockholders approved an increase in
FCX’s authorized shares of capital stock to 1.85 billion shares, consisting of
1.8 billion shares of common stock and 50 million shares of preferred
stock.
In July
2008, FCX’s Board of Directors approved an increase in the open-market share
purchase program for up to 30 million shares, which replaced FCX’s previous
program. During 2008, FCX acquired 6.3 million shares for $500 million
($79.15 per share average) and 23.7 million shares remain available under this
program. The timing of future purchases of FCX’s common stock is dependent on
many factors, including FCX’s operating results, cash flows and financial
position; copper, molybdenum and gold prices; the price of FCX’s common stock;
and general economic and market conditions. During September 2008, because of
the financial turmoil and the decline in copper and molybdenum prices, FCX
suspended its purchases of shares under its open-market share purchase
program.
In
February 2009, FCX completed a public offering of 26.8 million shares of FCX
common stock at an average price of $28.00 per share, which generated gross
proceeds of $750 million (net proceeds of approximately
$740 million).
In
December 2008, FCX’s Board of Directors suspended the cash dividend on FCX’s
common stock; accordingly, there were no common stock dividends paid in 2009. In
October 2009, the Board of Directors reinstated an annual cash dividend on FCX’s
common stock of $0.60 per share. On December 30, 2009, FCX declared a quarterly
dividend
of $0.15 per share, which was paid on February 1, 2010, to common shareholders
of record at the close of business on January 15, 2010. The Board of Directors
will continue to review FCX’s financial policy on an ongoing basis.
Preferred Stock. On
March 28, 2007, FCX sold 28.75 million shares of 6¾% Mandatory Convertible
Preferred Stock, with a liquidation preference of $100 per share, for net
proceeds of $2.8 billion. The 6¾% Mandatory Convertible Preferred Stock will
automatically convert on May 1, 2010, into shares of FCX common stock. The
conversion rate is adjustable upon the occurrence of certain events, including
the payment in any quarter of common stock dividends exceeding $0.3125 per
share; however, adjustments required as a result of dividends that do not exceed
one percent are carried forward and must be made no later than August 1 of each
year. As a result of the quarterly common stock dividends paid through December
31, 2009, each share of preferred stock is now convertible on May 1, 2010, into
between 1.3716 and 1.6460 shares of FCX common stock, for a total of between 39
million and 47 million shares, depending on the applicable market value of FCX’s
common stock. The conversion rate depends on the applicable average market price
of FCX’s common stock over the 20 trading day period ending on the third trading
day prior to May 1, 2010. The conversion rate per $100 face amount of the
preferred stock will be 1.6460 when the FCX common stock price is at or below
$60.75 and 1.3716 when the FCX common stock price is at or above $72.91. For FCX
common stock prices between these levels, the conversion rate will be equal to
$100 divided by FCX’s common stock price. Holders may elect to convert at any
time prior to May 1, 2010, at a conversion rate equal to 1.3716 shares of FCX
common stock, or an aggregate of approximately 39 million shares. Dividends
are payable quarterly on February 1, May 1, August 1 and
November 1.
In March
2004, FCX sold 1.1 million shares of 5½% Convertible Perpetual Preferred Stock
for net proceeds of $1.1 billion. The conversion rate was adjustable upon the
occurrence of certain events, including the payment in any quarter of common
stock dividends exceeding $0.20 per share. As a result of the quarterly and
supplemental common stock dividends paid through August 31, 2009, each share of
preferred stock was convertible into 21.5305 shares of FCX common stock,
equivalent to a conversion price of approximately $46.45 per common share. In
December 2008, through privately negotiated transactions, FCX induced conversion
of 268,331 shares of its 5½% Convertible Perpetual Preferred Stock with a
liquidation preference of $268 million into 5.8 million shares of FCX common
stock. To induce conversion of these shares, FCX issued to the holders an
additional 1.0 million shares of FCX common stock valued at $22 million,
which was recorded as losses on induced conversions in the consolidated
statements of operations. In September 2009, FCX called for redemption the
remaining outstanding shares of its 5½% Convertible Perpetual Preferred Stock.
Of the 831,554 shares outstanding at the time of the call, 830,529 shares were
converted into 17.9 million shares of FCX common stock, and the remaining 1,025
shares were redeemed for approximately $1 million in cash.
Stock Award
Plans. FCX currently has five stock-based compensation plans,
including two Phelps Dodge plans resulting from the acquisition. As of December
31, 2009, only three of the plans, all of which are stockholder approved (which
are discussed below), have awards available for grant.
The 2003
Stock Incentive Plan (the 2003 Plan) provides for the issuance of stock options,
SARs, restricted stock, restricted stock units and other stock-based awards. The
2003 Plan allows FCX to grant awards for up to 8 million common shares to
eligible participants. In 2004, FCX’s stockholders approved the 2004 Director
Compensation Plan (the 2004 Plan). The 2004 Plan authorizes awards of options
and restricted stock units for up to 1 million shares of common stock and the
one-time grant of 66,882 SARs. In 2006, FCX’s stockholders approved the 2006
Stock Incentive Plan (the 2006 Plan), and in 2007, FCX’s stockholders approved
amendments to the plan primarily to increase the number of shares. The 2006 Plan
provides for the issuance of stock options, SARs, restricted stock, restricted
stock units and other stock-based awards for up to 37 million common
shares. As of December 31, 2009, shares available for grant totaled 25.2 million
shares under the 2006 Plan and less than 30,000 shares under the 2003 and 2004
Plans.
In
connection with the Phelps Dodge acquisition, former Phelps Dodge stock options
and restricted stock awards were converted into 806,595 FCX stock options and
87,391 FCX restricted stock awards, which retain the terms by which they were
originally granted under Phelps Dodge’s plans. The stock options carry a maximum
term of 10 years with 672,134 stock options vested upon the acquisition of
Phelps Dodge and 134,461 stock options that vest ratably over a three-year
period or the period until the participant becomes retirement-eligible,
whichever is shorter. Restricted stock awards generally become fully vested in
five years, with a majority of these shares having graded-vesting features in
which 25 percent of the shares will vest on the third and fourth anniversaries
of the
award and
the remaining 50 percent in the fifth year. The fair value of the restricted
stock awards was determined based on the quoted market price at the time of the
acquisition.
Stock-Based Compensation
Cost. Compensation cost charged against earnings for stock-based awards
is shown below for the years ended December 31, 2009, 2008 and 2007. FCX did not
capitalize any stock-based compensation costs during the years ended December
31, 2009, 2008 and 2007.
|
|
2009
|
|
2008
|
|
2007
|
|
Stock
options awarded to employees (including directors)
|
|
$
|
67
|
|
$
|
66
|
|
$
|
71
|
|
Stock
options awarded to nonemployees
|
|
|
5
|
|
|
5
|
|
|
5
|
|
Restricted
stock units awarded to employees
|
|
|
28
|
|
|
52
|
|
|
–
|
|
Restricted
stock units in lieu of cash awards
|
|
|
–
|
|
|
(29
|
)a
|
|
67
|
|
Restricted
stock awards to employees
|
|
|
2
|
|
|
3
|
|
|
6
|
|
Restricted
stock units awarded to directors
|
|
|
1
|
|
|
4
|
|
|
3
|
|
Stock
appreciation rights
|
|
|
4
|
|
|
(6
|
)
|
|
7
|
|
Total
stock-based compensation costb
|
|
|
107
|
|
|
95
|
|
|
159
|
|
Tax
benefit
|
|
|
(41
|
)
|
|
(36
|
)
|
|
(62
|
)
|
Noncontrolling
interests’ share
|
|
|
(3
|
)
|
|
(2
|
)
|
|
(4
|
)
|
Impact
on net income (loss)
|
|
$
|
63
|
|
$
|
57
|
|
$
|
93
|
|
|
|
|
|
|
|
|
|
|
|
|
a.
|
Reflects
an adjustment related to 2007
awards.
|
b.
|
Amounts
are before Rio Tinto’s share of the cost of employee exercises of
in-the-money stock options, which decreased consolidated selling, general
and administrative expenses by $2 million in 2009, $1 million in 2008 and
$4 million in 2007.
|
Options and SARs. Stock
options and SARs granted under the plans generally expire 10 years after the
date of grant and vest in 25 percent annual increments beginning one year
from the date of grant. The plans and award agreements provide that participants
will receive the following year’s vesting after retirement and provide for
accelerated vesting if there is a change in control (as defined in the plans).
FCX has elected to recognize compensation costs for stock option awards that
vest over several years on a straight-line basis over the vesting period. For
awards granted after January 1, 2006, FCX accelerates one year of amortization
for retirement-eligible employees.
A summary
of options outstanding as of December 31, 2009, including 65,977 SARs, and
changes during the year ended December 31, 2009, follows:
|
|
|
|
|
Weighted-
|
|
|
|
|
|
|
|
|
Average
|
|
|
|
|
|
|
Weighted-
|
|
Remaining
|
|
Aggregate
|
|
|
Number
of
|
|
Average
|
|
Contractual
|
|
Intrinsic
|
|
|
Options
|
|
Option
Price
|
|
Term
(years)
|
|
Value
|
|
Balance
at January 1
|
9,852,947
|
|
$
|
64.98
|
|
|
|
|
|
|
Granted
|
3,651,000
|
|
|
25.89
|
|
|
|
|
|
|
Exercised
|
(785,937
|
)
|
|
40.30
|
|
|
|
|
|
|
Expired/Forfeited
|
(257,213
|
)
|
|
60.58
|
|
|
|
|
|
|
Balance
at December 31
|
12,460,797
|
|
|
55.17
|
|
7.5
|
|
$
|
328
|
|
|
|
|
|
|
|
|
|
|
|
|
Vested
and exercisable at December 31
|
4,554,967
|
|
|
59.71
|
|
6.4
|
|
$
|
98
|
|
|
|
|
|
|
|
|
|
|
|
|
Summaries
of options outstanding, including SARs, and changes during the years ended
December 31, 2008 and 2007, follow:
|
|
2008
|
|
2007
|
|
|
|
|
|
Weighted-
|
|
|
|
Weighted-
|
|
|
|
|
|
Average
|
|
|
|
Average
|
|
|
|
Number
of
|
|
Option
|
|
Number
of
|
|
Option
|
|
|
|
Options
|
|
Price
|
|
Options
|
|
Price
|
|
Balance
at January 1
|
|
10,759,798
|
|
$
|
58.17
|
|
5,801,716
|
|
$
|
39.70
|
|
Granted
|
|
1,449,500
|
|
|
91.10
|
|
6,641,500
|
|
|
69.89
|
|
Conversion
of Phelps Dodge options
|
|
–
|
|
|
–
|
|
806,595
|
|
|
28.38
|
|
Exercised
|
|
(2,198,601
|
)
|
|
48.51
|
|
(2,276,391
|
)
|
|
34.45
|
|
Expired/Forfeited
|
|
(157,750
|
)
|
|
70.43
|
|
(213,622
|
)
|
|
59.29
|
|
Balance
at December 31
|
|
9,852,947
|
|
|
64.98
|
|
10,759,798
|
|
|
58.17
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The fair
value of each option award is estimated on the date of grant using the
Black-Scholes-Merton option valuation model. Expected volatility is based on
implied volatilities from traded options on FCX’s stock and historical
volatility of FCX’s stock. FCX uses historical data to estimate future option
exercises, forfeitures and expected life of the options. When appropriate,
separate groups of employees that have similar historical exercise behavior are
considered separately for valuation purposes. The expected dividend rate is
calculated as the annual dividend (excludes supplemental dividends) at the date
of grant divided by the average stock price for the one-year period preceding
the grant date. The risk-free interest rate is based on Federal Reserve rates in
effect for bonds with maturity dates equal to the expected term of the option at
the grant date. The weighted-average assumptions used to value stock option
awards during the years ended December 31, 2009, 2008 and 2007,
follow:
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
Expected
volatility
|
|
70.6
|
%
|
|
49.3
|
%
|
|
37.3
|
%
|
Expected
life of options (in years)
|
|
4.37
|
|
|
4.60
|
|
|
4.25
|
|
Expected
dividend rate
|
|
–
|
%
|
|
2.0
|
%
|
|
2.2
|
%
|
Risk-free
interest rate
|
|
1.5
|
%
|
|
3.3
|
%
|
|
4.6
|
%
|
The
weighted-average grant-date fair value of options granted was $14.29 per option
during 2009, $34.91 per option during 2008 and $21.33 per option during 2007.
The total intrinsic value of options exercised was $24 million during 2009,
$128 million during 2008 and $96 million during 2007. The total fair value
of options vested was $70 million during 2009, $61 million during 2008
and $29 million during 2007. As of December 31, 2009, FCX had $70 million of
total unrecognized compensation cost related to unvested stock options expected
to be recognized over a weighted-average period of 1.4 years.
The
following table includes amounts related to exercises of stock options and SARs
and vesting of restricted stock units and restricted stock awards during the
years ended December 31, 2009, 2008 and 2007:
|
|
2009
|
|
2008
|
|
2007
|
|
FCX
shares tendered to pay the exercise price
|
|
|
|
|
|
|
|
|
|
and/or
the minimum required taxesa
|
|
542,786
|
|
|
823,915
|
|
|
1,389,845
|
|
Cash
received from stock option exercises
|
$
|
18
|
|
$
|
56
|
|
$
|
54
|
|
Actual
tax benefit realized for tax deductions
|
|
21
|
|
|
78
|
|
|
63
|
|
Amounts
FCX paid for employee taxes
|
|
12
|
|
|
34
|
|
|
68
|
|
Amounts
FCX paid for exercised SARs
|
|
1
|
|
|
1
|
|
|
5
|
|
|
|
|
|
|
|
|
|
|
|
a.
|
Under
terms of the related plans, upon exercise of stock options and vesting of
restricted stock units and restricted stock awards, employees may tender
FCX shares to FCX to pay the exercise price and/or the minimum required
taxes.
|
Restricted Stock Units. Prior
to December 2008, FCX had a restricted stock program that allowed FCX senior
executives to elect to receive restricted stock units in lieu of all or part of
their annual cash incentive compensation. The annual cash incentive was a
function of FCX’s consolidated operating cash flows for the preceding year.
Awards of these restricted stock units to the FCX executive officers were
considered performance-based awards. To compensate for certain restrictions and
the risk of forfeiture, the restricted stock
units
were awarded at a 50 percent premium to the market value on the date of grant.
The awards vest ratably over three years or upon retirement and were subject to
achievement of certain performance measures. For retirement-eligible executives,
the fair value of the restricted stock units was estimated based on projected
operating cash flows for the year and was charged to expense ratably over the
year the cash flows were generated. The services could have been performed in
the calendar year preceding the date of grant. Effective December 2, 2008, the
Board of Directors discontinued this program.
FCX also
granted other restricted stock units that vest over a period of up to five
years. The plans and award agreements provide for accelerated vesting of all
restricted stock units if there is a change of control (as defined in the plans)
and provide that participants will receive the following year’s vesting after
retirement (except for the restricted stock units with five year vesting that do
not allow acceleration because of retirement). Dividends and interest on
restricted stock units accrue and are paid upon the award’s
vesting.
FCX
grants restricted stock units to its directors under the 2004 Plan. The
restricted stock units vest over four years. The fair value of the restricted
stock units is amortized over the four-year vesting period or the period until
the director becomes retirement-eligible, whichever is shorter. Upon a
director’s retirement, all of their unvested restricted stock units immediately
vest. For retirement-eligible directors, the fair value of restricted stock
units is recognized on the date of grant.
A summary
of outstanding restricted stock units as of December 31, 2009, and activity
during the year ended December 31, 2009, follows:
|
|
|
Weighted-
|
|
|
|
|
|
|
Average
|
|
|
|
|
Number
of
|
|
Remaining
|
|
Aggregate
|
|
|
Restricted
|
|
Contractual
|
|
Intrinsic
|
|
|
Stock
Units
|
|
Term
(years)
|
|
Value
|
|
Balance
at January 1
|
1,776,462
|
|
|
|
|
|
|
Granted
|
467,500
|
|
|
|
|
|
|
Vested
|
(798,731
|
)
|
|
|
|
|
|
Forfeited
|
(8,232
|
)
|
|
|
|
|
|
Balance
at December 31
|
1,436,999
|
|
0.9
|
|
$
|
115
|
|
|
|
|
|
|
|
|
|
The total
grant-date fair value of restricted stock units granted during the year ended
December 31, 2009, was $12 million. The total intrinsic value of restricted
stock units vested was $22 million during 2009, $33 million during 2008 and
$1 million during 2007. As of December 31, 2009, FCX had $14 million of total
unrecognized compensation cost related to unvested restricted stock units
expected to be recognized over a weighted-average period of 1.8
years.
Restricted Stock Awards. As
discussed above, FCX has restricted stock awards that were issued in connection
with the Phelps Dodge acquisition. A summary of outstanding restricted stock
awards as of December 31, 2009, and activity during the year ended December 31,
2009, follows:
Balance
at January 1
|
|
45,321
|
|
Vested
|
|
(6,366
|
)
|
Forfeited
|
|
(1,841
|
)
|
Balance
at December 31
|
|
37,114
|
|
|
|
|
|
The total
grant-date fair value of restricted stock awards was $5 million at the
acquisition date. The total fair value of shares released or vested was less
than $1 million during 2009 and 2008 and $2 million during 2007. As of December
31, 2009, FCX had $2 million of total unrecognized compensation cost, including
the cash portion resulting from the conversion of restricted stock awards at the
acquisition date, related to unvested restricted stock awards expected to be
recognized over a weighted-average period of 1.2 years.
Geographic
sources of income (loss) from continuing operations before income taxes and
equity in affiliated companies’ net earnings for the years ended December 31,
2009, 2008 and 2007, consist of the following:
|
|
2009
|
|
2008
|
|
2007
|
|
United
States
|
|
$
|
98
|
|
$
|
(13,850
|
)
|
$
|
977
|
|
Foreign
|
|
|
5,718
|
|
|
541
|
|
|
5,134
|
|
Total
|
|
$
|
5,816
|
|
$
|
(13,309
|
)
|
$
|
6,111
|
|
|
|
|
|
|
|
|
|
|
|
|
The
provision for (benefit from) income taxes from continuing operations for the
years ended December 31, 2009, 2008 and 2007, consists of the
following:
|
|
2009
|
|
2008
|
|
2007
|
|
Current
income taxes:
|
|
|
|
|
|
|
|
|
|
|
Federal
|
|
$
|
19
|
|
$
|
536
|
|
$
|
458
|
|
State
|
|
|
7
|
|
|
14
|
|
|
72
|
|
Foreign
|
|
|
1,971
|
|
|
1,213
|
|
|
1,942
|
|
Total
current
|
|
|
1,997
|
|
|
1,763
|
|
|
2,472
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred
income taxes (benefits):
|
|
|
|
|
|
|
|
|
|
|
Federal
|
|
|
(70
|
)
|
|
(3,635
|
)
|
|
(295
|
)
|
State
|
|
|
79
|
|
|
(686
|
)
|
|
(20
|
)
|
Foreign
|
|
|
301
|
|
|
(609
|
)
|
|
243
|
|
Total
deferred
|
|
|
310
|
|
|
(4,930
|
)
|
|
(72
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Valuation
allowance on prior year deferred
|
|
|
|
|
|
|
|
|
|
|
tax
asset
|
|
|
–
|
|
|
323
|
|
|
–
|
|
|
|
|
|
|
|
|
|
|
|
|
Provision
for (benefit from) income taxes
|
|
$
|
2,307
|
|
$
|
(2,844
|
)
|
$
|
2,400
|
|
|
|
|
|
|
|
|
|
|
|
|
A
reconciliation of the U.S. federal statutory tax rate to FCX’s effective income
tax rate for the years ended December 31, 2009, 2008 and 2007,
follows:
|
|
2009
|
|
2008
|
|
2007
|
|
|
Amount
|
|
Percent
|
|
Amount
|
|
Percent
|
|
Amount
|
|
Percent
|
U.S.
federal statutory tax rate
|
|
$
|
2,036
|
|
35
|
%
|
|
$
|
(4,658
|
)
|
35
|
%
|
|
$
|
2,139
|
|
35
|
%
|
Foreign
withholding tax
|
|
|
375
|
|
6
|
|
|
|
(55
|
)
|
1
|
|
|
|
371
|
|
6
|
|
Foreign
tax credit limitation
|
|
|
112
|
|
2
|
|
|
|
95
|
|
(1
|
)
|
|
|
125
|
|
2
|
|
Reversal
of indefinite
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
reinvestment
assertion
|
|
|
–
|
|
–
|
|
|
|
–
|
|
–
|
|
|
|
111
|
|
2
|
|
Percentage
depletion
|
|
|
(168
|
)
|
(3
|
)
|
|
|
(336
|
)
|
3
|
|
|
|
(284
|
)
|
(5
|
)
|
International
tax rate differential
|
|
|
(147
|
)
|
(2
|
)
|
|
|
59
|
|
(1
|
)
|
|
|
(184
|
)
|
(3
|
)
|
Valuation
allowance on minimum
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
tax
credits
|
|
|
104
|
|
2
|
|
|
|
359
|
|
(3
|
)
|
|
|
–
|
|
–
|
|
Goodwill
impairment
|
|
|
–
|
|
–
|
|
|
|
2,095
|
|
(16
|
)
|
|
|
–
|
|
–
|
|
State
income taxes
|
|
|
(2
|
)
|
–
|
|
|
|
(437
|
)
|
3
|
|
|
|
–
|
|
–
|
|
Other
items, net
|
|
|
(3
|
)
|
–
|
|
|
|
34
|
|
–
|
|
|
|
122
|
|
2
|
|
Provision
for (benefit from)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
income
taxes
|
|
$
|
2,307
|
|
40
|
%
|
|
$
|
(2,844
|
)
|
21
|
%
|
|
$
|
2,400
|
|
39
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
FCX paid
federal, state, local and foreign income taxes totaling $1,558 million in 2009,
$2,656 million in 2008 and $2,660 million in 2007. FCX received refunds of
federal, state, local and foreign income taxes of $193 million in 2009 and
$123 million in 2008 and 2007.
