2 0 2 0 A N N U A L R E P O R T
CHARGING AHEAD
R E S P O N S I B LY . R E L I A B LY . R E L E N T L E S S LY .
Operating Cash Flows
(~25% higher)
$ in billions
3.0
2.5
2.0
Jan. 2020
Estimate
2020
Actual
Capital Expenditures
(~29% lower)
$ in billions
3.0
2.0
1.0
Jan. 2020
Estimate
2020
Actual
Net Debt (1)
(~$2.7 bn lower)
$ in billions
9.0
8.0
7.0
6.0
5.0
Jan. 2020
Estimate
2020
Actual
Freeport-McMoRan Inc. (FCX) is a leading international mining
company with headquarters in Phoenix, Arizona. FCX operates large,
long-lived, geographically diverse assets with significant proven and
probable reserves of copper, gold and molybdenum. FCX’s portfolio
of assets includes the Grasberg minerals district in Indonesia, one
of the world’s largest copper and gold deposits; and significant
mining operations in North America and South America, including the
large-scale Morenci minerals district in Arizona and the Cerro Verde
operation in Peru.
FCX has a strong commitment to safety performance, environmental
management and the communities where it operates. FCX is a
founding member of the International Council on Mining and Metals
(ICMM). Implementation of the ICMM Mining Principles across the
company results in site-level sustainability programs that meet
responsible sourcing objectives for the global marketplace.
By supplying responsibly produced copper, FCX is proud to be
a positive contributor to the world well beyond its operational
boundaries. Additional information about FCX is available at fcx.com.
Note: January 2020 estimates are based on copper and gold sales of
3.5 billion (bn) pounds (lbs) and 0.8 million (mm) ounces (ozs),
respectively, and average prices of $2.85/lb copper and $1,500/oz
gold. 2020 actuals included copper and gold sales of 3.2 bn lbs and
0.9 mm ozs, respectively, and realized prices of $2.95/lb copper and
$1,832/oz gold.
(1) Net debt equals consolidated debt less consolidated cash as of
December 31, 2020.
FM_FCX
Freeport-McMoRan
FreeportFCX
freeportfcx
CHARGING AHEAD
“Charging Ahead” highlights the momentum Freeport
achieved through resiliency, strong operating performance
and project execution during 2020 to establish a solid
foundation for future growth.
Like Freeport, copper is charging ahead in response to
the growing recognition of copper’s role in the energy
TA BLE O F
CONTENTS
2
4
6
14
16
18
20
22
Mining Operations
transition, which is necessary for global decarbonization
Letter to Shareholders
Operational Overview
Mining Reserves and
Mineralized Material
and technological innovations, and the limited ability of the
industry to increase supply.
Freeport is also “Charging Ahead — Responsibly, Reliably
and Relentlessly” to advance its environmental, social
Financial Performance
and governance (ESG) efforts. We are dedicated to
Sustainability
Climate Change Strategy
Tailings Management
and Stewardship
responsible copper production, as demonstrated through our
implementation and third-party validation of ICMM’s Mining
Principles and Copper Mark certifications at five initial sites.
24
Board of Directors
and Leadership
25
Financial and Operating
Information
120
Performance Graph
121
Stockholder Information
1
2020 ANNUAL REPORT2020 ANNUAL REPORT
M I N I N G O P E R AT I O N S
MORENCI, ARIZONA
BAGDAD, ARIZONA
SAFFORD, ARIZONA
SIERRITA, ARIZONA
MIAMI, ARIZONA
EL ABRA, CHILE
HENDERSON, COLORADO
CLIMAX, COLORADO
CHINO, NEW MEXICO
TYRONE, NEW MEXICO
CERRO VERDE, PERU
Geographically Diverse Portfolio
NORTH AMERICA
SOUTH AMERICA
INDONESIA
CONSOLIDATED TOTALS
Reserves
at 12/31/20
47.1 billion lbs
0.6 million ozs
Cu
Au
Mo 3.01 billion lbs
Cu 32.7 billion lbs
Mo 0.70 billion lbs
Cu 33.4 billion lbs
Au 28.3 million ozs
2020 Sales
Cu 1.4 billion lbs
Cu 1.0 billion lbs
Cu 0.8 billion lbs
Au 0.9 million ozs*
Mo 80 million lbs**
* Includes sales of gold produced at FCX’s North America copper mines.
** Includes sales of molybdenum produced at FCX’s South America copper mines.
113.2 billion lbs
Cu
Au
28.9 million ozs
Mo 3.71 billion lbs
Cu
Au
Mo
3.2 billion lbs
0.9 million ozs
80 million lbs
2
FFreeportreeport-M-MccMMooRRanan
GRASBERG, INDONESIA
COPPER (CU)
GOLD (AU)
MOLYBDENUM (MO)
GLOBAL INDUSTRY LEADER
One of the world’s largest publicly
traded copper producers; seasoned
and value-driven global team; 30+
year reserve life with substantial
additional resources.
TRUSTED OPERATOR
Strong reputation and franchise in
four countries; synergistic operation
of all assets.
WORLD-CLASS DEVELOPER
Industry-leading track record
for major project execution in
complex jurisdictions.
BLOCK CAVE LEADER
Industry-leading technical
capabilities; decades of block
caving experience.
RESPONSIBLE PRODUCER
Long-standing commitment
to all of our stakeholders including
our employees, communities, host
countries, customers and suppliers.
3
2020 ANNUAL REPORT2020 ANNUAL REPORT L E T T E R T O S H A R E H O L D E R S
D E A R F E L L O W S H A R E H O L D E R S
The year 2020 was a year of extraordinary accomplishment for our
spending and distributions to noncontrolling interests would be
company. The theme of this year’s annual report, “Charging Ahead,”
allocated to shareholder returns and the balance to debt reduction
highlights our momentum achieved through resiliency, strong
and investments in value enhancing growth projects.
operating performance and project execution. Supported by a
favorable market outlook, we have established a solid foundation
for future growth.
Freeport is foremost in copper. Copper is a critical metal essential to
the global economy and increasingly important in the achievement of
the global clean energy transition. Copper prices rose significantly in
During 2020, our global team responded in an exceptional fashion
late 2020 and early 2021 in response to increased demand from China,
to the challenges of the pandemic — safeguarding our people,
growing recognition of copper’s role in the energy transition and the
communities and assets. Notably, we were successful in meeting
limited ability of the industry to increase supply. With 70 percent of the
critical milestones on our key growth projects, positioning us for
world’s copper supply used to deliver electricity, the intensity of copper
significant free cash flow generation. Our successes resulted in
use is expected to increase in the coming years. Like Freeport, copper
Freeport being the top performing stock in our peer group and the
also is “Charging Ahead.”
eighth best performing stock in the S&P 500 during 2020.
Our company has a world-class portfolio of long-lived assets in the
In February 2021, our Board of Directors (Board) adopted a new
copper industry and a global team with industry-leading technical
financial policy for the allocation of cash flows aligned with our
skills supported by a highly motivated, experienced management
strategic objectives of maintaining a strong balance sheet, increasing
and administrative organization. In 2020, we advanced the largest
cash returns to shareholders and advancing opportunities for future
block caving operation in the world at our Grasberg underground
growth. The new policy includes a base dividend of $0.30 per share
mine in Indonesia. We also completed on-time and on-budget the
per annum and a performance based framework whereby up to
Lone Star project in Arizona. Lone Star has the potential to be a future
50 percent of available cash flows generated after planned capital
cornerstone asset for our company.
2021 PRIORITIES — CHARGING AHEAD
Ongoing cost and
capital management;
automation and
innovation initiatives
Continue momentum
of underground
ramp-up at Grasberg
Deliver on
environmental, social
and governance
commitments
Balanced
financial policy —
debt reduction,
investments and
shareholder returns
Advance evaluations
for future organic
growth
4
Freeportreeport-MccMooRanan New Financial Policy
Organic
Growth
Balance
Sheet Strength
Up to 50% for
Cash Returns to
Shareholders
underscoring the importance of our fatality prevention programs. We
remain committed to the safety of our people and will continue to
place our highest priority on fatality prevention programs.
In early 2021, Gerald J. Ford notified us of his intention to retire from
our Board effective upon the expiration of his current term, which
ends in June 2021. We thank him for his leadership, counsel and
dedicated service over many years. Dusty McCoy was named Lead
Independent Director and I was appointed Chairman. This leadership
structure confirms our continued commitment to our focused
strategy while providing robust independent oversight and guidance.
In connection with our ongoing Board refreshment process, we added
two new directors in April 2021, David P. Abney, retired Chairman and
Chief Executive Officer of United Parcel Service, Inc., and Robert W.
“Bob” Dudley, retired Group Chief Executive of BP, p.l.c. David and Bob
In addition to the strong operating and financial performance in 2020,
are exceptional leaders with proven track records and experience in
we are “Charging Ahead — Responsibly, Reliably and Relentlessly”
global business, corporate governance and a wide range of matters
to advance our ESG efforts. We committed to the Copper Mark, a
relevant to Freeport.
new assurance framework developed by the International Copper
Association to promote and demonstrate responsible production
practices, focusing on contributing to the United Nations Sustainable
Development Goals. We established a greenhouse gas (GHG)
emissions target and enhanced transparency with our inaugural
climate and water reports, which are available on our website.
We took a leading role with the International Council on Metals
and Mining (ICMM) to develop a new global standard on tailings
management for the mining industry. This was a major undertaking
by the industry and by our company and reflects the importance
of managing tailings storage facilities safely and responsibly. As a
founding member of the ICMM, Freeport has played an active role
in many key initiatives of ICMM through the years. In August 2020, I
was elected to a two-year term as Chair of ICMM after serving two
previous terms as Chair from 2008-2011.
Our response to the COVID-19 pandemic highlights the importance
we place on the well-being of our people — workforce safety
will always be our highest priority. We are pleased to report that
April 6, 2021
our safety statistics in 2020, measured by incident rates, met our
targets. Regrettably, we had five fatalities in our operations in 2020,
We commend our global organization on their resilience in
a complicated operating environment. We are proud of their
accomplishments and thank them for their strong execution during
2020. We also appreciate our Board for their steadfast advice and
support as we navigated through an uncertain business environment.
We are enthusiastic about copper and the future prospects for our
business and look forward to reporting to you on our progress during
2021. We are “Charging Ahead.”
Respectfully yours,
RICHARD C. ADKERSON
Chairman of the Board and
Chief Executive Officer
5
2020 ANNUAL REPORT
O P E R AT I O N A L O V E R V I E W
CON SOLIDAT ED R ESU LT S
FCX’s consolidated copper sales of 3.2 billion pounds in 2020 were
slightly lower than 3.3 billion pounds in 2019, and consolidated gold
sales of 0.9 million ounces in 2020 were lower than 1.0 million ounces
in 2019. Lower copper sales volumes in 2020, compared to 2019,
primarily reflected lower mining rates in South America associated
with COVID-19 restrictions and our April 2020 revised operating plans,
partly offset by higher ore grades in Indonesia. Lower gold sales
volumes in 2020, compared to 2019, primarily reflected lower mining
and milling rates associated with the ramp-up of underground mining
in Indonesia, partly offset by higher ore grades.
Consolidated molybdenum sales totaled 80 million pounds in 2020
and 90 million pounds in 2019.
FCX is assessing long-term development opportunities during 2021
while focusing on the continued execution of its strategic objectives
of maintaining a strong balance sheet, increasing cash returns to
shareholders and advancing opportunities for future growth.
6
2020 Consolidated
Copper Sales
3.2 billion lbs
44% North America
31 % South America
25% Indonesia
2020 Consolidated
Gold Sales
855 thousand ozs
98% Indonesia
2% North America
FFreeportreeport-M-MccMMooRRanan During 2020, FCX continued
to execute and deliver on its
clearly defined strategy. We
achieved strong operating
performance and project
execution, establishing a solid
foundation for future growth in
sales volumes and cash flows.
Copper Sales
billion lbs
Gold Sales
million ozs
5.0
4.0
3.0
2.0
1.0
2.5
2.0
1.5
1.0
0.5
2020
2021e
2022e 2023e
2020
2021e
2022e 2023e
e = estimate. See Cautionary Statement and Regulation G Disclosure on page 121 of this Annual Report.
7
2020 ANNUAL REPORT2020 ANNUAL REPORT O P E R AT I O N A L O V E R V I E W
North America Copper
Reserves By Mine
47.1 billion lbs
32% Bagdad
28% Sierrita
22% Morenci
12% Safford/Lone Star
6% Other
FCX supplies one-third of the copper in the
United States (U.S.)
8
FFreeportreeport-M-MccMMooRRanan N ORTH AME R IC A MINING
In North America, FCX operates seven open-pit copper mines —
Morenci, Bagdad, Safford (including Lone Star), Sierrita and Miami in
Arizona, and Chino and Tyrone in New Mexico; and two molybdenum
mines — Henderson and Climax in Colorado. Molybdenum
concentrate, gold and silver are also produced by certain of FCX’s
North America copper mines.
FCX has substantial resources in North America, primarily associated
with existing mining operations, and will continue to assess options
for further growth. Production from the Lone Star ore body at Safford,
where we completed development in 2020, continues to ramp-up on
schedule and is expected to exceed 200 million pounds of copper
in 2021.
North America’s consolidated copper sales totaled 1.4 billion pounds
in both 2020 and 2019. FCX expects copper sales from its North
America copper mines to approximate 1.5 billion pounds in 2021.
Consolidated molybdenum sales, including sales of molybdenum
produced at FCX’s North America and South America copper
mines, totaled 80 million pounds in 2020 and 90 million pounds
in 2019. FCX expects consolidated molybdenum sales to
approximate 85 million pounds in 2021.
FCX’s North America operating sites continue to focus on strong
execution of operating plans. Production from Lone Star continues to
ramp-up on schedule and is expected to exceed 200 million pounds
of copper for the year 2021. FCX has substantial resources in the
U.S., primarily associated with existing mining operations, and will
continue to assess options for future growth.
9
2020 ANNUAL REPORT O P E R AT I O N A L O V E R V I E W
S OU TH A MER IC A MINING
FCX operates two copper mines in South America —
Cerro Verde in Peru and El Abra in Chile. In addition
to copper, the Cerro Verde mine produces molybdenum
concentrate and silver. Cerro Verde is continuing to increase
milling rates while operating consistent with our April 2020 revised
operating plans and under strict COVID-19 restrictions and protocols.
FCX expects Cerro Verde’s mill rates to average approximately
360,000 metric tons of ore per day in 2021, with the potential to
ramp-up to pre-COVID-19 levels approximating 400,000 metric
tons of ore per day as COVID-19 restrictions are lifted.
El Abra plans to increase operating rates during 2021 to pre-COVID-19
levels, subject to ongoing monitoring of public health conditions in
Chile. Incremental copper production associated with increasing
El Abra’s stacking rates approximates 70 million pounds per year
beginning in 2022.
FCX continues to evaluate a large-scale expansion at El Abra to
process additional sulfide material and to achieve higher recoveries.
El Abra’s large sulfide resource could potentially support a major mill
project similar to facilities constructed at Cerro Verde. Technical and
economic studies continue to be evaluated to determine the optimal
scope and timing for the project in parallel with extending the life
South America Copper
Reserves by Mine
32.7 billion lbs
87% Cerro Verde
13 % El Abra
El Abra plans to increase operating
rates during 2021 to pre-COVID-19
of the current leaching operation. Consolidated copper sales from
levels, subject to ongoing monitoring
FCX’s South America mines of 1.0 billion pounds in 2020 were lower
than 1.2 billion pounds in 2019, primarily reflecting lower ore grades
and mining rates associated with COVID-19 protocols at Cerro Verde
and our April 2020 revised operating plans at El Abra, partly offset
by higher recovery rates. FCX expects copper sales from its South
of public health conditions in Chile.
FCX continues to evaluate a large-
scale expansion at El Abra to process
additional sulfide material and to
America mines to approximate 1.0 billion pounds in 2021.
achieve higher recoveries.
10
FFreeportreeport-M-MccMMooRRanan FCX expects Cerro Verde’s mill rates
to average approximately 360,000
metric tons of ore per day in 2021,
with the potential to ramp-up to
pre-COVID-19 levels approximating
400,000 metric tons of ore per day as
COVID-19 restrictions are lifted.
11
2020 ANNUAL REPORT2020 ANNUAL REPORT O P E R AT I O N A L O V E R V I E W
12
FFreeportreeport-M-MccMMooRRanan The ramp-up of underground production at
the Grasberg minerals district in Indonesia
continues to advance on schedule. The
successful completion of this ramp-up is
expected to enable PT Freeport Indonesia
(PT-FI) to generate average annual
production for the next several years of
IND ON ESIA MINING
Through its subsidiary, PT-FI, FCX mines one of the world’s largest
copper and gold deposits in the Grasberg minerals district in Papua,
1.55 billion pounds of copper and 1.6 million
Indonesia. In addition to copper and gold, PT-FI produces silver.
ounces of gold at an attractive unit net
cash cost, providing significant margins
and cash flows.
FCX has a 48.76 percent ownership in PT-FI and manages its
mining operations. PT-FI’s results are consolidated in FCX’s
financial statements.
The ramp-up of underground production at the Grasberg Block Cave
and Deep Mill Level Zone underground mines continues to advance
following completion of mining the Grasberg open pit in 2019.
PT-FI expects sales for the year 2021 to approximate 1.3 billion
pounds of copper and 1.3 million ounces of gold, which are nearly
double 2020 levels.
Higher consolidated copper sales of 0.8 billion pounds in 2020,
compared with 0.7 billion pounds in 2019, primarily reflect higher
copper ore grades, partly offset by lower mining rates as underground
mining ramps up. Lower consolidated gold sales of 0.8 million ounces
in 2020, compared with 1.0 million ounces in 2019, primarily reflect
lower mining rates as underground mining ramps up, partly offset by
higher gold ore grades.
Indonesia
Copper Reserves
33.4 billion lbs
52% Grasberg Block Cave
22% Deep Mill Level Zone
18% Kucing Liar
8% Big Gossan
13
2020 ANNUAL REPORT2020 ANNUAL REPORT M I N I N G R E S E R V E S A N D M I N E R A L I Z E D M AT E R I A L
MINING R ES ER VES A N D
MINERALIZ ED MATER I A L
Consolidated
Copper
113.2 billion lbs
FCX has significant reserves, resources and future development
opportunities within its portfolio of mining assets. At December 31,
2020, estimated consolidated recoverable proven and probable
mineral reserves included 113.2 billion pounds of copper, 28.9 million
ounces of gold, 3.71 billion pounds of molybdenum and 362.1 million
ounces of silver. These estimates were determined using metals price
assumptions of $2.50 per pound for copper, $1,200 per ounce for gold,
$10 per pound for molybdenum and $15 per ounce for silver.
FCX’s operating mines and other properties also contain mineralized
material that it believes could be brought into reserves and
production over time. At December 31, 2020, FCX identified estimated
mineralized material totaling 120 billion pounds of incremental
contained copper, which was assessed using a price of $3.00 per
pound. FCX continues to pursue opportunities to convert this material
into reserves, future production volumes and cash flow.
Consolidated
Copper Reserves (1)
113.2 billion lbs
42% North America
29% Indonesia
29% South America
14
125
100
75
50
25
Reserves (1) Mineralized
Material (2)
Consolidated
Gold
28.9 million ozs
60
45
30
15
0
Reserves (1) Mineralized
Material (2)
(1) Estimated consolidated recoverable proven and
probable reserves using long-term average prices
of $2.50/lb for copper and $1,200/oz for gold; FCX’s
estimated net equity interest totaled 81.8 billion lbs
of copper and 15.5 million ozs of gold as of
December 31, 2020.
(2) Estimated consolidated mineralized material
(contained copper and gold) using long-term average
prices of $3.00/lb for copper and $1,200/oz for gold.
See Cautionary Statement and Regulation G Disclosure
on page 121 of this Annual Report.
Freeportreeport-MccMooRanan FCX’s exploration activities are generally
associated with its existing mines, focusing
on opportunities to expand reserves and
resources to support development of
additional future production capacity. FCX
has long-lived reserves and a significant
resource position in its existing portfolio.
15
2020 ANNUAL REPORT2020 ANNUAL REPORT F I N A N C I A L P E R F O R M A N C E
FCX’s new financial policy will combine a base dividend,
which can be sustained in a range of market conditions,
with a performance based payout framework. This allows
FCX to enhance long-term value for shareholders with a
strong balance sheet, provide cash returns to shareholders
reflective of market conditions and build long-term values
in its undeveloped resources.
16
FFreeportreeport-M-MccMMooRRanan F INANCIAL
PER F OR M ANCE
Subject to future commodity prices, FCX expects estimated
consolidated operating cash flows, plus available cash, to be
sufficient to fund its capital expenditures, as well as projected
spending on the new smelter in Indonesia and other cash
requirements for the year 2021 (including common stock
F IN ANC IN G TRA N SA CT ION S
Net repayments of debt totaled $0.2 billion in 2020, primarily reflecting
the repayment of $0.3 billion under Cerro Verde’s Term Loan. FCX has
no significant scheduled debt maturities in 2021.
dividends and noncontrolling interest distributions).
F IN ANC IA L P OLI CY
F INANCIAL DI S TR IB U TI ON S
FCX generated operating cash flows of $3.0 billion in 2020. At
December 31, 2020, FCX had consolidated cash of $3.7 billion, total
debt of $9.7 billion and no borrowings under its $3.5 billion revolving
credit facility. Based on current sales volume and costs estimates,
and assuming average prices of $3.50 per pound of copper, $1,850
per ounce of gold and $9.00 per pound of molybdenum, consolidated
operating cash flows are expected to approximate $5.5 billion in
2021. The impact of copper price changes during 2021 on operating
In February 2021, our Board of Directors reinstated a cash dividend
on FCX’s common stock at an annual rate of $0.30 per share. FCX’s
previous cash dividend on its common stock was at an annual rate
of $0.20 per share prior to suspending these payments in March 2020
in connection with its comprehensive response to the COVID-19
pandemic. The Board of Directors also adopted a new financial policy
for the allocation of cash flows aligned with our strategic objectives
of maintaining a strong balance sheet, increasing cash returns to
shareholders and advancing opportunities for future growth.
cash flows would approximate $380 million for each $0.10 per pound
Under the new policy, up to 50 percent of available cash flows
change in the average price of copper.
INVES TING A CTIVITI ES
generated after planned capital spending and distributions to
noncontrolling interests would be allocated to shareholder returns
and the balance to debt reduction and investments in value enhancing
FCX’s capital expenditures totaled $2.0 billion in 2020, including
growth projects. The new payout policy will be implemented following
$1.2 billion for major projects. Capital expenditures are expected
achievement of a net debt target in the range of $3 billion to $4 billion,
to approximate $2.3 billion in 2021, including $1.4 billion for major
excluding project debt for additional smelter capacity in Indonesia.
projects, primarily associated with underground development
activities in the Grasberg minerals district, and excluding estimates
The declaration of dividends is at the discretion of the Board of
associated with the new smelter in Indonesia. A large portion of
Directors and will be assessed on an ongoing basis, taking into
these capital expenditures relates to projects that are expected
account our financial results, cash requirements, future prospects,
to add significant production and cash flows in future periods.
global economic conditions and other factors deemed relevant.
FCX expects capital expenditures for the development of the new
smelter in Indonesia to approximate $0.1 billion in 2021. PT-FI plans
to arrange financing for the project, and debt service will be shared
by PT-FI’s shareholders according to their respective equity
ownership percentages.
17
2020 ANNUAL REPORT
S U S TA I N A B I L I T Y
S US TA I N AB ILITY
Freeport is foremost in copper, a
metal which plays an essential role in
the technologies necessary to support global
decarbonization, to advance reliable electrical grids,
telecommunications and transportation, and to connect
and advance society.
People are the core of our business. We are deeply committed
to supporting the health, safety and well-being of our people,
which was further emphasized as the COVID-19 pandemic created
unprecedented challenges for our workforce and their families, our
host communities and indigenous neighbors, and for society as
a whole.
Despite the unquestionable hardships and difficulties around the
world resulting from the COVID-19 pandemic, our workforce emerged
more flexible, innovative and agile and, in many ways, we believe
that we have never been more connected to each other and to our
stakeholders. Looking ahead, we remain focused on managing
the COVID-19 pandemic, and we aim to leverage our learnings and
enhanced connections to support our workforce and community
stakeholders beyond the pandemic.
The COVID-19 pandemic underscored the critical importance of
effective management and integration of our key ESG focus areas.
We view strong ESG performance as a business imperative that
underpins the long-term success of FCX and its ability to deliver
value to its stakeholders.
To that end, in 2020, FCX announced its commitment to achieve
the Copper Mark at each of its copper producing sites. The Copper
Mark is a new, comprehensive assurance framework developed
specifically for the copper industry that enables individual sites
to demonstrate their responsible production performance to
customers, investors, final manufacturers and other stakeholders.
FCX is dedicated to supplying the global economy with copper —
“Responsibly, Reliably and Relentlessly.”
18
To date, five of our sites have been awarded the
Copper Mark: the Cerro Verde mine in Peru, the El
Abra mine in Chile, the Atlantic Copper smelter and
refinery in Spain, the Miami smelter and mine in the
U.S., and the El Paso refinery in the U.S.
2020
Community Investment
$108 million
35%
Community Trust Funds
17%
Safety, Health and Environment
17%
Other*
15%
Economic Development
and Infrastructure
12%
Education and Training
4%
Administration
* Includes United Way and matching gifts, arts, culture,
stakeholder engagement and miscellaneous.
Freeportreeport-MccMooRanan
OUR RESPONSE TO THE COVID-19 PANDEMIC
PRIORITIZING
THE HEALTH AND
WELL-BEING OF
OUR WORKFORCE
SUPPORTING OUR
HOST COMMUNITIES
AND INDIGENOUS
NEIGHBORS
SERVING
OUR CUSTOMERS
19
2020 ANNUAL REPORT C L I M AT E C H A N G E S T R AT E G Y
CLIMATE CH ANGE S T RATE GY
Copper plays an essential role in the technologies necessary to
develop and deliver clean energy and to support the global transition
to a low-carbon economy. As the energy transition continues, copper
demand is expected to increase from the use of electric vehicles
and their charging stations and renewable energy technologies, such
as solar and wind, and their necessary connections to grids. This
increased copper demand should not come at a cost to sustainability.
As one of the world’s largest copper producers, FCX understands
its critical role in the low-carbon energy transition. We remain
dedicated to supplying the global economy with responsibly produced
copper and operating in a manner that manages and mitigates our
greenhouse gas (GHG) emissions and other climate-related risks.
In 2020, we formalized our climate strategy and published our
inaugural climate report, established a GHG emissions reduction
target for our Americas copper business and committed to aligning
with the Task Force on Climate-related Financial Disclosures. We also
initiated an in-depth climate scenario analysis to understand the
risks and opportunities across our global business related to climate
in the long-term.
We recognize that climate change poses considerable near and
long-term challenges for society and to our own operational and
financial performance. Mining is energy-intensive and generates
significant GHG emissions that contribute to climate change.
FCX believes that it is well positioned to positively contribute to the
Paris Agreement on climate change. This is because we are working
hard to reduce our own emissions from mine to cathode, emissions
related to converting copper cathode that we produce into usable
products like wire are minimal, and copper plays a significant role
in electrification, renewables and energy efficient technologies.
Read more about FCX’s climate strategy in its 2019 Climate Report,
available at fcx.com/sustainability.
We established our first climate target to
reduce our GHG emissions by 15 percent per
metric ton of copper cathode produced in
the Americas by 2030 (vs. 2018 baseline).
20
Freeportreeport-MccMooRanan COPPER IS CRITICAL
TO GLOBAL
DECARBONIZATION
More than 70% of the
world’s copper is used
in applications that
deliver electricity. (1)
Electric vehicles use
up to four times more
copper than internal
combustion engines. (1)
Renewable energy
technologies use four
to five times more
copper than fossil fuel
power generation. (1)
Copper consumption
associated with
electric vehicles and
renewable energy
technologies is
expected to more than
double over the next
five years. (2)
(1) International Copper Association
(2) CRU Group, January 2021
21
2020 ANNUAL REPORT2020 ANNUAL REPORT TA I L I N G S M A N AG E M E N T A N D S T E W A R D S H I P
FCX’s tailings dams are designed, built, operated and
monitored to minimize risk to employees, neighboring
communities and the environment. We use remote
sensing tools in our tailings dams monitoring program,
and, in 2020, these tools were critical to maintaining
inspection frequency and coverage while travel was
restricted due to the COVID-19 pandemic.
22
FFreeportreeport-M-MccMMooRRanan TAILIN GS MANA GEM EN T
AN D STEW AR D SH IP
FCX affiliates currently operate 17 active tailings storage facilities
(TSFs) and manage 56 that are inactive or reclaimed facilities. Our
Indonesian subsidiary, PT-FI, operates a controlled riverine tailings
management system.
The health and safety of our workforce, host communities and
the environment are fundamental to FCX’s extensive Tailings
Management and Stewardship Program. FCX has comprehensive
measures in place to ensure the safety and security of its tailings
facilities at all of its operations and legacy properties, and we
endeavor to continuously improve. Our programs take into account
the significant consequences resulting from a potential failure. We
have a strong commitment from our Board of Directors and executive
management team to allocate the necessary financial and technical
resources to operate safely.
We supported the development of and are committed to working
towards implementation of the new Global Industry Standard on
Tailings Management (the Tailings Standard). The Tailings Standard is
the first global standard for tailings management that can be applied
to existing and future tailings facilities. The Tailings Standard was
developed through an independent, multi-stakeholder process co-
convened by the United Nations Environment Programme, Principles
for Responsible Investment and ICMM. Through its membership in
ICMM, FCX played an active leadership role by providing constructive
input in the development of the Tailings Standard. Also in 2020, FCX
chaired a subgroup of the ICMM Tailings Working Group to develop
a guide to identify and recommend good practices and to support
implementation of the Tailings Standard. FCX is currently advancing
its plans to demonstrate conformance with the Tailings Standard.
23
2020 ANNUAL REPORT2020 ANNUAL REPORT B O A R D O F D I R E C T O R S A N D L E A D E R S H I P
BOARD OF DIRECTORS
EXECUTIVE OFFICERS
SENIOR LEADERSHIP
Richard C. Adkerson
Chairman of the Board
and Chief Executive Officer
Kathleen L. Quirk
President and
Chief Financial Officer
OPERATIONS
ADMINISTRATION
Mark J. Johnson
President and Chief Operating Officer
Freeport-McMoRan Indonesia
Joshua F. “Josh” Olmsted
President and Chief Operating Officer
Freeport-McMoRan Americas
Richard E. Coleman
President
Freeport-McMoRan Mining Company
Michael J. Kendrick
President
Climax Molybdenum Co.
Javier Targhetta
President, Atlantic Copper S.L.U.
Senior Vice President, FCX
(Concentrates)
Clayton A. “Tony” Wenas
President Director
PT Freeport Indonesia
Robert R. Boyce
Vice President and Treasurer
William E. Cobb
Vice President and
Chief Sustainability Officer
Douglas N. Currault II
Senior Vice President and
General Counsel
Stephen T. Higgins
Senior Vice President and
Chief Administrative Officer
Pamela Q. Masson
Vice President and Chief Human
Resources Officer
Bertrand L. Odinet, II
Vice President, Chief Information
Officer and Chief Innovation Officer
C. Donald Whitmire, Jr.
Vice President and
Controller – Financial Reporting
Internal Auditors
Deloitte & Touche LLP
Richard C. Adkerson
Chairman of the Board
and Chief Executive Officer
Freeport-McMoRan Inc.
Dustan E. McCoy (1, 2, 4)
Lead Independent Director
Freeport-McMoRan Inc.
Retired Chairman and
Chief Executive Officer
Brunswick Corporation
David P. Abney
Retired Chairman and
Chief Executive Officer
United Parcel Service, Inc.
Robert W. Dudley
Retired Group Chief Executive
BP, p.l.c.
Gerald J. Ford* (1, 3)
Chairman of the Board
Hilltop Holdings Inc.
Lydia H. Kennard (1, 3, 4)
President and Chief Executive Officer
KDG Construction Consulting
John J. Stephens (1)
Retired Senior Executive Vice President
and Chief Financial Officer, AT&T Inc.
Frances Fragos Townsend (2, 4)
Executive Vice President
Corporate Affairs
Activision Blizzard, Inc.
EMERITUS MEMBER:
Dr. Henry A. Kissinger
Director Emeritus
BOARD COMMITTEES:
1) Audit Committee
2) Compensation Committee
3) Governance Committee
4) Corporate Responsibility Committee
* Mr. Ford will retire from the FCX Board of
Directors effective upon the expiration of
his current term at the 2021 annual meeting
of stockholders .
August 16, 1938 - January 8, 2021
A LEGENDARY GEOLOGIST AND VISIONARY
Jim Bob was a true pioneer in the natural resource industry. His passion and
relentless drive as an explorationist led to the discovery and development of
world-class oil and gas and mineral deposits over his long career. He served
as Chairman of the Board of Freeport-McMoRan from 1992 to 2015 and as Chief
Executive Officer of the company from 1995 to 2003.
24
FFreeportreeport-M-MccMMooRRanan
TA BLE O F
CONTENTS
26
28
64
Selected Operating Data
Management’s Discussion
and Analysis
Management’s Report
on Internal Control Over
Financial Reporting
65
Report of Independent
Registered Public
Accounting Firm
66
Report of Independent
Registered Public
Accounting Firm
68
Consolidated Statements
of Operations
69
Consolidated Statements of
Comprehensive Income (Loss)
70
Consolidated Statements of
Cash Flows
71
72
Consolidated Balance Sheets
Consolidated Statements
of Equity
73
Notes to Consolidated
Financial Statements
CHARGING AHEAD
Financial and Operating Information
2 0 2 0 A N N U A L R E P O R T
25
SELECTED OPERATING DATA
Years Ended December 31,
2020
2019
2018
2017
2016
CONSOLIDATED MINING
Copper (millions of recoverable pounds)
Production
Sales, excluding purchases
Average realized price per pound
Gold (thousands of recoverable ounces)
Production
Sales, excluding purchases
Average realized price per ounce
Molybdenum (millions of recoverable pounds)
Production
Sales, excluding purchases
Average realized price per pound
NORTH AMERICA COPPER MINES
Operating Data, Net of Joint Venture Interestsa
Copper (millions of recoverable pounds)
Production
Sales, excluding purchases
Average realized price per pound
Molybdenum (millions of recoverable pounds)
Production
100% Operating Data
Leach operations
Leach ore placed in stockpiles (metric tons per day)
Average copper ore grade (percent)
Copper production (millions of recoverable pounds)
Mill operations
Ore milled (metric tons per day)
Average ore grade (percent):
Copper
Molybdenum
Copper recovery rate (percent)
Copper production (millions of recoverable pounds)
SOUTH AMERICA MINING
Copper (millions of recoverable pounds)
Production
Sales
Average realized price per pound
Molybdenum (millions of recoverable pounds)
Production
Leach operations
Leach ore placed in stockpiles (metric tons per day)
Average copper ore grade (percent)
Copper production (millions of recoverable pounds)
Mill operations
Ore milled (metric tons per day)
Average ore grade (percent):
Copper
Molybdenum
Copper recovery rate (percent)
Copper production (millions of recoverable pounds)
3,206
3,202
2.95
$
857
855
$ 1,832
76
80
$ 10.20
1,418
1,422
2.82
$
33
$
$
$
$
3,247
3,292
2.73
882
991
1,415
90
90
12.61
1,457
1,442
2.74
32
3,813
3,811
2.91
$
2,439
2,389
$ 1,254
95
94
$ 12.50
3,737
3,700
2.93
$
1,577
1,562
$ 1,268
92
95
9.33
$
1,404
1,428
2.96
$
1,518
1,484
2.85
$
32
33
$
$
$
$
4,222
4,227
2.28
1,088
1,079
1,238
80
74
8.33
1,831
1,841
2.24
33
714,300
0.27
1,047
750,900
0.23
993
681,400
0.24
951
679,000
0.28
1,016
737,400
0.31
1,120
279,700
326,100
301,000
299,500
300,500
0.35
0.02
84.1
647
979
976
3.05
19
$
160,300
0.35
241
0.34
0.02
87.0
748
$
1,183
1,183
2.71
29
205,900
0.37
268
0.35
0.02
87.8
719
0.39
0.03
86.4
788
1,249
1,253
2.87
$
1,235
1,235
2.97
$
28
27
195,200
0.33
287
142,800
0.37
255
0.47
0.03
85.5
958
$
1,328
1,332
2.31
21
149,100
0.41
328
331,600
393,100
387,600
360,100
353,400
0.34
0.01
84.3
738
0.36
0.02
83.5
916
0.38
0.01
84.3
962
0.44
0.02
81.2
980
0.43
0.02
85.8
1,000
a. Net of Morenci’s joint venture interest; effective May 31, 2016, our undivided interest in Morenci was prospectively reduced from 85 percent to 72 percent.
26
Fr e e p or t-M cM oR a n
SELECTED OPERATING DATA
Years Ended December 31,
2020
2019
2018
2017
2016
INDONESIA MINING
Operating Data, Net of Rio Tinto Joint Venture Interesta
Copper (millions of recoverable pounds)
Production
Sales
Average realized price per pound
Gold (thousands of recoverable ounces)
Production
Sales
Average realized price per ounce
100% Operating Data
Ore milled (metric tons per day)
Average ore grade:
Copper (percent)
Gold (grams per metric ton)
Recovery rates (percent):
Copper
Gold
Production:
Copper (millions of recoverable pounds)
Gold (thousands of recoverable ounces)
MOLYBDENUM MINES
Molybdenum production (millions of recoverable pounds)
Ore milled (metric tons per day)
Average molybdenum ore grade (percent)
809
804
$ 3.08
848
842
$ 1,832
607
667
2.72
$
863
973
$ 1,416
1,160
1,130
2.89
$
2,416
2,366
$ 1,254
984
981
3.00
$
1,554
1,540
$ 1,268
1,063
1,054
2.32
$
1,061
1,054
$ 1,237
87,700
110,100
178,100
140,400
165,700
1.32
1.10
91.9
78.1
809
848
0.84
0.93
88.4
75.0
607
863
0.98
1.58
91.8
84.7
1,227
2,697
1.01
1.15
91.6
85.0
996
1,554
24
20,700
0.17
29
30,100
0.14
35
27,900
0.18
32
22,500
0.20
0.91
0.68
91.0
82.2
1,063
1,061
26
18,300
0.21
a. Prior to December 21, 2018, PT Freeport Indonesia (PT-FI) had an unincorporated joint venture with Rio Tinto. Refer to Notes 2 and 3 for further discussion.
2020 ANNUAL REPORT
27
M A N A GEMEN T' S DIS CUS SION A ND A N A LY SIS
M A N A GEMEN T' S DIS C US SI ON A ND A N A LY SIS
In Management’s Discussion and Analysis of Financial Condition
and Results of Operations and Quantitative and Qualitative
Disclosures About Market Risk (MD&A), “we,” “us” and “our” refer to
Freeport-McMoRan Inc. 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). References to “Notes” are Notes included in
our Notes to Consolidated Financial Statements. Throughout MD&A,
all references to earnings or losses per share are on a diluted basis.
This section of our Form 10-K generally discusses the results of
operations for the years 2020 and 2019 and comparisons between
these years. Discussion of the results of operations for the year 2018
and comparisons between the years 2019 and 2018 are not included
in this Form 10-K and can be found in “Management’s Discussion
and Analysis of Financial Condition and Results of Operations and
Quantitative and Qualitative Disclosures About Market Risk” in
Part II, Items 7. and 7A. of our Annual Report on Form 10-K for the
fiscal year ended December 31, 2019.
OVERVIEW
We are a leading international mining company with
headquarters in Phoenix, Arizona. We operate large, long-lived,
geographically diverse assets with significant proven and
probable reserves of copper, gold and molybdenum. We are
one of the world’s largest publicly traded copper producers.
Our portfolio of assets includes the Grasberg minerals district
in Indonesia, one of the world’s largest copper and gold
deposits; and significant mining operations in North America
and South America, including the large-scale Morenci minerals
district in Arizona and the Cerro Verde operation in Peru.
Protecting the health of our workforce and communities
where we operate is a top priority and we continue to focus on
safeguarding our business in an uncertain public health and
economic environment. Our operating sites successfully
executed our April 2020 revised operating plans implemented
in response to the global COVID-19 pandemic and resulting
negative impact on the global economy.
We believe that we have a high-quality portfolio of long-lived
copper assets positioned to generate long-term value. The
ramp-up of underground mining at PT Freeport Indonesia
(PT-FI) and production from the Lone Star copper leach project
are both advancing on schedule. Cerro Verde is continuing
to increase milling rates while operating under strict
COVID-19 restrictions and protocols that remain in place. Refer
to “Operations” for further discussion. We are also pursuing
other opportunities to enhance our mines’ net present values,
and we continue to advance studies for future development
of our resources, the timing of which will depend on market
conditions. We plan to prioritize long-term development
opportunities during 2021 while focusing on the continued
execution of our strategic objectives of maintaining a strong
balance sheet, increasing cash returns to shareholders and
advancing opportunities for future growth.
Our 2020 results reflect strong cash flows and effective cost
and capital expenditure management. Net income (loss)
attributable to common stock totaled $599 million in 2020 and
$(239) million in 2019. Our results in 2020, compared to 2019,
primarily reflect higher copper and gold prices and lower
production and delivery costs. Refer to “Consolidated Results”
for discussion of items impacting our consolidated results for
the two years ended December 31, 2020.
At December 31, 2020, we had $3.7 billion in consolidated
cash and cash equivalents, $9.7 billion in total debt, and
no borrowings and $3.5 billion available under our revolving
credit facility.
In connection with our financing activities in 2019 and 2020,
we issued a total of $4.0 billion in new senior notes and used
most of the net proceeds to purchase and redeem outstanding
senior notes. As a result, we have extended our debt
maturities and strengthened our financial flexibility. We have no
significant scheduled debt maturities in 2021. Refer to Note 8
and “Capital Resources and Liquidity” for further discussion.
We have significant mineral reserves, resources and future
development opportunities within our portfolio of mining
assets. At December 31, 2020, our estimated consolidated
recoverable proven and probable mineral reserves totaled
113.2 billion pounds of copper, 28.9 million ounces of gold and
3.71 billion pounds of molybdenum. Refer to “Critical
Accounting Estimates—Mineral Reserves” and Note 17 for
further discussion.
28
Fr e e p or t-M cM oR a n
2020 ANNUAL REPORT
29
M A N A GEMEN T' S DIS CUS SION A ND A N A LY SIS
M A N A GEMEN T' S DIS CUS SION A ND A N A LY SIS
During 2020, production from our mines totaled 3.2 billion
pounds of copper, 0.9 million ounces of gold and 76 million
pounds of molybdenum. Following is an allocation of our
consolidated copper, gold and molybdenum production in 2020
by geographic location:
North America
South America
Indonesia
Copper
Gold
Molybdenum
44%
31
25
100%
1%
—
99
100%
75%a
25
—
100%
a. Our North America copper mines produced 43 percent of consolidated molybdenum production,
and our Henderson and Climax molybdenum mines produced 32 percent.
Copper production from the Morenci mine in North America,
Cerro Verde mine in Peru and the Grasberg minerals district
in Indonesia together totaled 73 percent of our consolidated
copper production in 2020.
OUTLOOK
Despite volatile market conditions and global economic
uncertainty as a result of the ongoing COVID-19 pandemic,
we continue to 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.
Our financial results vary as a result of fluctuations in market
prices primarily for copper, gold and, to a lesser extent,
molybdenum, as well as other factors. World market prices
for these commodities have fluctuated historically and are
affected by numerous factors beyond our control. Refer to
“Markets” for further discussion. Because we cannot control
the price of our products, the key measures that management
focuses on in operating our business are sales volumes, unit
net cash costs, operating cash flows and capital expenditures.
Sales Volumes. Following are our projected consolidated
sales volumes for 2021 and actual consolidated sales volumes
for 2020:
Copper (millions of recoverable pounds):
North America copper mines
South America mining
Indonesia mining
Total
Gold (thousands of recoverable ounces)
Molybdenum (millions of recoverable pounds)
2021
(Projected)
2020
(Actual)
1,465
1,035
1,320
3,820
1,325
85a
1,422
976
804
3,202
855
80
a. Includes 25 million pounds from our Molybdenum mines and 60 million pounds from our
North America and South America copper mines.
Consolidated sales for first-quarter 2021 are expected to
approximate 825 million pounds of copper, 275 thousand ounces
of gold and 20 million pounds of molybdenum. Projected sales
volumes are dependent on operational performance,
continued progress of the ramp-up of underground mining
at PT-FI, impacts and duration of the COVID-19 pandemic,
timing of shipments, the Indonesia government’s extension of
PT-FI’s export license beyond March 15, 2021, and other
factors. For other important factors that could cause results
to differ materially from projections, refer to “Cautionary
Statement” and “Risk Factors” contained in Part I, Item 1A.
of our annual report on Form 10-K for the year ended
December 31, 2020.
Consolidated Unit Net Cash Costs. Assuming average prices
of $1,850 per ounce of gold and $9.00 per pound of molybdenum
and achievement of current sales volume and cost estimates,
consolidated unit net cash costs (net of by-product credits)
for our copper mines are expected to average $1.25 per pound
of copper in 2021. The impact of price changes on 2021
consolidated unit net cash costs would approximate $0.03 per
pound for each $100 per ounce change in the average price
of gold and $0.01 per pound for each $2 per pound change in
the average price of molybdenum. Quarterly unit net cash
costs vary with fluctuations in sales volumes and realized prices,
primarily for gold and molybdenum.
Consolidated Operating Cash Flows. Our consolidated
operating cash flows vary with sales volumes; prices realized
from copper, gold and molybdenum sales; production costs;
income taxes; other working capital changes; and other factors.
Based on current sales volume and cost estimates, and
assuming average prices of $3.50 per pound of copper, $1,850
per ounce of gold and $9.00 per pound of molybdenum, our
consolidated operating cash flows are estimated to approximate
$5.5 billion (including $0.4 billion from working capital and
other sources) for the year 2021. Estimated consolidated
operating cash flows in 2021 also reflect a projected income
tax provision of $1.8 billion (refer to “Consolidated Results—
Income Taxes” for further discussion of our projected income
tax rate for the year 2021). The impact of price changes during
2021 on operating cash flows would approximate $380 million
for each $0.10 per pound change in the average price of copper,
$120 million for each $100 per ounce change in the average
price of gold and $80 million for each $2 per pound change in
the average price of molybdenum.
28
Fr e e p or t-M cM oR a n
2020 ANNUAL REPORT
29
M A N A GEMEN T' S DIS CUS SION A ND A N A LY SIS
M A N A GEMEN T' S DIS C US SI ON A ND A N A LY SIS
Consolidated Capital Expenditures. Consolidated capital
expenditures are expected to approximate $2.3 billion in 2021,
including $1.4 billion for major projects primarily associated
with underground development activities in the Grasberg
minerals district and exclude estimates associated with the
new smelter in Indonesia.
We expect capital expenditures for the development of the
new smelter in Indonesia to approximate $0.1 billion in 2021, of
which approximately 49 percent will be attributable to our
equity interest. PT-FI expects these amounts to be funded by
a new bank loan.
MARKETS
World prices for copper, gold and molybdenum can fluctuate
significantly. During the period from January 2011 through
December 2020, the London Metal Exchange (LME) copper
settlement price varied from a low of $1.96 per pound in 2016
to a record high of $4.60 per pound in 2011; the London
Bullion Market Association (London) PM gold price fluctuated
from a low of $1,049 per ounce in 2015 to a record high of
$2,067 per ounce in 2020; and the Metals Week Molybdenum
Dealer Oxide weekly average price ranged from a low of
$4.46 per pound in 2015 to a high of $17.88 per pound in 2011.
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 annual
report on Form 10-K for the year ended December 31, 2020.
LME Copper Prices
Through December 31, 2020
1,500
1,200
900
600
300
s
n
o
t
c
i
r
t
e
m
f
o
s
0
0
0
$5.00
$4.50
$4.00
$3.50
$3.00
$2.50
$2.00
$1.50
$1.00
$0.50
D
o
l
l
a
r
s
p
e
r
p
o
u
n
d
2011
2012
2013
2014
2015
2016
2017
2018
2019
2020
LME Copper Prices
Exchange Stocks
This graph presents LME copper settlement prices and the
combined reported stocks of copper at the LME, Commodity
Exchange Inc., and the Shanghai Futures Exchange from
January 2011 through December 2020. For the year 2020, LME
copper settlement prices ranged from a low of $2.09 per pound
to a high of $3.61 per pound, averaged $2.80 per pound and
closed at $3.51 per pound on December 31, 2020. During 2020,
copper prices were initially negatively impacted by economic
uncertainty associated with the COVID-19 pandemic, but began
to rise in second-quarter 2020 and continued to rise through
the end of 2020 as a result of a positive economic outlook
lead by China’s continued recovery, decreasing inventories and
supply curtailments related to the COVID-19 pandemic.
The LME copper settlement price was $3.57 per pound on
January 29, 2021.
While we acknowledge the global economic turmoil
associated with the ongoing COVID-19 pandemic, we continue
to believe the underlying long-term fundamentals of the copper
business remain positive, supported by the significant role of
copper in the global economy and a challenging long-term
supply environment attributable to difficulty in replacing
existing large mines’ output with new production sources.
Future copper prices are expected to be volatile and are likely
to be influenced by the ongoing COVID-19 pandemic, demand
from China and emerging markets, as well as economic activity
in the United States (U.S.) and other industrialized countries,
the timing of the development of new supplies of copper and
production levels of mines and copper smelters.
30
Fr e e p or t-M cM oR a n
2020 ANNUAL REPORT
31
M A N A GEMEN T' S DIS CUS SION A ND A N A LY SIS
M A N A GEMEN T' S DIS CUS SION A ND A N A LY SIS
London Gold Prices
Through December 31, 2020
D
o
l
l
a
r
s
p
e
r
o
u
n
c
e
$2,250
$2,050
$1,850
$1,650
$1,450
$1,250
$1,050
$850
$650
2011
2012
2013
2014
2015
2016
2017
2018
2019
2020
This graph presents London PM gold prices from January 2011
through December 2020. Concerns about the global economy
related to the COVID-19 pandemic, historically low U.S. interest
rates and the anticipated effects of global stimulus efforts
have driven increased demand for gold. For the year 2020,
London PM gold prices ranged from a low of $1,474 per ounce
to a record high of $2,067 per ounce, averaged $1,770 per ounce
and closed at $1,888 per ounce on December 30, 2020 (there
was no London PM gold price quote on December 31, 2020). The
London PM gold price was $1,864 per ounce on January 29, 2021.
Metals Week Molybdenum Dealer Oxide Prices
Through December 31, 2020
D
o
l
l
a
r
s
p
e
r
p
o
u
n
d
$25
$20
$15
$10
$5
$0
2011
2012
2013
2014
2015
2016
2017
2018
2019
2020
This graph presents the Metals Week Molybdenum Dealer
Oxide weekly average price from January 2011 through
December 2020. Molybdenum prices were negatively impacted
by economic uncertainty associated with the COVID-19
pandemic in early 2020, but began to improve in the second
half of 2020 as a result of increases in spot sale activity in
Europe and China. For the year 2020, the weekly average price
for molybdenum ranged from a low of $7.01 per pound to a
high of $10.79 per pound, averaged $8.69 per pound and was
$9.86 per pound on December 31, 2020. The Metals Week
Molybdenum Dealer Oxide weekly average price was $10.38
per pound on January 29, 2021.
CRITICAL ACCOUNTING ESTIMATES
MD&A 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 (the Board).
Taxes. In preparing our consolidated financial statements,
we estimate the actual amount of income taxes currently
payable or receivable as well as deferred income 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 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.
Our operations are in multiple jurisdictions where
uncertainties arise in the application of complex tax regulations.
Some of these tax regimes are defined by contractual
agreements with the local government, while others are
defined by general tax laws and regulations. We and our
subsidiaries are subject to reviews of our income tax filings
and other tax payments, and disputes can arise with the taxing
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M A N A GEMEN T' S DIS C US SI ON A ND A N A LY SIS
authorities over the interpretation of our contracts or laws.
Final taxes paid may be dependent upon many factors, including
negotiations with taxing authorities. In certain jurisdictions,
we pay a portion of the disputed amount before formally
appealing an assessment. Such payment is recorded as a
receivable if we believe the amount is collectible.
A valuation allowance is provided for those deferred income
tax assets for which the weight of available evidence suggests
that the related benefits will not be realized. In determining the
amount of the valuation allowance, we consider estimated
future taxable income or loss 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 income 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.
Our valuation allowances totaled $4.7 billion at December 31,
2020, which covered all of our U.S. foreign tax credits, U.S.
federal net operating losses, foreign net operating losses, and
substantially all of our U.S. state net operating losses. Refer
to Note 11 for further discussion.
Environmental Obligations. Our current and historical
operating activities are subject to various national, state and
local environmental laws and regulations that govern the
protection of the environment, and compliance with those laws
requires significant expenditures. Environmental expenditures
are charged to expense or capitalized, depending upon their
future economic benefits. The guidance provided by U.S. GAAP
requires that liabilities for contingencies be recorded when
it is probable that obligations have been incurred, and the
cost can be reasonably estimated. At December 31, 2020,
environmental obligations recorded in our consolidated balance
sheet totaled $1.6 billion, which reflect obligations for
environmental liabilities attributed to the Comprehensive
Environmental Response, Compensation, and Liability Act
of 1980 (CERCLA) or analogous state programs and for
estimated future costs associated with environmental matters.
Refer to Notes 1 and 12 for further discussion of environmental
obligations, including a summary of changes in our
estimated environmental obligations for the three years
ended December 31, 2020.
Accounting for environmental obligations represents a
critical accounting estimate because (i) 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, (ii) we will not incur most of these costs for a
number of years, requiring us to make estimates over a long
period, (iii) calculating the discounted cash flows for certain
of our environmental obligations requires management to
estimate projected cash flows and make long-term assumptions
about inflation rates and (iv) changes in estimates used in
determining our environmental obligations could have a
significant impact on our results of operations.
We perform a comprehensive annual review of our
environmental obligations and also review changes in facts
and circumstances associated with these obligations at
least quarterly. Judgments and estimates are based upon
currently 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, updated cost assumptions (including increases
and decreases to cost estimates), changes in the anticipated
scope and timing of remediation activities, the settlement of
environmental matters, required remediation methods and
actions by or against governmental agencies or private parties.
Asset Retirement Obligations. 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 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. At
December 31, 2020, AROs recorded in our consolidated balance
sheet totaled $2.5 billion, including $0.4 billion associated
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M A N A GEMEN T' S DIS CUS SION A ND A N A LY SIS
with our remaining oil and gas operations. Refer to Notes 1 and
12 for further discussion of reclamation and closure costs,
including a summary of changes in our AROs for the three years
ended December 31, 2020.
Generally, ARO activities are specified by regulations or in
permits issued by the relevant governing authority, and
management’s judgment is required to estimate the extent
and timing of expenditures. Accounting for AROs 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) the methods used or required to plug and abandon
non-producing oil and gas wellbores, remove platforms, tanks,
production equipment and flow lines, and restore the wellsite
could change, (iv) 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
(v) given the magnitude of our estimated reclamation, mine
closure and wellsite abandonment and restoration costs,
changes in any or all of these estimates could have a significant
impact on our results of operations.
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 mineral
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 mineral reserves are prepared by and
are the responsibility of our employees. These estimates are
reviewed and verified regularly by independent experts in
mining, geology and reserve determination.
Our consolidated estimated recoverable proven and
probable reserves shown below were assessed using long-
term prices of $2.50 per pound for copper, $1,200 per ounce
of gold and $10 per pound of molybdenum. The following
table summarizes changes in our estimated consolidated
recoverable proven and probable copper, gold and
molybdenum reserves during 2020 and 2019:
Consolidated reserves at
December 31, 2018
Net revisions
Production
Consolidated reserves at
December 31, 2019
Net additions
Production
Consolidated reserves at
December 31, 2020
Coppera
(billion
pounds)
119.6
(0.4)
(3.2)
116.0
0.4
(3.2)
Gold
(million
ounces)
Molybdenum
(billion
pounds)
30.8
(0.3)
(0.9)
29.6
0.2
(0.9)
3.78
(0.11)
(0.09)
3.58
0.21
(0.08)
3.71
113.2
28.9
a. Includes estimated recoverable metals contained in stockpiles. See below for additional discussion
of recoverable copper in stockpiles.
Refer to Note 17 and “Risk Factors” contained in Part I, Item 1A.
of our annual report on Form 10-K for the year ended
December 31, 2020, for further information regarding, and
risks associated with, our estimated recoverable proven
and probable mineral reserves.
As discussed in Note 1, we depreciate our life-of-mine
mining and milling assets and values assigned to proven and
probable mineral reserves using the unit-of-production (UOP)
method based on our estimated recoverable proven and
probable mineral reserves. Because the economic assumptions
used to estimate mineral reserves may 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 impairments of long-lived asset carrying values.
Based on projected copper sales volumes, if estimated copper
reserves at our mines were 10 percent higher at December 31,
2020, we estimate that our annual depreciation, depletion and
amortization (DD&A) expense for 2021 would decrease by
$84 million ($44 million to net income attributable to common
stock), and a 10 percent decrease in copper reserves would
increase DD&A expense by $103 million ($53 million to
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we use estimates of pre-tax undiscounted future cash
flows of our mines. Estimates of future cash flows are derived
from current business plans, which are developed using
near-term metal 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 assumptions include estimates
of commodity-based and other input costs; proven and probable
mineral reserves estimates, including the timing and cost
to develop and produce the reserves; value beyond proven and
probable mineral reserve estimates (refer to Note 1); and the
use of appropriate discount rates in the measurement of fair
value. We believe our estimates and models used to determine
fair value are similar to what a market participant would use.
As quoted market prices are unavailable for our individual
mining operations, fair value is determined through the use of
after-tax discounted estimated future cash flows.
For the two years ended December 31, 2020, our evaluation
of our long-lived mining assets did not result in any material
impairments.
In addition to decreases in future metal price assumptions,
other events that could result in future impairment of our
long-lived mining assets include, but are not limited to, decreases
in estimated recoverable proven and probable mineral
reserves and any event that might otherwise have a material
adverse effect on mine site production levels or costs. Refer
to “Risk Factors” contained in Part I, Item 1A. of our annual
report on Form 10-K for the year ended December 31, 2020.
net income attributable to common stock). 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 DD&A rates.
As discussed below and 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
mineral reserves could have an impact on our assessment
of asset recoverability.
Recoverable Copper in Stockpiles. 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 weighted-average cost or net
realizable value (refer to Note 4 and “Consolidated Results”
for further discussion of inventory adjustments recorded for
the three years ended December 31, 2020). Accounting for
recoverable copper from mill and leach stockpiles represents
a critical accounting estimate because (i) it is impracticable
to determine copper contained in mill and leach stockpiles
by physical count, thus requiring management to employ
reasonable estimation methods and (ii) recovery rates from
leach stockpiles can vary significantly. Refer to Note 1 for
further discussion of our accounting policy for recoverable
copper in stockpiles.
At December 31, 2020, estimated consolidated recoverable
copper was 1.7 billion pounds in leach stockpiles (with a
carrying value of $2.0 billion) and 0.3 billion pounds in mill
stockpiles (with a carrying value of $0.4 billion).
Impairment of Long-Lived Assets. As discussed in Note 1,
we assess the carrying values of our long-lived mining assets
when events or changes in circumstances indicate that the
related carrying amounts of such assets may not be recoverable.
In evaluating our long-lived mining assets for recoverability,
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M A N A GEMEN T' S DIS CUS SION A ND A N A LY SIS
CONSOLIDATED RESULTS
Years Ended December 31,
SUMMARY FINANCIAL DATA (in millions, except per share amounts)
Revenuesa,b
Operating incomea,e,f,g
Net income (loss) from continuing operationsi,j,k
Net income (loss) attributable to common stock
Diluted net income (loss) per share attributable to common stock
Diluted weighted-average common shares outstanding
Operating cash flows p
Capital expenditures
At December 31:
Cash and cash equivalents
Total debt, including current portion
2020
2019
$ 14,198c
$ 2,437h
865c,l
$
599
$
$ 0.41
1,461
$ 3,017
$ 1,961
$ 3,657
$ 9,711
$ 14,402d
$ 1,091
(192)m,n,o
$
$
(239)
$ (0.17)
1,451
$ 1,482
$ 2,652
$ 2,020
$ 9,826
a. Refer to Note 16 for a summary of revenues and operating income by operating division.
b. Includes adjustments to embedded derivatives for provisionally priced concentrate and cathode sales (refer to Note 14).
c. Includes net charges totaling $62 million ($24 million to net income attributable to common stock or $0.02 per share), primarily associated with Cerro Verde tax matters and asset impairments, partly offset by net credits
primarily associated with the sale of royalty assets. These net (charges) credits were recorded in revenues ($(7) million), production and delivery ($(48) million), interest expense ($(55) million) and in other expenses,
net ($48 million).
d. Includes charges totaling $166 million ($91 million to net loss attributable to common stock or $0.06 per share), primarily associated with an unfavorable Indonesia Supreme Court ruling related to certain disputed PT-FI
export duties (refer to Note 12).
e. Includes net gains on sales of assets totaling $473 million ($337 million to net income attributable to common stock or $0.23 per share) in 2020 and $417 million ($339 million to net loss attributable to common stock
or $0.23 per share) in 2019. Refer to Note 2 and “Net Gain on Sales of Assets” below for further discussion.
f. The year 2020 includes net charges for adjustments to environmental obligations and related litigation reserves of $113 million ($113 million to net income attributable to common stock or $0.08 per share), primarily
associated with a framework for the resolution of all current and future potential talc-related litigation ($132 million), partly offset by net favorable adjustments to environmental reserves ($19 million). The year 2019
includes net charges for adjustments to environmental obligations and related litigation reserves of $68 million ($68 million to net loss attributable to common stock or $0.05 per share).
g. Includes unfavorable metals inventory adjustments totaling $96 million ($94 million to net income attributable to common stock or $0.06 per share) for the year 2020 and $179 million ($144 million to net loss attributable
to common stock or $0.10 per share) for the year 2019.
h. Includes charges totaling $258 million ($178 million to net income attributable to common stock or $0.12 per share) associated with (i) idle facility costs (Cerro Verde), contract cancellation and other charges directly
related to the COVID-19 pandemic and (ii) our April 2020 revised operating plans (including employee separation costs) recorded in production and delivery ($202 million), depreciation, depletion and amortization ($32 million),
selling, general and administrative ($16 million), and mining exploration and research ($8 million).
Includes after-tax net losses on early extinguishment and exchanges of debt totaling $100 million ($0.07 per share) in 2020 and $26 million ($0.02 per share) in 2019. Refer to Note 8 for further discussion.
Includes net tax credits (charges) of $15 million ($27 million net of noncontrolling interests or $0.02 per share) in 2020 and $(1) million ($34 million net of noncontrolling interests or $0.02 per share) in 2019. Refer to
“Income Taxes” below for further discussion.
i.
j.
k. We defer recognizing profits on intercompany sales until final sales to third parties occur. Refer to “Operations – Smelting & Refining” for a summary of net impacts from changes in these deferrals.
l.
Includes charges at PT-FI totaling $65 million ($47 million to net income attributable to common stock or $0.03 per share) associated with historical contested tax audits ($50 million) and currency exchange adjustments
to value added tax receivables ($15 million). These charges were recorded in interest expense, net ($35 million) and other expenses, net ($30 million).
m. Includes net charges associated with disputed Cerro Verde royalties for prior years of $7 million to net loss attributable to common stock (less than $0.01 per share) in 2019. Net charges for the year 2019 consist of
charges to production and delivery costs ($6 million) and interest expense ($10 million). Refer to Note 12 for further discussion.
n. Includes charges at PT-FI of $294 million ($288 million to net loss attributable to common stock or $0.20 per share) consisting of $234 million associated with PT-FI’s historical contested tax disputes, $32 million for a
currency exchange adjustment to value-added tax receivables and $28 million for an adjustment to the settlement of the historical surface water tax matters with the local regional tax authority in Papua, Indonesia.
o. Includes net charges totaling $59 million ($26 million to net loss attributable to common stock or $0.02 per share), primarily associated with weather-related issues at El Abra, adjustments to Cerro Verde’s deferred profit
sharing and mining asset impairments, partly offset by net credits mostly for asset retirement obligation adjustments.
p. Working capital and other sources totaled $665 million in 2020 and $349 million in 2019.
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M A N A GEMEN T' S DIS C US SI ON A ND A N A LY SIS
Years Ended December 31,
SUMMARY OPERATING DATA
Copper (millions of recoverable pounds)
Production
Sales, excluding purchases
Average realized price per pound
Site production and delivery costs per pounda
Unit net cash costs per pounda
Gold (thousands of recoverable ounces)
Production
Sales, excluding purchases
Average realized price per ounce
Molybdenum (millions of recoverable pounds)
Production
Sales, excluding purchases
Average realized price per pound
2020
2019
3,206
3,202
$ 2.95
$ 1.88
$ 1.48
857
855
$ 1,832
76
80
$ 10.20
3,247
3,292
$ 2.73
$ 2.15
$ 1.74
882
991
$ 1,415
90
90
$ 12.61
a. Reflects per pound weighted-average production and delivery costs and unit net cash costs (net of by-product credits) for all copper mines, before net noncash and other costs. For reconciliations of the per pound
unit costs by operating division to production and delivery costs applicable to sales reported in our consolidated financial statements, refer to “Product Revenues and Production Costs.”
Revenues
Consolidated revenues totaled $14.2 billion in 2020 and
$14.4 billion in 2019. Our revenues primarily include the sale
of copper concentrate, copper cathode, copper rod, gold in
concentrate and molybdenum. Following is a summary
of changes in our consolidated revenues from 2019 to 2020
(in millions):
Consolidated revenues – 2019
Mining operations:
Lower sales volumes:
Copper
Gold
Molybdenum
Higher (lower) averaged realized prices:
Copper
Gold
Molybdenum
Adjustments for prior year provisionally priced copper sales
Lower revenues from sales of purchased copper
Lower cobalt revenues
Lower Atlantic Copper revenues
Lower treatment and refining charges
Lower royalties and export duties
Other, including intercompany eliminations
Consolidated revenues – 2020
$ 14,402
(246)
(193)
(124)
704
356
(194)
(160)
(239)
(301)
(31)
42
77
105
$ 14,198
Sales Volumes. Copper sales volumes were slightly lower in
2020, compared to 2019, primarily reflecting lower mining
rates in South America associated with COVID-19 restrictions
and our April 2020 revised operating plans, partly offset by
higher ore grades in Indonesia. Lower gold sales volumes in
2020, compared to 2019, primarily reflect lower mining and
milling rates associated with the ramp-up of underground
mining in Indonesia, partly offset by higher ore grades.
Lower molybdenum sales volumes in 2020, compared with
2019, primarily reflect lower by-product production from
Cerro Verde associated with lower mining rates as a result of
COVID-19 restrictions.
Refer to “Operations” for further discussion of sales volumes
at our mining operations.
Realized Prices. Our consolidated revenues can vary
significantly as a result of fluctuations in the market prices of
copper, gold and molybdenum. In 2020, our average realized
prices were 8 percent higher for copper, 29 percent higher
for gold and 19 percent lower for molybdenum, compared
with 2019.
Average realized copper prices include net favorable
(unfavorable) adjustments to current year provisionally priced
copper sales (i.e., provisionally priced sales for the years
2020 and 2019) totaling $361 million for 2020 and $(24) million
for 2019. Refer to Note 14 for a summary of total adjustments
to prior period and current period provisionally priced sales.
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M A N A GEMEN T' S DIS CUS SION A ND A N A LY SIS
As discussed below and in “Disclosures About Market Risks—
Commodity Price Risk,” substantially all of our copper
concentrate and cathode sales contracts provide final copper
pricing in a specified future month (generally one to four
months from the shipment date). We record revenues and
invoice customers at the time of shipment based on then-
current LME prices, which results in an embedded derivative
on provisionally priced concentrate and cathode sales that is
adjusted to fair value through earnings each period, using the
period-end forward prices, until final pricing on the date of
settlement. 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 adjustments to the final
pricing of provisionally priced sales pursuant to contracts
entered into in prior periods; in times of falling copper prices,
the opposite occurs. Average realized prices in 2020 also
included reductions totaling $24 million related to forward
sales contracts (refer to Note 14).
Prior Year Provisionally Priced Copper Sales. Net (unfavorable)
favorable adjustments to prior years’ provisionally priced
copper sales (i.e., provisionally priced copper sales at
December 31, 2019 and 2018) recorded in consolidated revenues
totaled $(102) million in 2020 and $58 million in 2019. Refer to
“Disclosures About Market Risks—Commodity Price Risk” for
further discussion of our provisionally priced copper sales, and
to Note 14 for a summary of total adjustments to prior period
and current period provisionally priced copper sales.
Cobalt Revenues. Lower cobalt revenues in 2020, compared
with 2019, primarily reflect the sale of our cobalt refinery
and related cobalt cathode precursor business in fourth-
quarter 2019.
Purchased Copper. We purchase copper cathode primarily
for processing by our Rod & Refining operations. Purchased
copper volumes totaled 290 million pounds in 2020 and
379 million pounds in 2019.
Atlantic Copper Revenues. Atlantic Copper revenues totaled
$2.0 billion in 2020 and $2.1 billion in 2019. Lower Atlantic
Copper revenues in 2020, compared with 2019, primarily reflect
lower gold sales volumes.
Treatment and Refining Charges. Revenues from our concentrate
sales are recorded net of treatment charges (i.e., fees paid
to smelters that are generally negotiated annually), which will
vary with the sales volumes and the price of copper.
Royalties and Export Duties. Royalties are primarily for sales
from PT-FI and vary with the volume of metal sold and the
prices of copper and gold. PT-FI will continue to pay export
duties until development progress for the new smelter
in Indonesia exceeds 50 percent. The year 2019 included
charges totaling $166 million, primarily associated with an
unfavorable Indonesia Supreme Court ruling related to
certain disputed PT-FI export duties (refer to Note 12 for
further discussion). Refer to Note 13 for a summary of
PT-FI’s royalties and export duties.
Production and Delivery Costs
Consolidated production and delivery costs totaled $10.0 billion
in 2020, compared with $11.5 billion in 2019. Lower consolidated
production and delivery costs in 2020 primarily reflect lower
mining and milling rates related to (i) the ramp-up of
underground mining at PT-FI, (ii) our April 2020 revised
operating plans in North America and South America and
(iii) COVID-19 restrictions at our Cerro Verde mine in
South America. Refer to Note 16 for details of production
and delivery costs by operating segment.
Charges in 2020 include $202 million associated with the
COVID-19 pandemic and revised operating plans (including
employee separation costs).
Mining Unit Site Production and Delivery Costs. Site production
and delivery costs for our copper mining operations
primarily include labor, energy and commodity-based inputs,
such as sulphuric acid, reagents, liners, tires and explosives.
Consolidated unit site production and delivery costs (before net
noncash and other costs) for our copper mines averaged
$1.88 per pound of copper in 2020 and $2.15 per pound in 2019.
Consolidated site production and delivery costs per pound of
copper exclude certain charges associated with the COVID-19
pandemic and implementation of our April 2020 revised
operating plans totaling $0.06 per pound of copper in 2020.
Lower consolidated unit site production and delivery costs in
2020, compared with 2019, primarily reflect lower costs in
Indonesia, North America and South America (for the same
reasons discussed in the paragraph above). 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.
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M A N A GEMEN T' S DIS C US SI ON A ND A N A LY SIS
Our copper mining operations require significant amounts
of energy, principally diesel, electricity, coal and natural gas,
most of which is obtained from third parties under long-term
contracts. Our take-or-pay contractual obligations for electricity
totaled approximately $301 million at December 31, 2020. We
do not have take-or-pay contractual obligations for other energy
commodities. Energy represented approximately 16 percent of
our copper mine site operating costs in 2020, including
purchases of approximately 180 million gallons of diesel fuel;
7,500 gigawatt hours of electricity at our North America and
South America copper mining operations (we generate all of our
power at our Indonesia mining operation); 700 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. Based on current cost estimates,
energy will also approximate 18 percent of our copper mine site
operating costs for 2021.
Depreciation, Depletion and Amortization
Depreciation will vary under the UOP method as a result of
changes in sales volumes and the related UOP rates at our
mining operations. Consolidated DD&A totaled $1.5 billion in
2020 and $1.4 billion in 2019. Higher DD&A in 2020, compared
with 2019, primarily relates to assets placed in service
associated with the ramp-up of underground mining at PT-FI.
Metals Inventory Adjustments
Unfavorable net realizable value metals inventory
adjustments totaled $96 million in 2020 and $179 million in
2019. Metals inventory adjustments in 2020 were related
to volatility in copper and molybdenum prices. Metals
inventory adjustments in 2019 were mostly related to volatility
in copper and cobalt prices.
Selling, General and Administrative Expenses
Selling, general and administrative expenses totaled
$370 million in 2020 and $394 million in 2019. During second-
quarter 2020, we implemented a series of actions to reduce
administrative and centralized support costs in conjunction
with our April 2020 revised operating plans, including a
temporary reduction in certain employee benefits, furloughs
and an employee separation program, and reductions in
third party service costs, facilities costs, travel and other
expenses. As part of the cost savings initiatives, the Board
approved a 25 percent reduction in the salary of each of
our Chief Executive Officer (CEO) and Chief Financial Officer
(CFO) through the end of 2020. Our CEO and CFO also agreed
to forgo substantially all of their reduced cash salary during
2020, which was substituted with an award of restricted stock
units that vested at the end of 2020.
Mining Exploration and Research Expenses
Consolidated exploration and research expenses for our
mining operations totaled $50 million in 2020 and $104 million
in 2019. Lower consolidated exploration and research expenses
in 2020, compared to 2019, reflect a significant reduction in
exploration and research activities associated with our April 2020
revised operating plans. Exploration spending is expected to
approximate $34 million in 2021, consistent with 2020.
Environmental Obligations and Shutdown Costs
Environmental obligation costs reflect net revisions to our
long-term environmental obligations, which vary from period
to period because of changes to environmental laws and
regulations, the settlement of environmental matters and/or
circumstances affecting our operations that could result in
significant changes in our estimates (refer to “Critical
Accounting Estimates—Environmental Obligations” for further
discussion). Shutdown costs include care-and-maintenance
costs and any litigation, remediation or related expenditures
associated with closed facilities or operations.
Net charges for environmental obligations and shutdown
costs totaled $159 million in 2020 and $105 million in 2019.
The year 2020 includes talc-related litigation charges of
$132 million, primarily associated with a framework for the
resolution of all current and future potential talc-related
litigation, partly offset by $19 million of net favorable
adjustments to environmental reserves. Refer to Note 12 for
environmental obligations and litigation matters.
Net Gain on Sales of Assets
Net gain on sales of assets totaled $473 million in 2020,
primarily associated with the sale of our interests in the
Kisanfu undeveloped exploration project located in the
Democratic Republic of Congo (DRC), and $417 million in 2019,
primarily including $343 million associated with the sale of
our interest in the lower zone of the Timok exploration project
in Serbia and $59 million associated with the sale of our
cobalt refinery in Kokkola, Finland, and related cobalt cathode
precursor business.
Refer to Note 2 for further discussion of dispositions.
38
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M A N A GEMEN T' S DIS CUS SION A ND A N A LY SIS
M A N A GEMEN T' S DIS CUS SION A ND A N A LY SIS
Interest Expense, Net
Other Income (Expense), Net
Consolidated interest costs (before capitalization and excluding
interest expense associated with international tax matters)
totaled $655 million in 2020 and $675 million in 2019. Refer to
Note 8 for further discussion of our 2020 debt transactions.
Interest expense associated with PT-FI’s historical contested
tax disputes totaled $35 million in 2020 and $78 million in 2019.
Interest expense associated with South America tax matters
totaled $61 million in 2020 and $10 million in 2019.
Capitalized interest varies with the level of expenditures for
our development projects and average interest rates on our
borrowings, and totaled $147 million in 2020 and $149 million
in 2019. Refer to “Operations” and “Capital Resources and
Liquidity—Investing Activities” for further discussion of current
development projects.
Other income (expense), net, totaled $59 million in 2020 and
$(138) million in 2019. The year 2020 included the sale of
royalty interests and other net credits. The year 2019 included
charges at PT-FI totaling $188 million associated with
historical contested tax disputes (refer to Note 11) and a
currency exchange adjustment to value-added tax receivables.
Income Taxes
Following is a summary of the approximate amounts used in
the calculation of our consolidated income tax provision from
continuing operations for the years ended December 31 (in
millions, except percentages):
U.S.b
South America
Indonesia
Gain on sale of Kisanfu
PT-FI historical contested tax disputesi
PT-FI export duty matter
Adjustment to deferred taxes
Cerro Verde royalty dispute
Eliminations and other
Consolidated
Income
(Loss)a
$ (532)
466
1,342
486
(44)
—
—
—
79
$ 1,797
2020
Effective
Tax Rate
11%
51%
45%
N/A
5%
N/A
N/A
N/A
N/A
53%m
Income Tax
(Provision)
Benefit
$ 60c
(239)f
(608)g
(135)
2
—
—
—
(24)
$ (944)
2019
Effective
Tax Rate
N/A
48%
44%
N/A
(39)%
31%
N/A
N/A
N/A
167%
Income Tax
(Provision)
Benefit
$ —d,e
(241)
(149)h
—
(78)
48
(49)k
2 l
(43)
$ (510)
Income
(Loss)a
$ (277)
497
340
—
(201)
(155)j
—
(16)
118
$ 306
a. Represents income (loss) from continuing operations by geographic location before income taxes and equity in affiliated companies’ net earnings.
b. In addition to our North America mining operations, the U.S. jurisdiction reflects corporate-level expenses, which include interest expense associated with senior notes, general and administrative expenses, and
environmental obligations and shutdown costs.
c. Includes tax credits of $53 million associated with the reversal of the tax charge discussed in footnote e below and $6 million associated with the removal of a valuation allowance on deferred tax assets.
d. Includes tax credits of $29 million associated with adjustments to the calculation of transition tax related to U.S. tax reform and $24 million associated with state law changes and the settlement of state
income tax examinations.
e. Includes a tax charge of $53 million associated with the sale of our interest in the lower zone of the Timok exploration project in Serbia.
f.
g. Includes tax charges of $21 million ($17 million net of noncontrolling interests) associated with establishing a tax reserve related to the treatment of prior year contractor support costs and $8 million ($7 million net
Includes tax charges at Cerro Verde of $15 million ($8 million net of noncontrolling interest) primarily associated with adjustments to profit sharing for prior years.
of noncontrolling interest) associated with an unfavorable 2012 Indonesia Supreme Court ruling.
h. Includes a tax charge of $5 million ($4 million net of noncontrolling interests) primarily for non-deductible penalties related to PT-FI’s surface water tax settlement.
i. Refer to Note 11 for further discussion of a framework for resolution of these historical contested tax disputes.
j. Refer to Note 12 for further discussion of the unfavorable Indonesia Supreme Court ruling related to certain disputed PT-FI export duties.
k. Includes net tax charges totaling $49 million ($15 million net of noncontrolling interests) primarily to adjust deferred taxes on historical balance sheet items in accordance with tax accounting principles.
l. Refer to Note 12 for a summary of charges related to Cerro Verde’s disputed royalties for prior years.
m. Our consolidated effective income tax rate is a function of the combined effective tax rates for the jurisdictions in which we operate, excluding the U.S. jurisdiction.
38
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M A N A GEMEN T' S DIS CUS SION A ND A N A LY SIS
M A N A GEMEN T' S DIS C US SI ON A ND A N A LY SIS
Assuming achievement of current sales volume and cost
estimates and average prices of $3.50 per pound for copper,
$1,850 per ounce for gold and $9.00 per pound for molybdenum
for 2021, we estimate our consolidated effective tax rate for
the year 2021 would approximate 35 percent. Changes in
projected sales volumes and average prices during 2021 would
incur tax impacts at estimated effective rates of 38 percent
for Indonesia, 39 percent for Peru and 0 percent for the U.S.
Variations in the relative proportions of jurisdictional income
result in fluctuations to our consolidated effective income tax
rate. Because of our U.S. tax position, we do not record a
financial statement impact for income or losses generated
in the U.S.
Refer to Note 11 for further discussion of income taxes.
OPERATIONS
During 2020, we announced our commitment to the Copper
Mark. The Copper Mark is a new, comprehensive assurance
framework that demonstrates the industry’s responsible
production practices and contribution to the United Nations
Sustainable Development Goals. It is the first and only
framework developed specifically for the copper industry
and enables each site to demonstrate to customers, investors
and other stakeholders their responsible production
performance. Four of our sites were awarded the Copper Mark
in 2020 (Cerro Verde, El Abra, Miami and the Atlantic Copper
smelter). We have future plans to validate all of our remaining
copper operating sites against the Copper Mark requirements.
During 2020, we continued to advance innovation initiatives
designed to enhance productivity, expand margins and reduce
the capital intensity of our business through the utilization of
new technology applications in combination with a more interactive
operating structure. We were successful in implementing and
embedding many of these initiatives across our operations by
utilizing data science, machine learning and integrated cross-
functional agile teams to identify opportunities and drive improved
overall performance.
North America Copper Mines
We operate seven open-pit copper mines in North America—
Morenci, Bagdad, Safford (including Lone Star), Sierrita and
Miami in Arizona, and Chino and Tyrone in New Mexico. All
of the North America mining operations are wholly owned,
except for Morenci. We record our 72 percent undivided
joint venture interest in Morenci using the proportionate
consolidation method.
The North America copper mines include open-pit mining,
sulfide ore concentrating, leaching and solution extraction/
electrowinning (SX/EW) operations. A majority of the copper
produced at our North America copper mines is cast into
copper rod by our Rod & Refining segment. The remainder of
our North America copper production is sold as copper
cathode or copper concentrate, a portion of which is shipped to
Atlantic Copper (our wholly owned smelter). Molybdenum
concentrate, gold and silver are also produced by certain of
our North America copper mines.
Operating and Development Activities. Our North America
operating sites continue to focus on strong execution of
operating plans. Production from the Lone Star ore body at
Safford where we completed development in 2020 continues to
ramp-up on schedule and is expected to exceed 200 million
pounds of copper for the year 2021. Our plan is to advance
studies for potential expansions and long-term development
options for the large-scale sulfide resources at Lone Star.
After shutting down mining activities in accordance with
our April 2020 revised operating plans, in January 2021, we
restarted mining activities at the Chino mine at a reduced
rate of approximately 100 million pounds of copper per year
(approximately 50 percent of capacity).
We have substantial resources in the U.S., primarily
associated with existing mining operations, and will continue
to assess options for further growth.
Operating Data. Following is summary operating data for the
North America copper mines for the years ended December 31:
Operating Data, Net of Joint Venture Interests
Copper (millions of recoverable pounds)
Production
Sales, excluding purchases
Average realized price per pound
Molybdenum (millions of recoverable pounds)
Productionb
100% Operating Data
Leach operations
Leach ore placed in stockpiles (metric tons per day)
Average copper ore grade (percent)
Copper production (millions of recoverable pounds)
Mill operations
Ore milled (metric tons per day)
Average ore grade (percent):
Copper
Molybdenum
Copper recovery rate (percent)
Copper production (millions of recoverable pounds)
2020
2019
1,418
1,422
2.82a
$
1,457
1,442
2.74
$
33
32
714,300
0.27
1,047
750,900
0.23
993
279,700
326,100
0.35
0.02
84.1
647
0.34
0.02
87.0
748
a. Includes reductions to average realized prices of $0.02 per pound of copper related to forward
sales contracts covering 150 million pounds of copper sales for May and June 2020 at a fixed price
of $2.34 per pound. There are no remaining forward sales contracts.
b. Refer to “Consolidated Results” for our consolidated molybdenum sales volumes, which include
sales of molybdenum produced at the North America copper mines.