FCX’s
income tax receivable decreased by $472 million primarily as a result of
Indonesian estimated tax overpayments made in 2008 that were applied against the
2009 tax liability.
The
components of deferred taxes follow:
|
|
December
31,
|
|
|
|
2009
|
|
2008
|
|
Deferred
tax assets:
|
|
|
|
|
|
|
|
Foreign
tax credits
|
|
$
|
1,664
|
|
$
|
1,260
|
|
Net
operating loss carryforwards
|
|
|
184
|
|
|
128
|
|
Minimum
tax credits
|
|
|
509
|
|
|
359
|
|
Accrued
expenses
|
|
|
882
|
|
|
767
|
|
Employee
benefit plans
|
|
|
234
|
|
|
183
|
|
Inventory
|
|
|
74
|
|
|
74
|
|
Other
|
|
|
136
|
|
|
215
|
|
Deferred
tax assets
|
|
|
3,683
|
|
|
2,986
|
|
Valuation
allowances
|
|
|
(2,157
|
)
|
|
(1,763
|
)
|
Net
deferred tax assets
|
|
|
1,526
|
|
|
1,223
|
|
|
|
|
|
|
|
|
|
Deferred
tax liabilities:
|
|
|
|
|
|
|
|
Property,
plant, equipment and development costs
|
|
|
(3,272
|
)
|
|
(2,956
|
)
|
Undistributed
earnings
|
|
|
(766
|
)
|
|
(569
|
)
|
Other
|
|
|
(66
|
)
|
|
(34
|
)
|
Total
deferred tax liabilities
|
|
|
(4,104
|
)
|
|
(3,559
|
)
|
|
|
|
|
|
|
|
|
Net
deferred tax liabilities
|
|
$
|
(2,578
|
)
|
$
|
(2,336
|
)
|
|
|
|
|
|
|
|
|
At
December 31, 2009, FCX had U.S. foreign tax credit carryforwards from continuing
operations of $1.7 billion that will expire between 2010 and 2019. In
addition, FCX had U.S. minimum tax credits carryforwards from continuing
operations of $509 million. These credits can be carried forward indefinitely,
but may be used only to the extent that regular tax exceeds the alternative
minimum tax in any given year.
At
December 31, 2009, FCX had Spanish net operating loss carryforwards from
continuing operations of $431 million that expire between 2011 and 2023. In
addition, FCX had U.S. state net operating loss carryforwards from continuing
operations of $54 million that expire between 2010 and 2029.
On the
basis of available information at December 31, 2009, FCX has provided valuation
allowances for certain of its deferred tax assets where FCX believes it is
likely that the related tax benefits will not be realized. At December 31, 2009,
valuation allowances totaled $2.2 billion and covered all of FCX’s U.S. foreign
tax credit carryforwards and U.S. state net operating loss carryforwards, and a
portion of its foreign net operating loss carryforwards and U.S. minimum tax
credit carryforwards. This valuation allowance includes $44 million relating to
tax benefits that, if recognized, would be credited directly to contributed
capital. At December 31, 2008, valuation allowances totaled $1.8 billion and
covered all of FCX’s U.S. foreign tax credit carryforwards, U.S. minimum tax
credit carryforwards, foreign net operating loss carryforwards and U.S. state
net operating loss carryforwards, and also a portion of its net U.S. deferred
tax assets. The $394 million increase in the valuation allowance during 2009 was
primarily a result of an increase to the foreign tax credit
carryforwards.
Income
taxes are provided on the earnings of FCX’s material foreign subsidiaries under
the assumption that these earnings will be distributed. FCX has not provided for
other differences between the book and tax carrying amounts of these investments
as FCX considers its ownership position to be permanent in duration and
quantification of the related deferred tax liability is not
practicable.
A summary
of the activities associated with FCX’s reserve for unrecognized tax benefits,
interest and penalties follows:
|
|
Unrecognized
|
|
|
|
|
|
|
|
|
|
Tax
Benefits
|
|
Interest
|
|
Penalties
|
|
Balance
at January 1, 2008
|
|
$
|
202
|
|
$
|
19
|
|
$
|
–
|
|
Additions:
|
|
|
|
|
|
|
|
|
|
|
Prior
year tax positions
|
|
|
14
|
|
|
*
|
|
|
*
|
|
Current
year tax positions
|
|
|
32
|
|
|
*
|
|
|
*
|
|
Interest
and penalties
|
|
|
–
|
|
|
5
|
|
|
–
|
|
Decreases:
|
|
|
|
|
|
|
|
|
|
|
Prior
year tax positions
|
|
|
(3
|
)
|
|
*
|
|
|
*
|
|
Lapse
of statue of limitations
|
|
|
(7
|
)
|
|
*
|
|
|
*
|
|
Interest
and penalties
|
|
|
–
|
|
|
(1
|
)
|
|
–
|
|
Balance
at December 31, 2008
|
|
|
238
|
|
|
23
|
|
|
–
|
|
Additions:
|
|
|
|
|
|
|
|
|
|
|
Prior
year tax positions
|
|
|
25
|
|
|
*
|
|
|
*
|
|
Current
year tax positions
|
|
|
12
|
|
|
*
|
|
|
*
|
|
Interest
and penalties
|
|
|
–
|
|
|
15
|
|
|
–
|
|
Decreases:
|
|
|
|
|
|
|
|
|
|
|
Prior
year tax positions
|
|
|
–
|
|
|
*
|
|
|
*
|
|
Current
year tax positions
|
|
|
(13(3
|
)
|
|
*
|
|
|
*
|
|
Lapse
of statue of limitations
|
|
|
(9
|
)
|
|
*
|
|
|
*
|
|
Interest
and penalties
|
|
|
–
|
|
|
(4
|
)
|
|
–
|
|
Balance
at December 31, 2009
|
|
$
|
253
|
|
$
|
34
|
|
$
|
–
|
|
|
|
|
|
|
|
|
|
|
|
|
The
reserve for unrecognized tax benefits of $253 million at December 31, 2009,
includes $176 million ($122 million net of income tax benefits) that, if
recognized, would reduce FCX’s provision for income taxes.
Changes
in the reserve for unrecognized tax benefits associated with current year tax
positions were primarily related to uncertainties associated with FCX’s cost
recovery methods. Changes in the reserve for unrecognized tax benefits
associated with prior year tax positions were primarily related to the
refinement of estimated information to actual and the expiration of statute of
limitations in a foreign jurisdiction.
It is
reasonably possible that FCX will experience a $35 million to $85 million
decrease in its reserve for unrecognized tax benefits within the next twelve
months. FCX would experience this decrease in relation to uncertainties
associated with its cost recovery methods if a settlement is reached with taxing
authorities.
FCX or
its subsidiaries file income tax returns in the U.S. federal jurisdiction and
various state and foreign jurisdictions. The tax years for FCX and its
significant subsidiaries that remain subject to examination are as
follows:
Jurisdiction
|
Years Under Examination
|
Additional Open Years
|
U.S.
Federal
|
2003-2006,
|
Short
Year Ending December 31, 2007,
|
|
Short
Year Ending March 19, 2007
|
2008-2009
|
Indonesia
|
2005-2006,
2008
|
2007,
2009
|
Peru
|
2007
|
2004-2006,
2008-2009
|
Chile
|
–
|
2006-2009
|
Arizona
|
2003-2007
|
2008-2009
|
New
Mexico
|
–
|
2003-2009
|
Environmental. FCX
incurred aggregate environmental capital expenditures and other environmental
costs, including joint venture partners’ share, totaling $289 million in 2009,
$377 million in 2008 and $280 million in 2007.
FCX
subsidiaries that operate in the U.S. are subject to various federal, state and
local environmental laws and regulations that govern emissions of air
pollutants; discharges of water pollutants; and generation, handling, storage
and disposal of hazardous substances, hazardous wastes and other toxic
materials. FCX subsidiaries that operate in the U.S. also are subject to
potential liabilities arising under CERCLA or similar state laws that impose
responsibility on persons who arranged for the disposal of hazardous substances,
and on current and previous owners and operators of a facility for the cleanup
of hazardous substances released from the facility into the environment,
including damages to natural resources. With the passage of CERCLA in 1980,
companies like FMC became legally responsible for environmental remediation on
properties previously owned or operated by them, irrespective of when the damage
to the environment occurred or who caused it. That liability often is shared on
a joint and several basis with all other owners and operators, meaning that each
owner or operator of the property is fully responsible for the cleanup, although
in many cases some or all of the other historical owners or operators no longer
exist, do not have the financial ability to respond or cannot be found. As a
result, because of FCX’s acquisition of Phelps Dodge in 2007, many of the
subsidiary companies FCX now owns are responsible for a wide variety of
environmental remediation projects throughout the U.S. FCX expects to spend
substantial sums annually for many years to address those remediation issues.
Certain FCX subsidiaries have been advised by the U.S. Environmental Protection
Agency (EPA), the Department of the Interior, the Department of Agriculture and
several state agencies that, under CERCLA or similar state laws and regulations,
they may be liable for costs of responding to environmental conditions at a
number of sites that have been or are being investigated to determine whether
releases of hazardous substances have occurred and, if so, to develop and
implement remedial actions to address environmental concerns. As of December 31,
2009, FCX had more than 100 active remediation projects in the U.S. in
approximately 25 states. FCX is also subject to claims where the release of
hazardous substances is alleged to have damaged natural resources.
A summary
of changes in environmental obligations for the years ended December 31, 2009,
2008 and 2007, follows:
|
|
2009
|
|
2008
|
|
2007
|
|
Balance
at beginning of year
|
|
$
|
1,401
|
|
$
|
1,268
|
|
$
|
–
|
|
Liabilities
assumed in the acquisition of Phelps Dodge
|
|
|
–
|
|
|
117
|
|
|
1,334
|
|
Accretion
expensea
|
|
|
102
|
|
|
95
|
|
|
–
|
|
Additions
|
|
|
40
|
|
|
36
|
|
|
6
|
|
Reductions
|
|
|
(3
|
)
|
|
(1
|
)
|
|
(1
|
)
|
Spending
|
|
|
(76
|
)
|
|
(114
|
)
|
|
(71
|
)
|
Balance
at end of year
|
|
|
1,464
|
|
|
1,401
|
|
|
1,268
|
|
Less
current portion
|
|
|
(168
|
)
|
|
(120
|
)
|
|
(166
|
)
|
Long-term
portion
|
|
$
|
1,296
|
|
$
|
1,281
|
|
$
|
1,102
|
|
|
|
|
|
|
|
|
|
|
|
|
a.
|
Represents
accretion of the fair value of environmental obligations assumed in the
acquisition of Phelps Dodge, which were determined on a discounted cash
flow basis.
|
Estimated
environmental cash payments (on an undiscounted and unescalated basis) total
$168 million in 2010, $105 million in 2011, $98 million in 2012 and 2013,
$90 million in 2014 and $1.9 billion thereafter.
As a
result of the acquisition of Phelps Dodge, FCX was required to record Phelps
Dodge’s environmental obligations at fair value on the acquisition date in
accordance with business combination accounting guidance. At the acquisition
date, Phelps Dodge’s historical environmental obligations of $385 million,
before purchase accounting adjustments to fair value, were based on accounting
guidance that requires an estimated loss be recorded for a loss contingency if,
prior to the issuance of the financial statements, it is probable that a
liability had been incurred and the loss can be reasonably estimated. Amounts
recorded under this accounting guidance are generally not considered fair value.
FCX has an environmental and legal group dedicated to the ongoing review and
monitoring of environmental remediation sites. At the acquisition date, the
largest environmental remediation sites were undergoing studies to evaluate the
extent of the environmental damage and the available remedies. Advancement of
these studies and consideration of alternative remedies and cost sharing
arrangements resulted in FCX’s calculation of the estimated fair values being
approximately $1.1 billion greater than the historical Phelps Dodge estimates.
FCX finalized the allocation of the purchase price associated with the Phelps
Dodge acquisition
in the
first quarter of 2008. As a result, the fair value of the environmental
obligations was estimated at approximately $1.45 billion. Significant
adjustments to these obligations could occur in the future. New environmental
obligations will be recorded as described in Note 1 under “Environmental
Expenditures.”
FCX
believes that there may be other potential claims for recovery from other third
parties, including the U.S. government and other PRPs. These potential
recoveries are not recognized unless realization is considered
probable.
At
December 31, 2009, the most significant environmental obligations are associated
with the Pinal Creek site, the Newtown Creek proposed Superfund site, several
historical smelter sites principally located in Arizona, Kansas and Oklahoma,
and uranium mining sites in the western U.S. The recorded environmental
obligations for these sites totaled $1.2 billion at December 31, 2009. A
discussion of these sites follows.
Pinal Creek. The Pinal Creek
site located near Miami, Arizona, was listed under the Arizona Department of
Environmental Quality’s (ADEQ) Water Quality Assurance Revolving Fund program in
1989 for contamination in the shallow alluvial aquifers within the Pinal Creek
drainage near Miami, Arizona. Since that time, environmental remediation has
been performed by the members of the Pinal Creek Group (PCG), consisting of
Phelps Dodge Miami, Inc. (Miami), a wholly owned subsidiary of FMC, and two
other companies. In 1998, the District Court approved a Consent Decree between
the PCG members and the state of Arizona resolving all matters related to an
enforcement action contemplated by the state of Arizona against the PCG members
with respect to groundwater contamination. The Consent Decree committed the PCG
members to complete the remediation work outlined in the Consent Decree, and
that work continues at this time and is expected to continue for many years in
the future.
FCX is a
party to litigation entitled Pinal Creek Group, et al. v.
Newmont Mining Corporation, et al., United States District Court,
District of Arizona, Case No. CIV 91-1764 PHX DAE (LOA), filed on May 1, 1991.
Remediation costs have been paid pursuant to an interim cost sharing allocation
among the members of the PCG, with Miami’s interim allocation being
approximately two-thirds. However, there have been significant
disagreements among the members of the PCG regarding the cost allocation, with
other members alleging in the federal court proceeding that Miami should be
responsible for substantially all of the costs. In February 2010, FCX settled
those disagreements and the associated litigation (refer to Note 23 for further
discussion). The settlement did not result in a change to the obligation, which
was estimated at fair value when assumed in the Phelps Dodge
acquisition.
Newtown Creek. From the 1930s
until 1984, Phelps Dodge Refining Corporation (PDRC) operated a smelter and/or
refinery on the banks of Newtown Creek, which is a waterway that forms part of
the boundary between Brooklyn and Queens in New York City. Heavy
industrialization along the banks of Newtown Creek and discharges from the City
of New York’s sewer system over more than a century resulted in environmental
contamination of the waterway. The New York Attorney General previously notified
several companies, including PDRC, about possible obligations to clean up
sediments in Newtown Creek. In September 2009, the EPA proposed designating
Newtown Creek as a Superfund site with a final decision expected in
2010.
Historical Smelter Sites. FMC
and its predecessors at various times owned or operated historical copper and
zinc smelters in several states, including Arizona, Kansas, Oklahoma and
Pennsylvania. For some of these smelter sites, certain FCX subsidiaries have
been advised by EPA or state agencies that they may be liable for costs of
investigating and, if appropriate, remediating environmental conditions
associated with the smelters. At other sites, certain FCX subsidiaries have
entered into state voluntary remediation programs to investigate and, if
appropriate, remediate site conditions associated with the smelters. The
historical smelter sites are in various stages of assessment.
From 1916
to 1974, Blackwell Zinc Company, Inc. (BZC), currently a subsidiary of FCX,
owned and operated a zinc smelter in Blackwell, Oklahoma. In 1974, the smelter
was demolished and the property deeded to the Blackwell Industrial Authority.
Pursuant to an administrative order with the State of Oklahoma (the State), BZC
undertook remedial actions in Blackwell in 1996 and 1997, including sampling
residential and commercial properties, and removing soils on properties that
were found to have metal concentrations above state-established cleanup
standards. From 1997 to 2003, BZC investigated the nature and extent of
groundwater contamination potentially attributable to the former smelter and
evaluated options for remedying such contamination. In 2003, the State adopted a
cleanup plan requiring the installation of a groundwater extraction and
treatment system and the closure of domestic groundwater wells within the
groundwater plume area. BZC is constructing the groundwater extraction and
treatment system, with system startup anticipated in the second quarter of
2010.
In 2007,
FCX, on behalf of BZC, commenced a voluntary community outreach program inviting
property owners in and around Blackwell to have their properties sampled for the
presence of smelter-related contaminants, and agreed to remediate properties
whose soils are found to have metal concentrations above state-established
cleanup standards. As a result of these efforts, as of January 31, 2010, owners
of about 4,200 properties requested sampling, representing approximately 84
percent of all eligible properties. Based on sampling results from approximately
89 percent of the properties requesting sampling, about 16 percent of sampled
yards and 34 percent of alleyways require some level of cleanup.
Residential yard cleanups started in October 2008. All of these soil sampling
and remediation activities are being coordinated with, and supervised by, the
State.
On April
14, 2008, a purported class action was filed in the District Court of Kay
County, Oklahoma, against FCX and several of its direct and indirect
subsidiaries, including BZC, entitled Coffey, et al., v.
Freeport-McMoRan Copper & Gold, Inc., et al., Kay County, Oklahoma
District Court, Case No. CJ-2008-68. The suit alleges that the operations of
BZC’s zinc smelter in Blackwell, Oklahoma, from 1918 to 1974 resulted in
contamination of the soils and groundwater in Blackwell and the surrounding
area. Unspecified compensatory and punitive damages are sought on behalf of the
putative class members, consisting of current and former residents and property
owners, for alleged diminution in property values. There is also a request for
an order compelling remediation of allegedly contaminated properties and the
establishment of a monetary fund to monitor the present and future health of the
putative class members.
On
December 7, 2009, 18 individuals filed a related suit in District Court of Kay
County, Oklahoma, against FCX and several of its direct and indirect
subsidiaries, including BZC, entitled Brown et al. v.
Freeport-McMoRan Copper & Gold Inc., et al., Kay County, Oklahoma
District Court, Case No. CJ-2009-213, alleging personal injuries resulting from
exposure to lead and seeking compensatory and punitive damages. FCX intends to
defend both of these matters vigorously.
On
October 15, 2009, the City of Blackwell and the Blackwell Municipal Authority
filed an action in District Court of Kay County, Oklahoma, against FCX and
several of its direct and indirect subsidiaries, including BZC, entitled City of Blackwell et al. v.
Freeport-McMoRan Copper & Gold, Inc, et al., Kay County, Oklahoma
District Court, Case No. CJ-2009-15B. The suit alleged that the operations of
BZC’s zinc smelter resulted in contamination of the soils and groundwater in the
City of Blackwell. The plaintiffs alleged nuisance, trespass, negligence and
unjust enrichment and claimed unspecified actual, equitable (for unjust
enrichment) and punitive damages. In December 2009, FCX accrued $54 million
(included in accounts payable and accrued liabilities) associated with a partial
settlement with the City of Blackwell and the Blackwell Municipal Authority
(refer to Note 23 for further discussion).
From the
1880s until 1975, FMC and certain predecessor and subsidiary entities operated a
copper mine near Bisbee, Arizona. A series of smelters operated in Bisbee from
approximately 1879 through 1908. In 2000, FMC entered the Bisbee area into the
Arizona Voluntary Remediation Program (VRP) administered by ADEQ. In 2008, FMC
expanded the VRP project to include other communities near Bisbee and commenced
a voluntary community outreach program inviting property owners to have soils at
their properties sampled for the presence of smelter and mine-related metals.
FMC also has offered to property owners whose soils are found to have metal
concentrations above ADEQ-established cleanup standards to remove the impacted
soils and replace them with clean soils. During 2009, owners of about 3,000
properties requested sampling, representing approximately 60 percent of all
eligible properties. Based on sampling results from approximately 50 percent of
the properties, about 50 percent of sampled properties require some level of
cleanup. As a result, FCX charged operating income and increased its
environmental obligation for Bisbee soil cleanup by $31 million in
2009.