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M A N A GEMEN T' S DIS CUS SION A ND A N A LY SIS
M A N A GEMEN T' S DIS CUS SION A ND A N A LY SIS
Copper sales volumes from our North America copper mines
totaled 1.4 billion pounds in 2020 and 2019. North America
copper sales are estimated to approximate 1.5 billion pounds
in 2021. Refer to “Outlook” for projected molybdenum
sales volumes.
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 metals 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 table summarizes unit net cash costs and gross profit
per pound of copper at our North America copper mines for the
two years ended December 31, 2020. 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.
Revenues, excluding adjustments
Site production and delivery, before net noncash
and other costs shown below
By-product credits
Treatment charges
Unit net cash costs
DD&A
Metals inventory adjustments
Noncash and other costs, net
Total unit costs
Revenue adjustments, primarily for pricing on prior period open sales
Gross profit per pound
Copper sales (millions of recoverable pounds)
Molybdenum sales (millions of recoverable pounds)a
By-Product
Method
$ 2.82b
1.90
(0.19)
0.10
1.81
0.25
0.03
0.10c
2.19
(0.02)
$ 0.61
1,420
2020
Co-Product Method
Copper
$ 2.82
1.78
—
0.10
1.88
0.23
0.03
0.10
2.24
(0.02)
$ 0.56
1,420
Molybdenuma
$ 8.62
6.84
—
—
6.84
0.56
—
0.09
7.49
—
$ 1.13
33
By-Product
Method
$ 2.74
2.05
(0.24)
0.11
1.92
0.24
0.02
0.08
2.26
—
$ 0.48
1,441
2019
Co-Product Method
Copper
$ 2.74
1.88
—
0.11
1.99
0.21
0.02
0.07
2.29
—
$ 0.45
1,441
Molybdenuma
$ 11.51
9.29
—
—
9.29
0.72
—
0.29
10.30
—
$ 1.21
32
a. Reflects sales of molybdenum produced by certain of the North America copper mines to our molybdenum sales company at market-based pricing.
b. Includes reductions to average realized prices of $0.02 per pound of copper related to forward sales contracts covering 150 million pounds of copper sales for May and June 2020 at a fixed price of $2.34 per pound.
There are no remaining forward sales contracts.
c. Includes charges totaling $0.02 per pound of copper, primarily associated with our April 2020 revised operating plans (including employee separation costs) and the COVID-19 pandemic (including health and
safety costs).
Our North America copper mines have varying cost structures
because of differences in ore grades and characteristics,
processing costs, by-product credits and other factors. During
2020, average unit net cash costs (net of by-product credits)
for the North America copper mines ranged from $1.61 per
pound to $2.28 per pound at the individual mines and averaged
$1.81 per pound. Lower average unit net cash costs (net of
by-product credits) of $1.81 in 2020, compared with $1.92 per
pound in 2019, primarily reflect the impact of our April 2020
revised operating plans, partly offset by lower by-product
credits because of lower molybdenum prices.
Average unit net cash costs (net of by-product credits) for
our North America copper mines are expected to approximate
$1.86 per pound of copper in 2021, based on achievement of
current sales volume and cost estimates and assuming an
average molybdenum price of $9.00 per pound for the year 2021.
The impact of price changes during 2021 on North America’s
average unit net cash costs for the year 2021 would approximate
$0.05 per pound for each $2 per pound change in the average
price of molybdenum.
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41
M A N A GEMEN T' S DIS CUS SION A ND A N A LY SIS
M A N A GEMEN T' S DIS C US SI ON A ND A N A LY SIS
South America Mining
We operate two copper mines in South America—Cerro Verde
in Peru (in which we own a 53.56 percent interest) and El Abra
in Chile (in which we own a 51 percent interest), which are
consolidated in our financial statements.
South America mining includes open-pit mining, sulfide ore
concentrating, leaching and SX/EW operations. Production
from our South America mines is sold as copper concentrate
or cathode under long-term contracts. Our South America
mines also sell a portion of their copper concentrate
production to Atlantic Copper. In addition to copper, the Cerro
Verde mine produces molybdenum concentrate and silver.
Operating and Development Activities. During fourth-quarter
2020, Cerro Verde continued to increase milling rates to an
average of 373,200 metric tons of ore per day while operating
consistent with our April 2020 revised operating plans and
under strict COVID-19 restrictions and protocols. We expect
Cerro Verde’s mill rates to average approximately 360,000
metric tons of ore per day in 2021 with the potential to ramp-up
to pre-COVID-19 levels approximating 400,000 metric tons of
ore per day as COVID-19 restrictions are lifted.
El Abra plans to increase operating rates during 2021 to
pre-COVID-19 levels, subject to ongoing monitoring of public
health conditions in Chile. Incremental copper production
associated with increasing El Abra’s stacking rates from
65,000 metric tons of ore per day to over 100,000 metric tons
of ore per day, approximates 70 million pounds per year
beginning in 2022.
We continue to evaluate a large-scale expansion at El Abra
to process additional sulfide material and to achieve higher
recoveries. El Abra’s large sulfide resource could potentially
support a major mill project similar to facilities constructed
at Cerro Verde. Technical and economic studies continue to be
evaluated to determine the optimal scope and timing for the
project in parallel with extending the life of the current
leaching operation.
Operating Data. Following is summary operating data
for our South America mining operations for the years ended
December 31.
Copper (millions of recoverable pounds)
Production
Sales
Average realized price per pound
Molybdenum (millions of recoverable pounds)
Productiona
Leach operations
Leach ore placed in stockpiles (metric tons per day)
Average copper ore grade (percent)
Copper production (millions of recoverable pounds)
Mill operations
Ore milled (metric tons per day)
Average ore grade (percent):
Copper
Molybdenum
Copper recovery rate (percent)
Copper production (millions of recoverable pounds)
2020
2019
979
976
3.05
1,183
1,183
2.71
$
$
19
29
160,300
0.35
241
205,900
0.37
268
331,600b
393,100
0.34
0.01
84.3
738
0.36
0.02
83.5
916
a. Refer to “Consolidated Results” for our consolidated molybdenum sales volumes, which include
sales of molybdenum produced at Cerro Verde.
b. Cerro Verde mill operations were negatively impacted by COVID-19 restrictions.
Lower consolidated copper sales volumes from South America
of 1.0 billion pounds in 2020, compared with 1.2 billion pounds
in 2019, primarily reflect lower ore grades and mining rates
associated with COVID-19 protocols at Cerro Verde and our
April 2020 revised operating plans at El Abra, partly offset by
higher recovery rates.
Copper sales from South America mines are expected
to approximate 1.0 billion pounds in 2021, consistent with the
year 2020. Refer to “Outlook” for projected molybdenum
sales volumes.
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 metals mining
companies, although our measure may not be comparable
to similarly titled measures reported by other companies.
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M A N A GEMEN T' S DIS CUS SION A ND A N A LY SIS
Gross Profit per Pound of Copper. The following table
Because certain assets are depreciated on a straight-line
summarizes unit net cash costs and gross profit per pound of
copper at our South America mining operations for the two
years ended December 31, 2020. Unit net cash costs per pound
of copper are reflected under the by-product and co-product
methods as the South America mining operations also had
sales of molybdenum and silver. 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.
2020
2019
By-Product Co-Product By-Product Co-Product
Method
Method
Method
Method
$ 3.05
$ 3.05
$ 2.71
$ 2.71
1.86
(0.17)
0.15
0.01
1.85
0.43
0.13a
2.41
1.74
—
0.15
0.01
1.90
0.41
0.12
2.43
1.85
(0.27)
0.18
0.01
1.77
0.40
0.08
2.25
1.68
—
0.18
0.01
1.87
0.36
0.07
2.30
(0.07)
$ 0.57
(0.07)
$ 0.55
0.03
$ 0.49
0.03
$ 0.44
976
976
1,183
1,183
Revenues, excluding
adjustments
Site production and delivery,
before net noncash and
other costs shown below
By-product credits
Treatment charges
Royalty on metals
Unit net cash costs
DD&A
Noncash and other costs, net
Total unit costs
Revenue adjustments,
primarily for pricing on
prior period open sales
Gross profit per pound
Copper sales (millions of
recoverable pounds)
a. Includes charges totaling $0.09 per pound of copper, primarily associated with idle facility (Cerro
Verde) and contract cancellation costs related to the COVID-19 pandemic, and employee separation
costs associated with our April 2020 revised operating plans.
Our South America mines have varying cost structures because
of differences in ore grades and characteristics, processing
costs, by-product credits and other factors. Higher average unit
net cash costs (net of by-product credits) of $1.85 per pound
of copper in 2020, compared with $1.77 per pound in 2019,
primarily reflected lower sales volumes and by-product credits,
partly offset by lower mining rates.
Revenues from Cerro Verde’s concentrate sales are recorded
net of treatment charges, which will vary with Cerro Verde’s
sales volumes and the price of copper.
basis, South America’s unit depreciation rate may vary with
asset additions and the level of copper production and sales.
DD&A per pound of copper under the by-product method
was $0.43 in 2020, compared with $0.40 in 2019, primarily
reflecting lower sales volumes.
Revenue adjustments primarily result from changes in
prices on provisionally priced copper sales recognized in prior
periods. Refer to “Consolidated Results—Revenues” for
further discussion of adjustments to prior period provisionally
priced copper sales.
Average unit net cash costs (net of by-product credits) for
our South America mines are expected to approximate
$1.92 per pound of copper in 2021, based on current sales
volume and cost estimates and assuming average prices of
$9.00 per pound of molybdenum for the year 2021.
Indonesia Mining
PT-FI’s assets include one of the world’s largest copper and
gold deposits at the Grasberg minerals district in Papua,
Indonesia. PT-FI produces copper concentrate that contains
significant quantities of gold and silver. We have a 48.76 percent
interest in PT-FI and manage its mining operations. As further
discussed in Note 2, under the terms of the shareholders
agreement, our economic interest in PT-FI approximates
81 percent through 2022. PT-FI’s results are consolidated in
our financial statements.
Substantially all of PT-FI’s copper concentrate is sold under
long-term contracts. During 2020, 50 percent of PT-FI’s copper
concentrate was sold to PT Smelting (PT-FI’s 25-percent-owned
smelter and refinery in Gresik, Indonesia).
As noted below, PT-FI is discussing the potential expansion
of the capacity at PT Smelting, which is expected to result
in an increase in PT-FI’s ownership interest in PT Smelting.
Operating and Development Activities. The ramp-up of
underground production at the Grasberg minerals district in
Indonesia continues to advance on schedule. During 2020,
a total of 206 new drawbells were added at the Grasberg Block
Cave and Deep Mill Level Zone (DMLZ) underground mines,
bringing cumulative open drawbells to over 370. Combined
average production from the Grasberg Block Cave and DMLZ
mines approximated 85,000 metric tons of ore per day during
fourth-quarter 2020 (including approximately 95,000 metric
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M A N A GEMEN T' S DIS C US SI ON A ND A N A LY SIS
tons of ore per day during the month of December). According
to the current ramp-up schedule, average production rates at
the Grasberg Block Cave and DMLZ are expected to continue to
accelerate, with combined average production rates expected
to reach approximately 172,000 metric tons of ore per day in
2022 and 200,000 metric tons of ore per day in 2023. PT-FI
expects production for the year 2021 to approximate 1.4 billion
pounds of copper and 1.4 million ounces of gold, which is
nearly double 2020 levels.
The successful completion of this ramp-up is expected to
enable PT-FI to generate average annual production for
the next several years of 1.55 billion pounds of copper and
1.6 million ounces of gold at an attractive unit net cash cost,
providing significant margins and cash flows.
PT-FI’s estimated annual capital spending on underground
mine development projects is expected to average approximately
$0.9 billion per year for the two-year period 2021 through
2022, net of scheduled contributions from PT Indonesia Asahan
Aluminium (Persero) (PT Inalum, also known as MIND ID). In
accordance with applicable accounting guidance, aggregate
costs (before scheduled contributions from PT Inalum), which
are expected to average $1.1 billion per year for the two-year
period 2021 through 2022, will be reflected as an investing
activity in FCX’s cash flow statement, and contributions from
PT Inalum will be reflected as a financing activity.
Indonesia Smelter. In connection with the extension of
PT-FI’s mining rights from 2031 to 2041, PT-FI committed to
construct a new smelter in Indonesia by December 21, 2023
(an extension of which has been requested as a result of the
COVID-19 pandemic). A potential site for the new smelter has
been selected in East Java, and ground preparation is
advancing. Engineering and front-end engineering and design
for the selected process technology are in progress.
As a result of COVID-19 mitigation measures, there have
been disruptions to work and travel schedules of international
contractors and restrictions on access to the proposed
physical site of the new smelter in East Java. PT-FI continues
to discuss with the Indonesia government a deferred schedule
for the new smelter as well as other alternatives in light of
the ongoing COVID-19 pandemic and volatile global economic
conditions. On January 7, 2021, the Indonesia government
levied an administrative fine of $149 million on PT-FI for failing
to achieve physical development progress on the new smelter
as of July 31, 2020. PT-FI does not believe an administrative
fine is warranted. Refer to Note 12 and “Risk Factors”
contained in Part I, Item 1A. of our annual report on Form 10-K
for the year ended December 31, 2020, for further discussion.
PT-FI and PT Inalum have been discussing with the
Indonesia government alternatives to PT-FI’s commitment to
build a new smelter. In connection with exploring alternatives
to its commitment to develop additional smelter capacity in
Indonesia, PT-FI has advanced discussions with the majority
owner of PT Smelting regarding an expansion of the smelter
to increase smelter concentrate treatment capacity by
approximately 30 percent (300,000 metric tons of concentrate
per year). Commercial and financial arrangements for this
potential project are being advanced and engineering is in
progress. The initial estimate for the cost of the expansion of
PT Smelting is $250 million, which is expected to be funded by
PT-FI as a convertible loan.
An expansion of PT Smelting is expected to reduce PT-FI’s
smelter development commitment from 2.0 million metric tons
of concentrate per year to 1.7 million metric tons per year.
While PT-FI continues to evaluate the new greenfield smelter
project in East Java, it is also advancing discussions in parallel
with a third party to develop the new smelter capacity at an
alternate location in partnership with PT-FI.
The preliminary capital cost estimate for the new smelter in
East Java approximates $3 billion, pending completion of final
engineering. PT-FI had capitalized costs for the new smelter
totaling $216 million as of December 31, 2020. Estimated
related capital expenditures for 2021 approximate $0.1 billion.
PT-FI plans to arrange financing for the project and debt
service will be shared by PT-FI’s shareholders according to
their respective equity ownership percentages. As a result, our
future distributions from PT-FI will incorporate approximately
49 percent of the smelter debt service.
44
Fr e e p or t-M cM oR a n
2020 ANNUAL REPORT
45
M A N A GEMEN T' S DIS CUS SION A ND A N A LY SIS
M A N A GEMEN T' S DIS CUS SION A ND A N A LY SIS
Operating Data. Following is summary operating data
for our Indonesia mining operations for the years ended
December 31.
2020
2019
Operating Data
Copper (millions of recoverable pounds)
Production
Sales
Average realized price per pound
Gold (thousands of recoverable ounces)
Production
Sales
Average realized price per ounce
100% Operating Data
Ore milled (metric tons per day):
Grasberg Block Cave underground minea
DMLZ underground minea
DOZ underground minea
Big Gossan underground minea
Grasberg open pitb
Total
Average ore grade:
Copper (percent)
Gold (grams per metric ton)
Recovery rates (percent):
Copper
Gold
Production (recoverable):
Copper (millions of pounds)
Gold (thousands of ounces)
809
804
$ 3.08
848
842
$ 1,832
30,800
28,600
20,900
7,000
400
87,700
1.32
1.10
91.9
78.1
809
848
607
667
2.72
$
863
973
$ 1,416
8,600
9,800
25,500
6,100
60,100
110,100
0.84
0.93
88.4
75.0
607
863
a. Reflects ore extracted, including ore from development activities that result in metal production.
b. Includes ore from related stockpiles.
Higher consolidated copper sales of 0.8 billion pounds in 2020,
compared with 0.7 billion pounds in 2019, primarily reflect
higher copper ore grades, partly offset by lower mining rates
as underground mining ramps up. Lower consolidated gold
sales of 0.8 million ounces of gold in 2020, compared with
1.0 million ounces of gold in 2019, primarily reflect lower mining
rates as underground mining ramps up, partly offset by higher
gold ore grades.
Consolidated sales volumes from PT-FI are expected to
approximate 1.3 billion pounds of copper and 1.3 million ounces
of gold in 2021.
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 metal mining companies, although
our measure may not be comparable to similarly titled
measures reported by other companies.
44
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45
M A N A GEMEN T' S DIS CUS SION A ND A N A LY SIS
M A N A GEMEN T' S DIS C US SI ON A ND A N A LY SIS
Gross Profit per Pound of Copper and per Ounce of Gold.
The following table summarizes the unit net cash costs
and gross profit per pound of copper and per ounce of gold
at our Indonesia mining operations for the two years ended
December 31, 2020. Refer to “Product 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.
Revenues, excluding adjustments
Site production and delivery, before net noncash
and other costs shown below
Gold and silver credits
Treatment charges
Export duties
Royalty on metals
Unit net cash costs
DD&A
Metals inventory adjustments
Noncash and other costs, net
Total unit costs
Revenue adjustments, primarily for pricing on prior period open sales
PT Smelting intercompany loss
Gross profit per pound/ounce
Copper sales (millions of recoverable pounds)
Gold sales (thousands of recoverable ounces)
By-Product
Method
$ 3.08
1.88
(2.03)
0.27
0.12
0.19
0.43
0.72
—
0.11a
1.26
(0.03)
(0.01)
$ 1.78
804
2020
Co-Product Method
Gold
Copper
$ 3.08
$ 1,832
1.13
—
0.17
0.07
0.11
1.48
0.43
—
0.07
1.98
(0.03)
(0.01)
$ 1.06
804
674
—
98
41
72
885
259
—
41
1,185
5
(5)
$ 647
842
By-Product
Method
$ 2.72
2.91
(2.13)
0.26
0.08
0.16
1.28
0.61
0.01
0.37b
2.27
0.03
(0.02)
$ 0.46
667
2019
Co-Product Method
Gold
Copper
$ 2.72
$ 1,416
1.63
—
0.14
0.05
0.09
1.91
0.34
0.01
0.20
2.46
0.03
(0.02)
$ 0.27
667
849
—
75
25
49
998
178
—
110
1,286
2
(8)
$ 124
973
a. Includes COVID-19 related costs (including one-time incremental employee benefits and health and safety costs) totaling $0.02 per pound of copper.
b. Includes charges in revenues totaling $0.25 per pound of copper primarily associated with an unfavorable Indonesia Supreme Court ruling related to certain disputed PT-FI export duties, partly offset by adjustments
to prior year treatment charges totaling $0.03 per pound of copper. Also includes charges of $0.04 per pound of copper associated with adjustments to the settlement of the historical surface water tax disputes
with the local regional tax authority in Papua, Indonesia.
A significant portion of PT-FI’s costs are fixed and unit costs
vary depending on volumes and other factors. PT-FI’s unit net
cash costs (including gold and silver credits) of $0.43 per
pound of copper in 2020 were lower than unit net cash costs of
$1.28 per pound in 2019, primarily reflecting higher copper
sales volumes and lower mining 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.
PT-FI’s export duties totaled $93 million in 2020 and
$56 million in 2019, and PT-FI’s royalties totaled $153 million
in 2020 and $107 million in 2019. PT-FI will continue to pay
export duties until development progress for the new smelter
in Indonesia exceeds 50 percent. Refer to Note 13 for further
discussion of PT-FI’s export duties and royalties.
Because certain assets are depreciated on a straight-line
basis, PT-FI’s unit depreciation rate may vary with asset
additions and the level of copper production and sales. DD&A
per pound of copper under the by-product method was
$0.72 in 2020, compared with $0.61 in 2019, primarily reflecting
underground development assets placed in service.
Revenue adjustments primarily result from changes in
prices on provisionally priced copper sales recognized in prior
periods. Refer to “Consolidated Results—Revenues” for further
discussion of adjustments to prior period provisionally priced
copper sales.
PT Smelting intercompany loss represents the change
in the deferral of 25 percent of PT-FI’s profit on sales to
PT Smelting. Refer to “Operations—Smelting & Refining”
below for further discussion.
Assuming an average gold price of $1,850 per ounce for
2021 and achievement of current sales volume and cost
estimates, unit net cash costs (including gold and silver credits)
for PT-FI are expected to approximate $0.06 per pound of
copper for the year 2021. The impact of price changes during
2021 on PT-FI’s average unit net cash costs would
approximate $0.09 per pound for each $100 per ounce change
in the average price of gold.
46
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47
M A N A GEMEN T' S DIS CUS SION A ND A N A LY SIS
M A N A GEMEN T' S DIS CUS SION A ND A N A LY SIS
PT-FI’s projected sales volumes and unit net cash costs for
the year 2021 are dependent on a number of factors, including
continued progress of the ramp-up of underground mining,
operational performance, timing of shipments and the
Indonesia government’s extension of PT-FI’s export permit. In
March 2020, PT-FI received a one-year extension of its export
license through March 15, 2021. Refer to Note 12 and “Risk
Factors” contained in Part I, Item 1A. of our annual report on
Form 10-K for the year ended December 31, 2020, for a
discussion of the administrative fine levied by the Indonesia
government on PT-FI for failing to achieve physical
development progress on the new smelter and ongoing
discussions with the Indonesia government regarding a
deferred schedule for the completion of the new smelter
project as well as other alternatives in light of the ongoing
COVID-19 pandemic and volatile global economic conditions.
Molybdenum Mines
We have two wholly owned molybdenum mines in Colorado—
the Henderson underground mine and the Climax open-pit
mine. The Henderson and Climax mines produce high-purity,
chemical-grade molybdenum concentrate, which is typically
further processed into value-added molybdenum chemical
products. The majority of the molybdenum concentrate
produced at the Henderson and Climax mines, as well as from
our North America and South America copper mines, is
processed at our own conversion facilities.
Operating and Development Activities. Production from the
Molybdenum mines totaled 24 million pounds of molybdenum
in 2020 and 29 million pounds in 2019. The decrease in 2020,
compared with 2019, primarily reflected lower operating rates
pursuant to our April 2020 revised operating plans in response
to market conditions. Refer to “Consolidated Results” for
our consolidated molybdenum operating data, which includes
sales of molybdenum produced at our Molybdenum mines,
and from our North America and South America copper mines,
and refer to “Outlook” for projected consolidated molybdenum
sales volumes.
Unit Net Cash Costs Per Pound of Molybdenum. 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 metals mining companies, although our
measure may not be comparable to similarly titled measures
reported by other companies.
Unit net cash costs for our Molybdenum mines of $9.50 per
pound of molybdenum in 2020 were lower than $10.80 per
pound in 2019, primarily reflecting lower mining and input
costs associated with our April 2020 revised operating plans.
Average unit net cash costs for our Molybdenum mines do not
include noncash and other costs, which include charges
totaling $0.29 per pound of molybdenum primarily associated
with our April 2020 revised operating plans (including
employee separation costs) and contract cancellation costs
related to the COVID-19 pandemic. Based on current sales
volume and cost estimates, average unit net cash costs for
the Molybdenum mines are expected to approximate $9.80 per
pound of molybdenum for the year 2021. 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.
Smelting & Refining
We wholly own and operate a smelter in Arizona (Miami
smelter), a refinery in Texas (El Paso refinery) and a smelter
and refinery in Spain (Atlantic Copper). Additionally, PT-FI
owns 25 percent of a smelter and refinery in Gresik, Indonesia
(PT Smelting), which is expected to increase in connection
with the potential expansion of PT Smelting. See “Indonesia
Smelter” for additional information regarding the potential
PT Smelting expansion. Treatment charges for smelting and
refining copper concentrate consist of a base rate per pound
of copper and per ounce of gold and are generally fixed.
Treatment charges represent a cost to our mining operations
and income to Atlantic Copper and PT Smelting. Thus, higher
treatment charges benefit our smelter operations and
adversely affect our mining operations. Our North America
copper mines are less significantly affected by changes
in treatment charges because these operations are largely
integrated with our Miami smelter and El Paso refinery.
Through this form of downstream integration, we are assured
placement of a significant portion of our concentrate production.
During 2019, we incurred charges totaling $38 million
for a maintenance turnaround at the Miami smelter. The next
major maintenance turnaround at the Miami smelter is
scheduled for first-quarter 2021, for which we expect to incur
charges of approximately $60 million.
46
Fr e e p or t-M cM oR a n
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47
M A N A GEMEN T' S DIS CUS SION A ND A N A LY SIS
M A N A GEMEN T' S DIS C US SI ON A ND A N A LY SIS
Atlantic Copper smelts and refines copper concentrate
and markets refined copper and precious metals in slimes.
Following is an allocation of Atlantic Copper’s concentrate
purchases from unaffiliated third parties and our copper mining
operations for the two years ended December 31, 2020:
Third parties
North America copper mines
South America mining
Indonesia mining
2020
79%
10
7
4
100%
2019
73%
22
2
3
100%
During 2019, we incurred charges totaling $16 million for a
short-term maintenance turnaround at the Atlantic Copper
smelter. The next major maintenance turnaround at the Atlantic
Copper smelter is scheduled for second-quarter 2022.
Atlantic Copper has take-or-pay contractual obligations for
the procurement of copper concentrate totaling $2.9 billion
at December 31, 2020, that provide for deliveries of specified
volumes at market-based prices.
PT-FI’s contract with PT Smelting provides for PT-FI to
supply 100 percent of the copper concentrate requirements
(subject to a minimum or maximum treatment charge rate)
necessary for PT Smelting to produce 205,000 metric tons of
copper annually on a priority basis. PT-FI may also sell
copper concentrate to PT Smelting at market rates for quantities
in excess of 205,000 metric tons of copper annually. PT-FI
supplied 74 percent of PT Smelting’s concentrate requirements
in 2020 and 90 percent in 2019. PT Smelting processed
50 percent of PT-FI’s concentrate production in 2020 and
64 percent of such production in 2019.
PT Smelting produced 276,900 metric tons of copper anode
from its smelter and 273,000 metric tons of copper cathode from
its refinery in 2020; and 246,100 metric tons of copper anode
from its smelter and 241,200 metric tons of copper cathode from
its refinery in 2019.
In January 2021, PT Smelting received a six-month extension
of its anodes slimes export license, which currently expires
July 18, 2021.
PT Smelting’s maintenance turnarounds (which range
from two weeks to a month to complete) typically are expected
to occur approximately every two years, with short-term
maintenance turnarounds in the interim. PT Smelting completed
a 30-day maintenance turnaround during December 2020,
and the next major turnaround is scheduled for the second half
of 2022.
We defer recognizing profits on sales from our mining
operations to Atlantic Copper and on 25 percent of PT-FI’s
sales to PT Smelting until final sales to third parties occur.
Changes in these deferrals attributable to variability in
intercompany volumes resulted in net (reductions) additions
to operating income totaling $(7) million ($1 million to net
income attributable to common stock) in 2020 and $(22) million
($(18) million to net loss attributable to common stock) in 2019.
Our net deferred profits on our inventories at Atlantic Copper
and PT Smelting to be recognized in future periods’ net
income attributable to common stock totaled $54 million at
December 31, 2020. Quarterly variations in ore grades, the
timing of intercompany shipments and changes in product
prices will result in variability in our net deferred profits and
quarterly earnings. We currently expect first-quarter 2021
results to reflect an increase in net deferred profits, totaling an
approximate $50 million reduction to net income, associated
with an anticipated increase in sales to Atlantic Copper as a
result of the major maintenance turnaround at the Miami
smelter noted above, which will be recognized in future periods
as Atlantic Copper sells final refined products to third parties.
CAPITAL RESOURCES AND LIQUIDITY
During second-quarter 2020, we announced revised operating
plans in response to the global COVID-19 pandemic and resulting
negative impact on the global economy. The revised operating
plans allowed us to maximize cash flow and protect liquidity and
to preserve asset values in an uncertain economic environment.
Our consolidated operating cash flows vary with sales
volumes; prices realized from copper, gold and molybdenum
sales; production costs; income taxes; other working capital
changes; and other factors. A large component of our
production costs are related to energy. See “Consolidated
Results” for further discussion of our energy requirements and
related costs. We believe that we have a high-quality portfolio
of long-lived copper assets positioned to generate long-term
value. We recently completed the Lone Star copper leach
project at our Safford operation in southeastern Arizona, and
PT-FI has several projects in the Grasberg minerals district
related to the development of its large-scale, long-lived,
high-grade underground ore bodies. We are also evaluating
other opportunities to enhance net present values, and we
continue to consider future development of our copper
resources, the timing of which will be dependent on market
conditions. We believe that our cash generating capability and
financial condition, together with our credit facility, will be
adequate to meet our operating, investing and financing needs.
48
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49
M A N A GEMEN T' S DIS CUS SION A ND A N A LY SIS
M A N A GEMEN T' S DIS CUS SION A ND A N A LY SIS
Subject to future commodity prices for copper, gold and
molybdenum, we expect estimated consolidated operating cash
flows of $5.5 billion in 2021, plus available cash, to be sufficient
to fund our capital expenditures of $2.3 billion in 2021, as well
as projected spending on the new smelter in Indonesia and
other cash requirements for the year, including common stock
dividends and approximately $0.6 billion of noncontrolling
interest distributions. Refer to “Outlook” for further discussion of
projected operating cash flows and capital expenditures for 2021.
At December 31, 2020, we had $7.2 billion in liquidity,
comprised of $3.7 billion in consolidated cash and $3.5 billion
of availability under our revolving credit facility.
In connection with our financing activities in 2019 and
2020, we issued a total of $4.0 billion in new senior notes and
used most of the net proceeds to purchase and redeem
outstanding senior notes. As a result, we have extended our
debt maturities and strengthened our financial flexibility.
We have no significant scheduled debt maturities in 2021.
In February 2021, the Board reinstated a cash dividend on
our common stock at an annual rate of $0.30 per share. The
Board intends to declare a quarterly dividend of $0.075 per
share, with the initial quarterly dividend expected to be paid on
May 3, 2021. The Board also adopted a new financial policy for
the allocation of cash flows aligned with our strategic objectives
of maintaining a strong balance sheet, increasing cash returns
to shareholders and advancing opportunities for future growth.
Under the new policy, up to 50 percent of available cash flows
generated after planned capital spending and distributions to
noncontrolling interests would be allocated to shareholder
returns and the balance to debt reduction and investments in
value enhancing growth projects. The new payout policy
will be implemented following achievement of a net debt (total
consolidated debt less total consolidated cash and cash
equivalents) target in the range of $3 billion to $4 billion,
excluding project debt for additional smelter capacity in Indonesia.
Under current market conditions and with continued strong
execution of our plans, we currently expect to reach this target in
early 2022 (refer to “Cautionary Statement”).
Cash
Following is a summary of the U.S. and international
components of consolidated cash and cash equivalents
available to the parent company, net of noncontrolling
interests’ share, taxes and other costs at December 31, 2020
(in billions):
Cash at domestic companies
Cash at international operations
Total consolidated cash and cash equivalents
Noncontrolling interests’ share
Cash, net of noncontrolling interests’ share
Withholding taxes
Net cash available
a. Rounds to less than $0.1 billion.
$ 2.9
0.8
3.7
(0.4)
$ 3.3
—a
$ 3.3
Cash held at our international operations is generally used to
support our foreign operations’ capital expenditures, operating
expenses, debt repayments, working capital or other cash
needs. Management believes that sufficient liquidity is available
in the U.S. from cash balances and availability from our
revolving credit facility. We have not elected to permanently
reinvest earnings from our foreign subsidiaries, and we have
recorded deferred tax liabilities for foreign earnings that
are available to be repatriated to the U.S. From time to time, our
foreign subsidiaries distribute earnings to the U.S. through
dividends that are subject to applicable withholding taxes and
noncontrolling interests’ share.
Debt
At December 31, 2020, consolidated debt totaled $9.7 billion,
with a related weighted-average interest rate of 4.6 percent.
We had no borrowings, $10 million in letters of credit issued
and approximately $3.5 billion available under our revolving
credit facility at December 31, 2020. Refer to “Financing
Activities” below and Note 8 for further discussion of debt.
In December 2020, Cerro Verde prepaid $0.3 billion on its
Term Loan that was scheduled to mature in December 2021. The
remaining balance of $0.5 billion matures in June 2022 (refer
to Note 8).
In June 2020, we amended our revolving credit facility to
provide additional flexibility on certain financial covenants. The
key changes under the amendment include a suspension of
the total leverage ratio through June 30, 2021, and a reduction
in the interest expense coverage ratio to a minimum of 2.0x
through December 31, 2021. We also agreed to a minimum
liquidity covenant of $1 billion (consisting of consolidated
unrestricted cash and availability under the revolving credit
facility) applicable to each quarter through June 30, 2021,
and additional restrictions on priority debt and liens, and on
the payment of dividends through December 31, 2021. At
December 31, 2020, we were in compliance with our revolving
credit facility covenants.
48
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49
M A N A GEMEN T' S DIS CUS SION A ND A N A LY SIS
M A N A GEMEN T' S DIS C US SI ON A ND A N A LY SIS
As further discussed in Note 10, in February 2021, the
Board reinstated a cash dividend on our common stock. Prior
to the Board’s declaration of the initial quarterly dividend,
we will deliver a covenant reversion notice, at which time the
financial covenants and other restrictions, including the
dividend restriction, will revert to the limits applicable prior
to the June 2020 amendment.
During 2020, we completed the sale of $2.8 billion of
senior notes and used most of the net proceeds to purchase
and redeem senior notes maturing in 2021, 2022, 2023 and
2024. The remaining net proceeds were used for general
corporate purposes.
with the 2016 sale of the Tenke Fungurume Mining assets in the
DRC ($60 million), the collection of proceeds related to the
2019 sale of the Timok exploration assets in Serbia ($45 million)
and the sale of royalty assets ($31 million).
Proceeds from sales of assets totaled $0.6 billion for the
year 2019, primarily associated with sales of (i) our interest in
the lower zone of the Timok exploration project in Serbia,
(ii) our cobalt refinery in Kokkola, Finland, and related cobalt
cathode precursor business and (iii) interests in oil and gas
properties, including $50 million in contingent consideration
associated with the 2016 sale of onshore California oil and
gas properties.
In August 2019, we completed the sale of $1.2 billion of
Refer to Note 2 for further discussion of acquisitions
senior notes and used the net proceeds to fund the make-whole
redemption of all of our outstanding senior notes maturing
in 2023, and the concurrent tender offers to purchase a portion
of our senior notes maturing in 2021 and 2022.
For additional information regarding our debt arrangements,
refer to Note 8.
Operating Activities
We generated consolidated operating cash flows of $3.0 billion
in 2020 (including $0.7 billion from working capital and other
sources) and $1.5 billion in 2019 (including $0.3 billion from
working capital and other sources).
Higher operating cash flows for 2020, compared with 2019,
primarily reflect higher copper prices, lower production and
delivery costs associated with lower mining rates, and cost
reductions associated with our April 2020 revised operating plans.
Investing Activities
Capital Expenditures. Capital expenditures, including
capitalized interest, totaled $2.0 billion for the year 2020,
including $1.2 billion for major projects primarily associated
with underground development activities in the Grasberg
minerals district and the now complete Lone Star copper leach
project. Capital expenditures, including capitalized interest,
totaled $2.7 billion for the year 2019, including $1.5 billion for
major projects.
A large portion of the capital expenditures relate to projects
that are expected to add significant production and cash flow
in future periods, enabling us to continue to generate operating
cash flows exceeding capital expenditures in future years.
Refer to “Outlook” for further discussion of projected capital
expenditures for 2021.
Proceeds from Sales of Assets. Proceeds from sales of
assets totaled $0.7 billion for the year 2020, primarily related
to the sale of Kisanfu, our undeveloped exploration project
in the DRC ($550 million), contingent consideration associated
and dispositions.
Financing Activities
Debt Transactions. Net repayments of debt in 2020 totaled
$0.2 billion, primarily reflecting the repayment of $0.3 billion
under Cerro Verde’s Term Loan.
Net repayments of debt in 2019 totaled $1.3 billion,
primarily consisting of the redemption of $1.0 billion aggregate
principal amount of our senior notes maturing in 2020 and
the repayment of $200 million under the Cerro Verde Term
Loan. Additionally, during 2019, we issued $1.2 billion in
new senior notes and used the net proceeds to redeem and
purchase senior notes maturing in 2021, 2022 and 2023.
Refer to Note 8 for further discussion of debt transactions.
Cash Dividends and Distributions Paid. We paid dividends
on our common stock totaling $73 million in 2020 (associated
with the $0.05 per share common stock cash dividend declared
in December 2019) and $291 million in 2019.
As further discussed in Note 10, in February 2021, the Board
reinstated a cash dividend on our common stock and also
adopted a new financial policy for the allocation of cash flows
aligned with our strategic objectives of maintaining a strong
balance sheet, increasing cash returns to shareholders and
advancing opportunities for future growth. The declaration and
payment of future dividends is at the discretion of the Board
and will be assessed on an ongoing basis, taking into account
our financial results, cash requirements, future prospects,
global economic conditions, and other factors deemed relevant
by the Board.
There were no cash dividends or distributions paid to
noncontrolling interests in 2020 and $82 million in 2019. These
payments will vary based on the operating results and cash
requirements of our consolidated subsidiaries.
50
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2020 ANNUAL REPORT
51
M A N A GEMEN T' S DIS CUS SION A ND A N A LY SIS
M A N A GEMEN T' S DIS CUS SION A ND A N A LY SIS
Contributions from Noncontrolling Interests. We received
equity contributions from PT Inalum for their share of capital
spending on PT-FI underground mine development projects and
costs for the new smelter in Indonesia totaling $156 million in
2020 and $165 million in 2019.
CONTINGENCIES
Environmental
The cost of complying with environmental laws is a
fundamental and substantial cost of our business. At December 31,
2020, we had $1.6 billion recorded in our consolidated balance
sheet for environmental obligations attributed to CERCLA or
analogous state programs and for estimated future costs
associated with environmental obligations that are considered
probable based on specific facts and circumstances.
We incurred environmental capital expenditures and other
environmental costs (including our joint venture partners’
shares) to comply with applicable environmental laws and
regulations that affect our operations totaling $0.3 billion
in 2020 and $0.4 billion in 2019. For 2021, we expect to incur
approximately $0.4 billion of aggregate environmental capital
expenditures and other environmental costs. The timing
and amount of estimated payments could change as a result of
changes in regulatory requirements, changes in scope and
timing of reclamation and plug and abandonment activities, the
settlement of environmental matters and the rate at which
actual spending occurs on continuing matters.
In August 2020, the co-conveners of the Global Tailings
Review, which included the International Council on Mining and
Metals (ICMM), an industry group of which we are a founding
member, published the first Global Industry Standard on Tailings
Management (the Tailings Standard). The Tailings Standard
includes 77 requirements across 6 key areas including the design,
construction, operation and monitoring of tailings facilities,
management and governance, emergency response and long-
term recovery, and public disclosure. ICMM has committed that
members will implement the Tailings Standard within three
years for certain facilities and within five years for all others.
ICMM members have prepared a guidance document focused
on practices that drive safe tailings management and
prepared a conformance protocol document to be used by
companies on demonstrating implementation of the Tailings
Standard; both documents are expected to be published in
early 2021. As a member of ICMM, which has endorsed the
Tailings Standard, we are moving toward implementation and
have begun undertaking an extensive, multi-year analysis
of our tailings facilities to ensure conformance with the
Tailings Standard. We are assessing the costs of complying
with the new Tailings Standard.
Refer to Note 12 and “Risk Factors” contained in Part I, Item 1A.
of our annual report on Form 10-K for the year ended December 31,
2020, for further information about environmental regulation,
including significant environmental matters.
Asset Retirement Obligations
We recognize AROs as liabilities when incurred, with the initial
measurement at fair value. 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. Mine reclamation costs for disturbances are recorded
as an ARO and as a related asset retirement cost (ARC)
(included in property, plant, equipment and mine development
costs) in the period of disturbance. Oil and gas plugging and
abandonment costs are recognized as an ARO and as a related
ARC (included in oil and gas properties) in the period in which
the well is drilled or acquired. For non-operating properties
without reserves, changes to the ARO are recorded in earnings.
Our cost estimates are reflected on a third-party cost basis
and comply with our legal obligation to retire tangible, long-
lived assets. At December 31, 2020, we had $2.5 billion
recorded in our consolidated balance sheet for AROs, including
$0.4 billion related to our oil and gas properties. Spending
on AROs totaled $156 million in 2020 and $170 million in 2019
(including $38 million in 2020 and $77 million in 2019
for our oil and gas operations). For 2021, we expect to incur
approximately $0.3 billion in aggregate ARO payments
(including $0.1 billion for our oil and gas operations). Refer
to Note 12 for further discussion.
Litigation and Other Contingencies
Refer to Notes 2 and 12, and “Legal Proceedings” contained in
Part I, Item 3. of our annual report on Form 10-K for the year
ended December 31, 2020, for further discussion of contingencies
associated with legal proceedings and other matters.
DISCLOSURES ABOUT MARKET RISKS
Commodity Price Risk
Our consolidated revenues from our mining operations include
the sale of copper concentrate, copper cathode, copper rod,
gold, molybdenum and other metals by our North America and
South America mines, the sale of copper concentrate (which
also contains significant quantities of gold and silver) by our
Indonesia mining operations, the sale of molybdenum in
various forms by our molybdenum operations, and the sale of
copper cathode, copper anode and gold in anode and slimes by
Atlantic Copper. Our financial results will vary with fluctuations
50
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51
M A N A GEMEN T' S DIS CUS SION A ND A N A LY SIS
M A N A GEMEN T' S DIS C US SI ON A ND A N A LY SIS
in the market prices of the commodities we produce, primarily
copper and gold, and to a lesser extent molybdenum and silver.
For projected sensitivities of our operating cash flow to
changes in commodity prices, refer to “Outlook.” World market
prices for these commodities have fluctuated historically and
are affected by numerous factors beyond our control. Refer to
“Risk Factors” contained in Part I, Item 1A. of our annual
report on Form 10-K for the year ended December 31, 2020,
for further discussion of financial risks associated with
fluctuations in the market prices of the commodities we sell.