Uranium Mining
Sites. During a period between 1940 and the early 1970s, certain FMC
predecessor entities were involved in uranium exploration and mining in the
western U.S. Similar exploration and mining activities by other companies have
caused environmental impacts that have warranted remediation, and EPA and local
authorities are currently evaluating the need for significant cleanup activities
in the region. To date, FMC has undertaken remediation at a limited number of
sites associated with these predecessor entities. FCX recognized the existence
of a potential liability for these activities and had environmental obligations
for six former uranium sites. An initiative to gather additional information
about sites in the region is ongoing, and information gathered under this
initiative was submitted to EPA Region 9 during the second and third quarters of
2008 and the fourth quarter of 2009 in response to an information request by EPA
regarding uranium mining activities on Navajo Nation properties. FCX utilized
the results of FMC’s remediation experience, in combination with historical and
updated information gathered to date, to initially estimate its fair value of
uranium-related liabilities assumed in the Phelps Dodge acquisition. No new
information was developed in 2009 that required an adjustment to the initial
fair value estimate of FCX’s environmental obligations.
Asset Retirement Obligations
(AROs). FCX’s ARO cost estimates are reflected on a third-party cost
basis and comply with FCX’s legal obligation to retire tangible, long-lived
assets.
A summary
of changes in FCX’s AROs for the years ended December 31, 2009, 2008 and 2007,
follows:
|
|
2009
|
|
2008
|
|
2007
|
|
Balance
at beginning of year
|
|
$
|
712
|
|
$
|
728
|
|
$
|
30
|
|
Liabilities
assumed in the acquisition of Phelps Dodge
|
|
|
–
|
|
|
–
|
|
|
531
|
a
|
Liabilities
incurred
|
|
|
12
|
|
|
5
|
|
|
1
|
|
Revisions
to cash flow estimates
|
|
|
(17
|
)
|
|
21
|
|
|
179
|
|
Accretion
expense
|
|
|
52
|
|
|
51
|
|
|
27
|
|
Spending
|
|
|
(28
|
)
|
|
(91
|
)
|
|
(40
|
)
|
Foreign
currency translation adjustment
|
|
|
–
|
|
|
(2
|
)
|
|
–
|
|
Balance
at end of year
|
|
|
731
|
|
|
712
|
|
|
728
|
|
Less
current portion
|
|
|
(46
|
)
|
|
(42
|
)
|
|
(97
|
)
|
Long-term
portion
|
|
$
|
685
|
|
$
|
670
|
|
$
|
631
|
|
|
|
|
|
|
|
|
|
|
|
|
a.
|
The
fair value of AROs assumed in the acquisition of Phelps Dodge was
estimated based on projected cash flows, an estimated long-term annual
inflation rate of 2.4 percent, a discount rate based on FCX’s estimated
credit-adjusted, risk-free interest rate of 7.8 percent and a market risk
premium of 10 percent to reflect what a third-party might require to
assume these AROs.
|
ARO costs
may increase or decrease significantly in the future as a result of changes in
regulations, engineering designs and technology, permit modifications or
updates, mine plans, cost of inflation or other factors and as actual
reclamation spending occurs. ARO activities and expenditures generally are made
over an extended period of time commencing near the end of the mine life;
however, certain reclamation activities could be accelerated if required, or if
they are determined to be economically beneficial.
The most
significant revisions to cash flow estimates in 2007 were related to changes at
Chino, Tyrone and PT Freeport Indonesia. During 2007, Chino and Tyrone each
submitted updated third-party closure cost estimates to the state of New Mexico
as part of the closure permit renewal process. As a result, FCX revised its cash
flow estimates and increased its ARO by $95 million for Chino and $45 million
for Tyrone. Additional adjustments may be required based upon the state’s review
of the updated closure plans and any permit conditions imposed by the state of
New Mexico. Additionally, PT Freeport Indonesia updated its cost estimates
primarily for changes to its plans for the treatment of acidic water, resulting
in an increase of $33 million.
Legal
requirements in New Mexico, Arizona and Colorado require financial assurance to
be provided for the estimated costs of reclamation and closure, including
groundwater quality protection programs. FCX has satisfied financial assurance
requirements by using a variety of mechanisms, such as third-party performance
guarantees, financial capability demonstrations, trust funds, surety bonds,
letters of credit and collateral. The applicable regulatory requirements provide
financial strength tests to support performance guarantees and financial
capability demonstrations, which are designed to confirm a company’s or
guarantor’s financial capability to fund future estimated reclamation and
closure costs. The amount of financial assurance FCX is required to provide will
vary with changes in laws, regulations and reclamation and closure cost
estimates. As of December 31, 2009, FCX’s financial assurance obligations
associated with closure and reclamation costs totaled $710 million, of which
approximately $414 million was in the form of parent company guarantees and
financial capability demonstrations. At December 31, 2009, FCX had trust assets
totaling $129 million, which are legally restricted to fund a portion of its
AROs for Chino, Tyrone and Cobre as required by New Mexico regulatory
authorities.
New Mexico Environmental and
Reclamation Programs. FCX’s New Mexico operations are subject to
regulation under the New Mexico Water Quality Act and the Water Quality Control
Commission (WQCC) regulations adopted under that Act. The New Mexico Environment
Department (NMED) has required each of these operations to submit closure plans
for NMED’s approval. The closure plans must include measures to assure meeting
groundwater quality standards following the closure of discharging facilities
and to abate any groundwater or surface water contamination. During 2009, the
Tyrone operation appealed a WQCC decision regarding the point of groundwater
withdrawal, which provides the basis for determining where groundwater quality
standards must be met at FCX’s New Mexico mining sites. Finalized closure plan
requirements, including those resulting from resolution of the appeal, could
result in increases to the Tyrone, Chino and Cobre closure costs.
FCX’s New
Mexico operations also are subject to regulation under the New Mexico Mining Act
(the Mining Act), which was enacted in 1993, and the Mining Act rules, which are
administered by the Mining Minerals Division (MMD). Under the Mining Act, mines
are required to submit and obtain approval of closeout plans describing the
reclamation to be performed following cessation of mining operations at all or a
portion of the mines. At December 31, 2009, FCX had accrued reclamation and
closure costs of $351 million for its New Mexico operations. As stated above,
additional accruals may be required based on the state’s review of FCX’s updated
closure plans and any resulting permit conditions (including conditions
associated with NMED’s requirements as noted above), and the amount of those
accruals could be material.
Arizona Environmental and
Reclamation Programs. FCX’s Arizona properties are subject to regulatory
oversight and compliance in several areas. The Arizona Department of
Environmental Quality (ADEQ) has adopted regulations for its aquifer protection
permit (APP) program that replaced previous Arizona groundwater quality
protection permit regulations. APP regulations require permits for certain
facilities, activities and structures for mining, concentrating and smelting and
require compliance with aquifer water quality standards at an applicable point
of compliance well or location. The APP program also may require mitigation and
discharge reduction or elimination of some discharges.
An
application for an APP requires a description of a closure strategy to meet
applicable groundwater protection requirements following cessation of operations
and a cost estimate to implement the closure strategy. An APP may specify
closure requirements, which may include post-closure monitoring and maintenance
requirements. A more detailed closure plan must be submitted within 90 days
after a permitted entity notifies ADEQ of its intent to cease operations. A
permit applicant must demonstrate its financial capability to meet the closure
costs required under the APP.
Portions
of the Arizona mining facilities that operated after January 1, 1986, also are
subject to the Arizona Mined Land Reclamation Act (AMLRA). AMLRA requires
reclamation to achieve stability and safety consistent with post-mining land use
objectives specified in a reclamation plan. Reclamation plans require approval
by the State Mine Inspector and must include a cost estimate to perform the
reclamation measures specified in the plan. During 2008 and 2009, FCX updated
its closure approach at Sierrita, Tohono and Bagdad to address site-specific
regulatory obligations and will continue to evaluate options for future
reclamation and closure activities at its other operating and non-operating
sites, which are likely to result in additional adjustments to FCX’s ARO
liabilities. At December 31, 2009, FCX had accrued reclamation and closure costs
of $187 million for its Arizona operations.
PT Freeport Indonesia Reclamation
and Closure Programs. The ultimate amount of reclamation and closure
costs to be incurred at PT Freeport Indonesia’s operations will be determined
based on applicable laws and regulations and PT Freeport Indonesia’s assessment
of appropriate remedial activities in the circumstances, after consultation with
governmental authorities, affected local residents and other affected parties
and cannot currently be projected with precision. Estimates of the ultimate
reclamation and closure costs PT Freeport Indonesia will incur in the future
involve complex issues requiring integrated assessments over a period of many
years and are subject to revision over time as more complete studies are
performed. Some reclamation costs will be incurred during mining activities,
while most closure costs and the remaining reclamation costs will be incurred at
the end of mining activities, which are currently estimated to continue for more
than 31 years. At December 31, 2009, PT Freeport Indonesia had accrued
reclamation and closure costs of $102 million.
In 1996,
PT Freeport Indonesia began contributing to a cash fund ($12 million balance at
December 31, 2009) designed to accumulate at least $100 million (including
interest) by the end of its Indonesian mining activities. PT Freeport Indonesia
plans to use this fund, including accrued interest, to pay the above-mentioned
mine closure and reclamation costs. Any costs in excess of the $100 million fund
would be funded by operational cash flow or other sources.
In May
2008, the Indonesian Minister of the Department of Energy and Mineral Resources
issued a new regulation regarding mine reclamation and closure, which requires a
company to provide a mine closure guarantee in the form of a time deposit placed
in a state-owned bank in Indonesia. PT Freeport Indonesia does not believe that
a deposit is required under the terms of its Contract of Work, but is working
with the Department of Energy and Mineral Resources to review these requirements
and discuss other options for the mine closure guarantee. In October 2009, PT
Freeport Indonesia was invited to present its updated closure plan to the
Department of Energy and Mineral Resources.
Litigation. FCX is
involved in various legal proceedings that arise in the ordinary course of
business or are associated with environmental issues arising from legacy
operations conducted over the years by Phelps Dodge and its affiliates. FCX does
not believe that its potential liability in any such proceeding should have a
material adverse effect on its business, financial condition or results of
operations.
Since
approximately 1990, FMC or its subsidiaries have been named as a defendant in
product liability or premises lawsuits claiming injury from exposure to asbestos
found in electrical wire products produced or marketed many years ago, or from
asbestos at certain FMC properties. FCX believes its liability, if any, in these
matters will not have a material adverse effect, either individually or in the
aggregate, upon its business, financial condition, liquidity, results of
operations or cash flow. There can be no assurance, however, that future
developments will not alter this conclusion.
Letters of Credit and Surety
Bonds. Standby letters of credit totaled $47 million at
December 31, 2009, primarily for reclamation and environmental obligations and
workers’ compensation insurance programs. In addition, FCX had surety bonds
totaling $123 million at December 31, 2009, associated with reclamation and
closure ($99 million – see discussion above), self-insurance bonds primarily for
workers’ compensation ($21 million) and other bonds ($3
million).
Insurance. FCX
purchases a variety of insurance products to mitigate potential losses. The
various insurance products typically have specified deductible amounts, or
self-insured retentions, and policy limits. FCX generally is self-insured for
U.S. workers’ compensation, but purchases excess insurance up to statutory
limits. An actuarial analysis is performed twice a year for various FCX casualty
programs, including workers’ compensation, to estimate required insurance
reserves. Insurance reserves totaled $60 million at December 31, 2009, which
consisted of a current portion of $10 million (included in accounts payable and
accrued liabilities) and a long-term portion of $50 million (included in other
liabilities).
Other. In December
2009, PT Freeport Indonesia was notified by the Large Taxpayer’s Office of the
Government of Indonesia that PT Freeport Indonesia is obligated to pay value
added taxes on certain goods imported after the year 2000. The amount of taxes
and penalties would be significant. PT Freeport Indonesia believes that,
pursuant to the terms of its Contract of Work, it is only required to pay value
added taxes on these types of goods imported after December 30, 2009. PT
Freeport Indonesia is working cooperatively with the applicable government
authorities to resolve this matter.
In
December 2008, Cerro Verde was notified by Peruvian revenue authorities of their
intent to assess mining royalties related to the minerals processed by the Cerro
Verde concentrator. In August 2009, Cerro Verde received a formal assessment in
the amount of approximately $50 million in connection with its alleged
obligations for mining royalties and fines for the period from October 2006 to
December 2007. Cerro Verde is challenging this assessment as it believes that
royalty obligations with respect to all minerals extracted are governed by its
existing stability agreement, regardless of the processing method applied after
extraction, and believes that it owes no royalties with respect to minerals
processed through its concentrator. FCX is working cooperatively with the
Peruvian authorities to resolve this matter.
NOTE
15. COMMITMENTS AND GUARANTEES
Operating
Leases. FCX leases various types of properties, including
offices and equipment. A summary of future minimum rentals under these
non-cancelable leases at December 31, 2009, follows:
2010
|
|
$
|
27
|
|
2011
|
|
|
28
|
|
2012
|
|
|
19
|
|
2013
|
|
|
14
|
|
2014
|
|
|
11
|
|
After
2014
|
|
|
99
|
|
Total
payments
|
|
$
|
198
|
|
|
|
|
|
|
Minimum
payments under operating leases have not been reduced by aggregate minimum
sublease rentals, which are minimal. Total aggregate rental expense under
operating leases was $74 million in 2009, $90 million in 2008 and
$54 million in 2007.
Contractual
Obligations. Based on applicable prices at December 31, 2009,
FCX has unconditional purchase obligations of $2.4 billion, primarily comprising
the procurement of copper concentrates and cathodes ($1.7 billion),
transportation ($227 million) and oxygen ($178 million) that are essential to
its operations worldwide. Some of FCX’s unconditional purchase obligations are
settled based on the prevailing market rate for the service or commodity
purchased. In some cases, the amount of the actual obligation may change over
time because of market conditions. Obligations for copper concentrates and
cathodes provide for deliveries of specified volumes, at market-based prices, to
Atlantic Copper and the North America copper mines. Transportation obligations
are for South America contracted ocean freight rates and for North America
natural gas transportation. Oxygen obligations provide for deliveries of
specified volumes, at fixed prices, primarily to Atlantic Copper.
FCX’s
future commitments associated with unconditional purchase obligations total $1.4
billion in 2010, $399 million in 2011, $276 million in 2012, $224 million in
2013, $18 million in 2014 and $140 million thereafter. During 2009, 2008 and
2007, FCX fulfilled its minimum contractual purchase obligations or negotiated
settlements in those situations in which it terminated an agreement containing
an unconditional obligation.
Mining
Contracts. Indonesia. FCX is entitled to
mine in Indonesia under the “Contract of Work” between PT Freeport Indonesia and
the Government of Indonesia. The original Contract of Work was entered into in
1967 and was replaced with a new Contract of Work in 1991. The initial term of
the current Contract of Work expires in 2021, but can be extended by PT Freeport
Indonesia for two 10-year periods, subject to Indonesian government approval,
which cannot be withheld or delayed unreasonably. Given the importance of
contracts of work under the Indonesian legal system and PT Freeport Indonesia’s
approximately 40 years of working with the Indonesian government, which included
entering into the Contract of Work in 1991 well before the expiration of the
1967 Contract of Work, PT Freeport Indonesia fully expects that the government
will approve the extensions as long as it continues to comply with the terms of
the Contract of Work.
In July
2004, FCX received a request from the Indonesian Department of Energy and
Mineral Resources that it offer to sell shares in PT Indocopper Investama to
Indonesian nationals at fair market value. In response to this request and in
view of the potential benefits of having additional Indonesian ownership in the
operations, FCX agreed, at the time, to consider a potential sale of an interest
in PT Indocopper Investama at fair market value. Neither its Contract of Work
nor Indonesian law requires FCX to divest any portion of its ownership in PT
Freeport Indonesia or PT Indocopper Investama. In May 2008, FCX signed a
Memorandum of Understanding with the Papua provincial government (the Province)
whereby the parties agreed to work cooperatively to determine the feasibility of
an acquisition by the Province of the PT Indocopper Investama shares at market
value.
The
copper royalty rate payable by PT Freeport Indonesia under its Contract of Work
varies from 1.5 percent of copper net revenue at a copper price of $0.90 or less
per pound to 3.5 percent at a copper price of $1.10 or more per pound. The
Contract of Work royalty rate for gold and silver sales is 1.0
percent.
A large
part of the mineral royalties under Government of Indonesia regulations is
designated to the provinces from which the minerals are extracted. In connection
with its fourth concentrator mill expansion completed in 1998, PT Freeport
Indonesia agreed to pay the Government of Indonesia additional royalties
(royalties not required by the Contract of Work) to provide further support to
the local governments and the people of the Indonesian province of Papua. The
additional royalties are paid on production exceeding specified annual amounts
of copper, gold and silver expected to be generated when PT Freeport Indonesia’s
milling facilities operate above 200,000 metric tons of ore per day. The
additional royalty for copper equals the Contract of Work royalty rate, and for
gold and silver equals twice the Contract of Work royalty rates. Therefore, PT
Freeport Indonesia’s royalty rate on copper net revenues from production above
the agreed levels is double the Contract of Work royalty rate, and the royalty
rates on gold and silver sales from production above the agreed levels are
triple the Contract of Work royalty rates.
The
combined royalties, including the additional royalties that became effective
January 1, 1999, totaled $147 million in 2009, $113 million in 2008
and $133 million in 2007.
In 2008,
the Government of Indonesia enacted a new mining law, which will operate under a
licensing system as opposed to the contract of work system that applies to PT
Freeport Indonesia. In 2010, the Government of Indonesia promulgated regulations
under the 2008 mining law and certain provisions address existing contracts of
work. The regulations provide that contracts of work will continue to be honored
until their expiration. However, the regulations attempt to apply certain
provisions of the new law to any extension periods of contracts of work
even
though PT
Freeport Indonesia's Contract of Work provides for two ten-year extension
periods under the existing terms of its Contract of Work.
Africa. FCX is entitled to
mine in the DRC under the “Amended and Restated Mining Convention” between Tenke
Fungurume Mining S.A.R.L. and the Government of the DRC. The original Mining
Convention was entered into in 1996 and was replaced with the Amended and
Restated Mining Convention in 2005. The current Amended and Restated Mining
Convention will remain in effect for as long as the Tenke Fungurume concession
is exploitable. The royalty rate payable by Tenke Fungurume Mining S.A.R.L.
under the Amended and Restated Mining Convention is 2 percent of net revenue.
These mining royalties totaled $7 million in 2009.
In
February 2008, the Ministry of Mines, Government of the DRC, sent a letter
seeking comment on proposed material modifications to the mining contracts for
the Tenke Fungurume concession, including the amount of transfer payments
payable to the government, the government’s percentage ownership and involvement
in the management of the mine, regularization of certain matters under Congolese
law and the implementation of social plans. FCX responded to this letter
indicating that its mining contracts were negotiated transparently and approved
by the Government of the DRC following extended negotiations, and FCX believes
they are fair and equitable, comply with Congolese law and are enforceable
without modifications. FCX is continuing to work cooperatively with the DRC
government to resolve these matters but cannot predict the timing or the outcome
of this process. The contract review process has not affected FCX’s development
schedule, and FCX is continuing to operate pursuant to the terms of its
contract.
Community Development
Programs. FCX has adopted policies that govern its working
relationships with the communities where it operates that are designed to guide
its practices and programs in a manner that respects basic human rights and the
culture of the local people impacted by FCX’s operations. FCX continues to make
significant expenditures on community development, education, training and
cultural programs.
In 1996,
PT Freeport Indonesia established the Freeport Partnership Fund for Community
Development (formerly the Freeport Fund for Irian Jaya Development) through
which PT Freeport Indonesia has made available funding and technical assistance
to support the economic health, education and social development of the area. PT
Freeport Indonesia has committed through 2011 to provide one percent of its
annual revenue for the development of the local people in its area of operations
through the Freeport Partnership Fund for Community Development. PT Freeport
Indonesia charged $59 million in 2009, $34 million in 2008 and $48 million in
2007 to cost of sales for this commitment.
FCX’s
Cerro Verde copper mine has provided a variety of community support projects
over the years. During 2006, as a result of discussions with local mayors in the
Arequipa region, Cerro Verde agreed to contribute to the design and construction
of domestic water and sewage treatment plants for the benefit of the region.
These facilities are being designed in a modular fashion so that initial
installations can be readily expanded in the future. FCX charged cost of sales
in 2008 and funded approximately $49 million to a designated bank account
(included in other assets at December 31, 2009) that will be used for financing
Cerro Verde’s share of the construction costs of these facilities.
During
2006, the Peruvian government announced that all mining companies operating in
Peru will make annual contributions to local development funds for a five-year
period when copper prices exceed certain levels that are adjusted annually. The
contribution is equal to 3.75 percent of after-tax profits, of which 2.75
percent is contributed to a local mining fund and 1.00 percent to a regional
mining fund. The charge to cost of sales for these local mining fund
contributions totaled $28 million in 2009 and 2008 and $49 million in
2007.
Tenke
Fungurume has committed to assist the communities living within its concession
in the Katanga province of the DRC. Tenke Fungurume will contribute 0.3 percent
of net sales revenue from production to a community development fund to assist
the local communities with development of local infrastructure and related
services, such as those pertaining to health, education and economic
development. Tenke Fungurume charged $1 million in 2009 to cost of sales for
this commitment.