During 2020, our mined copper was sold 51 percent in
concentrate, 28 percent as cathode and 21 percent as rod from
North America operations. Substantially all of our copper
concentrate and cathode sales contracts provide final copper
pricing in a specified future month (generally one to four
months from the shipment date) based primarily on quoted LME
monthly average copper settlement 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
provisionally priced concentrate and cathode sales that is
adjusted to fair value through earnings each period, using the
period-end forward prices, until final pricing on the date of
settlement. 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 adjustments to the final
pricing of provisionally priced sales pursuant to contracts
entered into in prior periods; in times of falling copper prices,
the opposite occurs.
Following are the (unfavorable) favorable impacts of net
adjustments to the prior years’ provisionally priced copper
sales for the years ended December 31 (in millions, except per
share amounts):
Revenues
Net income attributable to common stock
Net income per share attributable to common stock
2020
$ (102)
$ (42)
$ (0.03)
2019
$ 58
$ 24
$ 0.02
At December 31, 2020, we had provisionally priced copper sales
at our copper mining operations totaling 320 million pounds of
copper (net of intercompany sales and noncontrolling interests)
recorded at an average price of $3.52 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, 2020,
provisional price recorded would have an approximate $10 million
effect on 2021 net income attributable to common stock.
The LME copper settlement price closed at $3.57 per pound on
January 29, 2021.
Foreign Currency Exchange Risk
The functional currency for most of our operations is the U.S.
dollar. 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 Indonesia
rupiah, Australian dollar, Peruvian sol, Chilean peso and euro.
We recognized foreign currency translation gains on balances
denominated in foreign currencies totaling $34 million in 2020
and $24 million in 2019. Generally, our operating results are
positively affected when the U.S. dollar strengthens in relation
to those foreign currencies and are 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:
Indonesia
Rupiah
Australian dollar
South America
Peruvian sol
Chilean peso
Atlantic Copper
Euro
Exchange Rate per $1
at December 31,
Estimated Annual Payments
2020
2019
(in local currency)
(in millions of
U.S. dollars)b
14,034
1.30
3.62
711
0.82
13,832
1.43
3.32
749
0.89
11.9 trillion
195 million
2.1 billion
175 billion
138 million
$ 848
$ 150
$ 573
$ 246
$ 169
10% Change in
Exchange Rate
(in millions of U.S. dollars)a
Increase
Decrease
$ (77)
$ (14)
$ (52)
$ (22)
$ (15)
$ 94
$ 17
$ 64
$ 27
$ 19
a. Reflects the estimated impact on annual operating costs assuming a 10 percent increase or decrease in the exchange rate reported at December 31, 2020.
b. Based on exchange rates at December 31, 2020.
52
Fr e e p or t-M cM oR a n
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53
M A N A GEMEN T' S DIS CUS SION A ND A N A LY SIS
M A N A GEMEN T' S DIS CUS SION A ND A N A LY SIS
Interest Rate Risk
At December 31, 2020, we had total debt maturities based on
principal amounts of $9.8 billion, of which approximately
6 percent was variable-rate debt with interest rates primarily
based on the London Interbank Offered Rate. 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, 2020 (in millions, except percentages):
Fixed-rate debt
Average interest rate
Variable-rate debt
Average interest rate
2021
$ 4
—%
$ 32
1.2%
2022
$ 524
3.6%
$ 529
2.0%
2023
$ 996
3.9%
$ —
—%
2024
$ 730
4.6%
$ —
—%
2025
$ —
—%
$ —
—%
Thereafter
Fair Value
$ 6,963
$ 10,428
$
5.1%
8
3.8%
$
4.9%
566
2.0%
We show revenue adjustments for prior period open sales as
separate line items. Because these adjustments do not result
from current period sales, these amounts have been reflected
separately from revenues on current period sales. Noncash
and other costs, which are removed from site production and
delivery costs in the calculation of unit net cash costs, consist
of items such as stock-based compensation costs, start-up
costs, long-lived asset impairments, restructuring and/or
unusual charges. As discussed above, gold, molybdenum and
other metal revenues at copper mines are reflected as credits
against site production and delivery costs in the by-product
method. The following schedules are presentations under both
the by-product and co-product methods together with
reconciliations to amounts reported in our consolidated
financial statements.
NEW ACCOUNTING STANDARDS
Refer to Note 1 for discussion of a recently adopted accounting
standard.
PRODUCT REVENUES AND PRODUCTION COSTS
Mining Product Revenues and Unit Net Cash Costs
Unit net cash costs per pound of copper and molybdenum are
measures intended to provide investors with information about
the cash-generating capacity of 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. These measures are presented by other metals mining
companies, although our measures may not be comparable to
similarly titled measures reported by other companies.
We present gross profit per pound of copper in the following
tables 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 the Board to monitor operations and
to compare mining operations in certain industry publications.
In the co-product method presentations, shared costs are
allocated to the different products based on their relative
revenue values, which will vary to the extent our metals sales
volumes and realized prices change.
52
Fr e e p or t-M cM oR a n
2020 ANNUAL REPORT
53
M A N A GEMEN T' S DIS CUS SION A ND A N A LY SIS
North America Copper Mines Product Revenues, Production Costs and Unit Net Cash Costs
Year Ended December 31, 2020
(In millions)
Revenues, excluding adjustments
Site production and delivery, before net noncash and other costs shown below
By-product credits
Treatment charges
Net cash costs
DD&A
Metals inventory adjustments
Noncash and other costs, net
Total costs
Other revenue adjustments, primarily for pricing on prior period open sales
Gross profit
Copper sales (millions of recoverable pounds)
Molybdenum sales (millions of recoverable pounds)a
Gross profit per pound of copper/molybdenum:
Revenues, excluding adjustments
Site production and delivery, before net noncash and other costs shown below
By-product credits
Treatment charges
Unit net cash costs
DD&A
Metals inventory adjustments
Noncash and other costs, net
Total unit costs
Other revenue adjustments, primarily for pricing on prior period open sales
Gross profit per pound
Reconciliation to Amounts Reported
(In millions)
Totals presented above
Treatment charges
Noncash and other costs, net
Other revenue adjustments, primarily for pricing on prior period open sales
Eliminations and other
North America copper mines
Other mininge
Corporate, other & eliminations
As reported in our consolidated financial statements
By-Product
Method
Co-Product Method
Copper
Molybdenuma
Otherb
Total
$ 83
44
—
3
47
7
3
2
59
—
$ 24
$ 4,369
2,796
—
139
2,935
355
52
138
3,480
(22)
$ 867
$ 4,005c
$ 4,005
$ 281
2,700
(268)
139
2,571
355
52
138d
3,116
(22)
867
$
2,529
—
136
2,665
330
49
133
3,177
(22)
$ 806
1,420
1,420
$ 2.82c
$ 2.82
1.90
(0.19)
0.10
1.81
0.25
0.03
0.10d
2.19
(0.02)
$ 0.61
1.78
—
0.10
1.88
0.23
0.03
0.10
2.24
(0.02)
$ 0.56
223
—
—
223
18
—
3
244
—
37
33
$
$ 8.62
6.84
—
—
6.84
0.56
—
0.09
7.49
—
$ 1.13
Revenues
Production
and Delivery
Metals
Inventory
Adjustments
DD&A
$ 4,369
(15)
—
(22)
32
4,364
13,642
(3,808)
$ 14,198
$ 2,796
124
138
—
42
3,100
10,595
(3,664)
$ 10,031
$ 355
—
—
—
—
355
1,103
70
$ 1,528
$ 52
—
—
—
—
52
16
28
$ 96
a. Reflects sales of molybdenum produced by certain of the North America copper mines to our molybdenum sales company at market-based pricing.
b. Includes gold and silver product revenues and production costs.
c. Includes reductions to revenues and average realized prices totaling $24 million ($0.02 per pound of copper) related to forward sales contracts covering 150 million pounds of copper sales for May and June 2020
at a fixed price of $2.34 per pound.
d. Includes charges totaling $32 million ($0.02 per pound of copper) primarily associated with our April 2020 revised operating plans (including employee separation costs) and the COVID-19 pandemic (including
health and safety costs).
e. Represents the combined total for our other mining operations as presented in Note 16.
54
Fr e e p or t-M cM oR a n
M A N A GEMEN T' S DIS CUS SION A ND A N A LY SIS
North America Copper Mines Product Revenues, Production Costs and Unit Net Cash Costs (continued)
Year Ended December 31, 2019
(In millions)
Revenues, excluding adjustments
Site production and delivery, before net noncash and other costs shown below
By-product credits
Treatment charges
Net cash costs
DD&A
Metals inventory adjustments
Noncash and other costs, net
Total costs
Other revenue adjustments, primarily for pricing on prior period open sales
Gross profit
Copper sales (millions of recoverable pounds)
Molybdenum sales (millions of recoverable pounds)a
Gross profit per pound of copper/molybdenum:
Revenues, excluding adjustments
Site production and delivery, before net noncash and other costs shown below
By-product credits
Treatment charges
Unit net cash costs
DD&A
Metals inventory adjustments
Noncash and other costs, net
Total unit costs
Other revenue adjustments, primarily for pricing on prior period open sales
Gross profit per pound
Reconciliation to Amounts Reported
(In millions)
Totals presented above
Treatment charges
Noncash and other costs, net
Other revenue adjustments, primarily for pricing on prior period open sales
Eliminations and other
North America copper mines
Other miningc
Corporate, other & eliminations
As reported in our consolidated financial statements
By-Product
Method
Co-Product Method
Copper
Molybdenuma
Otherb
Total
$ 84
53
—
6
59
7
—
3
69
—
$ 15
$ 4,404
3,063
—
161
3,224
348
30
110
3,712
4
$ 696
$ 3,950
$ 3,950
$ 370
2,957
(348)
161
2,770
348
30
110
3,258
4
696
$
2,711
—
155
2,866
318
30
98
3,312
4
642
$
1,441
1,441
$ 2.74
$ 2.74
2.05
(0.24)
0.11
1.92
0.24
0.02
0.08
2.26
—
$ 0.48
1.88
—
0.11
1.99
0.21
0.02
0.07
2.29
—
$ 0.45
299
—
—
299
23
—
9
331
—
39
32
$
$ 11.51
9.29
—
—
9.29
0.72
—
0.29
10.30
—
$ 1.21
Revenues
Production
and Delivery
Metals
Inventory
Adjustments
DD&A
$ 4,404
(60)
—
4
38
4,386
13,054
(3,038)
$ 14,402
$ 3,063
101
110
—
45
3,319
11,126
(2,911)
$ 11,534
$ 348
—
—
—
1
349
979
84
$ 1,412
$ 30
—
—
—
—
30
57
92
$ 179
a. Reflects sales of molybdenum produced by certain of the North America copper mines to our molybdenum sales company at market-based pricing.
b. Includes gold and silver product revenues and production costs.
c. Represents the combined total for our other mining operations as presented in Note 16.
2020 ANNUAL REPORT
55
M A N A GEMEN T' S DIS CUS SION A ND A N A LY SIS
South America Mining Product Revenues, Production Costs and Unit Net Cash Costs
Year Ended December 31, 2020
(In millions)
Revenues, excluding adjustments
Site production and delivery, before net noncash and other costs shown below
By-product credits
Treatment charges
Royalty on metals
Net cash costs
DD&A
Metals inventory adjustments
Noncash and other costs, net
Total costs
Other revenue adjustments, primarily for pricing on prior period open sales
Gross profit
By-Product
Method
Copper
Co-Product Method
Othera
Total
$ 2,976
$ 2,976
$ 209
1,816
(166)
152
6
1,808
421
3
122b
2,354
(70)
552
$
1,701
—
152
6
1,859
391
3
115
2,368
(70)
538
$
158
—
—
—
158
30
—
7
195
—
14
$
$ 3,185
1,859
—
152
6
2,017
421
3
122
2,563
(70)
$ 552
Copper sales (millions of recoverable pounds)
976
976
Gross profit per pound of copper:
Revenues, excluding adjustments
Site production and delivery, before net noncash and other costs shown below
By-product credits
Treatment charges
Royalty on metals
Unit net cash costs
DD&A
Metals inventory adjustments
Noncash and other costs, net
Total unit costs
Other revenue adjustments, primarily for pricing on prior period open sales
Gross profit per pound
Reconciliation to Amounts Reported
(In millions)
Totals presented above
Treatment charges
Royalty on metals
Noncash and other costs, net
Other revenue adjustments, primarily for pricing on prior period open sales
Eliminations and other
South America mining
Other miningc
Corporate, other & eliminations
As reported in our consolidated financial statements
$ 3.05
1.86
(0.17)
0.15
0.01
1.85
0.43
—
0.13b
2.41
(0.07)
$ 0.57
Revenues
$ 3,185
(152)
(6)
—
(70)
(2)
2,955
15,051
(3,808)
$ 14,198
$ 3.05
1.74
—
0.15
0.01
1.90
0.41
—
0.12
2.43
(0.07)
$ 0.55
Production
and Delivery
$ 1,859
—
—
122
—
(3)
1,978
11,717
(3,664)
$ 10,031
Metals
Inventory
Adjustments
$
$
3
—
—
—
—
—
3
65
28
96
DD&A
$ 421
—
—
—
—
—
421
1,037
70
$ 1,528
a. Includes silver sales of 3.4 million ounces ($21.86 per ounce average realized price). Also reflects sales of molybdenum produced by Cerro Verde to our molybdenum sales company at market-based pricing.
b. Includes charges totaling $91 million ($0.09 per pound of copper) primarily associated with idle facility (Cerro Verde) and contract cancellation costs related to the COVID-19 pandemic, and employee separation costs
associated with our April 2020 revised operating plans.
c. Represents the combined total for our other mining operations as presented in Note 16.
56
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South America Mining Product Revenues, Production Costs and Unit Net Cash Costs (continued)
Year Ended December 31, 2019
(In millions)
Revenues, excluding adjustments
Site production and delivery, before net noncash and other costs shown below
By-product credits
Treatment charges
Royalty on metals
Net cash costs
DD&A
Metals inventory adjustments
Noncash and other costs, net
Total costs
Other revenue adjustments, primarily for pricing on prior period open sales
Gross profit
Copper sales (millions of recoverable pounds)
Gross profit per pound of copper:
Revenues, excluding adjustments
Site production and delivery, before net noncash and other costs shown below
By-product credits
Treatment charges
Royalty on metals
Unit net cash costs
DD&A
Metals inventory adjustments
Noncash and other costs, net
Total unit costs
Other revenue adjustments, primarily for pricing on prior period open sales
Gross profit per pound
Reconciliation to Amounts Reported
(In millions)
Totals presented above
Treatment charges
Royalty on metals
Noncash and other costs, net
Other revenue adjustments, primarily for pricing on prior period open sales
Eliminations and other
South America mining
Other miningb
Corporate, other & eliminations
As reported in our consolidated financial statements
By-Product
Method
$ 3,213
2,185
(307)
212
7
2,097
474
2
94
2,667
37
583
$
1,183
$ 2.71
1.85
(0.27)
0.18
0.01
1.77
0.40
—
0.08
2.25
0.03
$ 0.49
Revenues
$ 3,571
(212)
(7)
—
37
(1)
3,388
14,052
(3,038)
$ 14,402
Copper
$ 3,213
1,991
—
212
6
2,209
427
2
90
2,728
37
522
$
1,183
$ 2.71
1.68
—
0.18
0.01
1.87
0.36
—
0.07
2.30
0.03
$ 0.44
Production
and Delivery
$ 2,236
—
—
94
—
(4)
2,326
12,119
(2,911)
$ 11,534
Co-Product Method
Othera
Total
$ 358
245
—
—
1
246
47
—
4
297
—
61
$
$ 3,571
2,236
—
212
7
2,455
474
2
94
3,025
37
$ 583
Metals
Inventory
Adjustments
$
2
—
—
—
—
—
2
85
92
$ 179
DD&A
$ 474
—
—
—
—
—
474
854
84
$ 1,412
a. Includes silver sales of 4.7 million ounces ($16.57 per ounce average realized price). Also reflects sales of molybdenum produced by Cerro Verde to our molybdenum sales company at market-based pricing.
b. Represents the combined total for our other mining operations as presented in Note 16.
2020 ANNUAL REPORT
57
M A N A GEMEN T' S DIS CUS SION A ND A N A LY SIS
Indonesia Mining Product Revenues, Production Costs and Unit Net Cash Costs
Year Ended December 31, 2020
(In millions)
Revenues, excluding adjustments
Site production and delivery, before net noncash and other costs shown below
Gold and silver credits
Treatment charges
Export duties
Royalty on metals
Net cash costs
DD&A
Noncash and other costs, net
Total costs
Other revenue adjustments, primarily for pricing on prior period open sales
PT Smelting intercompany loss
Gross profit
Copper sales (millions of recoverable pounds)
Gold sales (thousands of recoverable ounces)
Gross profit per pound of copper/per ounce of gold:
Revenues, excluding adjustments
Site production and delivery, before net noncash and other costs shown below
Gold and silver credits
Treatment charges
Export duties
Royalty on metals
Unit net cash costs
DD&A
Noncash and other costs, net
Total unit costs
Other revenue adjustments, primarily for pricing on prior period open sales
PT Smelting intercompany loss
Gross profit per pound/ounce
Reconciliation to Amounts Reported
(In millions)
Totals presented above
Treatment charges
Export duties
Royalty on metals
Noncash and other costs, net
Other revenue adjustments, primarily for pricing on prior period open sales
PT Smelting intercompany loss
Indonesia mining
Other miningc
Corporate, other & eliminations
As reported in our consolidated financial statements
Total
$ 4,101
1,508
—
219
93
153
1,973
580
93
2,646
(16)
(11)
$ 1,428
By-Product
Method
Copper
Co-Product Method
Gold
Silvera
$ 81
30
—
4
2
3
39
11
2
52
—
—
$ 29
$ 2,475
$ 2,475
1,508
(1,630)
219
93
153
343
580
93b
1,016
(20)
(11)
$ 1,428
910
—
132
56
90
1,188
350
56
1,594
(20)
(7)
$ 854
804
804
$ 3.08
$ 3.08
1.88
(2.03)
0.27
0.12
0.19
0.43
0.72
0.11b
1.26
(0.03)
(0.01)
$ 1.78
1.13
—
0.17
0.07
0.11
1.48
0.43
0.07
1.98
(0.03)
(0.01)
$ 1.06
Revenues
Production
and Delivery
$ 4,101
(219)
(93)
(153)
(6)
(16)
—
3,614
14,392
(3,808)
$ 14,198
$ 1,508
—
—
—
87
—
11
1,606
12,089
(3,664)
$ 10,031
$ 1,545
568
—
83
35
60
746
219
35
1,000
4
(4)
$ 545
842
$ 1,832
674
—
98
41
72
885
259
41
1,185
5
(5)
$ 647
DD&A
$ 580
—
—
—
—
—
—
580
878
70
$ 1,528
a. Includes silver sales of 3.6 million ounces ($22.40 per ounce average realized price).
b. Includes COVID-19 related costs (including one-time incremental employee benefits and health and safety costs) of $14 million ($0.02 per pound of copper).
c. Represents the combined total for our other mining operations as presented in Note 16.
58
Fr e e p or t-M cM oR a n
M A N A GEMEN T' S DIS CUS SION A ND A N A LY SIS
Indonesia Mining Product Revenues, Production Costs and Unit Net Cash Costs (continued)
Year Ended December 31, 2019
(In millions)
Revenues, excluding adjustments
Site production and delivery, before net noncash and other costs shown below
Gold and silver credits
Treatment charges
Export duties
Royalty on metals
Net cash costs
DD&A
Metals inventory adjustments
Noncash and other costs, net
Total costs
Other revenue adjustments, primarily for pricing on prior period open sales
PT Smelting intercompany loss
Gross profit
Copper sales (millions of recoverable pounds)
Gold sales (thousands of recoverable ounces)
Gross profit per pound of copper/per ounce of gold:
Revenues, excluding adjustments
Site production and delivery, before net noncash and other costs shown below
Gold and silver credits
Treatment charges
Export duties
Royalty on metals
Unit net cash costs
DD&A
Metals inventory adjustments
Noncash and other costs, net
Total unit costs
Other revenue adjustments, primarily for pricing on prior period open sales
PT Smelting intercompany loss
Gross profit per pound/ounce
Reconciliation to Amounts Reported
(In millions)
Totals presented above
Treatment charges
Export duties
Royalty on metals
Noncash and other costs, net
Other revenue adjustments, primarily for pricing on prior period open sales
PT Smelting intercompany loss
Indonesia mining
Other miningc
Corporate, other & eliminations
As reported in our consolidated financial statements
Total
$ 3,232
1,938
—
171
56
107
2,272
406
5
246
2,929
19
(17)
$ 305
By-Product
Method
Copper
Co-Product Method
Gold
Silvera
$ 40
24
—
2
1
1
28
5
—
3
36
—
—
$ 4
$ 1,814
$ 1,814
1,938
(1,419)
171
56
107
853
406
5
246b
1,510
18
(17)
305
$
1,088
—
96
31
58
1,273
228
5
136
1,642
18
(10)
180
$
667
667
$
2.72
$ 2.72
2.91
(2.13)
0.26
0.08
0.16
1.28
0.61
0.01
0.37b
2.27
0.03
(0.02)
0.46
$
1.63
—
0.14
0.05
0.09
1.91
0.34
0.01
0.20
2.46
0.03
(0.02)
$ 0.27
$ 1,378
826
—
73
24
48
971
173
—
107
1,251
1
(7)
$ 121
973
$ 1,416
849
—
75
25
49
998
178
—
110
1,286
2
(8)
$ 124
Revenues
Production
and Delivery
Metals
Inventory
Adjustments
DD&A
$ 3,232
(171)
(56)
(107)
(146)
19
—
2,771
14,669
(3,038)
$ 14,402
$ 1,938
—
—
—
100
—
17
2,055
12,390
(2,911)
$ 11,534
$ 406
—
—
—
—
—
—
406
922
84
$ 1,412
$ 5
—
—
—
—
—
—
5
82
92
$ 179
a. Includes silver sales of 2.5 million ounces ($16.15 per ounce average realized price).
b. Includes charges in revenues totaling $166 million ($0.25 per pound of copper), primarily associated with an unfavorable Indonesia Supreme Court ruling related to certain disputed PT-FI export duties,
partly offset by adjustments to prior year treatment charges totaling $20 million ($0.03 per pound of copper). Also includes charges of $28 million ($0.04 per pound of copper) associated with adjustments
to the settlement of the historical surface water tax disputes with the local regional tax authority in Papua, Indonesia.
c. Represents the combined total for our other mining operations as presented in Note 16.
2020 ANNUAL REPORT
59
M A N A GEMEN T' S DIS CUS SION A ND A N A LY SIS
Molybdenum Mines Product Revenues, Production Costs and Unit Net Cash Costs
Years Ended December 31,
(In millions)
Revenues, excluding adjustmentsa
Site production and delivery, before net noncash and other costs shown below
Treatment charges and other
Net cash costs
DD&A
Metals inventory adjustments
Noncash and other costs, net
Total costs
Gross loss
Molybdenum sales (millions of recoverable pounds)a
Gross loss per pound of molybdenum:
Revenues, excluding adjustmentsa
Site production and delivery, before net noncash and other costs shown below
Treatment charges and other
Unit net cash costs
DD&A
Metals inventory adjustments
Noncash and other costs, net
Total unit costs
Gross loss
Reconciliation to Amounts Reported
(In millions)
Year Ended December 31, 2020
Totals presented above
Treatment charges and other
Noncash and other costs, net
Molybdenum mines
Other miningc
Corporate, other & eliminations
As reported in our consolidated financial statements
Year Ended December 31, 2019
Totals presented above
Treatment charges and other
Noncash and other costs, net
Molybdenum mines
Other miningc
Corporate, other & eliminations
As reported in our consolidated financial statements
2020
2019
$
243
$
369
211
21
232
57
10
19b
318
(75)
24
$
$ 9.94
8.65
0.85
9.50
2.34
0.42
0.75b
13.01
$ (3.07)
293
25
318
62
50
6
436
(67)
29
$
$ 12.51
9.95
0.85
10.80
2.11
1.69
0.20
14.80
$ (2.29)
Revenues
Production
and Delivery
DD&A
Metals
Inventory
Adjustments
$
243
(21)
—
222
17,784
(3,808)
$ 14,198
$
369
(25)
—
344
17,096
(3,038)
$ 14,402
$
211
—
19
230
13,465
(3,664)
$ 10,031
$
293
—
6
299
14,146
(2,911)
$ 11,534
$
57
—
—
57
1,401
70
$ 1,528
$
62
—
—
62
1,266
84
$ 1,412
$ 10
—
—
10
58
28
$ 96
$ 50
—
—
50
37
92
$ 179
a. Reflects sales of the Molybdenum mines’ production to the molybdenum sales company at market-based pricing. On a consolidated basis, realizations are based on the actual contract terms for sales to third parties;
as a result, our consolidated average realized price per pound of molybdenum will differ from the amounts reported in this table.
b. Includes charges totaling $7 million ($0.29 per pound of molybdenum) primarily associated with contract cancellation costs related to the COVID-19 pandemic and employee separation costs associated with April 2020
revised operating plans.
c. Represents the combined total for our other mining operations as presented in Note 16. Also includes amounts associated with the molybdenum sales company, which includes sales of molybdenum produced by the
Molybdenum mines and by certain of the North America and South America copper mines.
60
Fr e e p or t-M cM oR a n
GUARANTOR SUMMARIZED FINANCIAL
INFORMATION
All of the senior notes issued by Freeport-McMoRan Inc. (FCX)
are fully and unconditionally guaranteed on a senior basis jointly
and severally by Freeport-McMoRan Oil & Gas LLC (FM O&G
LLC), as guarantor, which is a 100-percent-owned subsidiary of
FCX Oil & Gas LLC (FM O&G) and FCX. The guarantee is an
unsecured obligation of the guarantor and ranks equal in right
of payment with all existing and future indebtedness of FM O&G
LLC, including indebtedness under our revolving credit facility.
The guarantee ranks senior in right of payment with all of
FM O&G LLC’s future subordinated obligations and is effectively
subordinated in right of payment to any debt of FM O&G LLC’s
subsidiaries. The indentures provide that FM O&G LLC’s
December 31, 2020
Current assets
Noncurrent assets
Current liabilities
Noncurrent liabilities
December 31, 2019
Current assets
Noncurrent assets
Current liabilities
Noncurrent liabilities
Year Ended December 31, 2020
Revenues
Operating (loss) income
Net income (loss)
M A N A GEMEN T' S DIS CUS SION A ND A N A LY SIS
guarantee obligations may be released or terminated upon:
(i) the sale of all or substantially all of the equity interests
or assets of FM O&G LLC to a third party that is not our
subsidiary or our affiliate; (ii) FM O&G LLC no longer having any
obligations under any FM O&G senior notes or any refinancing
thereof and no longer being a co-borrower or guarantor of any
of our obligations under the revolving credit facility or any other
senior debt or, in each case, any refinancing thereof; or (iii) the
discharge of our obligations under the indentures in accordance
with their terms.
The following summarized financial data includes information
regarding FCX, as issuer, FM O&G LLC, as guarantor, and all
our other non-guarantor subsidiaries at December 31, 2020, and
2019, and for the year ended December 31, 2020 (in millions):
FCX
Issuer
FM O&G LLC
Guarantor
Non-guarantor
Subsidiaries
Eliminations
Consolidated
FCX
$
65
785
187
9,433
$ 154
1,620
323
9,180
$
—
(30)
599a
$
697
6
31
11,208
$ 657
22
42
10,892
$
26
(10)
(302)a
$ 9,287
32,806
3,964
15,075
$ 7,778
32,692
3,550
15,975
$ 14,172
2,489
865
$
(746)
(756)
(765)
(15,657)
$
(674)
(1,440)
(706)
(15,895)
$
—
(12)
(297)
$ 9,303
32,841
3,417
20,059
$ 7,915
32,894
3,209
20,152
$ 14,198
2,437
865
a. Net income (loss) equals net income (loss) attributable to common stockholders because net income attributable to noncontrolling interests is zero for issuer and guarantor.
2020 ANNUAL REPORT
61
M A N A GEMEN T' S DIS CUS SION A ND A N A LY SIS
CAUTIONARY STATEMENT
Our discussion and analysis contains forward-looking
statements in which we discuss our potential future
performance. Forward-looking statements are all statements
other than statements of historical facts, such as plans,
projections, or expectations relating to ore grades and milling
rates; business outlook; production and sales volumes; unit
net cash costs; cash flows; capital expenditures; liquidity;
operating costs; operating plans; our financial policy; our
expectations regarding PT-FI’s ramp-up of underground mining
activities and future cash flows through 2022; PT-FI’s
development, financing, construction and completion of a new
smelter in Indonesia and possible expansion of the smelter at
PT Smelting; our commitments to deliver responsibly produced
copper, including plans to implement and validate all of our
operating sites under specific frameworks; improvements in
operating procedures and technology; exploration efforts
and results; development and production activities, rates and
costs; tax rates; export quotas and duties; the impact of
copper, gold and molybdenum price changes; the impact of
deferred intercompany profits on earnings; mineralization and
reserve estimates; execution of the settlement agreements
associated with the Louisiana coastal erosion cases and
talc-related litigation; descriptions of our objectives, strategies,
plans, goals or targets, including our net debt target, anticipated
improvements in energy efficiency at certain operating sites,
and environmental, social and governance (ESG) targets; and
future dividend payments, share purchases and sales,
including under the Board’s financial policy. The words
“anticipates,” “may,” “can,” “plans,” “believes,” “estimates,”
“expects,” “projects,” “targets,” “intends,” “likely,” “will,”
“should,” “could,” “to be,” “potential,” “assumptions,”
“guidance,” “future” and any similar expressions are intended
to identify those assertions as forward-looking statements.
The declaration and payment of future dividends is at the
discretion of the Board and will depend on our financial results,
cash requirements, future prospects, global economic
conditions, and other factors deemed relevant by the Board. In
accordance with the June 2020 amendment to the revolving
credit facility, we are currently restricted from declaring or
paying common stock dividends through December 31, 2021.
Prior to the Board’s declaration of the initial quarterly dividend,
we will deliver a covenant reversion notice, which would
eliminate the restriction on the declaration or payment of
common stock dividends.
We caution readers that forward-looking statements are not
guarantees of future performance and actual results may
differ materially from those anticipated, expected, projected or
assumed in the forward-looking statements. Important factors
that can cause our actual results to differ materially from
those anticipated in the forward-looking statements include,
but are not limited to, changes in our credit rating; changes in
our cash requirements, financial position, financing plans or
investment plans; changes in general market, economic, tax,
regulatory or industry conditions; the duration and scope of and
uncertainties associated with the COVID-19 pandemic, and the
impact thereof on commodity prices, our business and the
global economy and any related actions taken by governments
and businesses; our ability to contain and mitigate the risk of
spread or major outbreak of COVID-19 at our operating sites,
including at PT-FI’s remote operating site in Papua; supply of
and demand for, and prices of, copper, gold and molybdenum;
mine sequencing; changes in mine plans or operational
modifications, delays, deferrals or cancellations; production
rates; timing of shipments; results of feasibility studies; potential
inventory adjustments; potential impairment of long-lived
mining assets; the potential effects of violence in Indonesia
generally and in the province of Papua; the Indonesia government’s
extension of PT-FI’s export license after March 15, 2021;
risks associated with underground mining; satisfaction of
requirements in accordance with PT-FI’s special mining license
to extend mining rights from 2031 through 2041; the Indonesia
government’s approval of a deferred schedule for completion
of the new smelter in Indonesia; expected results from
improvements in operating procedures and technology, including
innovation initiatives; industry risks; regulatory changes;
political and social risks; labor relations, including labor-related
work stoppages; weather- and climate-related risks;
environmental risks; our plans and ability to implement ESG
practices; litigation; cybersecurity incidents; changes in general
market, economic and industry conditions; financial condition
of our customers, suppliers, vendors, partners and affiliates,
particularly during weak economic conditions and extended
periods of volatile commodity prices; reductions in liquidity and
62
Fr e e p or t-M cM oR a n
M A N A GEMEN T’ S DIS CUS SION A ND A N A LY SIS
access to capital; our ability to comply with our responsible
production commitments under specific frameworks and any
changes to such frameworks; and other factors described
in more detail in Part I, Item 1A. “Risk Factors” of our annual
report on Form 10-K for the year ended December 31, 2020.
Investors are cautioned that many of the assumptions upon
which our forward-looking statements are based are likely to
change after the forward-looking statements are made, including
for example commodity prices, which we cannot control, and
production volumes and costs, some aspects of which we may
not be able to control. Further, we may make changes to our
business plans that could affect our results. We caution investors
that we do not intend to update forward-looking statements
more frequently than quarterly notwithstanding any changes in
our assumptions, changes in business plans, actual experience
or other changes, and we undertake no obligation to update any
forward-looking statements.
This annual report on Form 10-K for the year ended
December 31, 2020, also contains the financial measure unit
net cash costs per pound of copper and molybdenum, which
is not recognized under U.S. GAAP. 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.
2020 ANNUAL REPORT
63
M A N A GEMEN T ’S REP O R T ON IN T ERN A L C O N T ROL O V ER FIN A N CI A L REP OR T IN G
Freeport-McMoRan 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 (2013 framework) (the COSO criteria).
Based on its assessment, management concluded that, as of
December 31, 2020, 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.
Richard C. Adkerson
Chairman of the Board and
Chief Executive Officer
Kathleen L. Quirk
President and
Chief Financial Officer
64
Fr e e p or t-M cM oR a n
REP OR T OF INDEPENDEN T REG IS T ERED PUBL IC A C C O UN T IN G FIRM
To the Board of Directors and
Stockholders of Freeport-McMoRan Inc.
Opinion on Internal Control over Financial Reporting
We have audited Freeport-McMoRan Inc.’s internal control over
financial reporting as of December 31, 2020, based on criteria
established in Internal Control-Integrated Framework issued
by the Committee of Sponsoring Organizations of the Treadway
Commission (2013 framework) (the COSO criteria). In our
opinion, Freeport-McMoRan Inc. (the Company) maintained, in
all material respects, effective internal control over financial
reporting as of December 31, 2020, based on the COSO criteria.
We also have audited, in accordance with the standards of
the Public Company Accounting Oversight Board (United States)
(PCAOB), the consolidated balance sheets of Freeport-McMoRan
Inc. as of December 31, 2020 and 2019, the related consolidated
statements of operations, comprehensive income (loss), equity
and cash flows for each of the three years in the period ended
December 31, 2020, and the related notes and our report dated
February 16, 2021 expressed an unqualified opinion thereon.
Basis for Opinion
The Company’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 are a
public accounting firm registered with the PCAOB and are
required to be independent with respect to the Company in
accordance with the U.S. federal securities laws and the
applicable rules and regulations of the Securities and Exchange
Commission and the PCAOB.
We conducted our audit in accordance with the standards
of the PCAOB. 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.
Definition and Limitations of Internal Control
Over Financial Reporting
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.
ERNST & YOUNG LLP
Phoenix, Arizona
February 16, 2021
2020 ANNUAL REPORT
65
REP OR T O F INDEPENDEN T REG IS T ERED PUBL IC A C C O UN T IN G FIRM
To the Board of Directors and
Stockholders of Freeport-McMoRan Inc.
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheets
of Freeport-McMoRan Inc. (the Company) as of December 31,
2020 and 2019, the related consolidated statements of
operations, comprehensive income (loss), equity and cash flows
for each of the three years in the period ended December 31,
2020, and the related notes (collectively referred to as the
“consolidated financial statements”). In our opinion, the
consolidated financial statements present fairly, in all
material respects, the financial position of the Company at
December 31, 2020 and 2019, and the results of its operations
and its cash flows for each of the three years in the period
ended December 31, 2020, in conformity with U.S. generally
accepted accounting principles.
We also have audited, in accordance with the standards of the
Public Company Accounting Oversight Board (United States)
(PCAOB), the Company’s internal control over financial
reporting as of December 31, 2020, based on criteria established
in Internal Control-Integrated Framework issued by the
Committee of Sponsoring Organizations of the Treadway
Commission (2013 framework) and our report dated
February 16, 2021 expressed an unqualified opinion thereon.
Basis for Opinion
These financial statements are the responsibility of the
Company’s management. Our responsibility is to express an
opinion on the Company’s financial statements based on our
audits. We are a public accounting firm registered with the
PCAOB and are required to be independent with respect to the
Company in accordance with the U.S. federal securities laws
and the applicable rules and regulations of the Securities and
Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards
of the PCAOB. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether
the financial statements are free of material misstatement,
whether due to error or fraud. Our audits included performing
procedures to assess the risks of material misstatement
of the financial statements, whether due to error or fraud,
and performing procedures that respond to those risks. Such
procedures included examining, on a test basis, evidence
regarding the amounts and disclosures in the financial
statements. Our audits also included evaluating the accounting
principles used and significant estimates made by management,
as well as evaluating the overall presentation of the financial
statements. We believe that our audits provide a reasonable
basis for our opinion.
Critical Audit Matters
The critical audit matters communicated below are matters
arising from the current period audit of the consolidated
financial statements that were communicated or required to be
communicated to the audit committee and that: (1) relate to
accounts or disclosures that are material to the consolidated
financial statements and (2) involved our especially challenging,
subjective, or complex judgments. The communication of
critical audit matters does not alter in any way our opinion on
the consolidated financial statements, taken as a whole, and we
are not, by communicating the critical audit matters below,
providing separate opinions on the critical audit matters or on
the accounts or disclosures to which they relate.
Uncertain tax positions
Description
of the Matter
As discussed in Note 12 to the consolidated
financial statements, the Company’s operations
are in certain taxing jurisdictions where
uncertainties arise in the application of complex
income tax regulations. The Company has
disclosed uncertain tax positions related to
income tax assessments in Indonesia and
Peru totaling $1.7 billion, including penalties and
interest, which have not been recorded at
December 31, 2020. The Company recognizes a
liability for income tax assessments when it is
more likely than not that it will not sustain the
benefit taken or expected to be taken in the
tax return.
Because of the complexity of tax laws,
regulations and contractual agreements with the
applicable government, auditing the recognition
and measurement of uncertain tax positions
requires a high degree of auditor judgment and
increased extent of effort, including the
involvement of our tax professionals.
How We
Addressed
the Matter in
Our Audit
We obtained an understanding, evaluated the
design and tested the operating effectiveness of
controls over the Company’s accounting process
for uncertain tax positions. This included testing
controls over management’s review of the
technical merits of tax positions and disputed tax
assessments, including the process to measure the
financial statement impact of these tax matters.
66
Fr e e p or t-M cM oR a n
REP O R T OF INDEPENDEN T REG IS T ERED PUBL IC A C C O UN T IN G FIRM (continued)
Our audit procedures included, among others,
extent of contamination at each site, the nature
evaluating the Company’s accounting for these
and extent of required cleanup efforts under
tax positions by using our knowledge of and
existing environmental regulations, the duration
experience with the application of respective tax
and effectiveness of the chosen remedial strategy,
laws by the relevant tax authorities, or our
and allocation of costs among other potentially
understanding of the contractual arrangements
responsible parties. Actual costs incurred in future
with the applicable government, if the position is
periods could differ from amounts estimated.
governed by a contract. We analyzed the
Company’s assumptions and data used to
determine the tax assessments and tested the
accuracy of the calculations. We involved our tax
professionals located in the respective
jurisdictions to assess the technical merits of the
Company’s tax positions and to evaluate the
application of relevant tax laws in the Company’s
recognition determination. We assessed the
Company’s correspondence with the relevant tax
authorities and evaluated third-party tax or legal
opinions obtained by the Company. We also
evaluated the adequacy of the Company’s
How We
Addressed
the Matter in
Our Audit
We obtained an understanding, evaluated
the design and tested the operating effectiveness
of controls over the Company’s identification
and measurement of the environmental loss
contingencies. For example, we tested controls
over management’s review of the environmental
loss contingency calculations and management’s
assessment to evaluate key judgments and
estimates affecting the environmental loss
contingencies.
To test the Company’s identification and
measurement of the environmental loss
disclosures included in Note 12 in relation to these
contingencies, among other procedures, we
tax matters.
Environmental obligations
Description
of the Matter
As discussed in Note 12 to the consolidated
financial statements, the Company is subject to
national, state and local environmental laws and
regulations governing the protection of the
environment, including restoration and
reclamation of environmental contamination.
Liabilities for environmental contingencies are
recorded when it is probable that a liability has
been incurred and the amount can be reasonably
estimated. At December 31, 2020, the Company’s
consolidated environmental obligations totaled
$1.6 billion.
Auditing management’s accounting for
environmental obligations was challenging, as
significant judgment is required by the Company
to evaluate whether an environmental loss has
been incurred and to estimate the future costs
to remediate the environmental matters. The
significant judgment was primarily due to the
inherent estimation uncertainty relating to
the amount of future costs. Such uncertainties
involve assumptions regarding the nature and
inspected correspondence with regulatory
agencies, obtained external legal counsel
confirmation letters, and inspected
environmental studies. Additionally, we assessed
the appropriateness of the Company’s models
and tested the significant assumptions discussed
above along with the underlying data used by the
Company in its analyses. We utilized our
environmental specialists to search for new or
contrary evidence related to the Company’s sites
and to assist in evaluating the reasonableness of
estimated future costs by comparing the
estimated future costs to environmental permits,
third party observable data such as vendor
quotes, and to historical costs incurred for similar
activities.
ERNST & YOUNG LLP
We have served as the Company’s auditor since 2002.
Phoenix, Arizona
February 16, 2021
2020 ANNUAL REPORT
67
C O NS O L ID AT ED S TAT EMEN T S O F OPER AT I O NS
Years Ended December 31,
(In millions, except per share amounts)
Revenues
Cost of sales:
Production and delivery
Depreciation, depletion and amortization
Metals inventory adjustments
Total cost of sales
Selling, general and administrative expenses
Mining exploration and research expenses
Environmental obligations and shutdown costs
Net gain on sales of assets
Total costs and expenses
Operating income
Interest expense, net
Net (loss) gain on early extinguishment of debt
Other income (expense), net
Income from continuing operations before income taxes and equity in affiliated companies’ net earnings
Provision for income taxes
Equity in affiliated companies’ net earnings
Net income (loss) from continuing operations
Net gain (loss) from discontinued operations
Net income (loss)
Net income attributable to noncontrolling interests
Net income (loss) attributable to common stockholders
Basic net income (loss) per share attributable to common stockholders:
Continuing operations
Discontinued operations
Diluted net income (loss) per share attributable to common stockholders:
Continuing operations
Discontinued operations
Weighted-average common shares outstanding:
Basic
Diluted
Dividends declared per share of common stock
The accompanying Notes to Consolidated Financial Statements are an integral part of these consolidated financial statements.
2020
2019
2018
$ 14,198
$ 14,402
$ 18,628
10,031
1,528
96
11,655
370
50
159
(473)
11,761
2,437
(598)
(101)
59
1,797
(944)
12
865
—
865
(266)
$ 599
$ 0.41
—
$ 0.41
$ 0.41
—
$ 0.41
1,453
1,461
$
—
11,534
1,412
179
13,125
394
104
105
(417)
13,311
1,091
(620)
(27)
(138)
306
(510)
12
(192)
3
(189)
(50)
(239)
$
$ (0.17)
—
$ (0.17)
$ (0.17)
—
$ (0.17)
1,451
1,451
$ 0.20
11,708
1,754
4
13,466
422
105
89
(208)
13,874
4,754
(945)
7
76
3,892
(991)
8
2,909
(15)
2,894
(292)
$ 2,602
$ 1.80
(0.01)
$ 1.79
$ 1.79
(0.01)
$ 1.78
1,449
1,458
$ 0.20
68
Fr e e p or t-M cM oR a n
C O NS O L ID AT ED S TAT EMEN T S O F C O MPREHENSI V E IN C O ME (L O S S)
Years Ended December 31,
(In millions)
Net income (loss)
Other comprehensive income (loss), net of taxes:
Defined benefit plans:
Actuarial gains (losses) arising during the period, net of taxes
Prior service costs arising during the period
Amortization or curtailment of unrecognized amounts included in net periodic benefit costs
Foreign exchange (losses) gains
Other comprehensive income (loss)
Total comprehensive income (loss)
Total comprehensive income attributable to noncontrolling interests
Total comprehensive income (loss) attributable to common stockholders
2020
2019
2018
$ 865
$ (189)
$ 2,894
46
—
45
(1)
90
955
(263)
$ 692
(116)
—
47
1
(68)
(257)
(53)
$ (310)
(77)
(4)
48
(1)
(34)
2,860
(291)
$ 2,569
The accompanying Notes to Consolidated Financial Statements are an integral part of these consolidated financial statements.
2020 ANNUAL REPORT
69
C O NS O L ID AT ED S TAT EMEN T S O F C A SH FL O W S
Years Ended December 31,
(In millions)
Cash flow from operating activities:
Net income (loss)
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
Depreciation, depletion and amortization
Metals inventory adjustments
Net gain on sales of assets
Stock-based compensation
Net charges for environmental and asset retirement obligations, including accretion
Payments for environmental and asset retirement obligations
Charge associated with framework for global settlement of talc-related litigation
Net charges for defined pension and postretirement plans
Pension plan contributions
Net loss (gain) on early extinguishment of debt
Deferred income taxes
Dividends received from PT Smelting
(Credits) charges for PT Freeport Indonesia (PT-FI) surface water tax, withholding tax and environmental matters
Payments for PT-FI surface water tax, withholding tax and environmental matters
Charges for Cerro Verde royalty dispute
Payments for Cerro Verde royalty dispute
U.S. tax reform benefit
Change in PT-FI statutory tax rate
Other, net
Changes in working capital and other:
Accounts receivable
Inventories
Other current assets
Accounts payable and accrued liabilities
Accrued income taxes and timing of other tax payments
Net cash provided by operating activities
Cash flow from investing activities:
Capital expenditures:
North America copper mines
South America
Indonesia
Molybdenum mines
Other
Acquisition of PT Rio Tinto Indonesia
Proceeds from sales of:
Kisanfu exploration project
Timok exploration project and a portion of Freeport Cobalt
PT Indonesia Papua Metal Dan Mineral
Other assets
Other, net
Net cash used in investing activities
Cash flow from financing activities:
Proceeds from debt
Repayments of debt
Proceeds from sale of PT-FI shares
Cash dividends and distributions paid:
Common stock
Noncontrolling interests
Contributions from noncontrolling interests
Other, net
Net cash (used in) provided by financing activities
Net increase (decrease) in cash, cash equivalents, restricted cash and restricted cash equivalents
Cash, cash equivalents, restricted cash and restricted cash equivalents at beginning of year
Cash, cash equivalents, restricted cash and restricted cash equivalents at end of year
The accompanying Notes to Consolidated Financial Statements are an integral part of these consolidated financial statements.
70
Fr e e p or t-M cM oR a n
2020
2019
2018
$ 865
$ (189)
$ 2,894
1,528
96
(473)
99
181
(216)
130
65
(121)
101
181
3
(19)
(14)
32
(139)
—
—
53
132
42
(27)
115
403
3,017
(428)
(183)
(1,266)
(19)
(65)
—
550
—
—
154
(7)
(1,264)
3,531
(3,724)
—
(73)
—
156
(18)
(128)
1,625
2,278
$ 3,903
1,412
179
(417)
63
221
(244)
—
108
(75)
27
29
40
30
(67)
65
(187)
—
—
138
119
259
60
(60)
(29)
1,482
(877)
(256)
(1,369)
(19)
(131)
—
—
452
—
109
(12)
(2,103)
1,879
(3,197)
—
(291)
(82)
165
(30)
(1,556)
(2,177)
4,455
$ 2,278
1,754
4
(208)
76
262
(239)
—
81
(75)
(7)
100
—
162
—
371
(56)
(123)
(504)
27
649
(537)
(28)
(106)
(634)
3,863
(601)
(237)
(1,001)
(9)
(123)
(3,500)
—
—
457
93
(97)
(5,018)
632
(2,717)
3,500
(218)
(278)
—
(19)
900
(255)
4,710
$ 4,455
December 31,
(In millions, except par value)
ASSETS
Current assets:
Cash and cash equivalents
Trade accounts receivable
Income and other tax receivables
Inventories:
Materials and supplies, net
Mill and leach stockpiles
Product
Other current assets
Total current assets
Property, plant, equipment and mine development costs, net
Long-term mill and leach stockpiles
Other assets
Total assets
LIABILITIES AND EQUITY
Current liabilities:
Accounts payable and accrued liabilities
Current portion of environmental and asset retirement obligations
Accrued income taxes
Current portion of debt
Dividends payable
Total current liabilities
Long-term debt, less current portion
Deferred income taxes
Environmental and asset retirement obligations, less current portion
Other liabilities
Total liabilities
Equity:
Stockholders’ equity:
Common stock, par value $0.10, 1,590 shares and 1,582 shares issued, respectively
Capital in excess of par value
Accumulated deficit
Accumulated other comprehensive loss
Common stock held in treasury – 132 shares and 131 shares, respectively, at cost
Total stockholders’ equity
Noncontrolling interests
Total equity
Total liabilities and equity
The accompanying Notes to Consolidated Financial Statements are an integral part of these consolidated financial statements.
C ONS OL ID AT ED B A L A N CE SHEE T S
2020
2019
$ 3,657
892
520
1,594
1,014
1,285
341
9,303
29,818
1,463
1,560
$ 42,144
$ 2,708
351
324
34
—
3,417
9,677
4,408
3,705
2,269
23,476
159
26,037
(11,681)
(583)
(3,758)
10,174
8,494
18,668
$ 42,144
$ 2,020
741
426
1,649
1,143
1,281
655
7,915
29,584
1,425
1,885
$ 40,809
$ 2,576
436
119
5
73
3,209
9,821
4,210
3,630
2,491
23,361
158
25,830
(12,280)
(676)
(3,734)
9,298
8,150
17,448
$ 40,809
2020 ANNUAL REPORT
71
C O NS O L ID AT ED S TAT EMEN T S O F EQ UI T Y
(In millions)
Balance at January 1, 2018
Exercised and issued stock-based awards
Stock-based compensation, including the tender of shares
Dividends
Adoption of new accounting standard for reclassification
of income taxes
Sale of interest in PT-FI
Net income attributable to common stockholders
Net income attributable to noncontrolling interests
Other comprehensive loss
Balance at December 31, 2018
Exercised and issued stock-based awards
Stock-based compensation, including the tender of shares
Dividends
Changes in noncontrolling interests
Contributions from noncontrolling interests
Adjustment for deferred taxes
Net loss attributable to common stockholders
Net income attributable to noncontrolling interests
Other comprehensive (loss) income
Balance at December 31, 2019
Exercised and issued stock-based awards
Stock-based compensation, including the tender of shares
Change in ownership interests
Contributions from noncontrolling interests
Net income attributable to common stockholders
Net income attributable to noncontrolling interests
Other comprehensive income (loss)
Common Stock
Number of At Par
Value
Shares
1,578
1
—
—
—
—
—
—
—
1,579
3
—
—
—
—
—
—
—
—
1,582
8
—
—
—
—
—
—
$ 158
—
—
—
—
—
—
—
—
158
—
—
—
—
—
—
—
—
—
158
1
—
—
—
—
—
—
Stockholders’ Equity
Accumulated
Other
Common Stock
Held in Treasury
Capital in
Excess of Accumulated Comprehensive Number
Par Value
Deficit
Loss
of Shares At Cost
Total
Stockholders’ Noncontrolling
Equity
Interests
Total
Equity
$ 26,751 $ (14,722) $ (487)
—
—
—
8
70
(291)
—
—
—
—
(525)
—
—
—
79
—
2,602
—
—
26,013
1
50
(291)
(1)
80
(22)
—
—
—
25,830
57
74
—
76
—
—
—
(12,041)
—
—
—
—
—
—
(239)
—
—
(12,280)
—
—
—
—
599
—
—
(79)
(6)
—
—
(33)
(605)
—
—
—
—
—
—
—
—
(71)
(676)
—
—
—
—
—
—
93
130
—
—
—
—
—
—
—
—
130
—
1
—
—
—
—
—
—
—
131
—
1
—
—
—
—
—
$ (3,723)
—
(4)
—
$ 7,977
8
66
(291)
$ 3,319
—
—
(278)
$ 11,296
8
66
(569)
—
—
—
—
—
(3,727)
—
(7)
—
—
—
—
—
—
—
(3,734)
—
(24)
—
—
—
—
—
—
(531)
2,602
—
(33)
9,798
1
43
(291)
(1)
80
(22)
(239)
—
(71)
9,298
58
50
—
76
599
—
93
—
4,762
—
292
(1)
8,094
—
1
(73)
(11)
86
—
—
50
3
8,150
—
—
1
80
—
266
(3)
—
4,231
2,602
292
(34)
17,892
1
44
(364)
(12)
166
(22)
(239)
50
(68)
17,448
58
50
1
156
599
266
90
Balance at December 31, 2020
1,590
$ 159
$ 26,037 $ (11,681) $ (583)
132
$ (3,758)
$ 10,174
$ 8,494
$ 18,668
The accompanying Notes to Consolidated Financial Statements are an integral part of these consolidated financial statements.
72
Fr e e p or t-M cM oR a n
N O T E S T O C ONS OL ID AT ED FIN A N CI A L S TAT EMEN T S
Functional Currency. The functional currency for the
majority of FCX’s foreign operations is the U.S. dollar. 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 mine development costs, are
translated at historical rates. Gains and losses resulting
from translation of such account balances are included in other
income (expense), net, as are gains and losses from foreign
currency transactions. Foreign currency gains totaled
$34 million in 2020, $24 million in 2019 and $14 million in 2018.
Cash Equivalents. Highly liquid investments purchased
with maturities of three months or less are considered cash
equivalents.
Restricted Cash and Restricted Cash Equivalents. FCX’s
restricted cash and restricted cash equivalents are primarily
related to PT-FI’s commitment for the development of a new
smelter in Indonesia; and guarantees and commitments for
certain mine closure and reclamation obligations. Restricted
cash and restricted cash equivalents are classified as a
current or long-term asset based on the timing and nature of
when or how the cash is expected to be used or when the
restrictions are expected to lapse. Restricted cash and
restricted cash equivalents are comprised of bank deposits
and money market funds.
Inventories. Inventories include materials and supplies, mill
and leach stockpiles, and product inventories. Inventories are
stated at the lower of weighted-average cost or net realizable
value (NRV).
Mill and Leach Stockpiles. Mill and leach stockpiles are
work-in-process inventories for FCX’s mining operations.
Mill and leach stockpiles contain ore that has been extracted
from an ore body and is available for metal recovery. Mill
stockpiles contain sulfide ores, and recovery of metal is
through milling, concentrating and smelting and refining or,
alternatively, by concentrate leaching. Leach stockpiles contain
oxide ores and certain secondary sulfide ores and recovery
of metal is through exposure to acidic solutions that dissolve
contained copper and deliver it in solution to extraction
processing facilities (i.e., solution extraction and electrowinning
(SX/EW)). 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. Material is removed from the stockpiles at a
weighted-average cost per pound.
NOTE 1. SUMMARY OF SIGNIFICANT
ACCOUNTING POLICIES
Basis of Presentation. The consolidated financial statements
of Freeport-McMoRan Inc. (FCX) include the accounts of those
subsidiaries where it directly or indirectly has more than
50 percent of the voting rights and/or has control over the
subsidiary. As of December 31, 2020, the most significant
entities that FCX consolidates include its 48.76 percent-owned
subsidiary PT Freeport Indonesia (PT-FI), and the following
wholly owned subsidiaries: Freeport Minerals Corporation
(FMC) and Atlantic Copper, S.L.U. (Atlantic Copper). Refer to
Notes 2 and 3 for further discussion, including FCX’s
conclusion to consolidate PT-FI.
FCX’s unincorporated joint ventures are reflected using the
proportionate consolidation method (refer to Note 3 for further
discussion). Investments in unconsolidated companies owned
20 percent or more are recorded using the equity method.
Investments in unconsolidated companies owned less than
20 percent, and for which FCX does not exercise significant
influence, are recorded at (i) fair value for those that have a
readily determinable fair value or (ii) cost, less any impairment,
for those that do not have a readily determinable fair value.
All significant intercompany transactions have been
eliminated. Dollar amounts in tables are stated in millions,
except per share amounts.
Business Segments. FCX has organized its mining operations
into four primary divisions—North America copper mines,
South America mining, Indonesia mining and Molybdenum
mines, and operating segments that meet certain thresholds
are reportable segments. FCX’s reportable segments
include the Morenci, Cerro Verde and Grasberg (Indonesia
mining) copper mines, the Rod & Refining operations and
Atlantic Copper Smelting & Refining. Refer to Note 16 for
further discussion.
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 minerals reserve estimation;
asset lives for depreciation, depletion and amortization;
environmental obligations; asset retirement obligations;
estimates of recoverable copper in mill and leach stockpiles;
deferred taxes and valuation allowances; reserves for
contingencies and litigation; asset acquisitions and
impairment, including estimates used to derive future cash
flows associated with those assets; pension benefits; and
valuation of derivative instruments. Actual results could differ
from those estimates.
2020 ANNUAL REPORT
73
Because it is 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
process), historical trends and other factors, including
mineralogy of the ore and rock type. Total copper recovery in
leach stockpiles can vary significantly from a low percentage
to more than 90 percent depending on several variables,
including processing methodology, processing variables,
mineralogy and particle size of the rock. For newly placed
material on active stockpiles, as much as 80 percent of
the total copper recovery may occur during the first year, and
the remaining copper may be recovered over many years.
Processes and recovery rates for mill and leach stockpiles
are monitored regularly, and recovery rate estimates are
adjusted periodically as additional information becomes
available and as related technology changes. Adjustments to
recovery rates will typically result in a future impact to the
value of the material removed from the stockpiles at a revised
weighted-average cost per pound of recoverable copper.
Product. Product inventories include raw materials, work-in-
process and finished goods. Raw materials are primarily
unprocessed concentrate at Atlantic Copper’s smelting and
refining operations. Work-in-process inventories are primarily
copper concentrate at various stages of conversion into anode
and cathode at Atlantic Copper’s operations. 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 for mining
operations represent salable products (e.g., copper and
molybdenum concentrate, copper anode, copper cathode,
copper rod, copper wire, molybdenum oxide, and 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. Costs of finished goods and
work-in-process (i.e., not raw materials) 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, such
as mining, milling, smelting, leaching, SX/EW, refining,
roasting and chemical processing. Corporate general and
administrative costs are not included in inventory costs.
Property, Plant, Equipment and Mine Development Costs.
Property, plant, equipment and mine 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
mineral 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. For
underground mines certain costs related to panel development,
such as undercutting and drawpoint development, are also
capitalized as mine development costs until production
reaches sustained design capacity for the mine. After reaching
design capacity, the mine transitions to the production
phase and panel development costs are allocated to inventory
and then included as a component of cost of goods sold.
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 charged to expense as incurred.
Depreciation for mining and milling life-of-mine assets,
infrastructure and other common costs is determined using
the unit-of-production (UOP) method based on total estimated
recoverable proven and probable copper reserves (for
primary copper mines) and proven and probable molybdenum
reserves (for primary molybdenum mines). Development
costs and acquisition costs for proven and probable mineral
reserves that relate to a specific ore body are depreciated
using the UOP method based on estimated recoverable proven
and probable mineral reserves for the ore body benefited.
74
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTSNOTES TO CONSOLIDATED FINANCIAL STATEMENTS Depreciation, depletion and amortization using the UOP
method is recorded upon extraction of the recoverable copper
or molybdenum from the ore body or production of finished
goods (as applicable), 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 for the related assets of up to 50 years
for buildings and 3 to 50 years for machinery and equipment,
and mobile equipment.
Included in property, plant, equipment and mine development
costs is value beyond proven and probable mineral reserves
(VBPP), primarily resulting from FCX’s acquisition of FMC in
2007. The concept of VBPP may be 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.
Carrying amounts assigned to VBPP are not charged to
expense until the VBPP becomes associated with additional
proven and probable mineral reserves and the reserves are
produced or the VBPP is determined to be impaired. Additions
to proven and probable mineral reserves for properties with
VBPP will carry with them the value assigned to VBPP at the
date acquired, less any impairment amounts. Refer to Note 5
for further discussion.
Impairment of Long-Lived Mining Assets. FCX assesses the
carrying values of its long-lived mining assets for impairment
when events or changes in circumstances indicate that the
related carrying amounts of such assets may not be recoverable.
In evaluating long-lived mining assets for recoverability,
estimates of pre-tax undiscounted future cash flows of FCX’s
individual mines are used. An impairment is considered to exist
if total estimated undiscounted future cash flows 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. The estimated undiscounted cash flows used to assess
recoverability of long-lived assets and to measure the fair
value of FCX’s 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 assumptions include estimates of commodity-based
and other input costs; proven and probable mineral reserves
estimates, including the timing and cost to develop and
produce the reserves; VBPP estimates; and the use of
appropriate discount rates in the measurement of fair value.
FCX believes its estimates and models used to determine
fair value are similar to what a market participant would use.
As quoted market prices are unavailable for FCX’s individual
mining operations, fair value is determined through the
use of after-tax discounted estimated future cash flows (i.e.,
Level 3 measurement).
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 an open-pit
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 using the UOP
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 Obligations. Environmental expenditures
are charged to expense 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.
Environmental obligations attributed to the Comprehensive
Environmental Response, Compensation, and Liability Act
of 1980 (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 FMC that were initially
75
NOTES TO CONSOLIDATED FINANCIAL STATEMENTSNOTES TO CONSOLIDATED FINANCIAL STATEMENTS2020 ANNUAL REPORT recorded at estimated fair values (refer to Note 12 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
third-party legal 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
FMC, which were initially recorded at fair value and estimated
on a discounted basis, are accreted to full value over time
through charges to interest expense. Adjustments arising from
changes in amounts and timing of estimated costs and
settlements may result in increases and decreases in these
obligations and are calculated in the same manner as they
were initially estimated. Unless these adjustments qualify for
capitalization, changes in environmental obligations are
charged to operating income when they occur.
FCX performs a comprehensive review of its environmental
obligations annually and also reviews changes in facts
and circumstances associated with these obligations at
least quarterly.
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 over the asset’s
respective useful life.
For mining operations, reclamation costs for disturbances
are recognized as an ARO and as a related ARC in the period of
the disturbance and depreciated primarily on a UOP basis.
FCX’s AROs for mining operations 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.
For oil and gas properties, the fair value of the legal
obligation is recognized as an ARO and as a related ARC in the
period in which the well is drilled or acquired and is amortized
on a UOP basis together with other capitalized costs.
Substantially all of FCX’s oil and gas leases require that, upon
termination of economic production, the working interest
owners plug and abandon non-producing wellbores; remove
platforms, tanks, production equipment and flow lines; and
restore the wellsite.
For non-operating properties without reserves, changes to
the ARO are recorded in earnings.
At least annually, FCX reviews its ARO estimates for
changes in the projected timing of certain reclamation and
closure/restoration costs, changes in cost estimates and
additional AROs incurred during the period. Refer to Note 12
for further discussion.
Revenue Recognition. FCX recognizes revenue for all of its
products upon transfer of control in an amount that reflects
the consideration it expects to receive in exchange for those
products. Transfer of control is in accordance with the terms of
customer contracts, which is generally upon shipment or
delivery of the product. While payment terms vary by contract,
terms generally include payment to be made within 30 days,
but not longer than 60 days. Certain of FCX’s concentrate and
cathode sales contracts also provide for provisional pricing,
which is accounted for as an embedded derivative (refer to
Note 14 for further discussion). For provisionally priced sales,
90 percent to 100 percent of the provisional payment is
collected upon shipment or within 20 days, and final balances
are settled in a contractually specified future month (generally
one to four months from the shipment date) based on quoted
monthly average copper settlement prices on the London Metal
Exchange (LME) or the Commodity Exchange Inc. (COMEX)
and quoted monthly average London Bullion Market Association
(London) PM gold prices.
FCX’s product revenues are also recorded net of treatment
charges, royalties and export duties. Moreover, because
a portion of the metals contained in copper concentrate 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 that are generally fixed. Refer to
Note 16 for a summary of revenue by product type.
76
Fr e e p or t-M cM oR a n
NOTES TO CONSOLIDATED FINANCIAL STATEMENTSNOTES TO CONSOLIDATED FINANCIAL STATEMENTS Gold sales are priced according to individual contract terms,
generally the average London PM gold price for a specified
month near the month of shipment.
The majority of FCX’s molybdenum sales are priced based
on the average published Metals Week price, plus conversion
premiums for products that undergo additional processing,
such as ferromolybdenum and molybdenum chemical products,
for the month prior to the month of shipment.
Stock-Based Compensation. Compensation costs for share-
based payments to employees are measured at fair value
and charged to expense over the requisite service period for
awards that are expected to vest. The fair value of stock
options is determined using the Black-Scholes-Merton option
valuation model. The fair value for stock-settled restricted
stock units (RSUs) is based on FCX’s stock price on the date of
grant. Shares of common stock are issued at the vesting date
for stock-settled RSUs. The fair value of performance share
units (PSUs) is determined using FCX’s stock price and a
Monte-Carlo simulation model. The fair value for liability-
classified awards (i.e., cash-settled RSUs) is remeasured each
reporting period using FCX’s stock price. 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, and for RSUs on the graded-vesting method over the
vesting period. Refer to Note 10 for further discussion.
Earnings Per Share. FCX calculates its basic net income
(loss) per share of common stock under the two-class method
and calculates its diluted net income (loss) per share of
common stock using the more dilutive of the two-class method
or the treasury-stock method. Basic net income (loss) per
share of common stock was computed by dividing net income
(loss) attributable to common stockholders (after deducting
accumulated dividends and undistributed earnings to
participating securities) by the weighted-average shares of
common stock outstanding during the year. Diluted net income
(loss) per share of common stock was calculated by including
the basic weighted-average shares of common stock
outstanding adjusted for the effects of all potential dilutive
shares of common stock, unless their effect would be
anti-dilutive.
Reconciliations of net income (loss) and weighted-average
shares of common stock outstanding for purposes of
calculating basic and diluted net income (loss) per share for
the years ended December 31 follow:
Net income (loss) from continuing operations
Net income from continuing operations attributable to noncontrolling interests
Accumulated dividends and undistributed earnings allocated to participating securities
Net income (loss) from continuing operations attributable to common stockholders
Net income (loss) from discontinued operations
Net income (loss) attributable to common stockholders
Basic weighted-average shares of common stock outstanding (millions)
Add shares issuable upon exercise or vesting of dilutive stock options and RSUs (millions)
Diluted weighted-average shares of common stock outstanding (millions)
Basic net income (loss) per share attributable to common stockholders:
Continuing operations
Discontinued operations
Diluted net income (loss) per share attributable to common stockholders:
Continuing operations
Discontinued operations
2020
$ 865
(266)
(3)
596
—
$ 596
1,453
8
1,461
$ 0.41
—
$ 0.41
$ 0.41
—
$ 0.41
2019
$ (192)
(50)
(3)
(245)
3
$ (242)
1,451
—a
1,451
$ (0.17)
—
$ (0.17)
$ (0.17)
—
$ (0.17)
2018
$ 2,909
(292)
(4)
2,613
(15)
$ 2,598
1,449
9a
1,458
$ 1.80
(0.01)
$ 1.79
$ 1.79
(0.01)
$ 1.78
a. Excludes approximately 11 million shares of common stock in 2019 and 1 million in 2018 associated with outstanding stock options with exercise prices less than the average market price of FCX’s common stock and
RSUs that were anti-dilutive.
77
NOTES TO CONSOLIDATED FINANCIAL STATEMENTSNOTES TO CONSOLIDATED FINANCIAL STATEMENTS2020 ANNUAL REPORT
Outstanding stock options with exercise prices greater than the
average market price of FCX’s common stock during the year
are excluded from the computation of diluted net income (loss)
per share of common stock. Stock options for 31 million
shares of common stock in 2020, 42 million shares in 2019 and
37 million shares in 2018 were excluded.
New Accounting Standards. In June 2016, the Financial
Accounting Standards Board issued an Accounting Standards
Update (ASU) that requires entities to estimate all expected
credit losses for most financial assets held at the reporting date
based on an expected loss model, which requires consideration
of historical experience, current conditions, and reasonable
and supportable forecasts. FCX adopted this ASU effective
January 1, 2020, and the adoption of this ASU did not have a
material impact on its consolidated financial statements.
Reclassifications. For comparative purposes, certain prior
year amounts have been reclassified to conform with the
current year presentation. The reclassifications relate to a
revision to FCX’s presentation of business segments to remove
a business segment that no longer qualifies as a reportable
segment (refer to Note 16), as well as, reclassification of
certain costs from selling, general and administrative expenses
to production and delivery in the consolidated statements of
operations in 2019 ($20 million) and 2018 ($21 million).
Subsequent Events. FCX evaluated events after December 31,
2020, 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.
NOTE 2. ACQUISITIONS AND DISPOSITIONS
PT-FI Divestment. On December 21, 2018, FCX completed the
transaction with the Indonesia government regarding PT-FI’s
long-term mining rights and share ownership.
Pursuant to the previously announced divestment agreement
and related documents, PT Indonesia Asahan Aluminium
(Persero) (PT Inalum, also known as MIND ID), an Indonesia
state-owned enterprise, acquired for cash consideration of
$3.85 billion all of Rio Tinto plc’s (Rio Tinto) interests associated
with its joint venture with PT-FI (the former Rio Tinto Joint
Venture) and 100 percent of FCX’s interests in PT Indonesia
Papua Metal Dan Mineral (PTI—formerly known as
PT Indocopper Investama), which at the time owned 9.36 percent
of PT-FI. Of the $3.85 billion in cash consideration, Rio Tinto
received $3.5 billion and FCX received $350 million. In addition,
Rio Tinto paid FCX $107 million for its share of the 2018 joint
venture cash flows.
In connection with the transaction, an aggregate 40 percent
share ownership in PT-FI was issued to PT Inalum and PTI
(which is expected to be owned by PT Inalum and the provincial/
regional government in Papua). Based on a subscription of
PT Inalum’s rights to acquire for cash consideration of $3.5 billion
all of Rio Tinto’s interests in the former Rio Tinto Joint
Venture, PT-FI acquired all of the common stock of the entity
(PT Rio Tinto Indonesia) that held Rio Tinto’s interest. After the
transaction, PT Inalum’s (26.24 percent) and PTI’s (25.00 percent)
collective share ownership of PT-FI totals 51.24 percent and
FCX’s share ownership totals 48.76 percent. The arrangements
provide for FCX and the other pre-transaction PT-FI
shareholders (i.e., PT Inalum and PTI) to retain the economics
of the revenue and cost sharing arrangements under the
former Rio Tinto Joint Venture. As a result, FCX’s economic
interest in PT-FI is expected to approximate 81 percent from
2019 through 2022.
The divestment agreement provides that FCX will indemnify
PT Inalum and PTI from any losses (reduced by receipts)
arising from any tax disputes of PT-FI disclosed to PT Inalum in
a Jakarta, Indonesia tax court letter limited to PTI’s respective
percentage share at the time the loss is finally incurred. Any
net obligations arising from any tax settlement would be paid
on December 21, 2025. As of December 31, 2020, FCX had
accrued $42 million (included in other liabilities in the
consolidated balance sheet at December 31, 2020) related to
this indemnification.
FCX, PT-FI, PTI and PT Inalum entered into a shareholders
agreement (the PT-FI Shareholders Agreement), which
includes provisions related to the governance and management
of PT-FI. FCX considered the terms of the PT-FI Shareholders
Agreement and related governance structure, including
whether PT Inalum has substantive participating rights, and
concluded that it has retained control and would continue to
consolidate PT-FI in its financial statements following the
transaction. Among other terms, the governance arrangements
under the PT-FI Shareholders Agreement transfers control
over the management of PT-FI’s mining operations to an
operating committee, which is controlled by FCX. Additionally,
as discussed above, the existing PT-FI shareholders will retain
the economics of the revenue and cost sharing arrangements
under the former Rio Tinto Joint Venture, so that FCX’s economic
78
Fr e e p or t-M cM oR a n
NOTES TO CONSOLIDATED FINANCIAL STATEMENTSNOTES TO CONSOLIDATED FINANCIAL STATEMENTS interest in the project through 2041 will not be significantly
affected by the transaction. FCX believes its conclusion to
continue to consolidate PT-FI in its financial statements is in
accordance with the U.S. Securities and Exchange Commission
(SEC) Regulation S-X, Rule 3A-02 (a), which provides for
situations in which consolidation of an entity, notwithstanding
the lack of majority ownership, is necessary to present fairly the
financial position and results of operations of the registrant,
because of the existence of a parent-subsidiary relationship by
means other than record ownership of voting stock.
Attribution of PT-FI Net Income or Loss. FCX has concluded that
the attribution of PT-FI’s net income or loss from December 21,
2018 (the date of the divestment transaction), through
December 31, 2022 (the Initial Period), should be based on the
economics replacement agreement, as previously discussed.
The economics replacement agreement entitles FCX to
approximately 81 percent of PT-FI dividends paid during the
Initial Period, with the remaining 19 percent paid to the
noncontrolling interests. PT-FI’s net income for 2020 totaled
$765 million, of which $621 million was attributed to FCX.
PT-FI’s net loss for 2019 totaled $203 million, of which $165 million
was attributed to FCX. PT-FI’s cumulative net income since
December 21, 2018, through December 31, 2020, totaled
$425 million, of which $346 million was attributed to FCX.
PT-FI has not paid dividends during the Initial Period.
The above-described attribution of PT-FI’s net income
or loss applies only through the Initial Period. Beginning
January 1, 2023, the attribution of PT-FI’s net income or loss
will be based on equity ownership percentages (48.76 percent
for FCX, 26.24 percent for PT Inalum and 25.00 percent
for PTI). For all of its other partially owned consolidated
subsidiaries, FCX attributes net income or loss based on equity
ownership percentages.
Kisanfu Transaction. In December 2020, FCX completed the
sale of its interests in the Kisanfu undeveloped project to a
wholly owned subsidiary of China Molybdenum Co., Ltd. (CMOC)
for $550 million, with after-tax net cash proceeds totaling
$415 million. The Kisanfu project, located in the Democratic
Republic of Congo, is an undeveloped cobalt and copper
resource. As of December 31, 2019, FCX did not have any proven
and probable reserves associated with the Kisanfu project.
FCX recorded a gain of $486 million in 2020 associated with
this transaction.
Cobalt Business. In fourth-quarter 2019, FCX completed the
sale of its cobalt refinery in Kokkola, Finland, and related
cobalt cathode precursor business (consisting of approximately
$271 million of assets and $63 million of liabilities at the time
of closing) to Umicore for total cash consideration of
approximately $200 million, including approximately $50 million
of working capital. Under the terms of the agreement, FCX
separated its cobalt business, and Umicore acquired the
refinery and cathode precursor business. FCX and the current
noncontrolling interest partners in Freeport Cobalt retained
the remaining cobalt business, which is a producer of cobalt
fine powders, chemicals, catalysts, ceramics and pigments.
Lundin Mining Corporation, one of the noncontrolling interest
partners, received 30 percent of the proceeds from this
transaction. FCX recorded a gain of $59 million in 2019 associated
with this transaction.
Timok Transaction. In 2016, FCX sold an interest in the
upper zone of the Timok exploration project in Serbia (the
2016 Transaction).
In December 2019, FCX completed the sale of its interest
in the lower zone of the Timok exploration project to an
affiliate of the purchaser in the 2016 Transaction, for cash
consideration of $240 million at closing plus the right to future
contingent payments of up to $150 million. These future
contingent payments will be based on the future sale of products
(as defined in the agreement) from the Timok lower zone.
For a period of 12 months after the third anniversary of the
initial sale of products from the Timok lower zone, the
purchaser can settle, or FCX can demand payment of, such
deferred payment obligation, in each case, for a total of
$60 million. As these deferred payments are contingent upon
future production (the Timok project is still in the exploration
phase) and would result in gain recognition, no amounts were
recorded upon the closing of the transaction. Subsequent
recognition will be based on the gain contingency model, in
which the consideration would be recorded in the period in
which all contingencies are resolved and the gain is realized.
This is expected to be when FCX (i) is provided periodic product
sales information by the purchaser or (ii) gives notice to the
purchaser or receives notice from the purchaser regarding the
settlement of the deferred payments for $60 million. In
addition, in lieu of such payment upon achievement of defined
development milestones, the purchaser agreed to pay the
$107 million contingent consideration provided for in the 2016
Transaction in three installment payments of $45 million by
79
NOTES TO CONSOLIDATED FINANCIAL STATEMENTSNOTES TO CONSOLIDATED FINANCIAL STATEMENTS2020 ANNUAL REPORT July 31, 2020 (which was collected in 2020), $50 million by
December 31, 2021, and $12 million by March 31, 2022. As a
result of this transaction, FCX recorded a gain of $343 million,
consisting of the cash consideration ($240 million) and the
aggregate discounted amount of the three installment payments
($103 million).
Oil and Gas Operations. In 2016, FCX sold the majority of its
oil and gas assets held by its wholly owned subsidiary, FCX
Oil & Gas LLC (FM O&G). In 2019, FM O&G sold certain property
interests for cash consideration of $36 million (before closing
adjustments), which resulted in the recognition of a gain of
$20 million. In 2018, FM O&G disposed of certain property
interests that resulted in the recognition of a gain of $27 million,
primarily associated with the abandonment obligations that
were assumed by the acquirer.
TF Holdings Limited—Discontinued Operations. In 2016,
FCX completed the sale of its 70 percent interest in TF Holdings
Limited (TFHL) to COMC for $2.65 billion in cash (before
closing adjustments) and contingent consideration of up to
$120 million in cash, consisting of $60 million if the average
copper price exceeded $3.50 per pound and $60 million
if the average cobalt price exceeded $20 per pound, both
during the 24-month period ending December 31, 2019.
The contingent consideration was considered a derivative, and
the fair value was adjusted through December 31, 2019. FCX
realized and collected in January 2020 contingent consideration
of $60 million because the average cobalt price exceeded
$20 per pound during the 24-month period ending December 31,
2019 (no amount was realized associated with the copper price),
and was included in other current assets in the consolidated
balance sheet at December 31, 2019. Gains (losses) resulting
from changes in the fair value of the contingent consideration
derivative totaling $3 million in 2019 and $(17) million in
2018 were included in net income (loss) from discontinued
operations and primarily resulted from fluctuations in cobalt
and copper prices.
In accordance with accounting guidance, FCX reported
the results from TFHL as discontinued operations in the
consolidated statements of operations because the disposal
represented a strategic shift that had a major effect on
operations. The consolidated statements of comprehensive
income (loss) were not impacted by discontinued
operations as TFHL did not have any other comprehensive
income (loss), and the consolidated statements of cash
flows are reported on a combined basis without separately
presenting discontinued operations.
Net gain (loss) from discontinued operations of $3 million
in 2019 and $(15) million in 2018 in the consolidated statements
of operations, primarily includes gains (losses) associated
with the change in the fair value of contingent consideration.
NOTE 3. OWNERSHIP IN SUBSIDIARIES
AND JOINT VENTURES
Ownership in Subsidiaries. FMC produces copper and
molybdenum, with mines in North America and South America.
At December 31, 2020, FMC’s operating mines in North America
were Morenci, Bagdad, Safford, Sierrita and Miami located
in Arizona; Tyrone and Chino located in New Mexico; and
Henderson and Climax located in Colorado. FCX has a 72 percent
interest in Morenci (refer to “Joint Ventures—Sumitomo and
SMM Morenci, Inc.”) and owns 100 percent of the other
North America mines. At December 31, 2020, operating mines
in South America were Cerro Verde (53.56 percent owned)
located in Peru and El Abra (51 percent owned) located in Chile.
At December 31, 2020, FMC’s net assets totaled $15.0 billion
and its accumulated deficit totaled $15.7 billion. FCX had no
loans outstanding to FMC at December 31, 2020.
FCX’s direct share ownership in PT-FI totaled 81.28 percent
through December 21, 2018, and 48.76 percent thereafter.
PTI owned 9.36 percent of PT-FI and FCX owned 100 percent of
PTI through December 21, 2018. Refer to Note 2 for a
discussion of the PT-FI divestment. Refer to “Joint Ventures—
Former Rio Tinto Joint Venture” for discussion of PT-FI’s
unincorporated joint venture. At December 31, 2020, PT-FI’s
net assets totaled $11.4 billion and its retained earnings
totaled $7.2 billion. FCX had $539 million in intercompany
loans to PT-FI outstanding at December 31, 2020.
FCX owns 100 percent of the outstanding Atlantic Copper
common stock. At December 31, 2020, Atlantic Copper’s net
assets totaled $145 million and its accumulated deficit totaled
$406 million. FCX had $56 million in intercompany loans to
Atlantic Copper outstanding at December 31, 2020.
80
Fr e e p or t-M cM oR a n
NOTES TO CONSOLIDATED FINANCIAL STATEMENTSNOTES TO CONSOLIDATED FINANCIAL STATEMENTS Joint Ventures. FCX has the following unincorporated
joint ventures.
Sumitomo and SMM Morenci, Inc. FMC owns a 72 percent
undivided interest in Morenci via an unincorporated joint venture.
The remaining 28 percent is owned by Sumitomo (15 percent)
and SMM Morenci, Inc. (13 percent). Each partner takes in kind
its share of Morenci’s production. FMC purchased 146 million
pounds of Morenci’s copper cathode from Sumitomo and
SMM Morenci, Inc. at market prices for $409 million during
2020. FMC had receivables from Sumitomo and SMM Morenci,
Inc. totaling $15 million at December 31, 2020, and $19 million
at December 31, 2019.
Former Rio Tinto Joint Venture. On December 21, 2018, PT-FI
acquired Rio Tinto’s interest in the joint venture and is
consolidating 100 percent of the Indonesia operations (refer to
Note 2 for discussion of the PT-FI divestment). Pursuant to
Rio Tinto’s previous joint venture agreement with PT-FI,
Rio Tinto had a 40 percent interest in certain assets and future
production exceeding specified annual amounts of copper,
gold and silver through 2022 in Block A of PT-FI’s former
Contract of Work (COW), and, after 2022, a 40 percent interest
in all production from Block A.
NOTE 4. INVENTORIES, INCLUDING
LONG-TERM MILL AND LEACH STOCKPILES
The components of inventories follow:
FCX recorded NRV inventory adjustments to decrease metals
inventory carrying values totaling $96 million in 2020,
associated with lower market prices for copper ($58 million)
and molybdenum ($38 million); $179 million in 2019, associated
with lower market prices for molybdenum ($84 million),
cobalt ($58 million) and copper ($37 million); and $4 million in
2018. Refer to Note 16 for metals inventory adjustments by
business segment.
NOTE 5. PROPERTY, PLANT, EQUIPMENT
AND MINE DEVELOPMENT COSTS, NET
The components of net property, plant, equipment and mine
development costs follow:
December 31,
Proven and probable mineral reserves
VBPP
Mine development and other
Buildings and infrastructure
Machinery and equipment
Mobile equipment
Construction in progress
Oil and gas properties
Total
Accumulated depreciation, depletion, and amortizationa
Property, plant, equipment and mine
2020
2019
$ 7,142
376
10,686
9,214
14,235
4,495
1,454
27,281
74,883
(45,065)
$ 7,087
465
8,180
8,435
13,312
4,320
4,265
27,293
73,357
(43,773)
development costs, net
$ 29,818
$ 29,584
a. Includes accumulated amortization for oil and gas properties of $27.3 billion at December 31, 2020
December 31,
2020
2019
and 2019.
Current inventories:
Total materials and supplies, neta
Mill stockpiles
Leach stockpiles
Total current mill and leach stockpiles
Raw materials (primarily concentrate)
Work-in-process
Finished goods
Total product
Long-term inventories:
Mill stockpiles
Leach stockpiles
Total long-term mill and leach stockpilesb
$ 1,594
$ 205
809
$ 1,014
$ 366
174
745
$ 1,285
$ 223
1,240
$ 1,463
$ 1,649
$ 220
923
$ 1,143
$ 318
124
839
$ 1,281
$ 181
1,244
$ 1,425
a. Materials and supplies inventory was net of obsolescence reserves totaling $32 million at
December 31, 2020, and $24 million at December 31, 2019.
b. Estimated metals in stockpiles not expected to be recovered within the next 12 months.