Guarantees. FCX
provides certain financial guarantees (including indirect guarantees of the
indebtedness of others) and indemnities.
At its
Morenci mine in Arizona, FCX has a venture agreement dated February 7, 1986,
with Sumitomo, which includes a put and call option guarantee clause. FCX holds
an 85 percent undivided interest in the Morenci complex. Under certain
conditions defined in the venture agreement, Sumitomo has the right to sell its
15 percent share to FCX. Likewise, under certain conditions, FCX has the right
to purchase Sumitomo’s share of the venture. At December 31, 2009, the maximum
potential payment FCX is obligated to make to Sumitomo upon exercise of the put
option (or FCX’s exercise of its call option) totaled approximately $145 million
based on calculations defined in the venture agreement. At December
31, 2009, FCX had not recorded any liability in its consolidated financial
statements in connection with this guarantee as FCX does not believe, based on
information available, that it is probable that any amounts will be paid under
this guarantee as the fair value of Sumitomo’s 15 percent share is well in
excess of the exercise price.
Prior to
its acquisition by FCX, FMC and its subsidiaries have, as part of merger,
acquisition, divestiture and other transactions, from time to time, indemnified
certain sellers, buyers or other parties related to the transaction from and
against certain liabilities associated with conditions in existence (or claims
associated with actions taken) prior to the closing date of the transaction. As
part of these transactions, FMC indemnified the counterparty from and against
certain excluded or retained liabilities existing at the time of sale that would
otherwise have been transferred to the party at closing. These indemnity
provisions generally now require FCX to indemnify the party against certain
liabilities that may arise in the future from the pre-closing activities of FMC
for assets sold or purchased. The indemnity classifications include
environmental, tax and certain operating liabilities, claims or litigation
existing at closing and various excluded liabilities or obligations. Most of
these indemnity obligations arise from transactions that closed many years ago,
and given the nature of these indemnity obligations, it is impossible to
estimate the maximum potential exposure. Except as described in the following
sentence, FCX does not consider any of such obligations as having a probable
likelihood of payment that is reasonably estimable, and accordingly, has not
recorded any obligations associated with these indemnities. With respect to
FCX’s environmental indemnity obligations, any expected costs from these
guarantees are accrued when potential environmental obligations are considered
by management to be probable and the costs can be reasonably
estimated.
NOTE 16. FINANCIAL
INSTRUMENTS
FCX does
not purchase, hold or sell derivative financial instruments unless there is an
existing asset or obligation or if it anticipates a future activity that is
likely to occur and will result in exposure to market risks and FCX intends to
offset or mitigate such risks. FCX does not enter into any derivative financial
instruments for speculative purposes, but has entered into derivative financial
instruments in limited instances to achieve specific objectives. These
objectives principally relate to managing risks associated with commodity price,
foreign currency and interest rate risks. The fair values of FCX’s financial
derivative instruments are based on derivative pricing models or widely
published market closing prices.
A summary
of unrealized gains recognized in income (loss) from continuing operations
before income taxes and equity in affiliated companies’ net earnings for
derivative financial instruments that are designated and qualify as fair value
hedge transactions, along with the unrealized losses on the related hedged item
(firm sales commitments) for the year ended December 31, 2009,
follows:
|
|
|
|
|
Hedged
|
|
|
|
|
Derivative
|
|
Item
|
|
Commodity
contracts:
|
|
|
|
|
|
|
|
|
FMC’s
copper futures and swap contractsa
|
|
|
$
|
11
|
|
$
|
(11
|
)
|
|
|
|
|
|
|
|
|
|
a.
|
Amounts
are recorded in revenues.
|
FCX
realized gains, which are recorded in revenues, of $49 million during 2009 from
matured derivative financial instruments that qualified for hedge
accounting.
A summary
of the realized and unrealized gains (losses) recognized in income (loss) from
continuing operations before income taxes and equity in affiliated companies’
net earnings for derivative financial instruments, including embedded
derivatives, which do not qualify as hedge transactions for the years ended
December 31, 2009, 2008 and 2007, follows:
|
|
2009
|
|
2008
|
|
2007
|
|
Commodity
contracts:
|
|
|
|
|
|
|
|
|
|
|
Embedded
derivatives in provisional sales contractsa
|
|
$
|
1,393
|
|
$
|
(1,278
|
)
|
$
|
197
|
|
Embedded
derivatives in provisional purchase contractsb
|
|
|
(3
|
)
|
|
34
|
|
|
(10
|
)
|
PT
Freeport Indonesia’s copper forward contractsa
|
|
|
(104
|
)
|
|
–
|
|
|
–
|
|
Atlantic
Copper’s copper forward contractsb
|
|
|
2
|
|
|
(71
|
)
|
|
(44
|
)
|
FMC’s
copper futures and swap contractsa
|
|
|
64
|
|
|
(184
|
)
|
|
(38
|
)
|
FMC’s
zero-premium copper collarsa
|
|
|
–
|
|
|
–
|
|
|
(175
|
)
|
|
|
|
|
|
|
|
|
|
|
|
a.
|
Amounts
recorded in revenues.
|
b.
|
Amounts
recorded in cost of sales as production and delivery
costs.
|
A summary
of the fair values of unsettled derivative financial instruments recorded on the
consolidated balance sheet as of December 31, 2009, follows:
|
|
|
|
Not
|
|
|
|
Designated
|
|
Designated
|
|
|
|
as
Hedges
|
|
as
Hedges
|
|
Commodity
contracts:
|
|
|
|
|
|
|
|
FMC’s
copper futures and swap contracts:
|
|
|
|
|
|
|
|
Asset
positiona,
b
|
|
$
|
11
|
|
$
|
2
|
|
Embedded
derivatives in provisional sales/purchases contracts:c
|
|
|
|
|
|
|
|
Asset
position
|
|
|
–
|
|
|
235
|
|
Liability
position
|
|
|
–
|
|
|
(70
|
)
|
Atlantic
Copper’s copper forward contracts:
|
|
|
|
|
|
|
|
Asset
positiona
|
|
|
–
|
|
|
1
|
|
|
|
|
|
|
|
|
|
a.
|
Amounts
recorded in other current assets.
|
b.
|
At
December 31, 2009, FCX had received $6 million from brokers associated
with margin requirements (recorded in accounts payable and accrued
liabilities).
|
c.
|
Amounts
recorded either as a net accounts receivable or a net accounts
payable.
|
Commodity
Contracts. From time to time, FCX has entered into forward,
futures, and swap contracts to hedge the market risk associated with
fluctuations in the prices of commodities it purchases and sells. Derivative
financial instruments used by FCX to manage its risks do not contain credit
risk-related contingent provisions. As of December 31, 2009 and 2008, FCX had no
price protection contracts relating to its mine production. A summary of FCX’s
derivative contracts and programs follows.
Derivatives Designated as
Hedging Instruments – Fair Value Hedges
Copper Futures and Swap
Contracts. Some of FMC’s U.S. copper rod customers request a fixed market
price instead of the COMEX average copper price in the month of shipment. FCX
hedges this price exposure in a manner that allows it to receive the COMEX
average price in the month of shipment while the customers pay the fixed price
they requested. FCX accomplishes this by entering into copper futures and swap
contracts and then liquidating the copper futures contracts and settling the
copper swap contracts during the month of shipment, which generally results in
FCX receiving the COMEX average copper price in the month of shipment. Hedge
gains or losses from these copper futures and swap contracts are recorded in
revenues. FCX did not have any significant gains or losses during the year ended
December 31, 2009, resulting from hedge ineffectiveness. At December 31, 2009,
FCX held copper futures and swap contracts that qualified for hedge accounting
for 35 million pounds at an average price of $3.01 per pound, with
maturities through November 2010.
Derivatives Not Designated
as Hedging Instruments
Embedded
derivatives and derivative financial instruments that do not meet the criteria
to qualify for hedge accounting are discussed below.
Embedded Derivatives. As
described in Note 1 under “Revenue Recognition,” certain FCX copper concentrate,
copper cathode and gold sales contracts provide for provisional pricing
primarily based on LME or COMEX prices (copper) and the London Bullion Market
Association price (gold) at the time of shipment as specified in the contract.
Similarly, FCX purchases copper and molybdenum under contracts that provide for
provisional pricing (molybdenum purchases are based on an average Metals Week Molybdenum Oxide
price). FCX applies the normal purchases and normal sales scope exception in
accordance with derivatives and hedge accounting guidance to the host sales
agreements since the contracts do not allow for net settlement and always result
in physical delivery. Sales and purchases with a provisional sales price contain
an embedded derivative (i.e., the price settlement
mechanism that is settled after the time of delivery) that is required to be
bifurcated from the host contract. The host contract is the sale or purchase of
the metals contained in the concentrates or cathodes at the then-current LME or
COMEX price (copper), the London Bullion Market Association price (gold) or the
average Metals Week
Molybdenum Oxide price as defined in the contract (molybdenum). Mark-to-market
price fluctuations recorded through the settlement date are reflected in
revenues for sales contracts and in cost of sales as production and delivery
costs for purchase contracts. At December 31, 2009, FCX had embedded
derivatives on 662 million pounds of copper sales at an average price of
$3.34 per pound, with maturities through May 2010, 186 thousand ounces of
gold sales at an average price of $1,105 per ounce, with maturities through
March 2010, 213 million pounds of copper purchases at an average price of $3.34
per pound, with maturities through April 2010 and 249 thousand pounds of
molybdenum purchases at an average price of $10.85 per pound, with maturities
through January 2010.
Copper Forward Contracts. In
April 2009, FCX entered into copper forward sales contracts to lock in prices at
an average of $1.86 per pound on 355 million pounds of PT Freeport Indonesia’s
provisionally priced copper sales at March 31, 2009, which final priced from
April 2009 through July 2009. These economic hedge transactions were intended to
reduce short-term price volatility in earnings and cash flows. Gains and losses
for these economic hedge transactions were recorded in revenues. FCX has not
entered into additional forward sales contracts since April 2009 for its
provisionally priced copper sales, but may enter into future transactions to
lock in pricing on provisionally priced sales from time to time. However, FCX
does not currently intend to change its long-standing policy of not hedging
future copper production.
Atlantic
Copper enters into forward copper contracts designed to hedge its copper price
risk whenever its physical purchases and sales pricing periods do not match.
These economic hedge transactions are intended to hedge against changes in
copper prices, with the mark-to-market hedging gains or losses recorded in cost
of sales. At December 31, 2009, Atlantic Copper held net forward copper purchase
contracts for 8 million pounds at an average price of $3.19 per pound, with
maturities through January 2010.
Copper Futures and Swap
Contracts. In addition to the contracts discussed above that qualify for
fair value hedge accounting, FCX also has similar contracts with FMC’s U.S.
copper rod customers that do not qualify for hedge accounting because of certain
terms in the sales contracts. Gains and losses for these economic hedge
transactions are recorded in revenues. At December 31, 2009, FCX held copper
futures and swap contracts for 3 million pounds at an average price of
$2.64 per pound, with maturities through December 2010.
FMC Copper Collars. As a
result of the acquisition of Phelps Dodge, FCX assumed Phelps Dodge’s 2007
copper price protection program ($423 million obligation at acquisition date),
which consisted of zero-premium copper collars (consisting of both put and call
options) for 486 million pounds of copper capped at $2.00 per pound and copper
put options for 730 million pounds with a floor price of $0.95 per pound. The
zero-premium copper collars consisted of the simultaneous purchase of a monthly
or annual put option and the sale of an annual call option. The put option
portion of this economic hedge effectively ensured a minimum price per pound
while the call option portion established a maximum price per pound. The primary
objective of these contracts was to set a minimum price, and the secondary
objective was to retain market upside. At December 31, 2007, the copper put
options expired without settlement, and FCX paid $598 million in January 2008 to
settle the copper call options. FCX does not currently intend to enter into
similar hedging programs in the future.
Foreign Currency Exchange
Contracts. As a global company, FCX transacts business in many
countries and in many currencies. Foreign currency transactions of FCX’s
international subsidiaries increase its risks because exchange rates can change
between the time agreements are made and the time foreign currency transactions
are settled. FCX may hedge or protect its international subsidiaries’ foreign
currency transactions from time to time by entering into forward exchange
contracts to lock in or minimize the effects of fluctuations in exchange rates.
FCX had no outstanding foreign currency exchange contracts at
December 31, 2009.
Interest Rate Swap
Contracts. From time to time, FCX or its subsidiaries may
enter into interest rate swaps to manage its exposure to interest rate changes
and to achieve a desired proportion of fixed-rate versus floating-rate debt
based on current and projected market conditions. FCX may enter into interest
rate swap contracts to lock in an interest rate considered to be favorable in
order to protect against its exposure to variability in future interest payments
attributable to increases in interest rates of the designated floating-rate
debt. In some situations, FCX may enter into fixed-to-floating interest rate
swap contracts to protect against changes in the fair value of the underlying
fixed-rate debt that result from market interest rate changes and to take
advantage of lower interest rates. FCX had no outstanding interest rate swap
contracts at December 31, 2009.
Credit Risk. FCX is
exposed to credit loss when financial institutions with which FCX has entered
into derivative transactions (commodity, foreign exchange and interest rate
swaps) are unable to pay. To minimize the risk of such losses, FCX uses highly
rated financial institutions that meet certain requirements. FCX also
periodically reviews the creditworthiness of these institutions to ensure that
they are maintaining their credit ratings. FCX does not anticipate that any of
the financial institutions FCX deals with will default on their obligations. As
of December 31, 2009, FCX did not have any significant credit exposure
associated with derivative transactions.
Other Financial
Instruments. Other financial instruments include cash and cash
equivalents, accounts receivable, trust assets, accounts payable and accrued
liabilities, and long-term debt. Refer to Note 17 for the fair values of these
financial instruments.
Cash and Cash Equivalents, Accounts
Receivable, and Accounts Payable and Accrued Liabilities. The financial
statement amount is a reasonable estimate of the fair value because of the short
maturity of these instruments and generally negligible credit losses.
Trust Assets. The financial
statement amount represents the fair value of trust assets, which is based on
quoted market prices.
Long-Term Debt. The financial
statement amount represents cost except for long-term debt acquired in the
Phelps Dodge acquisition, which was recorded at fair value at the acquisition
date.
NOTE
17. FAIR VALUE MEASUREMENT
Fair
value accounting guidance includes a fair value hierarchy that prioritizes the
inputs to valuation techniques used to measure fair value. The hierarchy gives
the highest priority to unadjusted quoted prices in active markets for identical
assets or liabilities (Level 1 inputs) and the lowest priority to unobservable
inputs (Level 3 inputs). The three levels of the fair value hierarchy are
described below:
Level
1
|
Unadjusted
quoted prices in active markets that are accessible at the measurement
date for identical, unrestricted assets or
liabilities;
|
Level
2
|
Quoted
prices in markets that are not active, quoted prices for similar assets or
liabilities in active markets, inputs other than quoted prices that are
observable for the asset or liability, or inputs that are derived
principally from or corroborated by observable market data by correlation
or other means; and
|
Level
3
|
Prices
or valuation techniques that require inputs that are both significant to
the fair value measurement and unobservable (supported by little or no
market activity).
|
A summary
of FCX’s financial assets and liabilities measured at fair value on a recurring
basis follows:
|
|
Fair
Value at December 31, 2009
|
|
|
|
Total
|
|
Level
1
|
|
Level
2
|
|
Level
3
|
|
Cash
equivalents
|
|
$
|
2,610
|
|
$
|
2,610
|
|
$
|
–
|
|
$
|
–
|
|
Trust
assets (current and long-term)
|
|
|
146
|
|
|
146
|
|
|
–
|
|
|
–
|
|
Available-for-sale
securities (current and long-term)
|
|
|
74
|
|
|
74
|
|
|
–
|
|
|
–
|
|
Embedded
derivatives in provisional sales/purchases
|
|
|
|
|
|
|
|
|
|
|
|
|
|
contracts,
net
|
|
|
165
|
|
|
165
|
|
|
–
|
|
|
–
|
|
Other
derivative financial instruments, net
|
|
|
14
|
|
|
14
|
|
|
–
|
|
|
–
|
|
|
|
$
|
3,009
|
|
$
|
3,009
|
|
$
|
–
|
|
$
|
–
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Valuation
Techniques
Cash Equivalents. The fair
value of FCX’s cash equivalents are classified within Level 1 of the fair value
hierarchy because they are valued using quoted market prices in active markets.
FCX’s cash equivalents are primarily money market securities, time deposits and
U.S. treasury securities.
Trust Assets. The fair value
of FCX’s trust assets are classified within Level 1 of the fair value hierarchy
because they are valued using quoted market prices in active markets. FCX’s
trust assets are primarily money market securities and fixed income
funds.
Available-for-sale
securities. FCX’s available-for-sale securities are valued using quoted
market prices in active markets and as such are classified within Level 1 of the
fair value hierarchy. The fair value of the available-for-sale securities is
calculated as the quoted market price of the security multiplied by the quantity
of shares held by FCX.
Embedded derivatives in provisional
sales/purchases contracts. FCX’s embedded derivatives on provisional
copper concentrate, copper cathode and gold sales are valued using quoted market
prices based on the forward LME or COMEX prices (copper) and the London Bullion
Market Association price (gold) and, as such, are classified within Level 1 of
the fair value hierarchy. FCX’s embedded derivatives on provisional copper
concentrate purchases are valued using quoted market prices based on the forward
LME prices and, as such, are classified within Level 1 of the fair value
hierarchy. FCX’s embedded derivatives on provisional molybdenum purchases are
valued based on the latest average weekly Metals Week Molybdenum Dealer
Oxide prices and, as such, are classified within Level 1 of the fair value
hierarchy.
Other derivative financial
instruments. FCX’s other derivative financial instruments are classified
within Level 1 of the fair value hierarchy because they are valued using quoted
market prices in active markets (refer to Note 16 for further
discussion).
A summary
of the carrying amount and fair value of FCX’s financial instruments at December
31, 2009 and 2008, follows:
|
2009
|
|
2008
|
|
|
Carrying
|
|
Fair
|
|
Carrying
|
|
Fair
|
|
|
Amount
|
|
Value
|
|
Amount
|
|
Value
|
|
Cash
and cash equivalentsa
|
$
|
2,656
|
|
$
|
2,656
|
|
$
|
872
|
|
$
|
872
|
|
Accounts
receivableb,
c
|
|
1,803
|
|
|
1,803
|
|
|
1,212
|
|
|
1,212
|
|
Trust
assets (current and long-term)a
|
|
146
|
|
|
146
|
|
|
260
|
|
|
260
|
|
Available-for-sale
securities (current and
|
|
|
|
|
|
|
|
|
|
|
|
|
long-term)a
|
|
74
|
|
|
74
|
|
|
84
|
|
|
84
|
|
Derivative
assetsa
|
|
14
|
|
|
14
|
|
|
–
|
|
|
–
|
|
Accounts
payable and accrued liabilitiesb,
d
|
|
(1,837
|
)
|
|
(1,837
|
)
|
|
(2,644
|
)
|
|
(2,644
|
)
|
Rio
Tinto share of joint venture cash flowsb
|
|
(161
|
)
|
|
(161
|
)
|
|
–
|
|
|
–
|
|
Dividends
payableb
|
|
(99
|
)
|
|
(99
|
)
|
|
(44
|
)
|
|
(44
|
)
|
Debt
(including amounts due within one year)e
|
|
(6,346
|
)
|
|
(6,735
|
)
|
|
(7,351
|
)
|
|
(5,889
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
a.
|
Recorded
at fair value. Quoted market prices are used to determine fair
value.
|
b.
|
Fair
value approximates the carrying amounts because of the short maturity of
these instruments.
|
c.
|
Includes
derivative assets of $235 million in 2009 and $89 million in 2008, which
are recorded at fair value based on quoted market
prices.
|
d.
|
Includes
derivative liabilities of $70 million in 2009 and $578 million in 2008,
which are recorded at fair value based on quoted market
prices.
|
e.
|
Generally
recorded at cost. Fair value of substantially all of FCX’s long-term debt
is estimated based on quoted market
prices.
|
NOTE
18. ACQUISITION OF PHELPS DODGE
On March
19, 2007, FCX acquired Phelps Dodge, a fully integrated producer of copper and
molybdenum, with mines in North and South America and processing capabilities
for other by-product minerals, such as gold, silver and rhenium, and several
development projects, including Tenke Fungurume in the DRC.
In the
acquisition, each share of Phelps Dodge common stock was exchanged for 0.67 of a
share of FCX common stock and $88.00 in cash. As a result, FCX issued 136.9
million shares and paid $18.0 billion in cash to Phelps Dodge shareholders. The
acquisition was accounted for under the purchase method with FCX as the
accounting acquirer.
The
estimated fair value of assets acquired and liabilities assumed and the results
of Phelps Dodge’s (now known as FMC) operations are included in FCX’s
consolidated financial statements beginning March 20, 2007.
A summary
of the $25.8 billion purchase price, which was funded through a combination of
common shares issued, borrowings under an $11.5 billion senior credit facility,
proceeds from the offering of $6.0 billion of senior notes (refer to Note
10 for further discussion) and available cash resources follows:
Phelps
Dodge common stock outstanding and issuable at
|
|
|
|
March
19, 2007 (in millions)
|
|
204.3
|
|
Exchange
offer ratio per share of FCX common stock for each
|
|
|
|
Phelps
Dodge common share
|
|
0.67
|
|
Shares
of FCX common stock issued (in millions)
|
|
136.9
|
|
|
|
|
|
Cash
consideration of $88.00 for each Phelps Dodge common share
|
$
|
17,979
|
a
|
Fair
value of FCX common stock issued
|
|
7,781
|
b
|
Transaction
and change of control costs and related employee benefits
|
|
137
|
|
Release
of FCX deferred tax asset valuation allowances
|
|
(92
|
)c
|
Total
purchase price
|
$
|
25,805
|
|
|
|
|
|
a.
|
Cash
consideration includes cash paid in lieu of any fractional shares of FCX
stock.
|
b.
|
Measurement
of the common stock component of the purchase price was based on a
weighted-average closing price of FCX’s common stock of $56.85 for the two
days prior to through two days after the public announcement of the merger
on November 19, 2006.
|
c.
|
FCX
determined that, as a result of the acquisition of Phelps Dodge, it would
be able to realize certain U.S. tax credits for which it had previously
not recognized any benefit. Recognition of these tax credits resulted in a
$92 million reduction to the purchase
price.
|
In
accordance with the purchase method of accounting, the purchase price paid was
determined at the date of the public announcement of the transaction and was
allocated to the assets acquired and liabilities assumed based upon their
estimated fair values on the closing date of March 19, 2007. In valuing acquired
assets and assumed liabilities, fair values were based on, but not limited to:
quoted market prices, where available; the intent of FCX with respect to whether
the assets purchased were to be held, sold or abandoned; expected future cash
flows; current replacement cost for similar capacity for certain fixed assets;
market rate assumptions for contractual obligations; and appropriate discount
rates and growth rates. The excess of the purchase price over the estimated fair
value of the net assets acquired was recorded as goodwill. At the date of
acquisition of Phelps Dodge, copper price projections used to value the assets
acquired ranged from near-term prices of $2.98 per pound for copper declining
over an eight-year period to $1.20 per pound and $26.20 per pound for molybdenum
declining over a five-year period to $8.00 per pound, reflecting price
expectations at that time.
A summary
of the final purchase price allocation as of March 19, 2007, follows (in
billions):
|
Phelps
|
|
|
|
|
|
|
Dodge
|
|
|
|
Purchase
|
|
|
Historical
|
|
Fair
Value
|
|
Price
|
|
|
Balances
|
|
Adjustments
|
|
Allocation
|
|
Cash
and cash equivalents
|
$
|
4.2
|
|
$
|
–
|
|
$
|
4.2
|
|
Inventories,
including mill and leach stockpiles
|
|
0.9
|
|
|
2.8
|
|
|
3.7
|
|
Property,
plant and equipmenta
|
|
6.0
|
|
|
16.2
|
|
|
22.2
|
|
Other
assets
|
|
3.1
|
|
|
0.2
|
|
|
3.3
|
|
Allocation
to goodwillb
|
|
–
|
|
|
6.2
|
|
|
6.2
|
c
|
Total
assets
|
|
14.2
|
|
|
25.4
|
|
|
39.6
|
|
Deferred
income taxes (current and long-term)d
|
|
(0.7
|
)
|
|
(6.3
|
)
|
|
(7.0
|
)
|
Other
liabilities
|
|
(4.1
|
)
|
|
(1.5
|
)
|
|
(5.6
|
)
|
Noncontrolling
interests
|
|
(1.2
|
)
|
|
–
|
|
|
(1.2
|
)
|
Total
|
$
|
8.2
|
|
$
|
17.6
|
|
$
|
25.8
|
|
|
|
|
|
|
|
|
|
|
|
a.
|
Includes
amounts for proven and probable reserves and values of VBPP (refer to Note
1 for further discussion).
|
b.
|
None
of the $6.2 billion of goodwill was deductible for tax
purposes.
|
c.
|
Includes
$160 million of goodwill associated with Phelps Dodge International
Corporation, which was sold in the fourth quarter of 2007 (refer to
Note 19 for further
discussion).
|
d.
|
Deferred
income taxes were recognized based on the difference between the tax basis
and the estimated fair values assigned to net
assets.
|
Unaudited Pro Forma Financial
Information. The following unaudited pro forma financial
information assumes that FCX acquired Phelps Dodge effective January 1, 2007.
The most significant adjustments relate to the purchase accounting impacts of
increases in the carrying values of acquired metal inventories (including mill
and leach stockpiles) and property, plant and equipment using March 19, 2007,
metal prices and assumptions.
|
Historical
|
|
|
|
|
|
|
|
|
Phelps
|
|
Pro
Forma
|
|
Pro
Forma
|
|
|
FCX
|
|
Dodgea
|
|
Adjustments
|
|
Consolidated
|
|
Year Ended December 31,
2007
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues
|
$
|
16,939
|
|
$
|
2,294
|
|
$
|
–
|
|
$
|
19,233
|
b
|
Operating
income
|
|
6,555
|
|
|
793
|
|
|
(178
|
)
|
|
7,170
|
b,c
|
|
|
|
|
|
|
|
|
|
|
|
|
|
a.
|
Represents
the results of Phelps Dodge’s operations from January 1, 2007, through
March 19, 2007. Beginning March 20, 2007, the results of Phelps Dodge’s
operations are included in FCX’s consolidated financial
information.
|
b.
|
Includes
charges to revenues for mark-to-market accounting adjustments on copper
price protection programs totaling $195 million. Also includes credits for
amortization of acquired intangible liabilities totaling $120
million.
|
c.
|
Includes
charges associated with the impacts of the increases in the carrying
values of acquired metal inventories (including mill and leach stockpiles)
and property, plant and equipment, and also includes the amortization of
intangible assets and liabilities resulting from the acquisition totaling
$1.7 billion.
|
The above
unaudited pro forma consolidated financial information has been prepared for
illustrative purposes only and is not intended to be indicative of the results
that would actually have occurred, or the results expected in future periods,
had the events reflected herein occurred on the dates indicated.
NOTE 19. DISCONTINUED
OPERATIONS
On
October 31, 2007, FCX sold its international wire and cable business, Phelps
Dodge International Corporation (PDIC), for $735 million, which resulted in a
net loss of $14 million ($9 million to net income) for transaction-related
costs. The transaction generated after-tax proceeds of approximately $650
million (net proceeds of $597 million after taxes, transaction-related costs and
PDIC cash).
As a
result of the sale, the operating results of PDIC have been removed from
continuing operations and reported as discontinued operations in the
consolidated statements of operations. Selected financial information related to
discontinued operations for the year ended December 31, 2007,
follows:
Revenues
|
|
$
|
937
|
|
Operating
income
|
|
|
78
|
|
Provision
for income taxes
|
|
|
(24
|
)
|
Income
from discontinued operations
|
|
|
46
|
a
|
|
|
|
|
|
a.
|
Includes
income attributable to noncontrolling interests of $11
million.
|
Cash
flows from discontinued operations for the year ended December 31, 2007, have
not been separately identified in the consolidated statements of cash
flows.
NOTE
20. BUSINESS SEGMENTS
FCX has
organized its operations into five primary divisions – North America copper
mines, South America copper mines, Indonesia mining, Africa mining and
Molybdenum operations. Notwithstanding this structure, FCX internally reports
information on a mine-by-mine basis. Therefore, FCX concluded that its operating
segments include individual mines. Operating segments that meet certain
thresholds are reportable segments. Beginning in 2009, the Sierrita mine is no
longer a reportable segment because it did not meet any of the thresholds.
Accordingly, FCX has revised its segment disclosures for the years ended
December 31, 2008 and 2007, to conform with the current year
presentation.
Further
discussion of the reportable segments included in FCX’s operating divisions, as
well as FCX’s other reportable segments – Rod & Refining and Atlantic Copper
Smelting & Refining – follows. Refer to Note 3 for information on FCX’s
ownership interests.
North America Copper
Mines. FCX has six operating copper mines in North America –
Morenci, Sierrita, Bagdad, Safford and Miami in Arizona, and Tyrone in New
Mexico. The North America copper mines include open-pit mining, sulfide ore
concentrating, leaching and SX/EW operations. A majority of the copper produced
at the North America copper mines is cast into copper rod by FCX’s Rod &
Refining operations. The North America copper mines division includes Morenci as
a reportable segment.
Morenci. The Morenci open-pit
mine, located in southeastern Arizona, primarily produces copper cathodes and
copper concentrates. The Morenci mine produced approximately 40 percent of FCX’s
North America copper during 2009.
Other Mines. Other mines
include FCX’s other operating southwestern U.S. copper mines – Sierrita, Bagdad,
Safford, Miami and Tyrone – and its southwestern U.S. copper mines that are
currently on care-and-maintenance status. In addition to copper, the Sierrita
and Bagdad mines produce molybdenum concentrate as a by-product.
South America Copper
Mines. FCX has four operating copper mines in South America –
Cerro Verde in Peru, and Candelaria, Ojos del Salado and El Abra in Chile. These
operations include open-pit and underground mining, sulfide ore concentrating,
leaching and SX/EW operations. The South America copper mines division includes
Cerro Verde as a reportable segment.
Cerro Verde. The Cerro Verde
open-pit copper mine, located near Arequipa, Peru, produces copper cathodes and
copper concentrates. In addition to copper, the Cerro Verde mine produces
molybdenum concentrate as a by-product. The Cerro Verde mine produced
approximately 50 percent of FCX’s South America copper during 2009.
Other Mines. Other mines
include FCX’s Chilean copper mines – Candelaria, Ojos del Salado and El Abra. In
addition to copper, the Candelaria and Ojos del Salado mines produce gold and
silver as by-products.
Indonesia. Indonesia
mining includes PT Freeport Indonesia’s Grasberg minerals district. PT Freeport
Indonesia produces copper concentrates, which contain significant quantities of
gold and silver.
Africa. Africa
mining includes the Tenke Fungurume copper and cobalt mining concessions in the
Katanga province of the DRC. The Tenke Fungurume mine includes open-pit mining,
leaching and SX/EW operations. In addition to copper, the Tenke Fungurume mine
produces cobalt hydroxide. Copper cathode production commenced in March
2009, and
the first copper cathode was sold in second-quarter 2009. The cobalt plant and
sulphuric acid plant were commissioned in third-quarter 2009.
Molybdenum. The
Molybdenum segment is an integrated producer of molybdenum, with mining, sulfide
ore concentrating, roasting and processing facilities that produce high-purity,
molybdenum-based chemicals, molybdenum metal powder and metallurgical products,
which are sold to customers around the world, and includes the wholly owned
Henderson molybdenum mine in Colorado and related conversion facilities. The
Henderson underground mine produces high-purity, chemical-grade molybdenum
concentrates, which are typically further processed into value-added molybdenum
chemical products. This segment also includes a sales company that purchases and
sells molybdenum from the Henderson mine as well as from FCX’s North and South
America copper mines that produce molybdenum as a by-product. In addition, at
times this segment roasts and/or processes material on a toll basis. Toll
arrangements require the tolling customer to deliver appropriate
molybdenum-bearing material to FCX’s facilities for processing into a product
that is returned to the customer, who pays FCX for processing its material into
the specified products. The Molybdenum segment also includes FCX’s wholly owned
Climax molybdenum mine in Colorado, which has been on care-and-maintenance
status since 1995.
Rod &
Refining. The Rod & Refining segment consists of copper
conversion facilities located in North America, and includes a refinery, three
rod mills and a specialty copper products facility. These operations process
copper produced at the North America mines and purchased copper into copper
cathode, rod and custom copper shapes. At times these operations refine copper
and produce copper rod and shapes for customers on a toll basis. Toll
arrangements require the tolling customer to deliver appropriate copper-bearing
material to FCX’s facilities for processing into a product that is returned to
the customer, who pays FCX for processing its material into the specified
products.
Atlantic Copper Smelting &
Refining. Atlantic Copper, FCX’s wholly owned smelting unit in
Spain, smelts and refines copper concentrates and markets refined copper and
precious metals in slimes. PT Freeport Indonesia sells copper concentrate and
the South America mines sell copper concentrate and cathode to Atlantic
Copper.
Intersegment sales.
Intersegment sales between FCX’s 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.
Allocations. FCX allocates
certain operating costs, expenses and capital expenditures to the operating
divisions and individual segments. However, not all costs and expenses
applicable to a mine or operation are allocated. All U.S. federal and state
income taxes are recorded and managed at the corporate level, whereas foreign
income taxes are recorded and managed at the applicable mine or operation. In
addition, most exploration and research activities are managed at the corporate
level, and those costs along with some selling, general and administrative costs
are not allocated to the operating division or 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.
Product
Revenue
FCX
revenues attributable to the products it produces for the years ended December
31, 2009, 2008 and 2007, follow:
|
2009
|
|
2008
|
|
2007
|
|
Refined
copper products
|
$
|
6,563
|
|
$
|
9,584
|
|
$
|
8,914
|
|
Copper
in concentratesa
|
|
4,763
|
|
|
4,108
|
|
|
4,393
|
|
Gold
|
|
2,591
|
|
|
1,283
|
|
|
1,649
|
|
Molybdenum
|
|
792
|
|
|
2,408
|
|
|
1,703
|
|
Other
|
|
331
|
|
|
413
|
|
|
280
|
|
Total
|
$
|
15,040
|
|
$
|
17,796
|
|
$
|
16,939
|
|
|
|
|
|
|
|
|
|
|
|
a.
|
Amounts
are net of treatment and refining charges totaling $429 million for 2009,
$398 million for 2008 and $502 million for
2007.
|
Geographic
Area
Information
concerning financial data by geographic area for the years ended December 31,
2009, 2008 and 2007, follows:
|
2009
|
|
2008
|
|
2007
|
|
Revenuesa:
|
|
|
|
|
|
|
|
|
|
United
States
|
$
|
4,890
|
|
$
|
7,609
|
|
$
|
6,480
|
|
Japan
|
|
3,093
|
|
|
2,662
|
|
|
2,479
|
|
Indonesia
|
|
1,937
|
|
|
1,420
|
|
|
2,105
|
|
Spain
|
|
986
|
|
|
1,872
|
|
|
1,773
|
|
India
|
|
566
|
|
|
231
|
|
|
319
|
|
Chile
|
|
563
|
|
|
669
|
|
|
627
|
|
China
|
|
496
|
|
|
296
|
|
|
400
|
|
Korea
|
|
475
|
|
|
343
|
|
|
266
|
|
Others
|
|
2,034
|
|
|
2,694
|
|
|
2,490
|
|
Total
|
$
|
15,040
|
|
$
|
17,796
|
|
$
|
16,939
|
|
|
|
|
|
|
|
|
|
|
|
a.
|
Revenues
are attributed to countries based on the location of the
customer.
|
|
2009
|
|
2008
|
|
2007
|
|
Long-lived
assetsa:
|
|
|
|
|
|
|
|
|
|
United
States
|
$
|
6,499
|
|
$
|
6,529
|
|
$
|
16,954
|
|
Indonesia
|
|
3,298
|
|
|
3,361
|
|
|
3,126
|
|
Peru
|
|
3,240
|
|
|
3,278
|
|
|
3,242
|
|
Democratic
Republic of Congo
|
|
3,207
|
|
|
2,696
|
|
|
1,506
|
|
Chile
|
|
1,519
|
|
|
1,551
|
|
|
2,882
|
|
Spain
|
|
277
|
|
|
283
|
|
|
274
|
|
Others
|
|
50
|
|
|
58
|
|
|
84
|
|
Total
|
$
|
18,090
|
|
$
|
17,756
|
|
$
|
28,068
|
|
|
|
|
|
|
|
|
|
|
|
a.
|
Long-lived
assets exclude deferred tax assets, goodwill and intangible
assets.
|
Major
Customers
Sales to
PT Smelting totaled $1.9 billion (13 percent of FCX’s consolidated revenues) in
2009. No single customer accounted for 10 percent or more of FCX’s consolidated
revenues in 2008. Sales to PT Smelting totaled $1.8 billion (11 percent of FCX’s
consolidated revenues) in 2007. Refer to Note 3 for further discussion of FCX’s
investment in PT Smelting.
Business
Segments
Business
segments for the years ended December 31, 2009, 2008 and 2007, are presented in
the following tables.
Business
Segments
|
North
America Copper Mines
|
|
South
America Copper Mines
|
|
Indonesia
|
|
Africa
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Atlantic
|
|
Corporate,
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Copper
|
|
Other
&
|
|
|
|
|
|
|
Other
|
|
|
|
Cerro
|
|
Other
|
|
|
|
|
|
|
|
Molyb-
|
|
Rod
&
|
|
Smelting
|
|
Elimi-
|
|
FCX
|
|
|
Morenci
|
|
Mines
|
|
Total
|
|
Verde
|
|
Mines
|
|
Total
|
|
Grasberg
|
|
Tenke
|
|
denum
|
|
Refining
|
|
&
Refining
|
|
nations
|
|
Total
|
|
Year
Ended December 31, 2009
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unaffiliated
customers
|
$
|
68
|
|
$
|
94
|
|
$
|
162
|
|
$
|
1,491
|
|
$
|
1,950
|
|
$
|
3,441
|
|
$
|
4,972
|
a
|
$
|
389
|
|
$
|
847
|
|
$
|
3,328
|
|
$
|
1,892
|
|
$
|
9
|
|
$
|
15,040
|
|
Intersegment
|
|
1,073
|
|
|
2,000
|
|
|
3,073
|
|
|
286
|
|
|
112
|
|
|
398
|
|
|
936
|
|
|
–
|
|
|
–
|
|
|
28
|
|
|
–
|
|
|
(4,435
|
)
|
|
–
|
|
Production
and delivery
|
|
622
|
|
|
1,289
|
|
|
1,911
|
|
|
648
|
|
|
915
|
|
|
1,563
|
|
|
1,505
|
|
|
315
|
b
|
|
641
|
|
|
3,336
|
|
|
1,895
|
|
|
(4,150
|
)
|
|
7,016
|
|
Depreciation,
depletion and amortization
|
|
142
|
|
|
138
|
|
|
280
|
|
|
153
|
|
|
122
|
|
|
275
|
|
|
275
|
|
|
66
|
|
|
49
|
|
|
8
|
|
|
36
|
|
|
25
|
|
|
1,014
|
|
Lower
of cost or market inventory adjustments
|
|
–
|
|
|
–
|
|
|
–
|
|
|
–
|
|
|
–
|
|
|
–
|
|
|
–
|
|
|
–
|
|
|
19
|
|
|
–
|
|
|
–
|
|
|
–
|
|
|
19
|
|
Selling,
general and administrative expenses
|
|
–
|
|
|
–
|
|
|
–
|
|
|
–
|
|
|
–
|
|
|
–
|
|
|
94
|
|
|
–
|
|
|
11
|
|
|
–
|
|
|
17
|
|
|
199
|
|
|
321
|
|
Exploration
and research expenses
|
|
–
|
|
|
–
|
|
|
–
|
|
|
–
|
|
|
–
|
|
|
–
|
|
|
–
|
|
|
–
|
|
|
2
|
|
|
–
|
|
|
–
|
|
|
88
|
|
|
90
|
|
Restructuring
and other chargesc
|
|
26
|
|
|
(2
|
)
|
|
24
|
|
|
–
|
|
|
–
|
|
|
–
|
|
|
–
|
|
|
–
|
|
|
(1
|
)
|
|
(2
|
)
|
|
–
|
|
|
56
|
|
|
77
|
|
Operating
income (loss)
|
|
351
|
|
|
669
|
|
|
1,020
|
|
|
976
|
|
|
1,025
|
|
|
2,001
|
|
|
4,034
|
|
|
8
|
|
|
126
|
|
|
14
|
|
|
(56
|
)
|
|
(644
|
)
|
|
6,503
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
expense, net
|
|
3
|
|
|
12
|
|
|
15
|
|
|
–
|
|
|
2
|
|
|
2
|
|
|
(3
|
)
|
|
10
|
|
|
–
|
|
|
–
|
|
|
5
|
|
|
557
|
|
|
586
|
|
Provision
for (benefit from) income taxes
|
|
–
|
|
|
–
|
|
|
–
|
|
|
313
|
|
|
337
|
|
|
650
|
|
|
1,697
|
|
|
(15
|
)
|
|
–
|
|
|
–
|
|
|
–
|
|
|
(25
|
)
|
|
2,307
|
|
Total
assets at December 31, 2009
|
|
1,934
|
|
|
4,207
|
|
|
6,141
|
|
|
3,937
|
|
|
2,515
|
|
|
6,452
|
|
|
4,974
|
|
|
3,386
|
|
|
1,731
|
|
|
291
|
|
|
991
|
|
|
2,030
|
|
|
25,996
|
|
Capital
expenditures
|
|
46
|
|
|
299
|
|
|
345
|
|
|
103
|
|
|
61
|
|
|
164
|
|
|
266
|
|
|
659
|
|
|
82
|
|
|
9
|
|
|
31
|
|
|
31
|
|
|
1,587
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
a.