FCX recorded $1.6 billion for VBPP in connection with the
FMC acquisition in 2007 (excluding $634 million associated
with mining operations that were subsequently sold) and
transferred $811 million to proven and probable mineral reserves
through 2020 (less than $0.1 million in 2020 and none in 2019).
Cumulative impairments of and adjustments to VBPP total
$497 million, which were primarily recorded in 2008.
Capitalized interest, which primarily related to FCX’s mining
operations’ capital projects, totaled $147 million in 2020,
$149 million in 2019 and $96 million in 2018.
During 2020 and 2019, no material impairments of FCX’s
long-lived mining assets were recorded.
81
NOTES TO CONSOLIDATED FINANCIAL STATEMENTSNOTES TO CONSOLIDATED FINANCIAL STATEMENTS2020 ANNUAL REPORT
NOTE 6. OTHER ASSETS
The components of other assets follow:
December 31,
2020
2019
Disputed tax assessments:a
PT-FI
Cerro Verde
Long-term receivable for taxesb
Intangible assetsc
Investments:
Assurance bondd
PT Smeltinge
Fixed income, equity securities and other
Legally restricted fundsf
Contingent consideration associated with sales of assetsg
Long-term employee receivables
Timok transaction receivable (refer to Note 2)
Other
Total other assets
$ 143
190
106
401
148
77
70
213
96
19
12
85
$ 1,560
$ 178
187
290
402
157
80
66
196
115
22
58
134
$ 1,885
a. Refer to Note 12 for further discussion.
b. Includes tax overpayments and refunds not expected to be realized within the next 12 months
(refer to Note 11).
c. Indefinite-lived intangible assets totaled $215 million at both December 31, 2020, and December 31,
2019. Accumulated amortization of definite-lived intangible assets totaled $32 million at December 31,
2020, and $54 million at December 31, 2019.
d. Relates to PT-FI’s commitment for the development of a new smelter in Indonesia (refer to Note 13
for further discussion).
e. PT-FI’s 25 percent ownership in PT Smelting (smelter and refinery in Gresik, Indonesia) is recorded
using the equity method. Amounts were reduced by unrecognized profits on sales from PT-FI to
PT Smelting totaling $39 million at December 31, 2020, and $29 million at December 31, 2019. Trade
accounts receivable from PT Smelting totaled $265 million at December 31, 2020, and $261 million
at December 31, 2019.
Includes $212 million at December 31, 2020, and $196 million at December 31, 2019, held in trusts for
AROs related to properties in New Mexico (refer to Note 12 for further discussion).
f.
g. Refer to Note 15 for further discussion.
NOTE 7. ACCOUNTS PAYABLE AND
ACCRUED LIABILITIES
The components of accounts payable and accrued liabilities
follow:
December 31,
2020
2019
Accounts payable
Salaries, wages and other compensation
Accrued interesta
PT-FI contingenciesb
Pension, postretirement, postemployment and
other employee benefitsc
Legal matters
Accrued taxes, other than income taxes
Deferred revenue
Leasesd
Other
Total accounts payable and accrued liabilities
$ 1,473
312
243
196
91
86
76
65
38
128
$ 2,708
$ 1,654
249
178
115
69
88
79
12
44
88
$ 2,576
a. Third-party interest paid, net of capitalized interest, was $472 million in 2020, $591 million in 2019
and $500 million in 2018.
b. Refer to Note 12 for further discussion.
c. Refer to Note 9 for long-term portion.
d. Refer to Note 13 for further discussion.
NOTE 8. DEBT
FCX’s debt at December 31, 2020, included additions of $10 million
($11 million at December 31, 2019) for unamortized fair value
adjustments, and is net of reductions of $85 million ($66 million
at December 31, 2019) for unamortized net discounts and
unamortized debt issuance costs. The components of debt follow:
December 31,
Revolving credit facility
Cerro Verde Term Loan
Senior notes and debentures:
Issued by FCX:
4.00% Senior Notes due 2021
3.55% Senior Notes due 2022
3.875% Senior Notes due 2023
4.55% Senior Notes due 2024
5.00% Senior Notes due 2027
4.125% Senior Notes due 2028
4.375% Senior Notes due 2028
5.25% Senior Notes due 2029
4.25% Senior Notes due 2030
4.625% Senior Notes due 2030
5.40% Senior Notes due 2034
5.450% Senior Notes due 2043
Issued by FMC:
7⅛% Debentures due 2027
9½% Senior Notes due 2031
6⅛% Senior Notes due 2034
Other
Total debt
Less current portion of debt
Long-term debt
2020
2019
$ —
523
$ —
826
—
523
994
728
593
691
642
593
592
840
742
1,845
115
124
117
49
9,711
(34)
$ 9,677
194
1,876
1,917
846
592
—
—
592
—
—
741
1,844
115
125
117
41
9,826
(5)
$ 9,821
Revolving Credit Facility. At December 31, 2020, FCX had no
borrowings outstanding and $10 million in letters of credit
issued under its revolving credit facility, resulting in availability
of approximately $3.5 billion, of which approximately $1.5 billion
could be used for additional letters of credit. Availability under
FCX’s revolving credit facility consists of $3.28 billion maturing
April 2024 and $220 million maturing April 2023. For PT-FI,
$500 million of the revolving credit facility is available.
FCX’s revolving credit facility contains customary affirmative
covenants and representations, and also contains a number
of negative covenants that, among other things, restrict,
subject to certain exceptions, the ability of FCX’s subsidiaries
that are not borrowers or guarantors to incur additional
indebtedness (including guarantee obligations) and FCX’s or its
subsidiaries’ abilities to: create liens on assets; enter into sale
and leaseback transactions; engage in mergers, liquidations
and dissolutions; and sell assets. FCX’s revolving credit
facility also contains financial ratios governing maximum total
leverage and minimum interest expense coverage.
82
Fr e e p or t-M cM oR a n
NOTES TO CONSOLIDATED FINANCIAL STATEMENTSNOTES TO CONSOLIDATED FINANCIAL STATEMENTS
In June 2020, FCX, PT-FI and Freeport-McMoRan Oil & Gas LLC
(FM O&G LLC) amended the $3.5 billion, unsecured revolving
credit facility. The key changes under the amendment include
(i) suspension of the total leverage ratio (ratio of total debt to
consolidated earnings before interest, taxes, depreciation and
amortization (EBITDA), as defined in the credit agreement)
through June 30, 2021, followed by a limit of 5.25x beginning with
the quarter ended September 30, 2021, and stepping down to
3.75x beginning January 1, 2022; and (ii) a reduction in the
interest expense coverage ratio (ratio of consolidated EBITDA to
consolidated cash interest expense, as defined in the credit
agreement) to a minimum of 2.00x through December 31, 2021,
reverting to 2.25x beginning January 1, 2022. FCX also
agreed to a minimum liquidity covenant of $1 billion (consisting
of consolidated unrestricted cash and availability under the
revolving credit facility) applicable to each quarter through
June 30, 2021, and additional restrictions on priority debt and
liens, and the payment of common stock dividends through
December 31, 2021. At December 31, 2020, FCX was in
compliance with all of its covenants.
As further discussed in Note 10, in February 2021, the FCX
Board of Directors (the Board) reinstated a cash dividend on
FCX’s common stock. Prior to the Board’s declaration of the
initial quarterly dividend, FCX will deliver a covenant reversion
notice, at which time the financial covenants and other
restrictions, including the dividend restriction, will revert to
the limits applicable prior to the June 2020 amendment.
Interest on loans made under the revolving credit facility is,
at the option of FCX, determined based on the adjusted London
Interbank Offered rate (LIBOR) or the alternate base rate (each
as defined in the revolving credit facility) plus a spread to be
determined by reference to FCX’s credit ratings.
Certain of FCX’s debt agreements, including our revolving
credit facility, reference LIBOR and other interbank offered
rates, which are being phased out and replaced with
alternative reference rates. FCX does not expect the transition
from LIBOR and other interbank offered rates to have a
material impact on its consolidated financial results.
Cerro Verde Term Loan. Repayments of the Cerro Verde
Term Loan totaled $305 million in 2020, $200 million in
2019 and $470 million in 2018, with the remaining balance of
$525 million due on the maturity date of June 19, 2022.
Interest under the Term Loan is based on LIBOR plus a spread
based on Cerro Verde’s total net debt to EBITDA ratio as
defined in the agreement. The interest rate on Cerro Verde’s
Term Loan was 2.05 percent at December 31, 2020.
FCX recorded net losses of $1 million in 2020, $1 million
in 2019 and $3 million in 2018, associated with Cerro Verde’s
prepayments on its Term Loan.
Cerro Verde Shareholder Loans. In December 2014,
Cerro Verde entered into loan agreements with three of its
shareholders for borrowings up to $800 million. No amounts
were outstanding at December 31, 2020 and 2019, and
availability under these agreements totals $200 million at
December 31, 2020.
Senior Notes. In July 2020, FCX completed the sale of
$650 million of 4.375% Senior Notes due 2028 and $850 million
of 4.625% Senior Notes due 2030 for proceeds, net of
underwriting fees, totaling $1.485 billion. Interest on these
senior notes is payable semiannually on February 1 and August 1
of each year. FCX used $1.4 billion of the net proceeds from
this offering to purchase a portion of its outstanding 3.55%
Senior Notes due 2022, 3.875% Senior Notes due 2023 and
4.55% Senior Notes due 2024, and the payment of accrued and
unpaid interest, premiums, fees and expenses in connection
with these transactions. The remaining net proceeds from this
offering were used for general corporate purposes.
In March 2020, FCX completed the sale of $700 million of
4.125% Senior Notes due 2028 and $600 million of 4.25% Senior
Notes due 2030 for proceeds, net of underwriting fees, totaling
$1.285 billion. Interest on these senior notes is payable
semiannually on March 1 and September 1 of each year. FCX
used a portion of the net proceeds from this offering to
purchase a portion of its 4.00% Senior Notes due 2021 and its
3.55% Senior Notes due 2022 and the payment of accrued and
unpaid interest, premiums, fees and expenses in connection
with these transactions. In April 2020, FCX used the remaining
net proceeds to fund the make-whole redemption of all of
its remaining 4.00% Senior Notes due 2021 and the payment of
accrued and unpaid interest, premiums, fees and expenses in
connection with the transaction.
In August 2019, FCX sold $600 million of 5.00% Senior Notes
due 2027 and $600 million of 5.25% Senior Notes due 2029 for
total net proceeds of $1.187 billion. Interest on these senior
notes is payable semiannually on March 1 and September 1 of
each year. FCX used the net proceeds from this offering to fund
the make-whole redemption of all of its outstanding 6.875%
Senior Notes due 2023, and the concurrent tender offers to
purchase a portion of its 4.00% Senior Notes due 2021 and its
3.55% Senior Notes due 2022, and the payment of accrued and
unpaid interest, premiums, fees and expenses in connection
with these transactions.
83
NOTES TO CONSOLIDATED FINANCIAL STATEMENTSNOTES TO CONSOLIDATED FINANCIAL STATEMENTS2020 ANNUAL REPORT During 2020, 2019 and 2018, FCX redeemed in full or
Guarantees. All of the senior notes issued by FCX are
purchased a portion of the following senior notes.
Year Ended December 31, 2020
FCX 4.00% Senior Notes due 2021
FCX 3.55% Senior Notes due 2022
FCX 3.875% Senior Notes due 2023
FCX 4.55% Senior Notes due 2024
Total
Year Ended December 31, 2019
FCX 3.100% Senior Notes due 2020
FCX 6.875% Senior Notes due 2023
FCX 4.00% Senior Notes due 2021
FCX 3.55% Senior Notes due 2022
Total
Year Ended December 31, 2018
FCX 6.75% Senior Notes due 2022
FM O&G LLC 6⅞% Senior Notes
due 2023
Total
Principal
Book
Net
Amount Adjustments Value
Redemption/
Tender
Value
Loss/
(Gain)
$ 195
1,356
927
120
$ 2,598
$ 1,000
728
405
12
$ 2,145
$ (1) $ 194
1,350
923
119
$ (12) $ 2,586
(6)
(4)
(1)
$ 205 $ 11
41
1,391
41
964
7
126
$ 2,686 $ 100
$ (2) $ 998
762
34
403
(2)
12
—
$ 2,175
$ 30
$ 1,003 $ 5
6
768
15
418
—
12
$ 2,201 $ 26
$ 404
$ 22
$ 426
$ 418 $
(8)
50
$ 454
4
$ 26
54
$ 480
52
(2)
$ 470 $ (10)
The senior notes listed below are redeemable in whole or in
part, at the option of FCX, at a make-whole redemption price
prior to the dates stated below, at specified redemption prices
beginning on the dates stated below and at 100 percent of
principal two years before maturity.
Debt Instrument
5.00% Senior Notes due 2027
4.125% Senior Notes due 2028
4.375% Senior Notes due 2028
5.25% Senior Notes due 2029
4.25% Senior Notes due 2030
4.625% Senior Notes due 2030
Date
September 1, 2022
March 1, 2023
August 1, 2023
September 1, 2024
March 1, 2025
August 1, 2025
The senior notes listed below are redeemable in whole or in
part, at the option of FCX, at a make-whole redemption price
prior to the dates stated below, and beginning on the dates
stated below at 100 percent of principal.
Debt Instrument
3.55% Senior Notes due 2022
3.875% Senior Notes due 2023
4.55% Senior Notes due 2024
5.40% Senior Notes due 2034
5.450% Senior Notes due 2043
Date
December 1, 2021
December 15, 2022
August 14, 2024
May 14, 2034
September 15, 2042
FCX’s senior notes contain limitations on liens and rank
equally with FCX’s other existing and future unsecured and
unsubordinated indebtedness.
fully and unconditionally guaranteed on a senior basis
jointly and severally by FM O&G LLC, as guarantor, which
is a 100-percent-owned subsidiary of FM O&G and FCX.
Maturities. Maturities of debt instruments based on the
principal amounts and terms outstanding at December 31,
2020, total $36 million in 2021, $1.05 billion in 2022, $1.0 billion
in 2023, $730 million in 2024, none in 2025 and 2026 and
$7.0 billion thereafter.
NOTE 9. OTHER LIABILITIES, INCLUDING
EMPLOYEE BENEFITS
The components of other liabilities follow:
December 31,
Pension, postretirement, postemployment and
other employment benefitsa
Cerro Verde royalty dispute
Provision for tax positions
Leasesb
Other
Total other liabilities
a. Refer to Note 7 for current portion.
b. Refer to Note 13 for further discussion.
2020
2019
$ 1,213
376
261
190
229
$ 2,269
$ 1,318
502
255
204
212
$ 2,491
Pension Plans. Following is a discussion of FCX’s pension plans.
FMC Plans. FMC has U.S. trusteed, non-contributory
pension plans covering some U.S. employees and some
employees of its international subsidiaries hired before 2007.
The applicable FMC plan design determines the manner
in which benefits are calculated for any particular group of
employees. Benefits are calculated based on final average
monthly compensation and years of service or based on a
fixed amount for each year of service. Non-bargained FMC
employees hired after December 31, 2006, are not eligible
to participate in the FMC U.S. pension plan. See below for
discussion of a 2020 plan amendment.
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 FMC
plan assets held in a master trust (Master Trust) includes
the periodic development of asset allocation studies and review
of the liabilities to determine expected long-term rates of
return and expected risk for various investment portfolios.
84
Fr e e p or t-M cM oR a n
NOTES TO CONSOLIDATED FINANCIAL STATEMENTSNOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FCX’s retirement plan administration and investment committee
considers these studies in the formal establishment of asset-
mix targets defined in the investment policy. FCX’s investment
objective emphasizes diversification through both the allocation
of the Master Trust assets among various 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 approximates
40 percent equity investments (primarily developed market
equities), 52 percent fixed income (primarily long-term
treasury STRIPS or “separate trading or registered interest
and principal securities”; long-term U.S. treasury/agency
bonds; global fixed income securities; long-term, high-credit
quality corporate bonds; high-yield and emerging markets
fixed income securities; and fixed income debt securities) and
8 percent alternative investments (private real estate, real
estate investment trusts and private equity).
The expected rate of return on plan assets is evaluated at
least annually, taking into consideration asset allocation,
historical and expected future performance on the types of
assets held in the Master Trust, and the current economic
environment. Based on these factors, FCX expects the pension
assets will earn an average of 5.25 percent per annum
beginning January 1, 2021, which was based on the target asset
allocation and long-term capital market return expectations.
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 costs, 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 costs 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 pension 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 Mercer Yield Curve—Above
Mean. The Mercer Yield Curve—Above Mean is constructed
from the bonds in the Mercer Pension Discount Curve that
have a yield higher than the regression mean yield curve. The
Mercer Yield Curve—Above Mean consists of spot (i.e., zero
coupon) interest rates at one-half-year increments for each of
the next 30 years and is developed based on pricing and yield
information for high-quality corporate bonds. Changes in
the discount rate are reflected in FCX’s benefit obligation and,
therefore, in future pension costs.
SERP Plan. FCX has an unfunded Supplemental Executive
Retirement Plan (SERP) for its chief executive officer. The
SERP provides for retirement benefits payable in the form of a
joint and survivor annuity, life annuity or an equivalent lump
sum, which is determined on January 1 of the year in which the
participant completed 25 years of credited service. The annuity
will equal a percentage of the participant’s highest average
compensation for any consecutive three-year period during the
five years immediately preceding the completion of 25 years
of credited service. The SERP benefit will be reduced by the
value of all benefits from current and former retirement plans
(qualified and nonqualified) sponsored by FCX, by FM Services
Company, FCX’s wholly owned subsidiary, or by any predecessor
employer (including FCX’s former parent company), except
for benefits produced by accounts funded exclusively by
deductions from the participant’s pay.
PT-FI Plan. PT-FI has a defined benefit pension plan
denominated in Indonesia rupiah covering substantially all of
its Indonesia national employees. PT-FI funds the plan and
invests the assets in accordance with Indonesia pension
guidelines. The pension obligation was valued at an exchange
rate of 14,034 rupiah to one U.S. dollar on December 31, 2020,
and 13,832 rupiah to one U.S. dollar on December 31, 2019.
Indonesia labor laws 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-FI’s pension benefit obligation
includes benefits determined in accordance with this law.
PT-FI’s expected rate of return on plan assets is evaluated at
least annually, taking into consideration its long-range
estimated return for the plan based on the asset mix. Based on
these factors, PT-FI expects its pension assets will earn an
average of 7.75 percent per annum beginning January 1, 2021.
The discount rate assumption for PT-FI’s plan is based on
the Indonesia Government Security Yield Curve. Changes in
the discount rate are reflected in PT-FI’s benefit obligation
and, therefore, in future pension costs.
85
NOTES TO CONSOLIDATED FINANCIAL STATEMENTSNOTES TO CONSOLIDATED FINANCIAL STATEMENTS2020 ANNUAL REPORT Plan Information. FCX uses a measurement date of December 31
for its plans. Information for qualified and non-qualified plans
where the projected benefit obligations and the accumulated
benefit obligations exceed the fair value of plan assets follows:
December 31,
Projected benefit obligation
Accumulated benefit obligation
Fair value of plan assets
2020
$ 2,666
2,664
1,884
2019
$ 2,522
2,361
1,615
Information on the qualified and non-qualified FCX (FMC and
SERP plans) and PT-FI plans as of December 31 follows:
Change in benefit obligation:
Benefit obligation at beginning
of year
Service cost
Interest cost
Actuarial losses (gains)
Foreign exchange losses (gains)
Curtailment
Benefits and administrative
expenses paid
Benefit obligation at end of year
Change in plan assets:
Fair value of plan assets at
beginning of year
Actual return on plan assets
Employer contributionsa
Foreign exchange gains (losses)
Benefits and administrative
FCX
PT-FI
2020
2019
2020
2019
$ 2,576
37
77
308
1
(154)
$ 2,230
42
95
328
1
—
$ 217
11
14
12
(2)
—
$ 220
12
17
(27)
8
—
(123)
2,722
(120)
2,576
(14)
238
(13)
217
1,677
272
119
1
1,433
289
74
1
254
13
2
(4)
238
19
—
10
expenses paid
(123)
(120)
(14)
(13)
Fair value of plan assets at end
of year
Funded status
1,946
1,677
251
$ (776)
$ (899)
$ 13
Accumulated benefit obligation
$ 2,719
$ 2,414
$ 194
254
$ 37
$ 175
Weighted-average assumptions used
to determine benefit obligations:
Discount rate
Rate of compensation increase
Balance sheet classification of
funded status:
Other assets
Accounts payable and accrued
liabilities
Other liabilities
Total
2.50%
—%
3.40%
3.25%
6.25%
4.00%
7.25%
4.00%
$
7
$
8
$ 13
$ 37
(4)
(779)
$ (776)
(4)
(903)
$ (899)
—
—
$ 13
—
—
$ 37
a. Employer contributions for 2021 are expected to approximate $64 million for the FCX plans and
$2 million for the PT-FI plan (based on a December 31, 2020, exchange rate of 14,034 Indonesia rupiah
to one U.S. dollar).
In August 2020, the FMC Retirement Plan, the largest FMC plan,
was amended such that, effective September 1, 2020,
participants no longer accrue any additional benefits under
the FMC Retirement Plan. As a result, FCX remeasured its
pension assets and benefit obligation as of July 31, 2020. The
discount rate and expected long-term rate of return on the
plan assets used for the July 31, 2020, remeasurement were
2.40 percent and 6.25 percent, respectively. The rate of
compensation increase was unchanged (3.25 percent). The
remeasurement and curtailment resulted in the projected
benefit obligation increasing by $184 million and plan assets
increasing by $103 million. In addition, FCX recognized a
curtailment loss of $4 million in third-quarter 2020.
During 2020, the actuarial loss of $308 million for the FCX
pension plans primarily resulted from the decrease in the
discount rate from 3.40 percent to 2.50 percent, offset by the
FMC Retirement Plan amendment to discontinue additional
benefits. During 2019, the actuarial loss of $328 million for
the FCX pension plans primarily resulted from the decrease
in the discount rate from 4.40 percent to 3.40 percent.
During 2020, the actuarial loss of $12 million for the PT-FI
pension plan primarily resulted from the decrease in the
discount rate from 7.25 percent to 6.25 percent. During 2019,
the actuarial gain of $27 million for the PT-FI pension plan
primarily resulted from a change in the estimated plan
administration costs, partially offset by a decrease in the
discount rate from 8.25 percent to 7.25 percent.
The weighted-average assumptions used to determine
net periodic benefit cost and the components of net periodic
benefit cost for FCX’s pension plans for the years ended
December 31 follow:
Weighted-average assumptions:a
Discount rate
Expected return on plan assets
Rate of compensation increase
Service cost
Interest cost
Expected return on plan assets
Amortization of net actuarial losses
Curtailment loss
Net periodic benefit cost
2020
2019
2018
2.98%
6.25%
3.25%
4.40%
6.50%
3.25%
3.70%
6.50%
3.25%
$ 37
77
(105)
45
4
$ 58
$ 42
95
(90)
48
—
$ 95
$ 44
84
(101)
49
—
$ 76
a. The assumptions shown relate only to the FMC Retirement Plan.
86
Fr e e p or t-M cM oR a n
NOTES TO CONSOLIDATED FINANCIAL STATEMENTSNOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The weighted-average assumptions used to determine
net periodic benefit cost and the components of net periodic
benefit cost for PT-FI’s pension plan for the years ended
December 31 follow:
Weighted-average assumptions:
Discount rate
Expected return on plan assets
Rate of compensation increase
Service cost
Interest cost
Expected return on plan assets
Amortization of prior service cost
Amortization of net actuarial gains
Net periodic benefit cost
2020
2019
2018
7.25%
7.75%
4.00%
8.25%
8.25%
4.00%
6.75%
6.75%
4.00%
$ 11
14
(19)
2
(3)
$ 5
$ 12
17
(17)
1
(1)
$ 12
$ 13
14
(19)
2
(1)
$ 9
The service cost component of net periodic benefit cost is
included in operating income, and the other components are
included in other income (expense), net in the consolidated
statements of operations.
Included in accumulated other comprehensive loss are
the following amounts that have not been recognized in net
periodic pension cost as of December 31:
Net actuarial losses
Prior service costs
2020
After Taxes and
Before Noncontrolling
Taxes
Interests
2019
After Taxes and
Before Noncontrolling
Taxes
Interests
$ 673
6
$ 679
$ 558
1
$ 559
$ 710
11
$ 721
$ 604
6
$ 610
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 prices derived using significant
observable inputs (Level 2) and the lowest priority to prices
derived using significant unobservable inputs (Level 3).
A summary of the fair value for pension plan assets,
including those measured at net asset value (NAV) as a practical
expedient, associated with the FCX plans follows:
Fair Value at December 31, 2020
Total
NAV
Level 1 Level 2 Level 3
Commingled/collective funds:
Global equity
Fixed income securities
International small-cap equity
Real estate property
U.S. real estate securities
Short-term investments
U.S. small-cap equity
Fixed income:
Corporate bonds
Government bonds
Global large-cap equity securities
Private equity investments
Other investments
Total investments
Cash and receivables
Payables
Total pension plan net assets
$ 527
404
76
59
51
51
25
381
181
109
10
55
1,929
100
(83)
$ 1,946
$ 527
404
76
59
51
51
25
—
—
—
10
—
$ 1,203
$ —
—
—
—
—
—
—
—
—
109
—
1
$ 110
$ —
—
—
—
—
—
—
381
181
—
—
54
$ 616
$ —
—
—
—
—
—
—
—
—
—
—
—
$ —
Fair Value at December 31, 2019
Total
NAV
Level 1 Level 2 Level 3
Commingled/collective funds:
Global equity
Fixed income securities
U.S. small-cap equity
Real estate property
International small-cap equity
U.S. real estate securities
Short-term investments
Fixed income:
Government bonds
Corporate bonds
Global large-cap equity securities
Private equity investments
Other investments
Total investments
Cash and receivables
Payables
Total pension plan net assets
$ 425
239
67
58
55
53
16
279
256
107
11
64
1,630
86
(39)
$ 1,677
$ 425
239
67
58
55
53
16
—
—
—
11
—
$ 924
$ —
—
—
—
—
—
—
—
—
107
—
14
$ 121
$ —
—
—
—
—
—
—
279
256
—
—
50
$ 585
$ —
—
—
—
—
—
—
—
—
—
—
—
$ —
87
NOTES TO CONSOLIDATED FINANCIAL STATEMENTSNOTES TO CONSOLIDATED FINANCIAL STATEMENTS2020 ANNUAL REPORT
Following is a description of the pension plan asset categories
and the valuation techniques used to measure fair value.
There have been no changes to the techniques used to measure
fair value.
Commingled/collective funds are managed by several fund
managers and are valued at the NAV per unit of the fund. For
most of these funds, the majority of the underlying assets are
actively traded securities. These funds (except the real estate
property fund) require up to a 15-calendar-day notice for
redemptions. The real estate property fund is valued at NAV
using information from independent appraisal firms, who
have knowledge and expertise about the current market values
of real property in the same vicinity as the investments.
Redemptions of the real estate property fund are allowed once
per quarter, subject to available cash.
Fixed income investments include government and corporate
bonds held directly by the Master Trust. Fixed income securities
are valued using a bid-evaluation price or a mid-evaluation
price and, as such, are classified within Level 2 of the fair value
hierarchy. A bid-evaluation price is an estimated price at which
a dealer would pay for a security. A mid-evaluation price is the
average of the estimated price at which a dealer would sell
a security and the estimated price at which a dealer would pay
for a security. These evaluations are based on quoted prices,
if available, or models that use observable inputs.
Common stocks included in global large-cap equity
securities and preferred stocks included in other investments
are valued at the closing price reported on the active market
on which the individual securities are traded and, as such, are
classified within Level 1 of the fair value hierarchy.
Private equity investments are valued at NAV using information
from general partners and have inherent restrictions on
redemptions that may affect the ability to sell the investments
at their NAV in the near term.
88
Fr e e p or t-M cM oR a n
A summary of the fair value hierarchy for pension plan
assets associated with the PT-FI plan follows:
Fair Value at December 31, 2020
Level 1 Level 2
Level 3
Total
Government bonds
Common stocks
Mutual funds
Total investments
Cash and receivablesa
Payables
Total pension plan net assets
$ 117
77
18
212
41
(2)
$ 251
$ 117
77
18
$ 212
$ —
—
—
$ —
$ —
—
—
$ —
Fair Value at December 31, 2019
Level 1 Level 2
Level 3
Total
Government bonds
Common stocks
Mutual funds
Total investments
Cash and receivablesa
Payables
Total pension plan net assets
a. Cash consists primarily of short-term time deposits.
$ 93
80
17
$ 190
$ —
—
—
$ —
$ —
—
—
$ —
$ 93
80
17
190
65
(1)
$ 254
Following is a description of the valuation techniques used for
pension plan assets measured at fair value associated with
the PT-FI plan. There have been no changes to the techniques
used to measure fair value.
Government bonds, common stocks and mutual funds are
valued at the closing price reported on the active market
on which the individual securities are traded and, as such, are
classified within Level 1 of the fair value hierarchy.
The techniques described above may produce a fair value
calculation that may not be indicative of NRV or reflective of
future fair values. Furthermore, while FCX believes its
valuation techniques are appropriate and consistent with
those used by 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.
The expected benefit payments for FCX’s and PT-FI’s pension
plans follow:
2021
2022
2023
2024
2025
2026 through 2030
FCX
$ 127
174
129
131
132
655
PT-FIa
$ 16
21
29
31
28
154
a. Based on a December 31, 2020, exchange rate of 14,034 Indonesia rupiah to one U.S. dollar.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTSNOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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.
The benefit obligation (funded status) for the postretirement
medical and life insurance benefit plans consisted of a current
portion of $7 million (included in accounts payable and accrued
liabilities) and a long-term portion of $69 million (included
in other liabilities) at December 31, 2020, and a current portion
of $13 million and a long-term portion of $112 million at
December 31, 2019. The decrease in the benefit obligation from
December 31, 2019, to December 31, 2020, is primarily a
result of a plan amendment that modified the benefit for most
Medicare eligible retirees effective January 1, 2021. The
discount rate used to determine the benefit obligation for these
plans, which was determined on the same basis as FCX’s
pension plans, was 2.21 percent at December 31, 2020, and
3.00 percent at December 31, 2019. Expected benefit payments
for these plans total $8 million for 2021, $7 million for 2022,
$7 million for 2023, $6 million for 2024, $6 million for 2025 and
$23 million for 2026 through 2030.
The net periodic benefit cost charged to operations for
FCX’s postretirement benefits (primarily for interest costs)
totaled $3 million in 2020, $4 million in 2019 and $5 million in
2018. The discount rate used to determine net periodic benefit
cost and the components of net periodic benefit cost for FCX’s
postretirement benefits was 3.00 percent in 2020, 4.20 percent
in 2019 and 3.50 percent in 2018. The medical-care trend
rates assumed the first year trend rate was 7.50 percent at
December 31, 2020, which declines over the next 15 years
with an ultimate trend rate of 4.25 percent.
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
obligation consisted of a current portion of $6 million (included
in accounts payable and accrued liabilities) and a long-term
portion of $42 million (included in other liabilities) at
December 31, 2020, and a current portion of $7 million and a
long-term portion of $44 million at December 31, 2019.
FCX also sponsors savings plans for the majority of its
U.S. employees. The plans allow employees to contribute a
portion of their 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 contributes to these plans
at varying rates and matches a percentage of employee
contributions up to certain limits, which vary by plan. For
employees whose eligible compensation exceeds certain
levels, FCX provides an unfunded defined contribution plan,
which had a liability balance of $49 million at December 31,
2020, and $46 million at December 31, 2019, all of which was
included in other liabilities.
The costs charged to operations for employee savings plans
totaled $40 million in 2020, $85 million in 2019 and $75 million
in 2018. The decrease in costs for 2020, compared with 2019,
resulted from a temporary suspension of FCX contributions to
certain plans implemented as part of its April 2020 revised
operating plans. FCX contributions resumed on January 1,
2021. FCX has other employee benefit plans, certain of which
are related to FCX’s financial results, which are recognized
in operating costs.
NOTE 10. STOCKHOLDERS’ EQUITY AND
STOCK-BASED COMPENSATION
FCX’s authorized shares of capital stock total 3.05 billion
shares, consisting of 3.0 billion shares of common stock and
50 million shares of preferred stock.
Common Stock. In March 2020, in response to the COVID-19
pandemic and resulting global economic uncertainties, the
Board suspended FCX’s quarterly cash dividend of $0.05 per
share. In February 2021, the Board reinstated a cash dividend
on FCX’s common stock at an annual rate of $0.30 per share.
The Board also adopted a new financial policy for the
allocation of cash flows aligned with its strategic objectives of
maintaining a strong balance sheet, increasing cash returns
to shareholders and advancing opportunities for future growth.
Under the new policy, up to 50 percent of available cash
flows generated after planned capital spending and distributions
to noncontrolling interests would be allocated to shareholder
returns and the balance to debt reduction and investments
in value enhancing growth projects. The new payout policy will
be implemented following achievement of a net debt (total
consolidated debt less total consolidated cash and cash
equivalents) target in the range of $3 billion to $4 billion,
excluding project debt for additional smelter capacity in
Indonesia. The declaration and payment of future dividends is
at the discretion of the Board and will be assessed on an
89
NOTES TO CONSOLIDATED FINANCIAL STATEMENTSNOTES TO CONSOLIDATED FINANCIAL STATEMENTS2020 ANNUAL REPORT ongoing basis, taking into account FCX’s financial results,
cash requirements, future prospects, global economic
conditions and other factors deemed relevant by the Board.
Accumulated Other Comprehensive Loss. A summary
of changes in the balances of each component of accumulated
other comprehensive loss, net of tax, follows:
Balance at January 1, 2018
Adoption of accounting standard for reclassification of income taxes
Amounts arising during the perioda,b
Amounts reclassifiedc
Sale of interest in PT-FI (refer to Note 2)
Balance at December 31, 2018
Amounts arising during the perioda,b
Amounts reclassifiedc
Balance at December 31, 2019
Amounts arising during the perioda,b
Amounts reclassifiedc
Balance at December 31, 2020
Defined
Benefit Plans
Unrealized Losses
on Securities
Translation
Adjustment
$ (494)
(79)
(84)
48
(6)
(615)
(118)
47
(686)
47
46
$ (593)
$ (3)
—
—
3
—
—
—
—
—
—
—
$ —
$ 10
—
—
—
—
10
—
—
10
—
—
$ 10
Total
$ (487)
(79)
(84)
51
(6)
(605)
(118)
47
(676)
47
46
$ (583)
a. Includes net actuarial (losses) gains, net of noncontrolling interest, totaling $(87) million for 2018, $(111) million for 2019 and $40 million for 2020.
b. Includes tax provision (benefit) totaling $4 million for 2018, $(8) million for 2019 and $7 million for 2020.
c. Includes amortization primarily related to actuarial losses, net of taxes of less than $1 million for 2018, 2019 and 2020.
Stock Options. Stock options granted under the plans generally
expire 10 years after the date of grant. Stock options granted
prior to 2018 generally vest in 25 percent annual increments;
beginning in 2018, awards granted vest in 33 percent annual
increments beginning one year from the date of grant. The
award agreements provide that participants will receive the
following year’s vesting upon retirement. Therefore, on
the date of grant, FCX accelerates one year of amortization for
retirement-eligible employees. Stock options provide for
accelerated vesting only upon certain qualifying terminations
of employment within one year following a change of control.
A summary of stock options outstanding as of December 31,
2020, and activity during the year ended December 31,
2020, follows:
Weighted-
Average
Exercise Price
Per Share
Weighted-
Average
Remaining Aggregate
Intrinsic
Contractual
Value
Term (years)
Balance at January 1
Granted
Exercised
Expired/Forfeited
Balance at December 31
Vested and exercisable at
December 31
Number of
Options
48,312,053
3,803,000
(6,240,340)
(8,774,615)
37,100,098
$ 26.16
12.04
9.09
34.62
25.58
30,045,828
28.71
4.6
3.7
$ 259
$ 162
Stock Award Plans. FCX currently has awards outstanding
under various stock-based compensation plans. The
stockholder-approved 2016 Stock Incentive Plan (the 2016
Plan) provides for the issuance of stock options, stock
appreciation rights, restricted stock, RSUs, PSUs and other
stock-based awards for up to 72 million common shares. As of
December 31, 2020, 39.7 million shares were available for
grant under the 2016 Plan, and no shares were available under
other plans.
Stock-Based Compensation Cost. Compensation cost charged
against earnings for stock-based awards for the years ended
December 31 follows:
Selling, general and administrative expenses
Production and delivery
Total stock-based compensation
Tax benefit and noncontrolling interests’ sharea
Impact on net income (loss)
2020
2019
2018
$ 70
29
99
(5)
$ 94
$ 48
15
63
(4)
$ 59
$ 62
12
74
(4)
$ 70
a. Charges in the U.S. are not expected to generate a future tax benefit.
90
Fr e e p or t-M cM oR a n
NOTES TO CONSOLIDATED FINANCIAL STATEMENTSNOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The fair value of each stock option 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 common stock and historical volatility
of FCX’s common stock. FCX uses historical data to estimate
future option exercises, forfeitures and expected life. When
appropriate, separate groups of employees who have similar
historical exercise behavior are considered separately for
valuation purposes. The expected dividend rate is calculated
using the annual dividend at the date of grant. 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.
FCX grants RSUs that vest over a period of three years or
at the end of three years to certain employees. Some award
agreements allow for participants to receive the following
year’s vesting upon retirement. Therefore, on the date of grant
of these RSU awards, FCX accelerates one year of amortization
for retirement-eligible employees. FCX also grants RSUs to its
directors, which vest on the first anniversary of the date of
grant. The fair value of the RSUs is amortized over the vesting
period or the period until the director becomes retirement
eligible, whichever is shorter. Upon a director’s retirement, all
of their unvested RSUs immediately vest. For retirement-
eligible directors, the fair value of RSUs is recognized in earnings
on the date of grant.
Information related to stock options during the years ended
The award agreements provide for accelerated vesting of all
December 31 follows:
Weighted-average assumptions used
to value stock option awards:
Expected volatility
Expected life of options (in years)
Expected dividend rate
Risk-free interest rate
Weighted-average grant-date fair value
(per option)
Intrinsic value of options exercised
Fair value of options vested
2020
2019
2018
47.7%
5.83
1.7%
1.5%
$ 4.72
$ 82
$ 28
47.8%
6.10
1.8%
2.5%
$ 4.87
$
3
$ 26
46.1%
5.92
1.2%
2.6%
$ 7.84
$
7
$ 24
As of December 31, 2020, FCX had $14 million of total
unrecognized compensation cost related to unvested stock
options expected to be recognized over a weighted-average
period of approximately 1.2 years.
Stock-Settled PSUs and RSUs. Beginning in 2014, FCX’s executive
officers received annual grants of PSUs that vest after three
years. The total grant date target shares related to the PSU grants
were 0.5 million for 2018, 0.7 million for 2019 and 0.8 million for
2020, of which the executive officers will earn (i) between 0 percent
and 200 percent of the target shares based on achievement of
financial metrics and (ii) +/- up to 25 percent of the target shares
based on FCX’s total shareholder return compared to the total
shareholder return of a peer group.
All of FCX’s executive officers are retirement eligible, and
their PSU awards are therefore non-forfeitable. As such, FCX
charges the estimated fair value of the PSU awards to expense
at the time the financial and operational, if applicable, metrics
are established.
RSUs held by directors if there is a change of control (as
defined in the award agreements) and for accelerated vesting
of all RSUs held by employees if they experience a qualifying
termination within one year following a change of control.
Dividends attributable to RSUs and PSUs accrue and are
paid if the award vests. A summary of outstanding stock-
settled RSUs and PSUs as of December 31, 2020, and activity
during the year ended December 31, 2020, follows:
Weighted-
Average
Grant-Date Aggregate
Intrinsic
Fair Value
Value
Per Award
$ 18.61
13.15
14.95
14.85
16.79
$ 196
Number of
Awards
5,590,685
3,548,497
(1,475,892)
(140,268)
7,523,022
Balance at January 1
Granted
Vested
Forfeited
Balance at December 31
The total fair value of stock-settled RSUs and PSUs granted
was $47 million during 2020, $24 million during 2019 and
$41 million during 2018. The total intrinsic value of stock-settled
RSUs and PSUs vested was $18 million during 2020, $26 million
during 2019 and $14 million during 2018. As of December 31,
2020, FCX had $10 million of total unrecognized compensation
cost related to unvested stock-settled RSUs expected to be
recognized over approximately 1.6 years.
Cash-Settled RSUs. Cash-settled RSUs are similar to stock-
settled RSUs, but are settled in cash rather than in shares
of common stock. These cash-settled RSUs generally vest over
three years of service. Some award agreements allow for
91
NOTES TO CONSOLIDATED FINANCIAL STATEMENTSNOTES TO CONSOLIDATED FINANCIAL STATEMENTS2020 ANNUAL REPORT
participants to receive the following year’s vesting upon
retirement. Therefore, on the date of grant of these cash-settled
RSU awards, FCX accelerates one year of amortization for
retirement-eligible employees. The cash-settled RSUs are
classified as liability awards, and the fair value of these awards
is remeasured each reporting period until the vesting dates.
The award agreements for cash-settled RSUs provide for
accelerated vesting upon certain qualifying terminations of
employment within one year following a change of control.
Dividends attributable to cash-settled RSUs accrue and are
paid if the award vests. A summary of outstanding cash-settled
RSUs as of December 31, 2020, and activity during the year
ended December 31, 2020, follows:
Weighted-
Average
Grant-Date Aggregate
Intrinsic
Fair Value
Value
Per Award
$ 14.54
11.96
14.79
13.44
12.92
$ 40
Number of
Awards
1,582,887
879,500
(911,459)
(29,831)
1,521,097
Balance at January 1
Granted
Vested
Forfeited
Balance at December 31
The total grant-date fair value of cash-settled RSUs was
$11 million during 2020, $10 million during 2019 and $16 million
during 2018. The intrinsic value of cash-settled RSUs vested
was $11 million during 2020, $8 million during 2019 and
$11 million during 2018. The accrued liability associated with
cash-settled RSUs consisted of a current portion of $22 million
(included in accounts payable and accrued liabilities) and a
long-term portion of $6 million (included in other liabilities)
at December 31, 2020, and a current portion of $11 million
and a long-term portion of $3 million at December 31, 2019.
Other Information. The following table includes amounts
related to exercises of stock options and vesting of RSUs and
PSUs during the years ended December 31:
2020
2019
2018
FCX shares tendered to pay the
exercise price and/or the minimum
required taxesa
1,193,183
670,508
195,322
Cash received from stock option
exercises
Actual tax benefit realized for tax
deductions
Amounts FCX paid for employee taxes
$
$
$
51
2
17
$
$
$
2
1
8
$
$
$
8
3
4
a. Under terms of the related plans, upon exercise of stock options, vesting of stock-settled RSUs and
payout of PSUs, employees may tender FCX shares to pay the exercise price and/or the minimum
required taxes.
NOTE 11. INCOME TAXES
Geographic sources of income (losses) before income taxes
and equity in affiliated companies’ net earnings for the years
ended December 31 consist of the following:
U.S.
Foreign
Total
2020
2019
(40)
$
1,837
$ 1,797
$ (287)
593
$ 306
2018
$ 390
3,502
$ 3,892
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 deferred income
taxes for other differences between the book and tax carrying
amounts of its investments in material foreign subsidiaries
as FCX considers its ownership positions to be permanent in
duration, and quantification of the related deferred tax liability
is not practicable.
FCX’s provision for income taxes for the years ended
December 31 consist of the following:
Current income taxes:
Federal
State
Foreign
Total current
Deferred income taxes:
Federal
State
Foreign
Total deferred
Adjustments
Operating loss carryforwards
2020
2019
2018
$ 53a
(1)
(816)b
(764)
3
5
(306)
(298)
37
81
$ (23)c,d
3
(462)
(482)
$
46c,e
1
(1,445)e
(1,398)
48
8
(101)
(45)
12
5
(106)
(8)
(102)
(216)
504f
119
Provision for income taxes
$ (944)
$ (510)
$ (991)
a. Includes a tax credit of $53 million associated with the reversal of the tax charge discussed in
footnote d below.
b. Includes a tax charge of $135 million associated with the gain on sale of Kisanfu.
c. As a result of the 2017 Tax Cuts and Jobs Act (the Act) guidance regarding a transition tax issued in
2018, FCX recognized a $29 million tax charge in 2018. Additional guidance released in 2019 resulted
in a $29 million tax credit in 2019.
d. Includes a tax charge of $53 million associated with the sale of FCX’s interest in the lower zone of
the Timok exploration project in Serbia.
e. In 2018, FCX completed its analysis of the Act and recognized benefits totaling $123 million ($76 million
to the U.S. tax provision and $47 million to PT-FI’s tax provision) associated with alternative minimum
tax (AMT) credit refunds.
f. Represents net tax credits resulting from the reduction in PT-FI’s statutory tax rates in accordance
with its new special mining license (IUPK).
92
Fr e e p or t-M cM oR a n
NOTES TO CONSOLIDATED FINANCIAL STATEMENTSNOTES TO CONSOLIDATED FINANCIAL STATEMENTS
A reconciliation of the U.S. federal statutory tax rate to FCX’s
effective income tax rate for the years ended December 31 follows:
U.S. federal statutory tax rate
Valuation allowancea
PT-FI historical tax disputes
Percentage depletion
Effect of foreign rates different than the U.S. federal statutory rate
Withholding and other impacts on foreign earnings
Adjustment to deferred taxes
Non-deductible permanent differences
Uncertain tax positions
U.S. tax reform
Foreign tax credit limitation
State income taxes
Cerro Verde historical tax disputese
Change in PT-FI tax rates
Timok exploration project sale
Sale of Kisanfu
Other items, net
Provision for income taxes
2020
2019
2018
Amount
Percent
Amount
Percent
Amount
Percent
$ (377)
(210)
(8)
104
(109)
(193)
—
—
(15)
—
28
(2)
(39)
—
53
(135)
(41)
$ (944)
(21)%
(12)
—
6
(6)
(11)
—
—
(1)
—
2
—
(2)
—
3
(8)
(3)
(53)%
$ (64)
(149)
(145)
118
(64)
(55)
(49)b
(47)
(47)
29c
(16)
16
2
—
(15)
—
(24)
$ (510)
(21)%
(49)
(47)
39
(21)
(18)
(16)
(15)
(15)
9
(5)
6
1
—
(5)
—
(9)
(166)%
$ (817)
129
—
141
(494)
(232)
—
(25)
(7)
94c,d
(195)
7
(55)
504
—
—
(41)
$ (991)
(21)%
3
—
4
(13)
(6)
—
(1)
—
2
(5)
1
(1)
13
—
—
(1)
(25)%
a. Refer to “Valuation Allowance” below for discussion of changes.
b. Represents net tax charges primarily to adjust deferred taxes on historical balance sheet items in accordance with tax accounting principles.
c. As a result of the Act guidance regarding a transition tax issued in 2018, FCX recognized a $29 million tax charge in 2018. Additional guidance released in 2019 resulted in a $29 million tax credit in 2019.
d. In 2018, FCX completed its analysis of the Act and recognized benefits totaling $123 million ($76 million to the U.S. tax provisions and $47 million to PT-FI’s tax provision) associated with AMT credit refunds.
e. Refer to Note 12 for further discussion.
FCX paid federal, state and foreign income taxes totaling
$397 million in 2020, $610 million in 2019 and $2.0 billion in 2018.
FCX received refunds of federal, state and foreign income
taxes of $265 million in 2020, $306 million in 2019 and $108 million
in 2018.
The components of deferred taxes follow:
December 31,
Deferred tax assets:
Foreign tax credits
Accrued expenses
Net operating losses
Employee benefit plans
Other
Deferred tax assets
Valuation allowances
Net deferred tax assets
Deferred tax liabilities:
Property, plant, equipment and mine development costs
Undistributed earnings
Other
Total deferred tax liabilities
Net deferred tax liabilities
2020
2019
$ 1,641
1,194
2,443
171
238
5,687
(4,732)
955
(4,500)
(694)
(169)
(5,363)
$ (4,408)
$ 1,716
1,108
2,249
198
267
5,538
(4,576)
962
(4,372)
(639)
(157)
(5,168)
$ (4,206)
Tax Attributes. At December 31, 2020, FCX had (i) U.S. foreign
tax credits of $1.6 billion that will expire between 2021 and
2027, (ii) U.S. federal net operating losses of $7.0 billion that
primarily expire between 2036 and 2037, of that balance
approximately $305 million can be carried forward indefinitely,
(iii) U.S. state net operating losses of $10.8 billion that primarily
expire between 2021 and 2040, (iv) Spanish net operating
losses of $559 million that can be carried forward indefinitely
and (v) Indonesia net operating losses of $910 million that
expire between 2021 and 2025.
Valuation Allowance. On the basis of available information
at December 31, 2020, including positive and negative evidence,
FCX has provided valuation allowances for certain of its
deferred tax assets where it believes it is more-likely-than-not
that some portion or all of such assets will not be realized.
Valuation allowances totaled $4.7 billion at December 31, 2020,
and $4.6 billion at December 31, 2019, and covered all of FCX’s
U.S. foreign tax credits, U.S. federal net operating losses,
foreign net operating losses and substantially all of its U.S. state
net operating losses.
93
NOTES TO CONSOLIDATED FINANCIAL STATEMENTSNOTES TO CONSOLIDATED FINANCIAL STATEMENTS2020 ANNUAL REPORT
The valuation allowance related to FCX’s U.S. foreign tax
credits totaled $1.6 billion at December 31, 2020. FCX has
operations in tax jurisdictions where statutory income taxes
and withholding taxes are in excess of the U.S. federal income
tax rate. Valuation allowances are recognized on foreign tax
credits for which no benefit is expected to be realized.
The valuation allowance related to FCX’s U.S. federal, state
and foreign net operating losses totaled $2.4 billion and other
deferred tax assets totaled $647 million at December 31, 2020.
Net operating losses and deferred tax assets represent future
deductions for which a benefit will only be realized to the extent
these deductions offset future income. FCX develops an
estimate of which future tax deductions will be realized and
recognizes a valuation allowance to the extent these
deductions are not expected to be realized in future periods.
Valuation allowances will continue to be carried on U.S.
foreign tax credits, U.S. federal, state and foreign net operating
losses and U.S. federal, state and foreign deferred tax assets,
until such time that (i) FCX generates taxable income against
which any of the assets, credits or net operating losses can be
used, (ii) forecasts of future income provide sufficient positive
evidence to support reversal of the valuation allowances or
(iii) FCX identifies a prudent and feasible means of securing the
benefit of the assets, credits or net operating losses that can
be implemented.
The $156 million net increase in the valuation allowances
during 2020 primarily related to increases totaling $250 million
in U.S. federal net operating loss carryforwards, partly offset
by an $11 million decrease in U.S. deferred tax assets for
which no benefit is expected to be realized, and a $75 million
decrease in U.S. foreign tax credits associated with expirations.
Other Events. In connection with the negative impacts of
the COVID-19 pandemic on the global economy, governments
throughout the world are announcing measures that are
intended to provide tax and other financial relief. Such measures
include the Coronavirus Aid, Relief, and Economic Security Act
(CARES Act), signed into law by President Trump on March 27,
2020. None of these measures resulted in material impacts
to FCX’s provision for income taxes for the year ended
December 31, 2020. However, certain provisions of the CARES
Act provided FCX with the opportunity to accelerate collections
of tax refunds, primarily those associated with the U.S. AMT.
FCX collected U.S. AMT credit refunds of $244 million in 2020.
FCX expects to collect an additional $24 million within the next
12 months. FCX continues to evaluate income tax accounting
considerations of COVID-19 measures as they develop,
including any impact on its measurement of existing deferred
tax assets and deferred tax liabilities. FCX will recognize any
impact from COVID-19 related changes to tax laws in the period
in which the new legislation is enacted.
On December 21, 2018, FCX completed the transaction with
the Indonesia government regarding PT-FI’s long-term mining
rights and share ownership. Concurrent with closing the
transaction, the Indonesia government granted PT-FI an IUPK
to replace its former COW. Under the terms of the IUPK,
PT-FI is subject to a 25 percent corporate income tax rate and
a 10 percent profits tax on net income beginning in 2019. As a
result of the change in statutory tax rate applicable to deferred
income tax liabilities, during fourth-quarter 2018, FCX
recognized a tax credit of $504 million.
In 2018, PT-FI received unfavorable Indonesia Tax Court
decisions with respect to its appeal of capitalized mine
development costs on its 2012 and 2014 corporate income tax
returns. PT-FI appealed those decisions to the Indonesia
Supreme Court. On October 31, 2019, the Indonesia Supreme
Court communicated an unfavorable ruling regarding the
treatment of mine development costs on PT-FI’s 2014 tax
return. During the fourth quarter of 2019, PT-FI met with the
Indonesia Tax Office and developed a framework for resolution
of the disputed matters. On December 30, 2019, PT-FI made
a payment of $250 million based on its understanding of
the framework for resolution of disputes arising from the
audits of the tax years 2012 through 2016, as well as tax years
2017 (for which a tax audit is not complete), 2018 (for which
a tax audit has not begun) and 2019 (for which an audit has
just begun). Additional administrative steps will need to
be completed by both PT-FI and the Indonesia Tax Office in
order to implement the resolution.
In 2019, in conjunction with the framework for resolution
above, PT-FI recorded total net charges in 2019 of $304 million,
including $123 million for non-deductible penalties recorded
to other income (expense), net, $78 million for non-deductible
interest recorded to interest expense and $103 million to
provision for income tax expense, primarily for the impact of a
reduction in the statutory rate on PT-FI’s deferred tax assets.
During fourth-quarter 2020, in connection with progress of
the framework for resolution, PT-FI recorded additional net
charges of $42 million, including $9 million for non-deductible
penalties recorded to other income (expense), net and
$35 million for non-deductible interest recorded to interest
expense, partly offset by a benefit of $2 million to provision
for income tax expense.
94
Fr e e p or t-M cM oR a n
NOTES TO CONSOLIDATED FINANCIAL STATEMENTSNOTES TO CONSOLIDATED FINANCIAL STATEMENTS SUNAT (National Superintendency of Customs and
Uncertain Tax Positions. FCX accounts for uncertain income
Administration), the Peru national tax authority, has assessed
mining royalties on ore processed by the Cerro Verde
concentrator for the period December 2006 to December 2013,
which Cerro Verde has contested on the basis that its 1998
stability agreement exempts from royalties all minerals
extracted from its mining concessions, irrespective of the
method used for processing those minerals. Refer to Note 12
for further discussion of the Cerro Verde royalty dispute and
net charges recorded in 2017 through 2019.
In December 2016, the Peru parliament passed tax
legislation that, in part, modified the applicable tax rates
established in its December 2014 tax legislation, which
progressively decreased the corporate income tax rate from
30 percent in 2014 to 26 percent in 2019 and thereafter,
and also increased the dividend tax rate on distributions from
4.1 percent in 2014 to 9.3 percent in 2019 and thereafter.
Under the tax legislation, which was effective January 1, 2017,
the corporate income tax rate was 29.5 percent, and the
dividend tax rate on distributions of earnings was 5 percent.
Cerro Verde’s current mining stability agreement subjects
FCX to a stable income tax rate of 32 percent through the
expiration of the agreement on December 31, 2028. The tax rate
on dividend distributions is not stabilized by the agreement.
In September 2014, the Chile legislature approved a tax
reform package that implemented a dual tax system, which
was amended in January 2016. Under previous rules, FCX’s
share of income from Chile operations was subject to an
effective 35 percent tax rate allocated between income taxes
and dividend withholding taxes. Under the amended tax reform
package, FCX’s Chile operation is subject to the “Partially-
Integrated System,” resulting in FCX’s share of income from
El Abra being subject to progressively increasing effective
tax rates of 35 percent through 2019 and 44.5 percent in 2020
and thereafter. In November 2017, the progression of increasing
tax rates was delayed by the Chile legislature so that the
35 percent rate continues through 2021 increasing to 44.5 percent
in 2022 and thereafter. In January 2020, the Chile legislature
approved a tax reform package that would further delay the
44.5 percent rate until 2027 and thereafter.
In 2010, the Chile legislature approved an increase in
mining royalty taxes to help fund earthquake reconstruction
activities, education and health programs. Mining royalty
taxes at FCX’s El Abra mine were 4 percent for the years 2013
through 2017. Beginning in 2018, and through 2023, rates
moved to a sliding scale of 5 to 14 percent (depending on a
defined operational margin).
tax positions using a threshold and measurement criteria
for the financial statement recognition and measurement of a
tax position taken or expected to be taken in a tax return.
FCX’s policy associated with uncertain tax positions is to record
accrued interest in interest expense and accrued penalties
in other income (expense), net rather than in the provision for
income taxes.
A summary of the activities associated with FCX’s reserve
for unrecognized tax benefits for the years ended December 31
follows:
Balance at beginning of year
Additions:
Prior year tax positions
Current year tax positions
Decreases:
Prior year tax positions
Settlements with taxing authorities
Lapse of statute of limitations
Balance at end of year
2020
$ 376
48
10
(60)
(79)
—
$ 295
2019
$ 404
73
11
(75)
(37)
—
$ 376
2018
$ 390
100
14
(86)
(9)
(5)
$ 404
The total amount of accrued interest and penalties associated
with unrecognized tax benefits included in the consolidated
balance sheets was $163 million at December 31, 2020,
primarily relating to unrecognized tax benefits associated with
royalties and other related mining taxes, and $231 million
at December 31, 2019, and $186 million at December 31, 2018.
The reserve for unrecognized tax benefits of $295 million
at December 31, 2020, included $254 million ($168 million net
of income tax benefits and valuation allowances) that, if
recognized, would reduce FCX’s provision for income taxes.
Changes in the reserve for unrecognized tax benefits
associated with prior year tax positions were primarily related
to uncertainties associated with non-deductible service costs,
royalties and other related mining taxes and cost recovery
methods. There continues to be uncertainty related to the timing
of settlements with taxing authorities, but if additional
settlements are agreed upon during the year 2021, FCX could
experience a change in its reserve for unrecognized tax benefits.
FCX or its subsidiaries file income tax returns in the U.S.
federal jurisdiction and various state and foreign jurisdictions.
95
NOTES TO CONSOLIDATED FINANCIAL STATEMENTSNOTES TO CONSOLIDATED FINANCIAL STATEMENTS2020 ANNUAL REPORT
The tax years for FCX’s major tax jurisdictions that remain
subject to examination are as follows:
Jurisdiction
U.S. Federal
Indonesia
Peru
Chile
Years Subject to Examination
Additional Open Years
2017-2018
2011-2017, 2019
2014-2016
2018-2019
2014-2016, 2019-2020
2018, 2020
2017-2020
2020
NOTE 12. CONTINGENCIES
Environmental. FCX subsidiaries are subject to various
national, state and local environmental laws and regulations
that govern emissions of air pollutants; discharges of water
pollutants; generation, handling, storage and disposal of
hazardous substances, hazardous wastes and other toxic
materials; and remediation, restoration and reclamation
of environmental contamination. FCX subsidiaries that operate
in the U.S. also are subject to potential liabilities arising
under CERCLA and similar state laws that impose responsibility
on current and previous owners and operators of a facility
for the remediation of hazardous substances released from the
facility into the environment, including damages to natural
resources, in some cases irrespective of when the damage to
the environment occurred or who caused it. Remediation
liability also extends to persons who arranged for the disposal
of hazardous substances or transported the hazardous
substances to a disposal site selected by the transporter.
These liabilities are often shared on a joint and several basis,
meaning that each responsible party is fully responsible for
the remediation if 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 FMC in 2007, many of the subsidiary companies
FCX now owns are responsible for a wide variety of
environmental remediation projects throughout the U.S., and
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 various 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. FCX is also subject to
claims where the release of hazardous substances is alleged
to have damaged natural resources (NRD) and to litigation by
individuals allegedly exposed to hazardous substances. As
of December 31, 2020, FCX had more than 100 active remediation
projects, including NRD claims, in 24 U.S. states.
A summary of changes in estimated environmental
obligations for the years ended December 31 follows:
Balance at beginning of year
Accretion expensea
Additionsb
Reductionsb
Spending
Balance at end of year
Less current portion
Long-term portion
2020
2019
2018
$ 1,561
102
38
(58)
(59)
1,584
(83)
$ 1,501
$ 1,511
102
23
(1)
(74)
1,561
(106)
$ 1,455
$ 1,439
100
56
—
(84)
1,511
(132)
$ 1,379
a. Represents accretion of the fair value of environmental obligations assumed in the 2007 acquisition
of FMC, which were determined on a discounted cash flow basis.
b. Adjustments to environmental obligations that do not provide future economic benefits are charged
to operating income. Reductions primarily reflect revisions for changes in the anticipated scope and
timing of projects and other noncash adjustments.
Estimated future environmental cash payments (on an
undiscounted and de-escalated basis) total $83 million in 2021,
$95 million in 2022, $100 million in 2023, $100 million in 2024,
$100 million in 2025 and $3.2 billion thereafter. The amount
and timing of these estimated payments will change as
a result of changes in regulatory requirements, changes in
scope and timing of remediation activities, the settlement of
environmental matters and as actual spending occurs.
At December 31, 2020, FCX’s environmental obligations
totaled $1.6 billion, including $1.5 billion recorded on a
discounted basis for those obligations assumed in the FMC
acquisition at fair value. On an undiscounted and de-escalated
basis, these obligations totaled $3.7 billion. FCX estimates
it is reasonably possible that these obligations could range
between $3.3 billion and $4.2 billion on an undiscounted
and de-escalated basis.
At December 31, 2020, the most significant environmental
obligations were associated with the Pinal Creek site in
Arizona; the Newtown Creek site in New York City; historical
smelter sites principally located in Arizona, Indiana, Kansas,
Missouri, New Jersey, Oklahoma and Pennsylvania; and
uranium mining sites in the western U.S. The recorded
environmental obligations for these sites totaled $1.4 billion
at December 31, 2020. FCX may also be subject to litigation
brought by private parties, regulators and local governmental
authorities related to these historical sites. A discussion of
these sites follows.
96
Fr e e p or t-M cM oR a n
NOTES TO CONSOLIDATED FINANCIAL STATEMENTSNOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Pinal Creek. The Pinal Creek site 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, consisting of Freeport-McMoRan Miami Inc. (Miami),
an indirect wholly owned subsidiary of FCX, and two other
companies. Pursuant to a 2010 settlement agreement, Miami
agreed to take full responsibility for future groundwater
remediation at the Pinal Creek site, with limited exceptions.
Remediation work consisting of groundwater extraction and
treatment plus source control capping is expected to continue
for many years.
Newtown Creek. From the 1930s until 1964, Phelps Dodge
Refining Corporation (PDRC), an indirect wholly owned subsidiary
of FCX, operated a copper smelter, and from the 1930s until
1984 operated a copper refinery, on the banks of Newtown Creek
(the creek), which is a 3.5-mile-long waterway that forms part
of the boundary between Brooklyn and Queens in New York
City. Heavy industrialization along the banks of the creek and
discharges from the City of New York’s sewer system over
more than a century resulted in significant environmental
contamination of the waterway. In 2010, EPA notified PDRC,
four other companies and the City of New York that EPA
considers them to be PRPs under CERCLA. The notified parties
began working with EPA to identify other PRPs. In 2010,
EPA designated the creek as a Superfund site, and in 2011,
PDRC and five other parties (the Newtown Creek Group, NCG)
entered an Administrative Order on Consent (AOC) to
perform a remedial investigation/feasibility study (RI/FS) to
assess the nature and extent of environmental contamination
in the creek and identify potential remedial options. The
parties’ RI/FS work under the AOC and their efforts to identify
other PRPs are ongoing. The NCG submitted the initial draft
RI to EPA in 2016 and currently expects the report to be
finalized in 2021. The NCG currently anticipates a draft FS to be
submitted to EPA for review and approval in 2024. EPA is not
expected to propose a final creek-wide remedy until after the
RI/FS is completed, with the actual remediation construction
starting several years later. In July 2019, the NCG entered into
an AOC to conduct a Focused Feasibility Study (FFS) of the first
two miles of the creek to support an evaluation of an interim
remedy for that section of the creek (Early Action). A draft FFS
was submitted to EPA in December 2019, and an EPA decision
on the Early Action is currently expected in late 2021. The
actual costs of fulfilling this remedial obligation and the
allocation of costs among PRPs are uncertain and subject to
change based on the results of the Early Action, the RI/FS,
the remedy ultimately selected by EPA and related allocation
determinations. The overall cost and the portion ultimately
allocated to PDRC could be material to FCX.
Historical Smelter Sites. FCX subsidiaries and their
predecessors at various times owned or operated copper, zinc
and lead smelters or refineries in states including Arizona,
Indiana, Kansas, Missouri, New Jersey, Oklahoma and
Pennsylvania. For some of these former processing 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 these former processing facilities. At other
sites, certain FCX subsidiaries have entered into state voluntary
remediation programs to investigate and, if appropriate,
remediate on-site and off-site conditions associated with the
facilities. The historical processing sites are in various stages
of assessment and remediation. At some of these sites,
disputes with local residents and elected officials regarding
alleged health effects or the effectiveness of remediation
efforts have resulted in litigation of various types, and similar
litigation at other sites is possible.
From 1920 until 1986, United States Metals Refining
Company (USMR), an indirect wholly owned subsidiary of FCX,
owned and operated a copper smelter and refinery in the
Borough of Carteret, New Jersey. Since the early 1980s, the
site has been the subject of environmental investigation
and remediation, under the direction and supervision of the
New Jersey Department of Environmental Protection (NJDEP).
On-site contamination is in the later stages of remediation. In
2012, after receiving a request from NJDEP, USMR also began
investigating and remediating off-site properties, which is
ongoing. As a result of off-site soil sampling in public and
private areas near the former Carteret smelter, FCX established
an environmental obligation for known and potential off-site
environmental remediation. Additional sampling and analysis is
ongoing and could result in additional adjustments to the
related environmental remediation obligation in future periods.
The extent of contamination and potential remedial actions are
uncertain and may take several years to evaluate.
97
NOTES TO CONSOLIDATED FINANCIAL STATEMENTSNOTES TO CONSOLIDATED FINANCIAL STATEMENTS2020 ANNUAL REPORT On January 30, 2017, a putative class action titled
Juan Duarte, Betsy Duarte and N.D., Infant, by Parents and
Natural Guardians Juan Duarte and Betsy Duarte, Leroy
Nobles and Betty Nobles, on behalf of themselves and all
others similarly situated v. United States Metals Refining
Company, Freeport-McMoRan Copper & Gold Inc. and Amax
Realty Development, Inc., Docket No. 734-17, was filed in the
Superior Court of New Jersey against USMR, FCX, and
Amax Realty Development, Inc. The defendants removed this
litigation to the U.S. District Court for the District of New
Jersey, where it remains pending, and FMC was added as a
defendant. The suit alleges that USMR generated and
disposed of smelter waste at the site and allegedly released
contaminants on-site and off-site through discharges to
surface water and air emissions over a period of decades and
seeks unspecified compensatory and punitive damages for
economic losses, including diminished property values,
additional soil investigation and remediation and other
damages. In January 2020, the parties completed briefing
on the plaintiffs’ motion for class certification and are awaiting
a decision by the court. FCX continues to vigorously defend
this matter.
Uranium Mining Sites. During a period between 1940 and the
early 1980s, certain FCX subsidiaries and their predecessors
were involved in uranium exploration and mining in the
western U.S., primarily on federal and tribal lands in the
Four Corners region of the southwest. Similar exploration and
mining activities by other companies have also caused
environmental impacts warranting remediation. In 2017, the
Department of Justice, EPA, Navajo Nation, and two FCX
subsidiaries reached an agreement regarding the financial
contribution of the U.S. Government and the FCX subsidiaries
and the scope of the environmental investigation and
remediation work for 94 former uranium mining sites on tribal
lands. Under the terms of the Consent Decree executed on
May 22, 2017, and approved by the U.S. District Court for the
District of Arizona, the U.S. contributed $335 million into a
trust fund to cover the government’s initial share of the costs,
and FCX’s subsidiaries are proceeding with the environmental
investigation and remediation work at the 94 sites. The
program is expected to take more than 20 years to complete.
In 2020, FCX reduced its associated obligation and recorded a
$47 million credit to operating income to reflect the
discounting effect of the recent and expected pace of project
work under post-COVID-19 pandemic conditions. FCX is
also conducting site surveys of historical uranium mining
claims associated with FCX subsidiaries on non-tribal federal
lands in the Four Corners region. Under a memorandum
of understanding with the U.S. Bureau of Land Management
(BLM), site surveys are being performed on approximately
15,000 mining claims, ranging from undisturbed claims to
claims with mining features. Based on these surveys, BLM has
issued no further action determinations for certain undisturbed
claims. BLM may request additional assessment or reclamation
activities for other claims with mining features. FCX will update
this obligation when it has a sufficient number of remedy
decisions from the BLM to support a reasonably certain range
of outcomes. FCX expects it will take several years to complete
this work.
AROs. FCX’s ARO estimates are reflected on a third-party
cost basis and are based on FCX’s legal obligation to retire
tangible, long-lived assets. A summary of changes in FCX’s
AROs for the years ended December 31 follows:
Balance at beginning of year
Liabilities incurred
Settlements and revisions to cash flow
estimates, net
Accretion expense
Dispositions
Spending
Balance at end of year
Less current portion
Long-term portion
2020
2019
2018
$ 2,505
7
$ 2,547
20
$ 2,583
1
(13)
131
(2)
(156)
2,472
(268)
$ 2,204
(5)
118
(5)
(170)
2,505
(330)
$ 2,175
50
110
(37)
(160)
2,547
(317)
$ 2,230
ARO costs may increase or decrease significantly in the future
as a result of changes in regulations, changes in engineering
designs and technology, permit modifications or updates,
changes in mine plans, settlements, inflation or other factors
and as reclamation (concurrent with mining operations or post
mining) spending occurs. ARO activities and expenditures for
mining operations generally are made over an extended period
of time commencing near the end of the mine life; however,
certain reclamation activities may be accelerated if legally
required or if determined to be economically beneficial. The
methods used or required to plug and abandon non-producing
oil and gas wellbores; remove platforms, tanks, production
equipment and flow lines; and restore wellsites could change
over time.
Financial Assurance. New Mexico, Arizona, Colorado and
other states, as well as federal regulations governing mine
operations on federal land, require financial assurance to
be provided for the estimated costs of mine reclamation and
closure, including groundwater quality protection programs.
FCX has satisfied financial assurance requirements by
using a variety of mechanisms, primarily involving parent
company performance guarantees and financial capability
98
Fr e e p or t-M cM oR a n
NOTES TO CONSOLIDATED FINANCIAL STATEMENTSNOTES TO CONSOLIDATED FINANCIAL STATEMENTS
demonstrations, but also including trust funds, surety bonds,
letters of credit and other collateral. The applicable
regulations specify financial strength tests that are designed
to confirm a company’s or guarantor’s financial capability
to fund estimated reclamation and closure costs. The amount
of financial assurance FCX subsidiaries are required to provide
will vary with changes in laws, regulations, reclamation and
closure requirements, and cost estimates. At December 31,
2020, FCX’s financial assurance obligations associated with
these U.S. mine closure and reclamation/restoration costs
totaled $1.5 billion, of which $860 million was in the form
of guarantees issued by FCX and FMC. At December 31, 2020,
FCX had trust assets totaling $212 million (included in other
assets), which are legally restricted to be used to satisfy its
financial assurance obligations for its mining properties in
New Mexico. In addition, FCX subsidiaries have financial
assurance obligations for its oil and gas properties associated
with plugging and abandoning wells and facilities totaling
$469 million. Where oil and gas guarantees associated with the
Bureau of Ocean Energy Management do not include a stated
cap, the amounts reflect management’s estimates of the
potential exposure.
New Mexico Environmental and Reclamation Programs. FCX’s
New Mexico operations are regulated under the New Mexico
Water Quality Act and regulations adopted by the Water Quality
Control Commission. In connection with discharge permits,
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 applicable groundwater quality standards following
the closure of discharging facilities and to abate groundwater
or surface water contamination to meet applicable standards.
FCX’s New Mexico operations also are subject to regulation
under the 1993 New Mexico Mining Act (the Mining Act) and the
related rules that are administered by the Mining and Minerals
Division of the New Mexico Energy, Minerals and Natural
Resources Department. Under the Mining Act, mines are
required to obtain approval of reclamation plans. In 2020, the
agencies approved updates to the closure plan and financial
assurance instruments and completed a permit renewal
for Chino. FCX expects permit renewals and updated financial
assurance instruments for Tyrone to be finalized in 2021. At
December 31, 2020, FCX had accrued reclamation and closure
costs of $477 million for its New Mexico operations. Additional
accruals may be required based on the state’s periodic review
of FCX’s updated closure plans and any resulting permit
conditions, and the amount of those accruals could be material.
Arizona Environmental and Reclamation Programs. FCX’s Arizona
operations are subject to regulatory oversight by the ADEQ.
ADEQ has adopted regulations for its aquifer protection permit
(APP) program that require permits for, among other things,
certain facilities, activities and structures used for mining,
leaching, concentrating and smelting, and require compliance
with aquifer water quality standards during operations and
closure. An application for an APP requires a proposed closure
strategy that will meet applicable groundwater protection
requirements following cessation of operations and an
estimate of the implementation cost, with a more detailed
closure plan required at the time operations cease. A permit
applicant must demonstrate its financial ability to meet the
closure costs approved by ADEQ. Closure costs for facilities
covered by APPs are required to be updated every six years and
financial assurance mechanisms are required to be updated
every two years. Morenci’s APP requires updated stockpile
reclamation plans by 2022, which will result in increased
closure costs. Bagdad’s APP also requires an updated cost
estimate for its closure plan in 2022. FCX will continue
updating its closure strategy and closure cost estimates at
other Arizona sites and intends to submit an updated tailings
dam system closure cost for Bagdad according to a schedule
to be determined by ADEQ.
Portions of 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 must be approved by the State Mine Inspector and must
include an estimate of the cost to perform the reclamation
measures specified in the plan along with financial assurance.
FCX will continue to evaluate options for future reclamation
and closure activities at its operating and non-operating sites,
which are likely to result in adjustments to FCX’s AROs, and
those adjustments could be material. At December 31, 2020,
FCX had accrued reclamation and closure costs of $362 million
for its Arizona operations.
Colorado Reclamation Programs. FCX’s Colorado operations
are regulated by the Colorado Mined Land Reclamation Act
(Reclamation Act) and regulations promulgated thereunder.
Under the Reclamation Act, mines are required to obtain
approval of plans for reclamation of lands affected by mining
operations to be performed during mining or upon cessation of
mining operations. In December 2019, Henderson submitted an
updated closure plan, which resulted in increased closure
costs. In March 2020, the Division of Reclamation, Mining, and
Safety (DRMS) approved Henderson’s proposed update to its
99
NOTES TO CONSOLIDATED FINANCIAL STATEMENTSNOTES TO CONSOLIDATED FINANCIAL STATEMENTS2020 ANNUAL REPORT closure plan and closure cost estimate. As of December 31,
2020, FCX had accrued reclamation and closure costs of
$138 million for its Colorado operations. In 2019, Colorado
enacted legislation that requires proof of an end date for water
treatment as a condition of permit authorizations for new
mining operations and expansions beyond current permit
authorizations. While this requirement does not apply to
existing operations, it may lead to changes in long-term water
management requirements at Climax and Henderson
operations and AROs. In accordance with its permit from
DRMS, Climax will submit an updated reclamation plan
and cost estimate in 2024.
Chile Reclamation and Closure Programs. El Abra is subject to
regulation under the Mine Closure Law administered by the
Chile Mining and Geology Agency. In compliance with the
requirement for five-year updates, in November 2018, El Abra
submitted an updated plan with closure cost estimates based
on the existing approved closure plan. Approval of the updated
closure plan and cost estimates was received on August 12,
2020, and did not result in a material increase to closure costs.
At December 31, 2020, FCX had accrued reclamation and
closure costs of $81 million for its El Abra operation.
Peru Reclamation and Closure Programs. Cerro Verde is subject
to regulation under the Mine Closure Law administered
by the Peru Ministry of Energy and Mines. Under the closure
regulations, mines must submit a closure plan that includes the
reclamation methods, closure cost estimates, methods of
control and verification, closure and post-closure plans, and
financial assurance. In compliance with the five-year closure
plan and cost update required by the Mine Closure Law, the
latest closure plan and cost estimate for the Cerro Verde mine
expansion were submitted in 2017 and approved in February
2018. At December 31, 2020, FCX had accrued reclamation
and closure costs of $138 million for its Cerro Verde operation.
Indonesia Reclamation and Closure Programs. The ultimate
amount of reclamation and closure costs to be incurred at
PT-FI’s operations will be determined based on applicable laws
and regulations and PT-FI’s assessment of appropriate
remedial activities under the circumstances, after consultation
with governmental authorities, affected local residents and
other affected parties and cannot currently be projected with
precision. Some reclamation costs will be incurred during
mining activities, while the remaining reclamation costs will be
incurred at the end of mining activities, which are currently
estimated to continue through 2041. At December 31, 2020, FCX
had accrued reclamation and closure costs of $827 million for
its PT-FI operations.
Indonesia government regulations issued in 2010 require
a company to provide a mine closure guarantee in the form of a
time deposit placed in a state-owned bank in Indonesia. In
December 2018, PT-FI, in conjunction with the issuance of the
IUPK, submitted a revised mine closure plan to Indonesia’s
Department of Energy and Mineral Resources to reflect the
extension of operations to 2041. At December 31, 2020, PT-FI
had restricted time deposits for mine closure guarantees
($94 million) and reclamation guarantees ($2 million).
In October 2017, Indonesia’s Ministry of Environment and
Forestry (the MOEF) notified PT-FI of administrative sanctions
related to certain activities the MOEF indicated were not
reflected in PT-FI’s environmental permit. The MOEF also
notified PT-FI that certain operational activities were inconsistent
with factors set forth in its environmental permitting studies
and that additional monitoring and improvements need to be
undertaken related to air quality, water drainage, treatment
and handling of certain wastes, and tailings management.
In December 2018, the MOEF issued a revised environmental
permit to PT-FI to address many of the operational activities
that it alleged were inconsistent with earlier studies. The
remaining administrative sanctions are being resolved through
adoption of revised practices and, in a few situations, PT-FI
has agreed with the MOEF on an appropriate multi-year work
plan, including the closure of an overburden stockpile. In
addition, PT-FI continues to work with MOEF to finalize
environmental permitting related to the rail facilities and
certain of the underground mining production operations as
well as permitting for the extension of levees to contain the
lateral flow of tailings in the lowlands.
In December 2018, PT-FI and the MOEF also established a
new framework for continuous improvement in environmental
practices in PT-FI’s operations, including initiatives that
PT-FI will pursue to increase tailings retention and to evaluate
large-scale beneficial uses of tailings within Indonesia. The
MOEF issued a new decree that incorporates various initiatives
and studies to be completed by PT-FI that would target
continuous improvement in a manner that would not impose
new technical risks or significant long-term costs to PT-FI’s
operations. The new framework enables PT-FI to maintain
compliance with site-specific standards and provides for
ongoing monitoring by the MOEF. In 2018, PT-FI recorded a
$32 million charge for MOEF assessments of prior period
permit fees. In 2020, the final settlement for these permit fees
totaled $13 million and PT-FI recorded a credit of $19 million.
100
Fr e e p or t-M cM oR a n
NOTES TO CONSOLIDATED FINANCIAL STATEMENTSNOTES TO CONSOLIDATED FINANCIAL STATEMENTS Oil and Gas Properties. Substantially all of FM O&G’s oil and
gas leases require that, upon termination of economic
production, the working interest owners plug and abandon
non-producing wellbores, remove equipment and facilities
from leased acreage, and restore land in accordance with
applicable local, state and federal laws. Following several
sales transactions, FM O&G’s remaining operating areas
primarily include offshore California and the Gulf of Mexico
(GOM). As of December 31, 2020, FM O&G AROs cover
approximately 165 wells and 120 platforms and other structures
and it had accrued reclamation and closure costs of $410 million.
Litigation. In addition to the material pending legal
proceedings discussed below and above under “Environmental,”
we are involved periodically in ordinary routine litigation
incidental to our business and not required to be disclosed,
some of which may result in adverse judgments, settlements,
fines, penalties, injunctions or other relief. SEC regulations
require us to disclose environmental proceedings involving a
governmental authority if we reasonably believe that such
proceedings may result in monetary sanctions above a stated
threshold. Pursuant to the SEC regulations, we use a threshold
of $1 million for purposes of determining whether disclosure
of any such environmental proceedings is required. Management
does not believe, based on currently available information,
that the outcome of any current pending legal proceeding will
have a material adverse effect on FCX’s financial condition,
although individual or cumulative outcomes could be material
to FCX’s operating results for a particular period, depending on
the nature and magnitude of the outcome and the operating
results for the period.
Louisiana Parishes Coastal Erosion Cases. Certain FCX affiliates
were named as defendants, along with numerous co-defendants,
in 13 cases out of a total of 42 cases filed in Louisiana state
courts by six south Louisiana parishes (Cameron, Jefferson,
Plaquemines, St. Bernard, St. John the Baptist and Vermilion),
alleging that certain oil and gas exploration and production
operations and sulphur mining and production operations in
coastal Louisiana contaminated and damaged coastal
wetlands and caused significant land loss along the Louisiana
coast. The state of Louisiana, through the Attorney General
and separately through the Louisiana Department of Natural
Resources, intervened in the litigation in support of the
parishes’ claims. Specifically, the cases alleged the defendants
failed to obtain and/or comply with required coastal use
permits in violation of the Louisiana State and Local Coastal
Resources Management Act of 1978, and sought unspecified
damages for the alleged statutory violations, and restoration of
the properties at issue to their original condition. Certain FCX
affiliates were named as defendants in two of the five cases
that had been set for trial, both originally filed on November 8,
2013: Parish of Plaquemines v. ConocoPhillips Company et al.,
25th Judicial District Court, Plaquemines Parish, Louisiana;
No. 60-982, Div. B and Parish of Plaquemines v. Hilcorp Energy
Company et al., 25th Judicial District Court, Plaquemines
Parish, Louisiana; No. 60-999, Div. B. In 2019, affiliates of FCX
reached an agreement in principle to settle all 13 cases. The
maximum out-of-pocket settlement payment will be $23.5 million
with the initial payment of $15 million to be paid upon
execution of the settlement agreement. The initial payment
will be held in trust and later deposited into a newly formed
Coastal Zone Recovery Fund (the Fund) once the state of
Louisiana passes enabling legislation to establish the Fund.
The settlement agreement will also require the FCX affiliates
to pay into the Fund twenty annual installments of $4.25 million
beginning in 2023 provided the state of Louisiana passes the
enabling legislation. The first two of those annual installments
are conditioned only on the enactment of the enabling
legislation within three years of execution of the settlement
agreement, but all subsequent installments are also conditioned
on the FCX affiliates receiving simultaneous reimbursement
on a dollar-for-dollar basis from the proceeds of environmental
credit sales generated by the Fund, resulting in the $23.5 million
maximum total payment obligation. The settlement agreement
must be executed by all parties, including authorized
representatives of the six south Louisiana parishes originally
plaintiffs in the suit and certain other non-plaintiff Louisiana
parishes and the state of Louisiana. The agreement in principle
does not include any admission of liability by FCX or its
affiliates. FCX recorded a charge in 2019 for the initial payment
of $15 million, which will be paid upon execution of the
settlement agreement. The settlement agreement has been
executed by the FCX affiliates and several of the Louisiana
parishes. FCX expects the agreement to be executed by all
parties; however, execution has been delayed by the ongoing
COVID-19 pandemic, fall 2020 elections and changes to the
administrative structure developed by the Louisiana parishes.