|
Includes
PT Freeport Indonesia’s sales to PT Smelting totaling $1.9
billion.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
b.
|
Includes
charges totaling $50 million associated with Tenke Fungurume’s project
start-up costs.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
c.
|
The
following table summarizes restructuring and other
charges:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Restructuring
charges
|
$
|
25
|
|
$
|
4
|
|
$
|
29
|
|
$
|
–
|
|
$
|
–
|
|
$
|
–
|
|
$
|
–
|
|
$
|
–
|
|
$
|
1
|
|
$
|
–
|
|
$
|
–
|
|
$
|
2
|
|
$
|
32
|
|
|
City
of Blackwell lawsuit settlement
|
|
–
|
|
|
–
|
|
|
–
|
|
|
–
|
|
|
–
|
|
|
–
|
|
|
–
|
|
|
–
|
|
|
–
|
|
|
–
|
|
|
–
|
|
|
54
|
|
|
54
|
|
|
Special
retirement benefits and curtailments
|
|
1
|
|
|
(6
|
)
|
|
(5
|
)
|
|
–
|
|
|
–
|
|
|
–
|
|
|
–
|
|
|
–
|
|
|
(2
|
)
|
|
(2
|
)
|
|
–
|
|
|
–
|
|
|
(9
|
)
|
|
Restructuring
and other charges
|
$
|
26
|
|
$
|
(2
|
)
|
$
|
24
|
|
$
|
–
|
|
$
|
–
|
|
$
|
–
|
|
$
|
–
|
|
$
|
–
|
|
$
|
(1
|
)
|
$
|
(2
|
)
|
$
|
–
|
|
$
|
56
|
|
$
|
77
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Business
Segments (Continued)
|
North
America Copper Mines
|
|
South
America Copper Mines
|
|
Indonesia
|
|
Africa
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Atlantic
|
|
Corporate,
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Copper
|
|
Other
&
|
|
|
|
|
|
|
Other
|
|
|
|
Cerro
|
|
Other
|
|
|
|
|
|
|
|
Molyb-
|
|
Rod
&
|
|
Smelting
|
|
Elimi-
|
|
FCX
|
|
|
Morenci
|
|
Mines
|
|
Total
|
|
Verde
|
|
Mines
|
|
Total
|
|
Grasberg
|
|
Tenke
|
|
denum
|
|
Refining
|
|
&
Refining
|
|
nations
|
|
Total
|
|
Year
Ended December 31, 2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unaffiliated
customersb
|
$
|
370
|
|
$
|
346
|
|
$
|
716
|
|
$
|
1,602
|
|
$
|
2,166
|
|
$
|
3,768
|
|
$
|
2,934
|
a
|
$
|
–
|
|
$
|
2,488
|
|
$
|
5,524
|
|
$
|
2,333
|
|
$
|
33
|
|
$
|
17,796
|
|
Intersegment
|
|
1,630
|
|
|
2,919
|
|
|
4,549
|
|
|
261
|
|
|
137
|
|
|
398
|
|
|
478
|
|
|
–
|
|
|
–
|
|
|
33
|
|
|
8
|
|
|
(5,466
|
)
|
|
–
|
|
Production
and deliveryb
|
|
1,313
|
|
|
1,734
|
|
|
3,047
|
|
|
698
|
|
|
1,146
|
|
|
1,844
|
|
|
1,792
|
|
|
6
|
|
|
1,528
|
|
|
5,527
|
|
|
2,276
|
|
|
(5,604
|
)
|
|
10,416
|
|
Depreciation,
depletion and amortizationb
|
|
330
|
|
|
440
|
|
|
770
|
|
|
178
|
|
|
333
|
|
|
511
|
|
|
222
|
|
|
6
|
|
|
192
|
|
|
8
|
|
|
35
|
|
|
38
|
|
|
1,782
|
|
Lower
of cost or market inventory adjustments
|
|
302
|
|
|
359
|
|
|
661
|
|
|
–
|
|
|
10
|
|
|
10
|
|
|
–
|
|
|
10
|
|
|
101
|
|
|
–
|
|
|
–
|
|
|
–
|
|
|
782
|
|
Selling,
general and administrative expenses
|
|
–
|
|
|
–
|
|
|
–
|
|
|
–
|
|
|
–
|
|
|
–
|
|
|
91
|
|
|
–
|
|
|
18
|
|
|
–
|
|
|
20
|
|
|
140
|
|
|
269
|
|
Exploration
and research expenses
|
|
–
|
|
|
–
|
|
|
–
|
|
|
–
|
|
|
–
|
|
|
–
|
|
|
–
|
|
|
–
|
|
|
2
|
|
|
–
|
|
|
–
|
|
|
290
|
|
|
292
|
|
Goodwill
impairment
|
|
1,851
|
|
|
2,299
|
|
|
4,150
|
|
|
763
|
|
|
366
|
|
|
1,129
|
|
|
–
|
|
|
2
|
|
|
703
|
|
|
–
|
|
|
–
|
|
|
3
|
|
|
5,987
|
|
Long-lived
asset impairments and other chargesc
|
|
2,702
|
|
|
5,457
|
|
|
8,159
|
|
|
1
|
|
|
1,365
|
|
|
1,366
|
|
|
–
|
|
|
2
|
|
|
1,417
|
|
|
20
|
|
|
–
|
|
|
14
|
|
|
10,978
|
|
Operating
(loss) incomeb
|
|
(4,498
|
)
|
|
(7,024
|
)
|
|
(11,522
|
)
|
|
223
|
|
|
(917
|
)
|
|
(694
|
)
|
|
1,307
|
|
|
(26
|
)
|
|
(1,473
|
)
|
|
2
|
|
|
10
|
|
|
(314
|
)
|
|
(12,710
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
expense, net
|
|
2
|
|
|
11
|
|
|
13
|
|
|
2
|
|
|
2
|
|
|
4
|
|
|
(1
|
)
|
|
–
|
|
|
–
|
|
|
4
|
|
|
13
|
|
|
551
|
|
|
584
|
|
Provision
for (benefit from) income taxes
|
|
–
|
|
|
–
|
|
|
–
|
|
|
313
|
|
|
(267
|
)
|
|
46
|
|
|
612
|
|
|
(66
|
)
|
|
–
|
|
|
–
|
|
|
–
|
|
|
(3,436
|
)
|
|
(2,844
|
)
|
Total
assets at December 31, 2008
|
|
2,148
|
|
|
4,050
|
|
|
6,198
|
|
|
3,994
|
|
|
2,406
|
|
|
6,400
|
|
|
4,420
|
|
|
2,685
|
|
|
1,795
|
|
|
266
|
|
|
852
|
|
|
737
|
|
|
23,353
|
|
Capital
expenditures
|
|
276
|
|
|
333
|
|
|
609
|
|
|
129
|
|
|
194
|
|
|
323
|
|
|
444
|
|
|
1,058
|
|
|
180
|
|
|
9
|
|
|
34
|
|
|
51
|
|
|
2,708
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
a.
|
Includes
PT Freeport Indonesia’s sales to PT Smelting totaling $1.4
billion.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
b.
|
The
following table summarizes the impact of purchase accounting fair value
adjustments on operating (loss) income primarily associated with the
impacts of the increases in the carrying values of acquired metals
inventories
|
|
|
(including
mill and leach stockpiles) and property, plant and
equipment:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues
|
$
|
–
|
|
$
|
–
|
|
$
|
–
|
|
$
|
5
|
|
$
|
1
|
|
$
|
6
|
|
|
N/A
|
|
$
|
–
|
|
$
|
(2
|
)
|
$
|
–
|
|
|
N/A
|
|
$
|
–
|
|
$
|
4
|
|
|
Production
and delivery
|
|
37
|
|
|
(13
|
)
|
|
24
|
|
|
9
|
|
|
37
|
|
|
46
|
|
|
N/A
|
|
|
–
|
|
|
32
|
|
|
–
|
|
|
N/A
|
|
|
23
|
|
|
125
|
|
|
Depreciation,
depletion and amortization
|
|
209
|
|
|
261
|
|
|
470
|
|
|
87
|
|
|
203
|
|
|
290
|
|
|
N/A
|
|
|
–
|
|
|
139
|
|
|
–
|
|
|
N/A
|
|
|
(11
|
)
|
|
888
|
|
|
Impact
on operating (loss) income
|
$
|
(246
|
)
|
$
|
(248
|
)
|
$
|
(494
|
)
|
$
|
(91
|
)
|
$
|
(239
|
)
|
$
|
(330
|
)
|
|
N/A
|
|
$
|
–
|
|
$
|
(173
|
)
|
$
|
–
|
|
|
N/A
|
|
$
|
(12
|
)
|
$
|
(1,009
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
c.
|
The
following table summarizes long-lived asset impairments and other
charges:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-lived
asset impairments
|
$
|
2,683
|
|
$
|
5,411
|
|
$
|
8,094
|
|
$
|
–
|
|
$
|
1,359
|
|
$
|
1,359
|
|
$
|
–
|
|
$
|
–
|
|
$
|
1,408
|
|
$
|
6
|
|
$
|
–
|
|
$
|
–
|
|
$
|
10,867
|
|
|
Restructuring
charges
|
|
3
|
|
|
20
|
|
|
23
|
|
|
1
|
|
|
6
|
|
|
7
|
|
|
–
|
|
|
2
|
|
|
4
|
|
|
4
|
|
|
–
|
|
|
10
|
|
|
50
|
|
|
Special
retirement benefits and curtailments
|
|
16
|
|
|
26
|
|
|
42
|
|
|
–
|
|
|
–
|
|
|
–
|
|
|
–
|
|
|
–
|
|
|
5
|
|
|
10
|
|
|
–
|
|
|
4
|
|
|
61
|
|
|
Long-lived
asset impairments and other charges
|
$
|
2,702
|
|
$
|
5,457
|
|
$
|
8,159
|
|
$
|
1
|
|
$
|
1,365
|
|
$
|
1,366
|
|
$
|
–
|
|
$
|
2
|
|
$
|
1,417
|
|
$
|
20
|
|
$
|
–
|
|
$
|
14
|
|
$
|
10,978
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Business
Segments (Continued)
|
North
America Copper Mines
|
|
South
America Copper Mines
|
|
Indonesia
|
|
Africa
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Atlantic
|
|
Corporate,
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Copper
|
|
Other
&
|
|
|
|
|
|
|
Other
|
|
|
|
Cerro
|
|
Other
|
|
|
|
|
|
|
|
Molyb-
|
|
Rod
&
|
|
Smelting
|
|
Elimi-
|
|
FCX
|
|
|
Morenci
|
|
Mines
|
|
Total
|
|
Verde
|
|
Mines
|
|
Total
|
|
Grasberg
|
|
Tenke
|
|
denum
|
|
Refining
|
|
&
Refining
|
|
nations
|
|
Total
|
|
Year
Ended December 31, 2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unaffiliated
customersb
|
$
|
286
|
|
$
|
256
|
|
$
|
542
|
|
$
|
1,243
|
|
$
|
2,228
|
|
$
|
3,471
|
|
$
|
3,640
|
a
|
$
|
–
|
|
$
|
1,746
|
|
$
|
5,108
|
|
$
|
2,388
|
|
$
|
44
|
|
$
|
16,939
|
|
Intersegment
|
|
1,516
|
|
|
2,035
|
|
|
3,551
|
|
|
390
|
|
|
18
|
|
|
408
|
|
|
1,168
|
|
|
–
|
|
|
–
|
|
|
32
|
|
|
–
|
|
|
(5,159
|
)
|
|
–
|
|
Production
and deliveryb
|
|
1,014
|
|
|
1,152
|
|
|
2,166
|
|
|
479
|
|
|
798
|
|
|
1,277
|
|
|
1,388
|
|
|
10
|
|
|
1,287
|
|
|
5,119
|
|
|
2,329
|
|
|
(5,049
|
)
|
|
8,527
|
|
Depreciation,
depletion and amortizationb
|
|
240
|
|
|
259
|
|
|
499
|
|
|
129
|
|
|
249
|
|
|
378
|
|
|
199
|
|
|
2
|
|
|
94
|
|
|
7
|
|
|
36
|
|
|
31
|
|
|
1,246
|
|
Selling,
general and administrative expenses
|
|
–
|
|
|
–
|
|
|
–
|
|
|
–
|
|
|
–
|
|
|
–
|
|
|
188
|
|
|
–
|
|
|
10
|
|
|
–
|
|
|
20
|
|
|
248
|
|
|
466
|
|
Exploration
and research expenses
|
|
–
|
|
|
–
|
|
|
–
|
|
|
–
|
|
|
–
|
|
|
–
|
|
|
–
|
|
|
–
|
|
|
2
|
|
|
–
|
|
|
–
|
|
|
143
|
|
|
145
|
|
Operating
income (loss)b
|
|
548
|
|
|
880
|
|
|
1,428
|
|
|
1,025
|
|
|
1,199
|
|
|
2,224
|
|
|
3,033
|
|
|
(12
|
)
|
|
353
|
|
|
14
|
|
|
3
|
|
|
(488
|
)
|
|
6,555
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
expense, net
|
|
–
|
|
|
–
|
|
|
–
|
|
|
9
|
|
|
(2
|
)
|
|
7
|
|
|
12
|
|
|
–
|
|
|
–
|
|
|
4
|
|
|
26
|
|
|
464
|
|
|
513
|
|
Provision
for income taxes
|
|
–
|
|
|
–
|
|
|
–
|
|
|
484
|
|
|
369
|
|
|
853
|
|
|
1,326
|
|
|
4
|
|
|
–
|
|
|
–
|
|
|
–
|
|
|
217
|
|
|
2,400
|
|
Total
assets at December 31, 2007
|
|
5,043
|
|
|
9,628
|
|
|
14,671
|
|
|
4,236
|
|
|
4,183
|
|
|
8,419
|
|
|
3,737
|
|
|
1,477
|
|
|
3,522
|
|
|
438
|
|
|
915
|
|
|
7,482
|
c
|
|
40,661
|
|
Capital
expenditures
|
|
269
|
|
|
587
|
|
|
856
|
|
|
58
|
|
|
65
|
|
|
123
|
|
|
368
|
|
|
266
|
|
|
45
|
|
|
8
|
|
|
42
|
|
|
47
|
|
|
1,755
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
a.
|
Includes
PT Freeport Indonesia’s sales to PT Smelting totaling $1.8
billion.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
b.
|
The
following table summarizes the impact of purchase accounting fair value
adjustments on operating income (loss) primarily associated with the
impacts of the increases in the carrying values of acquired metals
inventories
|
|
|
(including
mill and leach stockpiles) and property, plant and
equipment:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues
|
$
|
–
|
|
$
|
–
|
|
$
|
–
|
|
$
|
8
|
|
$
|
1
|
|
$
|
9
|
|
|
N/A
|
|
$
|
–
|
|
$
|
111
|
|
$
|
–
|
|
|
N/A
|
|
$
|
–
|
|
$
|
120
|
|
|
Production
and delivery
|
|
218
|
|
|
126
|
|
|
344
|
|
|
73
|
|
|
96
|
|
|
169
|
|
|
N/A
|
|
|
–
|
|
|
164
|
|
|
–
|
|
|
N/A
|
|
|
104
|
|
|
781
|
|
|
Depreciation,
depletion and amortization
|
|
167
|
|
|
167
|
|
|
334
|
|
|
64
|
|
|
145
|
|
|
209
|
|
|
N/A
|
|
|
–
|
|
|
52
|
|
|
–
|
|
|
N/A
|
|
|
–
|
|
|
595
|
|
|
Impact
on operating income (loss)
|
$
|
(385
|
)
|
$
|
(293
|
)
|
$
|
(678
|
)
|
$
|
(129
|
)
|
$
|
(240
|
)
|
$
|
(369
|
)
|
|
N/A
|
|
$
|
–
|
|
$
|
(105
|
)
|
$
|
–
|
|
|
N/A
|
|
$
|
(104
|
)
|
$
|
(1,256
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
c.
|
Includes
preliminary goodwill of $6.1 billion, which had not been allocated to
reporting units.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NOTE 21. SUPPLEMENTARY MINERAL
RESERVE INFORMATION (UNAUDITED)
Recoverable
proven and probable reserves have been calculated as of December 31, 2009, in
accordance with Industry Guide 7 as required by the Securities Exchange Act of
1934. FCX’s proven and probable reserves may not be comparable to similar
information regarding mineral reserves disclosed in accordance with the guidance
in other countries. Proven and probable reserves were determined by the use of
mapping, drilling, sampling, assaying and evaluation methods generally applied
in the mining industry, as more fully discussed below. The term “reserve,” as
used in the reserve data presented here, means that part of a mineral deposit
that can be economically and legally extracted or produced at the time of the
reserve determination. The term “proven reserves” means reserves for which (i)
quantity is computed from dimen-sions revealed in outcrops, trenches, workings
or drill holes; (ii) grade and/or quality are computed from the results of
detailed sampling; and (iii) the sites for inspection, sampling and measurements
are spaced so closely and the geologic character is sufficiently defined that
size, shape, depth and mineral content of reserves are well established. The
term “probable reserves” means reserves for which quantity and grade are
computed from information similar to that used for proven reserves but the sites
for sampling are farther apart or are otherwise less adequately spaced. The
degree of assurance, although lower than that for proven reserves, is high
enough to assume continuity between points of observation.
FCX’s
reserve estimates are based on the latest available geological and geotechnical
studies. FCX conducts ongoing studies of its ore bodies to optimize economic
values and to manage risk. FCX revises its mine plans and estimates of proven
and probable mineral reserves as required in accordance with the latest
available studies. At December 31, 2009, FCX’s estimated consolidated
recoverable reserves include 104.2 billion pounds of copper, 37.2 million
ounces of gold, 2.59 billion pounds of molybdenum, 270.4 million ounces of
silver and 0.78 billion pounds of cobalt. At December 31, 2009, recoverable
reserves include estimated recoverable copper totaling 2.7 billion pounds
in leach stockpiles and 1.3 billion pounds in mill stockpiles, including FCX’s
joint venture partner’s interest in the Morenci mine.
|
Recoverable
Proven and Probable Reservesa
|
|
|
at
December 31, 2009
|
|
|
Copper
|
|
Gold
|
|
Molybdenum
|
|
|
(billion
pounds)
|
|
(million
ounces)
|
|
(million
pounds)
|
|
North
America
|
27.7
|
|
0.2
|
|
2,072
|
|
South
America
|
34.0
|
|
1.5
|
|
519
|
|
Indonesia
|
34.1
|
|
35.5
|
|
–
|
|
Africa
|
8.4
|
|
–
|
|
–
|
|
Consolidated
basisb
|
104.2
|
|
37.2
|
|
2,591
|
|
|
|
|
|
|
|
|
Net
equity interestc
|
83.0
|
|
33.6
|
|
2,350
|
|
|
|
|
|
|
|
|
a.
|
Recoverable
proven and probable reserves are
estimated metal quantities from which FCX expects to be paid after
application of estimated metallurgical recovery rates and smelter recovery
rates, where applicable. Recoverable reserves are that part of a mineral
deposit that FCX estimates can be economically and legally extracted or
produced at the time of the reserve
determination.
|
b.
|
Consolidated
basis reserves represent estimated metal quantities after reduction for
joint venture partner interests at the Morenci mine in North America and
the Grasberg minerals district in Indonesia. Excluded from the table above
are FCX’s estimated recoverable proven and probable reserves for cobalt
and silver totaling 0.78 billion pounds of cobalt at Tenke Fungurume and
270.4 million ounces of silver at December 31,
2009.
|
c.
|
Net
equity interest reserves represent estimated consolidated basis metal
quantities further reduced for noncontrolling interest ownership. Excluded
from the table above are FCX’s estimated recoverable proven and probable
reserves for cobalt and silver totaling 0.45 billion pounds of cobalt at
Tenke Fungurume and 224.1 million ounces of silver at December 31,
2009.
|
Estimated
recoverable reserves were determined using long-term average prices of $1.60 per
pound for copper, $550 per ounce for gold, $8 per pound for molybdenum, $12 per
ounce for silver and $10 per pound for cobalt. The London spot metal prices for
the past three years averaged $2.91 per pound for copper and $847 per ounce for
gold, and molybdenum prices for the past three years averaged approximately $23
per pound.
|
|
100%
Basis
|
|
|
|
|
|
Average
Ore Grade
|
|
Recoverable
Proven and
|
|
|
|
|
|
Per
Metric Ton
|
|
Probable
Reserves
|
|
|
|
Ore
|
|
|
|
|
|
|
|
Copper
|
|
Gold
|
|
Moly
|
|
|
|
(million
|
|
Copper
|
|
Gold
|
|
Moly
|
|
(billion
|
|
(million
|
|
(million
|
|
Year-End
|
|
metric
tons)
|
|
(%)
|
|
(grams)
|
|
(%)
|
|
pounds)
|
|
ounces)
|
|
pounds)
|
|
2005
|
|
2,822
|
|
1.07
|
|
0.92
|
|
N/A
|
|
56.6
|
|
58.0
|
|
N/A
|
|
2006
|
|
2,813
|
|
1.04
|
|
0.90
|
|
N/A
|
|
54.8
|
|
54.3
|
|
N/A
|
|
2007
|
|
12,224
|
|
0.51
|
|
0.20
|
|
0.01
|
|
110.4
|
|
54.1
|
|
2,042
|
|
2008
|
|
14,067
|
|
0.48
|
|
0.17
|
|
0.01
|
|
118.8
|
|
53.4
|
|
2,485
|
|
2009
|
|
13,807
|
|
0.49
|
|
0.17
|
|
0.01
|
|
120.9
|
|
49.8
|
|
2,595
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
By Area at December 31,
2009:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
North
America
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Developed
and producing:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Morenci
|
|
3,166
|
|
0.27
|
|
–
|
|
0.001
|
|
11.2
|
|
–
|
|
27
|
|
Sierrita
|
|
1,446
|
|
0.25
|
|
–
|
a
|
0.028
|
|
6.9
|
|
0.1
|
|
728
|
|
Bagdad
|
|
964
|
|
0.32
|
|
–
|
a
|
0.017
|
|
5.4
|
|
0.1
|
|
259
|
|
Safford
|
|
243
|
|
0.44
|
|
–
|
|
–
|
|
1.8
|
|
–
|
|
–
|
|
Tyrone
|
|
180
|
|
0.30
|
|
–
|
|
–
|
|
0.9
|
|
–
|
|
–
|
|
Henderson
|
|
138
|
|
–
|
|
–
|
|
0.180
|
|
–
|
|
–
|
|
471
|
|
Chinob
|
|
142
|
|
0.50
|
|
0.01
|
|
0.006
|
|
2.2
|
|
–
|
a
|
6
|
|
Miami
|
|
91
|
|
0.43
|
|
–
|
|
–
|
|
0.6
|
|
–
|
|
–
|
|
Undeveloped:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Climax
|
|
190
|
|
–
|
|
–
|
|
0.158
|
|
–
|
|
–
|
|
585
|
|
Cobre
|
|
73
|
|
0.39
|
|
–
|
|
–
|
|
0.4
|
|
–
|
|
–
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
South
America
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Developed
and producing:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cerro
Verde
|
|
3,053
|
|
0.41
|
|
–
|
|
0.014
|
|
23.9
|
|
–
|
|
519
|
|
El
Abra
|
|
976
|
|
0.44
|
|
–
|
|
–
|
|
4.8
|
|
–
|
|
–
|
|
Candelaria
|
|
411
|
|
0.54
|
|
0.12
|
|
–
|
|
5.1
|
|
1.5
|
|
–
|
|
Ojos
del Salado
|
|
9
|
|
1.12
|
|
0.26
|
|
–
|
|
0.2
|
|
–
|
a
|
–
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Indonesia
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Developed
and producing:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Grasberg
open pit
|
|
332
|
|
0.90
|
|
1.03
|
|
–
|
|
5.5
|
|
8.9
|
|
–
|
|
Deep
Ore Zone
|
|
254
|
|
0.60
|
|
0.67
|
|
–
|
|
2.8
|
|
4.1
|
|
–
|
|
Undeveloped:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Grasberg
block cave
|
|
1,006
|
|
1.03
|
|
0.81
|
|
–
|
|
19.5
|
|
17.5
|
|
–
|
|
Deep
Mill Level Zone
|
|
501
|
|
0.89
|
|
0.74
|
|
–
|
|
8.4
|
|
9.2
|
|
–
|
|
Kucing
Liar
|
|
441
|
|
1.24
|
|
1.09
|
|
–
|
|
10.3
|
|
7.1
|
|
–
|
|
Big
Gossan
|
|
56
|
|
2.25
|
|
1.08
|
|
–
|
|
2.6
|
|
1.3
|
|
–
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Africa
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Developed
and producing:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Tenke
Fungurume
|
|
135
|
|
3.13
|
|
–
|
|
–
|
|
8.4
|
|
–
|
|
–
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
100% basis
|
|
13,807
|
|
|
|
|
|
|
|
120.9
|
|
49.8
|
|
2,595
|
|
Consolidated basisc
|
|
|
|
|
|
|
|
|
|
104.2
|
|
37.2
|
|
2,591
|
|
FCX’s equity shared
|
|
|
|
|
|
|
|
|
|
83.0
|
|
33.6
|
|
2,350
|
|
a.
|
Amounts
not shown because of rounding.
|
b.
|
Mining
operations suspended as of December 31,
2008.
|
c.
|
Recoverable
proven and probable reserves also include 0.78 billion pounds of
recoverable cobalt in Africa and 270.4 million ounces of recoverable
silver throughout the world.
|
d.
|
Recoverable
proven and probable reserves also include 0.45 billion pounds of
recoverable cobalt in Africa and 224.1 million ounces of recoverable
silver throughout the world.
|
NOTE 22. QUARTERLY FINANCIAL
INFORMATION (UNAUDITED)
|
First
|
|
Second
|
|
Third
|
|
Fourth
|
|
|
|
|
|
Quarter
|
|
Quarter
|
|
Quarter
|
|
Quarter
|
|
Year
|
|
2009
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues
|
$
|
2,602
|
|
$
|
3,684
|
|
$
|
4,144
|
|
$
|
4,610
|
|
$
|
15,040
|
|
Operating
income
|
|
672
|
a
|
|
1,508
|
|
|
2,084
|
|
|
2,239
|
a
|
|
6,503
|
a
|
Net
income
|
|
207
|
|
|
812
|
|
|
1,203
|
b
|
|
1,312
|
b
|
|
3,534
|
b
|
Net
income attributable to
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
noncontrolling
interests
|
|
104
|
|
|
164
|
|
|
224
|
|
|
293
|
|
|
785
|
|
Net
income attributable to FCX
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
common
stockholders
|
|
43
|
a
|
|
588
|
|
|
925
|
b
|
|
971
|
a,b
|
|
2,527
|
a,b
|
Basic
net income per share
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
attributable
to FCX common
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
stockholders
|
|
0.11
|
|
|
1.43
|
|
|
2.23
|
|
|
2.26
|
|
|
6.10
|
|
Diluted
net income per share
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
attributable
to FCX common
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
stockholders
|
|
0.11
|
a
|
|
1.38
|
|
|
2.07
|
b
|
|
2.15
|
a,b
|
|
5.86
|
a,b
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues
|
$
|
5,672
|
|
$
|
5,441
|
|
$
|
4,616
|
|
$
|
2,067
|
|
$
|
17,796
|
|
Operating
income (loss)c,d
|
|
2,396
|
|
|
2,053
|
|
|
1,133
|
|
|
(18,292
|
)e
|
|
(12,710
|
)e
|
Net
income (loss)
|
|
1,505
|
|
|
1,284
|
|
|
742
|
|
|
(13,981
|
)
|
|
(10,450
|
)
|
Net
income (loss) attributable to
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
noncontrolling
interests
|
|
319
|
|
|
274
|
|
|
155
|
|
|
(131
|
)
|
|
617
|
|
Net
income (loss) attributable to
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
FCX
common stockholdersc,d
|
|
1,122
|
|
|
947
|
|
|
523
|
|
|
(13,933
|
)e
|
|
(11,341
|
)e
|
Basic
net income (loss) per share
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
attributable
to FCX common
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
stockholders
|
|
2.93
|
|
|
2.47
|
|
|
1.37
|
|
|
(36.78
|
)
|
|
(29.72
|
)
|
Diluted
net income (loss) per share
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
attributable
to FCX common
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
stockholdersc,d
|
|
2.64
|
|
|
2.25
|
|
|
1.31
|
|
|
(36.78
|
)e
|
|
(29.72
|
)e
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
All
references to income or losses per share are on a diluted basis, unless
otherwise noted.
a.
|
Includes
charges for LCM inventory adjustments totaling $19 million ($19 million to
net income attributable to FCX common stockholders or $0.05 per share in
the first quarter and $15 million to net income attributable to FCX common
stockholders or $0.03 per share for the year). Includes restructuring
charges totaling $34 million ($31 million to net income attributable
to FCX common stockholders or $0.07 per share) in the first quarter and
$32 million ($25 million to net income attributable to FCX common
stockholders or $0.06 per share) for the year. Also includes pension and
postretirement gains totaling $9 million ($9 million to net income
attributable to FCX common stockholders or $0.02 per share in the first
quarter and $7 million to net income attributable to FCX common
stockholders or $0.02 per share for the year). Includes a charge for the
partial settlement of the City of Blackwell lawsuit totaling $54 million
($43 million to net income attributable to FCX common stockholders or
$0.09 per share) in the fourth quarter and for the
year.
|
b.
|
Includes
losses on early extinguishment of debt totaling $31 million ($28 million
to net income attributable to FCX common stockholders or $0.06 per share)
in the third quarter, $17 million ($15 million to net income
attributable to FCX common stockholders or $0.03 per share) in the fourth
quarter and $48 million ($43 million to net income attributable
to FCX common stockholders or $0.09 per share) for the year. Also includes
a favorable adjustment to income tax expense totaling $43 million ($0.09
per share) in the fourth quarter and for the year resulting from the
completion of a review of U.S. deferred income tax
accounts.
|
c.
|
Includes
charges for LCM inventory adjustments totaling $1 million ($1 million to
net income attributable to FCX common stockholders or less than $0.01 per
share) in the first quarter, $4 million ($2 million to net income
attributable to FCX common stockholders or $0.01 per share) in the second
quarter, $17 million ($10 million to net income attributable to FCX common
stockholders or $0.02 per share) in the third quarter, $760 million ($466
million to net loss attributable to FCX common stockholders or $1.23 per
share) in the fourth
|
|
quarter
and $782 million ($479 million to net loss attributable to FCX common
stockholders or $1.26 per share) for the
year.
|
d.
|
Includes
the purchase accounting impact of the increases in the carrying values of
acquired metals inventories (including mill and leach stockpiles) and
property, plant and equipment; the impact associated with the amortization
of intangible assets and liabilities resulting from the acquisition of
Phelps Dodge; and also includes amounts for non-operating income and
expense primarily related to the accretion of the fair values of assumed
environmental obligations (determined on a discounted cash flow basis).
These impacts total $278 million to operating income and $15 million
to non-operating income and expense ($183 million to net income
attributable to FCX common stockholders or $0.41 per share) in the first
quarter, $236 million to operating income and $22 million to non-operating
income and expense ($161 million to net income attributable to FCX common
stockholders or $0.36 per share) in the second quarter, $247 million to
operating income and $30 million to non-operating income and expense ($174
million to net income attributable to FCX common stockholders or $0.39 per
share) in the third quarter, $248 million to operating loss and
$26 million to non-operating income and expense ($161 million to
net loss attributable to FCX common stockholders or $0.43 per share) in
the fourth quarter and $1.0 billion to operating loss and $93 million
to non-operating income and expense ($679 million to net loss attributable
to FCX common stockholders or $1.78 per share) for the
year.
|
e.
|
Includes
asset impairments totaling $10.9 billion ($6.6 billion to net loss
attributable to FCX common stockholders or $17.47 per share in the fourth
quarter and $17.34 per share for the year), goodwill impairments totaling
$6.0 billion ($6.0 billion to net loss attributable to FCX common
stockholders or $15.81 per share in the fourth quarter and $15.69 per
share for the year), restructuring charges totaling $50 million
($30 million to net loss attributable to FCX common stockholders or
$0.08 per share) and special retirement benefits and curtailments totaling
$61 million ($37 million to net loss attributable to FCX common
stockholders or $0.10 per share).
|
NOTE
23. SUBSEQUENT EVENTS
From
January 1, through February 25, 2010, FCX made open-market purchases of $133
million of its 8.25% Senior Notes for $145 million and $136 million of its
8.375% Senior Notes for $148 million, which are in addition to the purchases
discussed in Note 10. FCX expects to record an approximate $27 million loss on
early extinguishment of debt in the first quarter of 2010 in connection with
these open-market purchases.
In
February 2010, FCX settled disagreements and the associated litigation among the
members of the PCG regarding the allocation of remediation costs for the Pinal
Creek site as discussed in Note 14. Pursuant to the settlement agreement, Miami
paid $40 million to certain members of the PCG to settle the allocation of
previously incurred costs, and agreed to take full responsibility for future
groundwater remediation at the Pinal Creek site, with limited
exceptions.
In
February 2010, FCX reached a partial settlement with the City of Blackwell and
the Blackwell Municipal Authority by paying $54 million to settle all of the
claims except for future damages relating to the potential failure of FCX’s
groundwater remediation system (which is under construction) to prevent
contamination from entering the City of Blackwell’s wastewater treatment system
(refer to Note 14 for further discussion of the litigation).
FCX
evaluated events after December 31, 2009, and through the date the financial
statements were issued, and determined any events or transactions occurring
during this period that would require recognition or disclosure are
appropriately addressed in these financial statements.
Item 9. Changes in and Disagreements with Accountants
on Accounting and Financial Disclosure.
Not
applicable.
Item 9A. Controls and Procedures.
(a) Evaluation of disclosure
controls and procedures. Our chief executive officer and chief
financial officer, with the participation of management, have evaluated the
effectiveness of our “disclosure controls and procedures” (as defined in Rules
13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934) as of the end
of the period covered by this annual report on Form 10-K. Based on their
evaluation, they have concluded that our disclosure controls and procedures are
effective as of the end of the period covered by this report.
(b) Changes in internal
controls. There has been no change in our internal control
over financial reporting that occurred during the fourth quarter that has
materially affected, or is reasonably likely to materially affect our internal
control over financial reporting.
(c) Management’s
annual report on internal control over financial reporting and the report
thereon of Ernst & Young LLP are included herein under Item 8. “Financial
Statements and Supplemental Data.”
Item 9B. Other Information.
Not
applicable.
Item 10. Directors, Executive Officers and Corporate
Governance.
The
information set forth under the captions “Information About Director Nominees”
and “Section 16(a) Beneficial Ownership Reporting Compliance” of our definitive
proxy statement to be filed with the Securities and Exchange Commission (SEC),
relating to our 2010 annual meeting of stockholders, is incorporated herein by
reference. The information required by Item 10 regarding our executive officers
appears in a separately captioned heading after Item 4 in Part I of this
report.
Item 11. Executive Compensation.
The
information set forth under the captions “Director Compensation” and “Executive
Officer Compensation” of our definitive proxy statement to be filed with the
SEC, relating to our 2010 annual meeting of stockholders, is incorporated herein
by reference.
Item 12. Security Ownership of Certain Beneficial
Owners and Management and Related Stockholder Matters.
The
information set forth under the captions “Stock Ownership of Directors and
Executive Officers” and “Stock Ownership of Certain Beneficial Owners” of our
definitive proxy statement to be filed with the SEC, relating to our 2010 annual
meeting of stockholders, is incorporated herein by reference.
Item 13. Certain Relationships and Related
Transactions, and Director Independence.
The
information set forth under the caption “Certain Transactions” of our definitive
proxy statement to be filed with the SEC, relating to our 2010 annual meeting of
stockholders, is incorporated herein by reference.
Item 14. Principal Accounting Fees and
Services.
The
information set forth under the caption “Independent Auditors” of our definitive
proxy statement to be filed with the SEC, relating to our 2010 annual meeting of
stockholders, is incorporated herein by reference.
Item 15. Exhibits, Financial Statement
Schedules.
(a)(1). Financial
Statements.
The
consolidated statements of operations, cash flows and equity, and the
consolidated balance sheets are included as part of Item 8. “Financial
Statements and Supplementary Data.”
(a)(2). Financial Statement
Schedules.
Reference
is made to the Index to Financial Statements appearing on page F-1
hereof.
(a)(3). Exhibits.
Reference
is made to the Exhibit Index beginning on page E-1 hereof.
Pursuant
to the requirements of Section 13 of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized, on February 26, 2010.
Freeport-McMoRan Copper & Gold
Inc.
By: /s/
Richard C.
Adkerson
Richard C. Adkerson
President, Chief Executive
Officer
and Director
Pursuant
to the requirements of the Securities Exchange Act of 1934, this report has been
signed by the following persons on behalf of the registrant in the capacities
indicated on February 26, 2010.
*
|
Chairman
of the Board
|
James
R. Moffett
|
|
|
|
*
|
Vice
Chairman of the Board
|
B.
M. Rankin, Jr.
|
|
|
|
/s/
Richard C. Adkerson
|
President,
Chief Executive Officer and Director
|
Richard
C. Adkerson
|
(Principal
Executive Officer)
|
|
|
/s/
Kathleen L. Quirk
|
Executive
Vice President, Chief Financial Officer and Treasurer
|
Kathleen
L. Quirk
|
(Principal
Financial Officer)
|
|
|
*
|
Vice
President and Controller - Financial Reporting
|
C.
Donald Whitmire, Jr.
|
(Principal
Accounting Officer)
|
|
|
*
|
Director
|
Robert
J. Allison, Jr.
|
|
|
|
*
|
Director
|
Robert
A. Day
|
|
|
|
*
|
Director
|
Gerald
J. Ford
|
|
|
|
*
|
Director
|
H.
Devon Graham, Jr.
|
|
|
|
*
|
Director
|
J.
Bennett Johnston
|
|
|
|
*
|
Director
|
Charles
C. Krulak
|
|
|
|
*
|
Director
|
Bobby
Lee Lackey
|
|
|
|
*
|
Director
|
Jon
C. Madonna
|
|
|
|
*
|
Director
|
Dustan
E. McCoy
|
|
|
|
*
|
Director
|
Gabrielle
K. McDonald
|
|
|
|
*
|
Director
|
J.
Stapleton Roy
|
|
|
|
*
|
Director
|
Stephen
H. Siegele
|
|
|
|
*
|
Director
|
J.
Taylor Wharton
|
|
|
|
|
|
|
|
By: /s/
Richard C.
Adkerson
|
|
Richard
C. Adkerson
|
|
Attorney-in-Fact
|
|
FREEPORT-McMoRan COPPER & GOLD INC.
INDEX TO
FINANCIAL STATEMENTS
Our
financial statements and the notes thereto, and the report of Ernst & Young
LLP included in our 2009 annual report are incorporated herein by
reference.
|
Page
|
Report
of Independent Registered Public Accounting Firm
|
F-1
|
Schedule
II-Valuation and Qualifying Accounts
|
F-2
|
Schedules
other than the one listed above have been omitted since they are either not
required, not applicable or the required information is included in the
financial statements or notes thereto.
REPORT OF
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
TO THE
BOARD OF DIRECTORS AND STOCKHOLDERS OF
FREEPORT-McMoRan
COPPER & GOLD INC.
We have
audited the consolidated financial statements of Freeport-McMoRan Copper &
Gold Inc. (the Company) as of December 31, 2009 and 2008 and for each of the
three years in the period ended December 31, 2009, and have issued our report
thereon dated February 26, 2010. Our audits also included the financial
statement schedule listed in the index above for this Form 10-K. The schedule
listed in the index above is the responsibility of the Company’s management. Our
responsibility is to express an opinion based on our audits.
In our
opinion, the financial statement schedule referred to above, when considered in
relation to the basic consolidated financial statements taken as a whole,
presents fairly in all material respects the information set forth
therein.
/s/ Ernst
& Young LLP
Phoenix,
Arizona
February
26, 2010
FREEPORT-McMoRan
COPPER & GOLD INC.
SCHEDULE
II - VALUATION AND QUALIFYING ACCOUNTS
Col.
A
|
|
Col.
B
|
|
Col.
C
|
|
Col.
D
|
|
Col.
E
|
|
|
|
|
|
|
Additions
|
|
|
|
|
|
|
|
|
|
Balance
at
|
|
Charged
to
|
|
Charged
to
|
|
Other
|
|
Balance
at
|
|
|
|
Beginning
of
|
|
Costs
and
|
|
Other
|
|
Add
|
|
End
of
|
|
|
|
Period
|
|
Expense
|
|
Accounts
|
|
(Deduct)
|
|
Period
|
|
Reserves
and allowances deducted
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
from
asset accounts:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Materials
and supplies allowances
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
$
|
22
|
|
$
|
4
|
|
$
|
-
|
|
$
|
(5
|
)a
|
$
|
21
|
|
2008
|
|
|
16
|
|
|
11
|
|
|
-
|
|
|
(5
|
)a
|
|
22
|
|
2007
|
|
|
16
|
|
|
7
|
|
|
-
|
|
|
(7
|
)a
|
|
16
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Valuation
allowance for
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
deferred
tax assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
$
|
1,763
|
|
$
|
366
|
|
$
|
28
|
|
$
|
-
|
|
$
|
2,157
|
|
2008
|
|
|
1,165
|
|
|
582
|
|
|
16
|
|
|
-
|
|
|
1,763
|
|
2007
|
|
|
925
|
|
|
332
|
|
|
-
|
|
|
(92
|
)b
|
|
1,165
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reserves
for non-income taxes:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
$
|
32
|
|
$
|
2
|
|
$
|
3
|
|
$
|
(6
|
)c
|
$
|
31
|
|
2008
|
|
|
34
|
|
|
7
|
|
|
(3
|
)
|
|
(6
|
)c
|
|
32
|
|
2007
|
|
|
22
|
|
|
4
|
|
|
11
|
|
|
(3
|
)c
|
|
34
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
a.
|
Primarily
represents write-offs of obsolete materials and supplies
inventories.
|
b.
|
Represents
a release of valuation allowances as a result of the acquisition of Phelps
Dodge.
|
c.
|
Represents
amounts paid or adjustments to reserves based on revised
estimates.
|
|
FREEPORT-McMoRan COPPER & GOLD
INC.
|
EXHIBIT
INDEX
|
|
|
Filed
|
|
|
|
|
Exhibit
|
|
with
this
|
Incorporated
by Reference
|
|
|
|
|
|
|
2.1
|
Agreement
and Plan of Merger dated as of November 18, 2006, by and among
Freeport-McMoRan Copper & Gold Inc. (FCX), Phelps Dodge Corporation
and Panther Acquisition Corporation.
|
|
S-4
|
333-139252
|
12/11/2006
|
3.1
|
Composite
Certificate of Incorporation of FCX.
|
|
8-A/A
|
001-11307-01
|
01/26/2009
|
3.2
|
Amended
and Restated By-Laws of FCX, as amended through February 2,
2010.
|
|
8-K
|
001-11307-01
|
02/05/2010
|
4.1
|
Certificate
of Designations of 6¾% Mandatory Convertible Preferred Stock of
FCX.
|
|
8-K
|
001-11307-01
|
03/27/2007
|
4.2
|
Rights
Agreement dated as of May 3, 2000, between FCX and ChaseMellon Shareholder
Services, L.L.C., as Rights Agent.
|
|
10-Q
|
001-09916
|
05/15/2000
|
4.3
|
Amendment
No. 1 to Rights Agreement dated as of February 26, 2002, between FCX and
Mellon Investor Services.
|
|
10-Q
|
001-09916
|
05/07/2002
|
4.4
|
Indenture
dated as of February 11, 2003, from FCX to The Bank of New York, as
Trustee, with respect to the 7% Convertible Senior Notes due
2011.
|
|
8-K
|
001-09916
|
02/25/2003
|
4.5
|
Indenture
dated as of March 19, 2007, from FCX to The Bank of New York, as Trustee,
with respect to the 8.25% Senior Notes due 2015, 8.375% Senior Notes due
2017, and the Senior Floating Rate Notes due 2015.
|
|
8-K
|
001-11307-01
|
03/19/2007
|
4.6
|
Credit
Agreement dated as of March 19, 2007, by and among FCX, the Lenders party
thereto, the Issuing Banks party thereto, JPMorgan Chase Bank, N.A. as
Administrative Agent and Collateral Agent, and Merrill Lynch, Pierce,
Fenner & Smith Incorporated, as Syndication Agent.
|
|
8-K
|
001-11307-01
|
03/19/2007
|
4.7
|
Amendment
Agreement dated as of July 3, 2007, amending the Credit Agreement dated as
of March 19, 2007, among FCX, the Lenders party thereto, the Issuing Banks
party thereto, and JPMorgan Chase Bank, N.A., as Administrative Agent and
as Collateral Agent, and Merrill Lynch, Pierce, Fenner & Smith
Incorporated, as Syndication Agent.
|
|
8-K
|
001-11307-01
|
07/11/2007
|
4.8
|
First
Amendment dated as of January 22, 2009, in respect of the Amended and
Restated Credit Agreement dated as of July 10, 2007, among FCX, the
Lenders party thereto, the Issuing Banks party thereto, and JPMorgan Chase
Bank, N.A., as Administrative Agent and as Collateral Agent, and Merrill
Lynch, Pierce, Fenner & Smith Incorporated, as Syndication
Agent.
|
|
8-K
|
001-11307-01
|
01/26/2009
|
4.9
|
Amended
and Restated Credit Agreement dated as of March 19, 2007, by and among
FCX, PT Freeport Indonesia, the Lenders party thereto, the Issuing Banks
party thereto, JPMorgan Chase Bank, N.A. as Administrative Agent,
Collateral Agent, Security Agent and JAA Security Agent, U.S. Bank
National Association, as FI Trustee, and Merrill Lynch, Pierce, Fenner
& Smith Incorporated, as Syndication Agent.
|
|
8-K
|
001-11307-01
|
03/19/2007
|
|
|
FREEPORT-McMoRan
COPPER & GOLD INC.
|
|
EXHIBIT
INDEX
|
|
|
|
Filed
|
|
|
|
|
Exhibit
|
|
with
this
|
Incorporated
by Reference
|
|
|
|
|
|
|
4.10
|
Amendment
Agreement dated as of July 3, 2007, amending the Amended and Restated
Credit Agreement dated as of March 19, 2007, which amended and restated
the Amended and Restated Credit Agreement, dated as of July 25, 2006,
which amended and restated the Amended and Restated Credit Agreement,
dated as of September 30, 2003, which amended and restated the Amended and
Restated Credit Agreement, dated as of October 19, 2001, which amended and
restated both the Credit Agreement, originally dated as of October 27,
1989 and amended and restated as of June 1, 1993 and the Credit Agreement,
originally dated as of June 30, 1995, among FCX, PT Freeport Indonesia,
U.S. Bank National Association, as trustee for the Lenders and certain
other lenders under the FI Trust Agreement, the Lenders party thereto, the
Issuing Banks party thereto, and JPMorgan Chase Bank, N.A., as
Administrative Agent, Security Agent, JAA Security Agent and Collateral
Agent, and Merrill Lynch, Pierce, Fenner & Smith Incorporated, as
Syndication Agent.
|
|
8-K
|
001-11307-01
|
07/11/2007
|
4.11
|
First
Amendment dated as of January 22, 2009, in respect of the Amended and
Restated Credit Agreement dated as of March 19, 2007, as amended as of
July 3, 2007, which amends and restates the Amended and Restated Credit
Agreement, dated as of July 25, 2006, which amended and restated the
Amended and Restated Credit Agreement, dated as of September 30, 2003,
which amended and restated the Amended and Restated Credit Agreement,
dated as of October 19, 2001, which amended and restated both the Credit
Agreement, originally dated as of October 27, 1989 and amended and
restated as of June 1, 1993 and the Credit Agreement, originally dated as
of June 30, 1995, among FCX, PT Freeport Indonesia, U.S. Bank National
Association, as trustee for the Lenders and certain other lenders under
the FI Trust Agreement, the Lenders party thereto, the Issuing Banks party
thereto, and JPMorgan Chase Bank, N.A., as Administrative Agent, Security
Agent, JAA Security Agent and Collateral Agent, and Merrill Lynch, Pierce,
Fenner & Smith Incorporated, as Syndication Agent.
|
|
8-K
|
001-11307-01
|
01/26/2009
|
10.1
|
Contract
of Work dated December 30, 1991, between the Government of the Republic of
Indonesia and PT Freeport Indonesia.
|
|
S-3
|
333-72760
|
11/05/2001
|
10.2
|
Contract
of Work dated August 15, 1994, between the Government of the Republic of
Indonesia and PT Irja Eastern Minerals Corporation.
|
|
S-3
|
333-72760
|
11/05/2001
|
10.3
|
Participation
Agreement dated as of October 11, 1996, between PT Freeport Indonesia and
P.T. RTZ-CRA Indonesia (a subsidiary of Rio Tinto PLC) with respect to a
certain contract of work.
|
|
S-3
|
333-72760
|
11/05/2001
|
10.4
|
Agreement
dated as of October 11, 1996, to Amend and Restate Trust Agreement among
PT Freeport Indonesia, FCX, the RTZ Corporation PLC (now Rio Tinto PLC),
P.T. RTZ-CRA Indonesia, RTZ Indonesian Finance Limited and First Trust of
New York, National Association, and The Chase Manhattan Bank, as
Administrative Agent, JAA Security Agent and Security
Agent.
|
|
8-K
|
001-09916
|
11/13/1996
|
10.5
|
Concentrate
Purchase and Sales Agreement dated effective December 11, 1996, between PT
Freeport Indonesia and PT Smelting.
|
|
S-3
|
333-72760
|
11/05/2001
|
10.6
|
Second
Amended and Restated Joint Venture and Shareholders’ Agreement dated as of
December 11, 1996, among Mitsubishi Materials Corporation, Nippon Mining
and Metals Company, Limited and PT Freeport Indonesia.
|
|
S-3
|
333-72760
|
11/05/2001
|
FREEPORT-McMoRan
COPPER & GOLD INC. |
EXHIBIT
INDEX |
|
|
Filed |
|
|
|
Exhibit |
|
with this |
Incorporated by
Reference |
Number |
Exhibit Title |
Form 10-K |
Form |
File No. |
Date Filed |
10.7
|
Participation
Agreement, dated as of March 16, 2005, among Phelps Dodge Corporation,
Cyprus Amax Minerals Company, a Delaware corporation, Cyprus Metals
Company, a Delaware corporation, Cyprus Climax Metals Company, a Delaware
corporation, Sumitomo Corporation, a Japanese corporation, Summit Global
Management, B.V., a Dutch corporation, Sumitomo Metal Mining Co., Ltd., a
Japanese corporation, Compañia de Minas Buenaventura S.A.A., a Peruvian
sociedad anonima abierta, and Sociedad Minera Cerro Verde S.A.A., a
Peruvian sociedad anonima abierta.
|
|
8-K
|
001-00082
|
03/22/2005
|
10.8
|
Shareholders
Agreement, dated as of June 1, 2005, among Phelps Dodge Corporation,
Cyprus Climax Metals Company, a Delaware corporation, Sumitomo
Corporation, a Japanese corporation, Sumitomo Metal Mining Co., Ltd., a
Japanese corporation, Summit Global Management B.V., a Dutch corporation,
SMM Cerro Verde Netherlands, B.V., a Dutch corporation, Compañia de Minas
Buenaventura S.A.A., a Peruvian sociedad anonima abierta, and Sociedad
Minera Cerro Verde S.A.A., a Peruvian sociedad anonima
abierta.
|
|
8-K
|
001-00082
|
06/07/2005
|
10.9
|
Master
Agreement and Plan of Merger between Columbian Chemicals Company,
Columbian Chemicals Acquisition LLC and Columbian Chemicals Merger Sub,
Inc., dated November 15, 2005.
|
|
10-K
|
001-00082
|
02/27/2006
|
10.10
|
Reclamation
and Remediation Trust Agreement between Phelps Dodge Corporation and Wells
Fargo Delaware Trust Company, dated December 22, 2005.
|
|
10-K
|
001-00082
|
02/27/2006
|
10.11*
|
FCX
Director Compensation.
|
|
10-Q
|
001-11307-01
|
8/11/2008
|
10.12*
|
Consulting
Agreement dated December 22, 1988, with Kissinger Associates, Inc.
(Kissinger Associates).
|
|
10-K405
|
001-09916
|
03/31/1998
|
10.13*
|
Letter
Agreement dated January 27, 1997, among Kissinger Associates, Kent
Associates, FCX, Freeport-McMoRan Inc. (FTX), and FM Services Company
(FMS).
|
|
10-K405
|
001-09916
|
03/08/2002
|
|
Supplemental
Agreement with Kissinger Associates and Kent Associates, effective as of
January 1, 2010.
|
X
|
|
|
|
|
Amended
and restated Agreement for Consulting Services between FMS and B. M.
Rankin, Jr. effective as of January 1, 2010
|
X
|
|
|
|
10.16*
|
Letter
Agreement effective as of January 7, 1997, between Senator J. Bennett
Johnston, Jr. and FMS.
|
|
10-K405
|
001-09916
|
03/08/2002
|
10.17*
|
Supplemental
Agreement between FMS and J. Bennett Johnston, Jr., effective as of May 1,
2008.
|
|
10-Q
|
001-11307-01
|
8/11/2008
|
|
Supplemental
Agreement between FMS and J. Bennett Johnston, Jr., effective as of
January 1, 2010.
|
X
|
|
|
|
10.19*
|
Letter
Agreement dated November 1, 1999, between FMS and Gabrielle K.
McDonald.
|
|
10-K405
|
001-09916
|
03/20/2000
|
10.20*
|
Supplemental
Letter Agreement between FMS and Gabrielle K. McDonald, effective as of
May 1, 2008.
|
|
10-Q
|
001-11307-01
|
8/11/2008
|
|
Supplemental
Letter Agreement between FMS and Gabrielle K. McDonald, effective as of
January 1, 2010.
|
X
|
|
|
|
10.22*
|
Agreement
for Consulting Services between FMS and Dr. J. Taylor Wharton, effective
as of January 11, 2008.
|
|
10-K
|
001-11307-01
|
02/29/2008
|
|
Supplemental
Letter Agreement between FMS and Dr. J. Taylor Wharton, effective as of
January 1, 2010.
|
X
|
|
|
|
|
|
|
|
|
|
FREEPORT-McMoRan
COPPER & GOLD INC. |
EXHIBIT
INDEX |
|
|
Filed |
|
|
|
Exhibit |
|
with this |
Incorporated by
Reference |
Number |
Exhibit Title |
Form 10-K |
Form |
File No. |
Date Filed |
10.24* |
Amended
and Restated Executive Employment Agreement dated effective as of
December 2, 2008, between FCX and James R. Moffett.
|
|
10-K
|
001-11307-01
|
02/26/2009
|
10.25*
|
Amended
and Restated Change of Control Agreement dated effective as of December 2,
2008, between FCX and James R. Moffett.
|
|
10-K
|
001-11307-01
|
02/26/2009
|
10.26*
|
Amended
and Restated Change of Control Agreement dated effective as of December 2,
2008, between FCX and Michael J. Arnold.
|
|
10-K
|
001-11307-01
|
02/26/2009
|
10.27*
|
Amended
and Restated Executive Employment Agreement dated effective as of December
2, 2008, between FCX and Richard C. Adkerson.
|
|
10-K
|
001-11307-01
|
02/26/2009
|
10.28*
|
Amended
and Restated Executive Employment Agreement dated effective as of December
2, 2008, between FCX and Kathleen L. Quirk.
|
|
10-K
|
001-11307-01
|
02/26/2009
|
10.29*
|
FCX
Executive Services Program, as amended and restated December 2,
2008.
|
|
10-K
|
001-11307-01
|
02/26/2009
|
10.30*
|
FCX
Supplemental Executive Retirement Plan, as amended and
restated.
|
|
8-K
|
001-11307-01
|
02/05/2007
|
10.31*
|
FCX
Supplemental Executive Capital Accumulation Plan.
|
|
10-Q
|
001-11307-01
|
05/12/2008
|
10.32*
|
FCX
Supplemental Executive Capital Accumulation Plan Amendment
One.
|
|
10-Q
|
001-11307-01
|
05/12/2008
|
10.33*
|
FCX
Supplemental Executive Capital Accumulation Plan Amendment
Two.
|
|
10-K
|
001-11307-01
|
02/26/2009
|
10.34*
|
FCX
2005 Supplemental Executive Capital Accumulation Plan.
|
|
10-K
|
001-11307-01
|
02/26/2009
|
|
FCX
2005 Supplemental Executive Capital Accumulation Plan Amendment
One.
|
X
|
|
|
|
10.36*
|
FCX
1995 Stock Option Plan for Non-Employee Directors, as amended and
restated.
|
|
10-Q
|
001-11307-01
|
05/10/2007
|
10.37*
|
FCX
Amended and Restated 1999 Stock Incentive Plan, as amended and
restated.
|
|
10-Q
|
001-11307-01
|
05/10/2007
|
10.38*
|
FCX
2003 Stock Incentive Plan, as amended and restated.
|
|
10-Q
|
001-11307-01
|
05/10/2007
|
10.39*
|
Form
of Amendment No. 1 to Notice of Grant of Nonqualified Stock Options and
Stock Appreciation Rights under the 2004 Director Compensation
Plan.
|
|
8-K
|
001-11307-01
|
05/05/2006
|
10.40*
|
FCX
2004 Director Compensation Plan, as amended and restated.
|
|
10-Q
|
001-11307-01
|
05/10/2007
|
10.41*
|
FCX
2005 Annual Incentive Plan, as amended and restated.
|
|
10-K
|
001-11307-01
|
02/26/2009
|
10.42*
|
FCX
Amended and Restated 2006 Stock Incentive Plan.
|
|
8-K
|
001-11307-01
|
07/13/2007
|
10.43*
|
Form
of Notice of Grant of Nonqualified Stock Options for grants under the FCX
1999 Stock Incentive Plan, the 2003 Stock Incentive Plan and the 2006
Stock Incentive Plan.
|
|
10-K
|
001-11307-01
|
02/29/2008
|
|
Form
of Notice of Grant of Restricted Stock Units for grants under the FCX 1999
Stock Incentive Plan, the 2003 Stock Incentive Plan and the 2006 Stock
Incentive Plan.
|
X
|
|
|
|
10.45*
|
Form
of Performance-Based Restricted Stock Unit Agreement for grants under the
FCX 1999 Stock Incentive Plan, the 2003 Stock Incentive Plan and the 2006
Stock Incentive Plan. (Form used for awards granted prior to
2010).
|
|
10-K
|
001-11307-01
|
02/29/2008
|
|
|
|
|
|
|
FREEPORT-McMoRan
COPPER & GOLD INC. |
EXHIBIT
INDEX |
|
|
Filed |
|
|
|
Exhibit |
|
with this |
Incorporated by
Reference |
Number |
Exhibit Title |
Form 10-K |
Form |
File No. |
Date Filed |
10.46* |
Form
of Notice of Grant of Performance-Based Restricted Stock Units for
grants under the FCX 2003 Stock Incentive Plan and the 2006 Stock
Incentive Plan.
|
|
8-K
|
001-11307-01
|
02/05/2010
|
10.47*
|
Form
of Restricted Stock Unit Agreement (form used in connection with
participant elections) for grants under the FCX 1999 Stock Incentive Plan,
the 2003 Stock Incentive Plan and the 2006 Stock Incentive
Plan.
|
|
10-K
|
001-11307-01
|
02/29/2008
|
10.48*
|
Form
of Performance-Based Restricted Stock Unit Agreement (form used in
connection with participant elections) for grants under the FCX 1999 Stock
Incentive Plan, the 2003 Stock Incentive Plan and the 2006 Stock Incentive
Plan.
|
|
10-K
|
001-11307-01
|
02/29/2008
|
10.49*
|
FCX
2009 Annual Incentive Plan
|
|
8-K
|
001-11307-01
|
06/17/2009
|
|
FCX
Computation of Ratio of Earnings to Fixed Charges.
|
X
|
|
|
|
14.1
|
FCX
Principles of Business Conduct.
|
|
10-K
|
001-11307-01
|
02/29/2008
|
|
Subsidiaries
of FCX.
|
X
|
|
|
|
|
Consent
of Ernst & Young LLP.
|
X
|
|
|
|
|
Certified
resolution of the Board of Directors of FCX authorizing this report to be
signed on behalf of any officer or director pursuant to a Power of
Attorney.
|
X
|
|
|
|
|
Powers
of Attorney pursuant to which this report has been signed on behalf of
certain officers and directors of FCX.
|
X
|
|
|
|
|
Certification
of Principal Executive Officer pursuant to Rule 13a-14(a)/15d –
14(a).
|
X
|
|
|
|
|
Certification
of Principal Financial Officer pursuant to Rule 13a-14(a)/15d –
14(a).
|
X
|
|
|
|
|
Certification
of Principal Executive Officer pursuant to 18 U.S.C. Section
1350.
|
X
|
|
|
|
|
Certification
of Principal Financial Officer pursuant to 18 U.S.C Section
1350.
|
X
|
|
|
|
99.1
|
Amended
and Restated Mining Convention dated as of September 28, 2005, among the
Democratic Republic of Congo, La Générale des Carrières et des Mines,
Lundin Holdings Ltd. (now TF Holdings Limited) and Tenke Fungurume Mining
S.A.R.L..
|
|
8-K
|
001-11307-01
|
09/02/2008
|
99.2
|
Amended
and Restated Shareholders Agreement dated as of September 28, 2005, by and
between La Générale des Carrières et des Mines and Lundin Holdings Ltd.
(now TF Holdings Limited) and its subsidiaries.
|
|
8-K
|
001-11307-01
|
09/02/2008
|
101.INS
|
XBRL
Instance Document
|
X
|
|
|
|
101.SCH
|
XBRL
Taxonomy Extension Schema
|
X
|
|
|
|
101.CAL
|
XBRL
Taxonomy Extension Calculation Linkbase
|
X
|
|
|
|
101.DEF
|
XBRL
Taxonomy Extension Definition Linkbase
|
X
|
|
|
|
101.LAB
|
XBRL
Taxonomy Extension Label Linkbase
|
X
|
|
|
|
101.PRE
|
XBRL
Taxonomy Extension Presentation Linkbase
|
X
|
|
|
|
Note: Certain
instruments with respect to long-term debt of FCX have not been filed as
exhibits to this Annual Report on Form 10-K since the total amount of securities
authorized under any such instrument does not exceed 10 percent of the total
assets of FCX and its subsidiaries on a consolidated basis. FCX agrees to
furnish a copy of each such instrument upon request of the Securities and
Exchange Commission.
* Indicates
management contract or compensatory plan or arrangement.