Upon execution of the settlement agreement by all parties,
the FCX affiliates will be fully released and dismissed from all
13 pending cases.
101
NOTES TO CONSOLIDATED FINANCIAL STATEMENTSNOTES TO CONSOLIDATED FINANCIAL STATEMENTS2020 ANNUAL REPORT Asbestos and Talc Claims. Since approximately 1990, various
FCX affiliates have been named as defendants in a large
number of lawsuits alleging personal injury from exposure
to asbestos or talc allegedly contained in industrial products
such as electrical wire and cable, raw materials such as
paint and joint compounds, talc-based lubricants used in
rubber manufacturing or from asbestos contained in buildings
and facilities located at properties owned or operated by
affiliates of FCX. Many of these suits involve a large number of
codefendants. Based on litigation results to date and facts
currently known, FCX believes there is a reasonable possibility
that losses may have been incurred related to these matters;
however, FCX also believes that the amounts of any such
losses, individually or in the aggregate, are not material to its
consolidated financial statements. There can be no assurance
that future developments will not alter this conclusion.
There has been a significant increase in the number of cases
alleging the presence of asbestos contamination in talc-based
cosmetic and personal care products and in cases alleging
exposure to talc products that are not alleged to be
contaminated with asbestos. The primary targets have been
the producers of those products, but defendants in many of
these cases also include talc miners. Cyprus Amax Minerals
Company (CAMC), an indirect wholly owned subsidiary of FCX,
and Cyprus Mines Corporation (Cyprus Mines), a wholly owned
subsidiary of CAMC, are among those targets. Cyprus Mines
was engaged in talc mining and processing from 1964 until
1992 when it exited its talc business by conveying it to a third
party in two related transactions. Those transactions involved
(1) a transfer by Cyprus Mines of the assets of its talc business
to a newly formed subsidiary that assumed all pre-sale and
post-sale talc liabilities, subject to limited reservations, and
(2) a sale of the stock of that subsidiary to the third party.
In 2011, the third party sold that subsidiary to Imerys Talc
America (Imerys), an affiliate of Imerys S.A. In accordance
with the terms of the 1992 transactions and subsequent
agreements, Imerys undertook the defense and indemnification
of Cyprus Mines and CAMC in talc lawsuits.
Cyprus Mines has contractual indemnification rights,
subject to limited reservations, against Imerys, which has
historically acknowledged those indemnification obligations and
took responsibility for all cases tendered to it. However, on
February 13, 2019, Imerys filed for Chapter 11 bankruptcy
protection, which triggered an immediate automatic stay under
the federal bankruptcy code prohibiting any party from
continuing or initiating litigation or asserting new claims against
Imerys. As a result, Imerys stopped defending the talc lawsuits
against Cyprus Mines and CAMC. In addition, Imerys took the
position that it alone owns, and has the sole right to access, the
proceeds of the legacy insurance coverage of Cyprus Mines
and CAMC for talc liabilities. In late March 2019, Cyprus Mines
and CAMC challenged this position and obtained emergency
relief from the bankruptcy court to gain access to the
insurance until the question of ownership and contractual
access could be decided in an adversary proceeding before the
bankruptcy court, which is currently on hold.
FCX recorded legal defense and settlement costs associated
with talc-related litigation totaling approximately $24 million
for the year 2020 and $28 million for the year 2019. Multiple trials
previously scheduled during 2020 were postponed because of
the ongoing COVID-19 pandemic. Postponed cases may be
reset prior to the adversary proceeding regarding the legacy
insurance, which is currently on hold.
On December 22, 2020, Imerys filed an amended bankruptcy
plan disclosing a global settlement with Cyprus Mines and
CAMC, which provides a framework for a full and comprehensive
resolution of all current and future potential liabilities arising
out of the Cyprus Mines talc business, including claims against
FCX, its affiliates, Cyprus Mines, and CAMC.
On January 21, 2021, Imerys sought an injunction temporarily
staying approximately 950 talc-related lawsuits against
CAMC and Cyprus Mines and the bankruptcy court is expected
to rule on the injunction in February 2021. The interim stay
is a component of the global settlement but there can be no
assurance that the bankruptcy court will impose the interim stay.
On January 23, 2021, Imerys filed the form of a settlement
and release agreement to be entered into by CAMC, Cyprus
Mines, FCX, Imerys and the other debtors, tort claimants’
committee and future claims representative in the Imerys
bankruptcy. In accordance with the global settlement, among
other things, (1) CAMC will pay a total of $130 million in cash
to a settlement trust in seven annual installments, which will
be guaranteed by FCX; (2) CAMC and Cyprus Mines and their
affiliates will contribute to the settlement trust all rights that
they have to the proceeds of certain legacy insurance policies
as well as indemnity rights they have against Johnson & Johnson,
and (3) Cyprus Mines will file for Chapter 11 bankruptcy
protection with CAMC paying expenses of Cyprus Mines’
bankruptcy process. On February 11, 2021, Cyprus Mines filed
for Chapter 11 bankruptcy protection. FCX has concluded
that it has a probable loss and recorded a $130 million charge
to environmental obligations and shutdown costs in 2020.
The global settlement is subject to, among other things,
bankruptcy court approvals of both the Imerys bankruptcy
plan and the Cyprus Mines bankruptcy plan, and there
can be no assurance that the global settlement will be
successfully implemented.
102
Fr e e p or t-M cM oR a n
NOTES TO CONSOLIDATED FINANCIAL STATEMENTSNOTES TO CONSOLIDATED FINANCIAL STATEMENTS Tax and Other Matters. FCX’s operations are in multiple
jurisdictions where uncertainties arise in the application of
complex tax regulations. Some of these tax regimes are
defined by contractual agreements with the local government,
while others are defined by general tax laws and regulations.
FCX and its subsidiaries are subject to reviews of its income
tax filings and other tax payments, and disputes can arise
with the taxing authorities over the interpretation of its
contracts or laws. The final taxes paid may be dependent upon
many factors, including negotiations with taxing authorities.
In certain jurisdictions, FCX pays a portion of the disputed
amount before formally appealing an assessment. Such payment
is recorded as a receivable if FCX believes the amount
is collectible.
Cerro Verde Royalty Dispute. SUNAT has assessed mining
royalties on ore processed by the Cerro Verde concentrator,
which commenced operations in late 2006, for the period
December 2006 to December 2013. No assessments can be
issued for years after 2013, as Cerro Verde began paying
royalties on all of its production in January 2014 under its new
15-year stability agreement. Cerro Verde contested each of
these assessments because it believes that its 1998 stability
agreement exempts from royalties all minerals extracted from
its mining concession, irrespective of the method used for
processing such minerals. Since 2014, Cerro Verde has been
paying the disputed assessments for the period from
December 2006 through December 2013 under installment
payment programs provided under Peru law. Through
December 31, 2020, Cerro Verde has paid $477 million under
these installment payment programs.
In October 2017, the Peru Supreme Court issued a ruling in
favor of SUNAT that the assessments of royalties for the
year 2008 on ore processed by the Cerro Verde concentrator
were proper under Peru law. As a result of the unfavorable
Peru Supreme Court ruling, Cerro Verde recorded net charges
in 2017. In September 2018, the Peru Tax Tribunal denied
Cerro Verde’s request to waive penalties and interest, primarily
associated with the disputed assessments for the period
January 2009 through September 2011. In December 2018,
Cerro Verde elected not to appeal the Peru Tax Tribunal’s
decisions, and as a result, recorded net charges for these
amounts in 2018.
As of December 31, 2019, Cerro Verde had recorded all of
its exposure associated with disputed royalties for prior years
with the Peru tax authorities. Cumulative charges to net
income recorded during the three years ended December 31,
2019, totaled $388 million. Any future recoveries would be
recorded when collected.
A summary of the charges recorded for the three years
ended December 31, 2019, related to the Cerro Verde royalty
dispute follows:
Royalty and related assessment charges:
Production and delivery
Interest expense, net
Other expense
(Benefit from) provision
for income taxes
Net loss attributable to
noncontrolling interests
2019
2018a
2017
Total
$ 6
10
—
$ 14
370
22
$ 203b
145
—
$ 223
525
22
(2)
(35)
7c
(30)
(7)
$ 7
(176)
$ 195
(169)
$ 186
(352)
$ 388
a. Amounts are net of gains of $16 million (consisting of pre-tax gains of $14 million and net tax benefits
of $17 million, net of $15 million in noncontrolling interests) for refunds received for the overpayment
of special (voluntary) levies for the period October 2012 through the year 2013.
b. Includes $175 million related to disputed royalty assessments for the period from December 2006
to September 2011 (when royalties were determined based on revenues).
c. Includes tax charges of $136 million for disputed royalties ($69 million) and other related mining
taxes ($67 million) for the period October 2011 through the year 2013 when royalties were determined
based on operating income, mostly offset by a tax benefit of $129 million associated with disputed
royalties and other related mining taxes for the period December 2006 through December 2013.
Cerro Verde has also recorded other interest charges
associated with royalty matters, including installment payment
programs, totaling $44 million in 2020 and $58 million in 2019.
On February 28, 2020, FCX filed on its own behalf and on
behalf of Cerro Verde international arbitration proceedings
against the Peru government. In April 2020, SMM Cerro Verde
Netherlands B.V., another shareholder of Cerro Verde, filed
a parallel arbitration proceeding under a different investment
treaty against the Peru government.
Other Peru Tax Matters. Cerro Verde has also received
assessments from SUNAT for additional taxes, penalties and
interest related to various audit exceptions for income and
other taxes. Cerro Verde has filed or will file objections to the
assessments because it believes it has properly determined
and paid its taxes. A summary of these assessments follows:
Tax Year
2003 to 2008
2009
2010
2011 and 2012
2013
2014 to 2020
Tax
Assessment
Penalty and
Interest
Assessment
$ 50
56
54
42
48
45
$ 295
$ 129
52
118
78
66
—
$ 443
Total
$ 179
108
172
120
114
45
$ 738
103
NOTES TO CONSOLIDATED FINANCIAL STATEMENTSNOTES TO CONSOLIDATED FINANCIAL STATEMENTS2020 ANNUAL REPORT
As of December 31, 2020, Cerro Verde had paid $433 million on
these disputed tax assessments. A reserve has been applied
against these payments totaling $243 million, resulting in a net
receivable of $190 million (included in other assets), which
Cerro Verde believes is collectible.
Indonesia Tax Matters. PT-FI has received assessments from
the Indonesia tax authorities for additional taxes and interest
related to various audit exceptions for income and other
taxes. PT-FI has filed objections to the assessments because
it believes it has properly determined and paid its taxes.
Excluding surface water and withholding tax assessments
discussed below and the Indonesia government’s previous
imposition of a 7.5 percent export duty that PT-FI paid under
protest during the period April 2017 to December 21, 2018
(refer to Note 13), a summary of these assessments follows:
Tax Year
2005
2007
2008, 2010 to 2011
2012
2013
2014
2015
2016
2017
Tax
Assessment
Interest
Assessment
$ 62
48
31
97
152
123
159
257
40
$ 969
$ 30
23
8
—
76
—
—
113
19
$ 269
Total
$
92
71
39
97
228
123
159
370
59
$ 1,238
As of December 31, 2020, PT-FI had paid $143 million (included
in other assets) on disputed tax assessments, which it believes
is collectible.
Surface Water Taxes. PT-FI received assessments from the
local regional tax authority in Papua, Indonesia, for additional
taxes and penalties related to surface water taxes for the
period from January 2011 through December 2018. As a result,
PT-FI offered to pay one trillion rupiah to settle these historical
surface water tax disputes and charged $69 million to
production and delivery costs in December 2018. In May 2019,
PT-FI agreed to a final settlement of 1.394 trillion rupiah
(approximately $99 million) and recorded an incremental
charge of $28 million. PT-FI paid 708.5 billion rupiah ($50 million)
in October 2019, and will pay the balance of 685.5 billion
rupiah ($49 million based on the exchange rate at December 31,
2020, and included in accounts payable and accrued liabilities
in the consolidated balance sheet at December 31, 2020) in 2021.
Export Duty Matter. In April 2017, PT-FI entered into a
memorandum of understanding with the Indonesia government
(the 2017 MOU) confirming that the former COW would
continue to be valid and honored until replaced by a mutually
agreed IUPK and investment stability agreement and agreed
to continue to pay export duties of 5 percent on copper
concentrate export sales until completion of the divestment
and new IUPK. Subsequently, the Customs Office of the
Minister of Finance refused to recognize the 5 percent export
duty agreed to under the 2017 MOU and imposed a 7.5 percent
export duty under the Ministry of Finance regulations. PT-FI
paid $155 million under protest during the period April 2017
and December 21, 2018, and appealed the disputed amounts
to the Indonesia Tax Court. The Indonesia Tax Court subsequently
ruled in favor of PT-FI related to the cases involving $29 million
of the disputed amounts, which were refunded by the
Indonesia Customs Office to PT-FI. The Indonesia Customs
Office appealed the Indonesia Tax Court decisions on these
cases to the Indonesia Supreme Court. On October 29, 2019,
the Indonesia Supreme Court posted on its website rulings
unfavorable to PT-FI for certain of the appealed cases involving
approximately half of the $29 million that had been refunded
to PT-FI. As a result of the October 2019 ruling, FCX recorded a
charge of $155 million in 2019 to fully reserve for this matter.
PT-FI continues to believe that a five percent export duty was
applicable during this period and is evaluating options to
recover these overpayments.
Withholding Tax Assessments. In January 2019, the Indonesia
Supreme Court posted on its website an unfavorable decision
related to a PT-FI 2005 withholding tax matter. PT-FI had also
received an unfavorable Indonesia Supreme Court decision in
November 2017 and has other pending cases at the Indonesia
Supreme Court related to withholding taxes for employees and
other service providers for the year 2005 and the year 2007,
which total approximately $47 million (based on the exchange
rate as of December 31, 2020, and included in accounts payable
and accrued liabilities in the consolidated balance sheet
at December 31, 2020), including penalties and interest. As a
result of the January 2019 ruling, PT-FI concluded a loss on
all outstanding withholding tax matters is probable under
applicable accounting guidance, and it recorded a charge of
$61 million in 2018.
For information regarding PT-FI mine development cost tax
matters, refer to Note 11.
104
Fr e e p or t-M cM oR a n
NOTES TO CONSOLIDATED FINANCIAL STATEMENTSNOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Smelter Development Progress. As a result of COVID-19
mitigation measures, there have been disruptions to work and
travel schedules of international contractors and restrictions
on access to the proposed physical site of the new smelter in
Gresik, Indonesia. PT-FI continues to discuss with the Indonesia
government a deferred schedule for the new smelter project
as well as other alternatives in light of the ongoing COVID-19
pandemic and volatile global economic conditions.
On January 7, 2021, the Indonesia government levied an
administrative fine of $149 million for the period from March 30,
2020, through September 30, 2020 (additional fines could be
levied on exports after September 30, 2020), on PT-FI for
failing to achieve physical development progress on the new
smelter as of July 31, 2020. On January 13, 2021, PT-FI
responded to the Indonesia government objecting to the fine
because of events outside of its control causing a delay of
the new smelter’s development progress. PT-FI believes that
its communications during 2020 with the Indonesia government
were not properly considered before the administrative
fine was levied. PT-FI and its legal counsel believe, upon
consideration of all the facts, PT-FI is not obligated to pay the
fine and, therefore, it has not recorded an accrual for this
loss contingency.
Letters of Credit, Bank Guarantees and Surety Bonds.
Letters of credit and bank guarantees totaled $671 million at
December 31, 2020, primarily for environmental and AROs,
the Cerro Verde royalty dispute (refer to discussion above),
workers’ compensation insurance programs, tax and customs
obligations, and other commercial obligations. In addition,
FCX had surety bonds totaling $437 million at December 31,
2020, primarily associated with environmental and AROs.
Insurance. FCX purchases a variety of insurance products
to mitigate potential losses, which 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 on the
various casualty insurance programs covering FCX’s U.S.-
based mining operations, including workers’ compensation, to
estimate expected losses. At December 31, 2020, FCX’s liability
for expected losses under these insurance programs totaled
$50 million, which consisted of a current portion of $9 million
(included in accounts payable and accrued liabilities) and a
long-term portion of $41 million (included in other liabilities).
In addition, FCX has receivables of $14 million (a current
portion of $5 million included in other accounts receivable
and a long-term portion of $9 million included in other assets)
for expected claims associated with these losses to be filed
with insurance carriers.
FCX’s oil and gas operations are subject to all of the risks
normally incident to the production of oil and gas, including
well blowouts, cratering, explosions, oil spills, releases of gas
or well fluids, fires, pollution and releases of toxic gas, each
of which could result in damage to or destruction of oil and gas
wells, production facilities or other property, or injury to
persons. While FCX is not fully insured against all risks related
to its oil and gas operations, its insurance policies provide
limited coverage for losses or liabilities relating to pollution,
with broader coverage for sudden and accidental occurrences.
FCX is self-insured for named windstorms in the GOM.
NOTE 13. COMMITMENTS AND GUARANTEES
Leases. Effective January 1, 2019, FCX adopted the new ASU for
lease accounting. FCX leases various types of properties,
including offices and equipment under non-cancelable leases.
Nearly all of FCX’s leases were considered operating leases
under the new ASU.
The components of FCX’s leases presented in the consolidated
balance sheet for the years ended December 31 follow:
Lease right-of-use assets (included in property, plant,
equipment and mine development costs, net)
Short-term lease liabilities (included in accounts
payable and accrued liabilities)
Long-term lease liabilities (included in other liabilities)
Total lease liabilities
2020
2019
$ 207
$ 232
$ 38
190
$ 228
$ 44
204
$ 248
Operating lease costs, primarily included in production and
delivery expense in the consolidated statement of operations,
for the two years ended December 31 follow:
Operating leases
Variable and short-term leases
Total operating lease costs
2020
$ 42
74
$ 116
2019
$ 55
$ 79
$ 134
Prior to the adoption of the new ASU, lease costs totaled
$80 million in 2018 (FCX elected the practical expedient not to
adjust that year).
105
NOTES TO CONSOLIDATED FINANCIAL STATEMENTSNOTES TO CONSOLIDATED FINANCIAL STATEMENTS2020 ANNUAL REPORT
FCX paid $40 million during 2020 and $43 million in 2019 for
lease liabilities recorded in the consolidated balance sheet
(primarily included in operating cash flows in the consolidated
statements of cash flows). As of December 31, 2020, the
weighted-average discount rate used to determine the lease
liabilities was 5.4 percent (5.5 percent as of December 31,
2019) and the weighted-average remaining lease term was
7.7 years (8.2 years as of December 31, 2019).
The future minimum payments for leases presented in the
consolidated balance sheet at December 31, 2020, follow:
2021
2022
2023
2024
2025
Thereafter
Total payments
Less amount representing interest
Present value of net minimum lease payments
Less current portion
Long-term portion
$ 50
41
36
34
29
97
287
(59)
228
(38)
$ 190
Contractual Obligations. At December 31, 2020, based on
applicable prices on that date, FCX has unconditional purchase
obligations (including take-or-pay contracts with terms
less than one year) of $4.2 billion, primarily comprising the
procurement of copper concentrate ($2.9 billion), cobalt
($516 million), electricity ($301 million) and transportation
services ($209 million). 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 concentrate
provide for deliveries of specified volumes to Atlantic Copper
at market-based prices. Obligations for cobalt hydroxide
intermediate provide for deliveries of specified volumes to
Freeport Cobalt at market-based prices. Electricity obligations
are primarily for long-term power purchase agreements
in North America and contractual minimum demand at the
South America mines. Transportation obligations are primarily
for South America contracted ocean freight.
FCX’s unconditional purchase obligations by year total
$1.8 billion in 2021, $1.2 billion in 2022, $539 million in 2023,
$334 million in 2024, $119 million in 2025 and $253 million
thereafter. During the three-year period ended December 31,
2020, FCX fulfilled its minimum contractual purchase obligations.
Special Mining License (IUPK)—Indonesia. As discussed
in Note 2, on December 21, 2018, FCX completed the transaction
with the Indonesia government regarding PT-FI’s long-term
mining rights and share ownership. Concurrent with the
closing of the transaction, the Indonesia government granted
PT-FI an IUPK to replace its former COW, enabling PT-FI to
conduct operations in the Grasberg minerals district through
2041. Under the terms of the IUPK, PT-FI has been granted
an extension of mining rights through 2031, with rights to extend
mining rights through 2041, subject to PT-FI completing the
construction of a new smelter in Indonesia within five years
of closing the transaction and fulfilling its defined fiscal
obligations to the Indonesia government. The IUPK, and related
documentation, contains legal and fiscal terms and is legally
enforceable through 2041. In addition, FCX, as a foreign
investor, has rights to resolve investment disputes with the
Indonesia government through international arbitration.
The key fiscal terms set forth in the IUPK include a 25 percent
corporate income tax rate, a 10 percent profits tax on net
income, and royalty rates of 4 percent for copper, 3.75 percent
for gold and 3.25 percent for silver. PT-FI’s royalties totaled
$160 million in 2020, $106 million in 2019 and $238 million
in 2018. Dividend distributions from PT-FI to FCX are subject to
a 10 percent withholding tax.
The IUPK requires PT-FI to pay export duties of 5 percent,
declining to 2.5 percent when smelter development progress
exceeds 30 percent and eliminated when smelter progress
exceeds 50 percent. PT-FI had previously agreed to and has
been paying export duties since July 2014 (refer to Note 12
for further discussion of disputed export duties for the period
April 2017 to December 21, 2018). PT-FI’s export duties
charged against revenues totaled $92 million in 2020, $66 million
in 2019 (excluding $155 million associated with the historical
export duty matter as discussed in Note 12), and $180 million
in 2018.
The IUPK also requires PT-FI to pay surface water taxes
of $15 million annually, beginning in 2019, which are recognized
in production and delivery costs as incurred.
In connection with a memorandum of understanding
previously entered into with the Indonesia government in
July 2014, PT-FI provided an assurance bond at that
time to support its commitment to construct a new smelter
in Indonesia ($148 million based on exchange rate as of
December 31, 2020).
In March 2020, PT-FI received a one-year extension of its
export license through March 15, 2021.
106
Fr e e p or t-M cM oR a n
NOTES TO CONSOLIDATED FINANCIAL STATEMENTSNOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Community Development Programs. FCX has adopted
policies that govern its working relationships with the
communities where it operates. These policies are designed
to guide its practices and programs in a manner that respects
and promotes 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-FI established the Freeport Partnership Fund
for Community Development (Partnership Fund) through which
PT-FI has made available funding and technical assistance
to support community development initiatives in the areas
of health, education, economic development and local
infrastructure of the area. Throughout 2019, PT-FI consulted
with key stakeholders to restructure the management of the
Partnership Fund in compliance with PT-FI’s IUPK. Throughout
the restructuring process, PT-FI continued its contributions
to ensure no disruptions in implementation of approved
projects. Beginning in February 2020, the Partnership Fund
is managed by a legally recognized Indonesian foundation
(Yayasan Pemberdayaan Masyarakat Amungme dan Kamoro, or
YPMAK). PT-FI charged $36 million in 2020, $28 million in 2019
and $55 million in 2018 to cost of sales for this commitment.
Guarantees. FCX provides certain financial guarantees
(including indirect guarantees of the indebtedness of others)
and indemnities.
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 not possible 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 14. FINANCIAL INSTRUMENTS
FCX does not purchase, hold or sell derivative financial
instruments unless there is an existing asset or obligation, or
it anticipates a future activity that is likely to occur and will
result in exposure to market risks, which FCX intends to offset
or mitigate. 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 changes,
foreign currency exchange rates and interest rates.
Commodity Contracts. From time to time, FCX has entered
into derivative 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.
In April 2020, FCX entered into forward sales contracts for
150 million pounds of copper for settlement in May and
June of 2020. The forward sales provided for fixed pricing of
$2.34 per pound of copper on approximately 60 percent of
North America’s sales volumes for May and June 2020. These
contracts resulted in hedging losses totaling $24 million for
the year ended December 31, 2020. There were no remaining
forward sales contracts after June 30, 2020.
A discussion of FCX’s other derivative contracts and
programs follows.
Derivatives Designated as Hedging Instruments—
Fair Value Hedges
Copper Futures and Swap Contracts. Some of FCX’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 or swap contracts. Hedging
gains or losses from these copper futures and swap contracts
107
NOTES TO CONSOLIDATED FINANCIAL STATEMENTSNOTES TO CONSOLIDATED FINANCIAL STATEMENTS2020 ANNUAL REPORT are recorded in revenues. FCX did not have any significant gains
or losses during the three years ended December 31, 2020,
resulting from hedge ineffectiveness. At December 31, 2020,
FCX held copper futures and swap contracts that qualified
for hedge accounting for 50 million pounds at an average
contract price of $3.21 per pound, with maturities through
December 2022.
A summary of gains (losses) recognized in revenues for
derivative financial instruments related to commodity
contracts that are designated and qualify as fair value hedge
transactions, including the unrealized gains (losses) on the
related hedged item for the years ended December 31 follows:
2020
2019
2018
Copper futures and swap contracts:
Unrealized gains (losses):
Derivative financial instruments
Hedged item – firm sales commitments
$ 9
(9)
$ 15
(15)
$ (20)
20
Realized gains (losses):
Matured derivative financial instruments
22
(8)
(22)
Derivatives Not Designated as Hedging Instruments
Embedded Derivatives. Certain FCX concentrate, copper cathode
and gold sales contracts provide for provisional pricing
primarily based on the LME copper price or the COMEX copper
price and the London gold price at the time of shipment as
specified in the contract. FCX receives market prices based on
prices in the specified future month, which results in price
fluctuations recorded in revenues until the date of settlement.
FCX records revenues and invoices customers at the time of
shipment based on then-current LME or COMEX copper prices
and London gold prices as specified in the contracts, 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 concentrate or cathode at the
then-current LME or COMEX copper price and the London gold
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
and is adjusted to fair value through earnings each period, using
the period-end LME or COMEX copper forward prices and
the adjusted London gold price, until the date of final pricing.
Similarly, FCX purchases copper and cobalt under contracts
that provide for provisional pricing. Mark-to-market price
fluctuations from these embedded derivatives are recorded
through the settlement date and are reflected in revenues
for sales contracts and in inventory for purchase contracts.
A summary of FCX’s embedded derivatives at December 31,
2020, follows:
Average Price
Per Unit
Open
Positions Contract Market
Maturities
Through
Embedded derivatives in provisional
sales contracts:
Copper (millions of pounds)
Gold (thousands of ounces)
Embedded derivatives in provisional
purchase contracts:
520
142
$ 3.21
1,850
$ 3.52
1,893 February 2021
May 2021
Copper (millions of pounds)
53
3.15
3.52
April 2021
Copper Forward Contracts. Atlantic Copper, FCX’s wholly owned
smelting and refining unit in Spain, enters into copper forward
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 production and delivery
costs. At December 31, 2020, Atlantic Copper held net copper
forward purchase contracts for 6 million pounds at an average
contract price of $3.56 per pound, with maturities through
February 2021.
Summary of Gains (Losses). A summary of the realized and
unrealized gains (losses) recognized in operating income for
commodity contracts that do not qualify as hedge transactions,
including embedded derivatives, for the years ended
December 31 follows:
Embedded derivatives in provisional
sales contractsa:
Copper
Gold and other
Copper forward contractsb
2020
2019
2018
$ 259
45
3
$ (310)
$ 34
20
(7)
(7) 18
a. Amounts recorded in revenues.
b. Amounts recorded in cost of sales as production and delivery costs.
108
Fr e e p or t-M cM oR a n
NOTES TO CONSOLIDATED FINANCIAL STATEMENTSNOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Unsettled Derivative Financial Instruments
A summary of the fair values of unsettled commodity derivative
financial instruments follows:
December 31,
2020
2019
Commodity Derivative Assets:
Derivatives designated as hedging instruments:
Copper futures and swap contracts
$ 15
$ 6
Derivatives not designated as hedging instruments:
Embedded derivatives in provisional sales/
purchase contracts
Total derivative assets
Commodity Derivative Liabilities:
Derivatives not designated as hedging instruments:
Embedded derivatives in provisional sales/
purchase contracts
Copper forward contracts
Total derivative liabilities
169
$ 184
68
$ 74
$ 21
—
$ 21
$ 20
1
$ 21
FCX’s commodity contracts have netting arrangements with
counterparties with which the right of offset exists, and it
is FCX’s policy to generally offset balances by contract on its
balance sheet. FCX’s embedded derivatives on provisional
sales/purchase contracts are netted with the corresponding
outstanding receivable/payable balances.
A summary of these unsettled commodity contracts that
are offset in the balance sheet follows:
December 31,
Gross amounts recognized:
Commodity contracts:
Embedded derivatives in provisional
sales/purchase contracts
Copper derivatives
Less gross amounts of offset:
Commodity contracts:
Embedded derivatives in provisional
sales/purchase contracts
Net amounts presented in balance sheet:
Commodity contracts:
Embedded derivatives in provisional
sales/purchase contracts
Copper derivatives
Balance sheet classification:
Trade accounts receivable
Other current assets
Accounts payable and accrued liabilities
Assets
2020
2019
Liabilities
2019
2020
$ 169
15
184
$ 68
6
74
$ 21
—
21
$ 20
1
21
1
1
—
—
1
1
—
—
168
15
$ 183
$ 168
15
—
$ 183
68
6
$ 74
$ 66
6
2
$ 74
20
—
$ 20
$ —
—
20
$ 20
20
1
$ 21
$ —
—
21
$ 21
Credit Risk. FCX is exposed to credit loss when financial
institutions with which it 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 counterparties that meet certain credit
requirements and periodically reviews the creditworthiness
of these counterparties. FCX does not anticipate that any of
the counterparties it deals with will default on their
obligations. As of December 31, 2020, the maximum amount of
credit exposure associated with derivative transactions was
$186 million.
Other Financial Instruments. Other financial instruments
include cash and cash equivalents, restricted cash, restricted
cash equivalents, accounts receivable, investment securities,
legally restricted funds, accounts payable and accrued
liabilities, dividends payable and long-term debt. The carrying
value for cash and cash equivalents (which included time
deposits of $0.3 billion at December 31, 2020, and $1.3 billion
at December 31, 2019), restricted cash, restricted cash
equivalents, accounts receivable, accounts payable and
accrued liabilities, and dividends payable approximates fair
value because of their short-term nature and generally
negligible credit losses (refer to Note 15 for the fair values
of investment securities, legally restricted funds and
long-term debt).
In addition, as of December 31, 2020, FCX has contingent
consideration assets related to the sales of certain oil and gas
properties (refer to Note 15 for the related fair values).
Cash, Cash Equivalents, Restricted Cash and Restricted
Cash Equivalents. The following table provides a reconciliation
of total cash, cash equivalents, restricted cash and restricted
cash equivalents presented in the consolidated statements
of cash flows to the components presented in the consolidated
balance sheets:
December 31,
2020
2019
Balance sheet components:
Cash and cash equivalents
Restricted cash and restricted cash equivalents
included in:
Other current assets
Other assets
Total cash, cash equivalents, restricted cash
and restricted cash equivalents presented in the
consolidated statements of cash flows
$ 3,657
$ 2,020
97
149
100
158
$ 3,903
$ 2,278
109
NOTES TO CONSOLIDATED FINANCIAL STATEMENTSNOTES TO CONSOLIDATED FINANCIAL STATEMENTS2020 ANNUAL REPORT
NOTE 15. FAIR VALUE MEASUREMENT
Fair value accounting guidance includes a 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) and the lowest priority to
unobservable inputs (Level 3). FCX did not have any significant
transfers in or out of Level 3 for 2020.
FCX’s financial instruments are recorded on the consolidated
balance sheets at fair value except for contingent consideration
associated with the sale of the Deepwater GOM oil and gas
properties (which was recorded under the loss recovery approach)
and debt. A summary of the carrying amount and fair value of
FCX’s financial instruments (including those measured at NAV as
a practical expedient), other than cash and cash equivalents,
restricted cash, restricted cash equivalents, accounts receivable,
accounts payable and accrued liabilities, and dividends payable
(refer to Note 14) follows:
At December 31, 2020
Carrying
Amount
Total
NAV
Fair Value
Level 1
Level 2
Level 3
$ 29
7
36
$
29
7
36
65
49
43
30
16
5
4
1
213
169
15
184
65
49
43
30
16
5
4
1
213
169
15
184
108
$ 29
—
29
65
—
—
—
—
—
—
—
65
—
—
—
88
—
21
9,711
21
10,994
—
—
$ —
7
7
$
—
—
—
$ —
—
—
—
—
—
—
—
5
—
—
5
—
13
13
—
—
—
—
49
43
30
16
—
4
1
143
169
2
171
—
21
10,994
—
—
—
—
—
—
—
—
—
—
—
—
88
—
—
Assets
Investment securities:a,b
U.S. core fixed income fund
Equity securities
Total
Legally restricted funds:a
U.S. core fixed income fund
Government bonds and notes
Corporate bonds
Government mortgage-backed securities
Asset-backed securities
Money market funds
Collateralized mortgage-backed securities
Municipal bonds
Total
Derivatives:
Embedded derivatives in provisional sales/purchase
contracts in a gross asset positionc
Copper futures and swap contractsc
Total
Contingent consideration for the sale of
the Deepwater GOM oil and gas propertiesa
Liabilities
Derivatives:c
Embedded derivatives in provisional sales/purchase
contracts in a gross liability position
Long-term debt, including current portiond
110
Fr e e p or t-M cM oR a n
NOTES TO CONSOLIDATED FINANCIAL STATEMENTSNOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Assets
Investment securities:a,b
U.S. core fixed income fund
Equity securities
Total
Legally restricted funds:a
U.S. core fixed income fund
Government mortgage-backed securities
Government bonds and notes
Corporate bonds
Asset-backed securities
Collateralized mortgage-backed securities
Money market funds
Municipal bonds
Total
Derivatives:
Embedded derivatives in provisional sales/purchase
contracts in a gross asset positionc
Copper futures and swap contractsc
Contingent consideration for the sale of onshore
California oil and gas propertiesa
Total
Contingent consideration for the sale of the
Deepwater GOM oil and gas propertiesa
Liabilities
Derivatives:
Embedded derivatives in provisional sales/purchase
contracts in a gross liability position
Copper forward contracts
Total
Long-term debt, including current portiond
At December 31, 2019
Carrying
Amount
Total
NAV
Fair Value
Level 1
Level 2
Level 3
$
$ 27
4
31
59
43
36
33
14
7
3
1
196
68
6
11
85
27
4
31
59
43
36
33
14
7
3
1
196
68
6
11
85
$ 27
—
27
59
—
—
—
—
—
—
—
59
—
—
—
—
122
108
—
20
1
21
9,826
20
1
21
10,239
—
—
—
—
$ —
4
4
—
—
—
—
—
—
3
—
3
—
5
—
5
—
—
—
—
—
$
—
—
—
—
43
36
33
14
7
—
1
134
68
1
11
80
—
20
1
21
10,239
$ —
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
108
—
—
—
—
a. Current portion included in other current assets and long-term portion included in other assets.
b. Excludes time deposits (which approximated fair value) included in (i) other current assets of $97 million at December 31, 2020, and $100 million at December 31, 2019, and (ii) other assets of $148 million at
December 31, 2020, and $157 million at December 31, 2019, primarily associated with an assurance bond to support PT-FI’s commitment for the development of a new smelter in Indonesia (refer to Note 13 for further
discussion) and PT-FI’s closure and reclamation guarantees (refer to Note 12 for further discussion).
c. Refer to Note 14 for further discussion and balance sheet classifications.
d. Recorded at cost except for debt assumed in acquisitions, which are recorded at fair value at the respective acquisition dates.
111
NOTES TO CONSOLIDATED FINANCIAL STATEMENTSNOTES TO CONSOLIDATED FINANCIAL STATEMENTS2020 ANNUAL REPORT
Valuation Techniques. The U.S. core fixed income fund is
valued at NAV. The fund strategy seeks total return consisting
of income and capital appreciation primarily by investing in
a broad range of investment-grade debt securities, including
U.S. government obligations, corporate bonds, mortgage-
backed securities, asset-backed securities and money market
instruments. There are no restrictions on redemptions (which
are usually within one business day of notice).
Equity securities are valued at the closing price reported
on the active market on which the individual securities are
traded and, as such, are classified within Level 1 of the fair
value hierarchy.
Fixed income securities (government securities, corporate
bonds, asset-backed securities, collateralized mortgage-
backed securities and municipal bonds) are valued using a
bid-evaluation price or a mid-evaluation price. These evaluations
are based on quoted prices, if available, or models that use
observable inputs and, as such, are classified within Level 2 of
the fair value hierarchy.
Money market funds are classified within Level 1 of the fair
value hierarchy because they are valued using quoted market
prices in active markets.
FCX’s embedded derivatives on provisional copper
concentrate, copper cathode and gold purchases and sales
are valued using only quoted monthly LME or COMEX copper
forward prices and the adjusted London gold prices at each
reporting date based on the month of maturity (refer to Note 14
for further discussion); however, FCX’s contracts themselves
are not traded on an exchange. As a result, these derivatives are
classified within Level 2 of the fair value hierarchy.
FCX’s derivative financial instruments for copper futures
and swap contracts and copper forward contracts that are
traded on the respective exchanges are classified within Level 1
of the fair value hierarchy because they are valued using
quoted monthly COMEX or LME prices at each reporting
date based on the month of maturity (refer to Note 14 for
further discussion). Certain of these contracts are traded on
the over-the-counter market and are classified within
Level 2 of the fair value hierarchy based on COMEX and
LME forward prices.
In 2016, FCX completed the sale of its onshore California oil
and gas properties, which included contingent consideration of
up to $150 million, consisting of $50 million per year for 2018,
2019 and 2020 if the price of Brent crude oil averages over
$70 per barrel in each of these calendar years. No contingent
consideration was realized in 2020 or 2019 because the
average Brent crude oil price did not exceed $70 per barrel for
either year. Contingent consideration of $50 million was
realized in 2018 and collected in first-quarter 2019 (included in
proceeds from sales of assets in the consolidated statements
of cash flows) because the average Brent crude oil price
exceeded $70 per barrel for 2018. The fair value of the contingent
consideration derivative was $11 million (included in other
assets in the consolidated balance sheets) at December 31, 2019.
The fair value at December 31, 2019, was calculated based
on average commodity price forecasts through the applicable
maturity date using a Monte-Carlo simulation model. The
model used various observable inputs, including Brent crude
oil forward prices, volatilities and discount rates. As a result,
this contingent consideration asset was classified within
Level 2 of the fair value hierarchy.
In December 2016, FCX’s sale of its Deepwater GOM oil and
gas properties included up to $150 million in contingent
consideration that was recorded at the total amount under the
loss recovery approach. The contingent consideration
will be received over time as future cash flows are realized
from a third-party production handling agreement for an
offshore platform, with the related payments commencing
in third-quarter 2018. The contingent consideration
included in (i) other current assets totaled $12 million at
December 31, 2020, and $18 million at December 31, 2019,
and (ii) other assets totaled $96 million at December 31, 2020,
and $104 million at December 31, 2019. The fair value of this
contingent consideration was calculated based on a discounted
cash flow model using inputs that include third-party estimates
for reserves, production rates and production timing, and
discount rates. Because significant inputs are not observable
in the market, the contingent consideration is classified within
Level 3 of the fair value hierarchy.
Long-term debt, including current portion, is primarily
valued using available market quotes and, as such, is classified
within Level 2 of the fair value hierarchy.
The techniques described above may produce a fair value that
may not be indicative of NRV 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 fair
value of certain financial instruments could result in a different
fair value measurement at the reporting date. There have
been no changes in the techniques used at December 31, 2020,
as compared to those techniques used at December 31, 2019.
112
Fr e e p or t-M cM oR a n
NOTES TO CONSOLIDATED FINANCIAL STATEMENTSNOTES TO CONSOLIDATED FINANCIAL STATEMENTS A summary of the changes in the fair value of FCX’s Level 3
Years Ended December 31,
2020
2019
2018
instrument, contingent consideration for the sale of the
Deepwater GOM oil and gas properties, for the years ended
December 31 follows:
Balance at beginning of year
Net unrealized (losses) gains related
to assets still held at the end of the year
Settlements
Balance at end of year
2020
$ 108
(6)
(14)
$ 88
2019
$ 127
2
(21)
$ 108
2018
$ 134
—
(7)
$ 127
NOTE 16. BUSINESS SEGMENT INFORMATION
Product Revenues. FCX’s revenues attributable to the products
it sold for the years ended December 31 follow:
2020
2019
2018
Copper:
Concentrate
Cathode
Rod and other refined copper products
Purchased coppera
Gold
Molybdenum
Otherb
Adjustments to revenues:
Treatment charges
Royalty expensec
Export dutiesd
Revenues from contracts with customers
Embedded derivativese
Total consolidated revenues
$ 4,294
4,204
2,052
821
1,702
848
592
(362)
(165)
(92)
13,894
304
$ 14,198
$ 4,566
3,656
2,110
1,060
1,620
1,169
905
(404)
(113)
(221)
14,348
54
$ 14,402
$ 6,180
4,366
2,396
1,053
3,231
1,190
1,490
(535)
(246)
(180)
18,945
(317)
$ 18,628
a. FCX purchases copper cathode primarily for processing by its Rod & Refining operations.
b. Primarily includes revenues associated with cobalt and silver.
c. Reflects royalties on sales from PT-FI and Cerro Verde that will vary with the volume of metal sold
and prices.
d. Reflects PT-FI export duties. The year 2019 includes charges totaling $155 million primarily
associated with an unfavorable Indonesia Supreme Court ruling related to certain disputed export
duties (refer to Note 12).
e. Refer to Note 14 for discussion of embedded derivatives related to FCX’s provisionally priced
concentrate and cathode sales contracts.
Geographic Area. Information concerning financial data by
geographic area follows:
December 31,
Long-lived assets:a
Indonesia
U.S.
Peru
Chile
Other
Total
a. Excludes deferred tax assets and intangible assets.
2020
2019
$ 15,567
8,420
6,989
1,172
290
$ 32,438
$ 14,971
8,834
7,215
1,084
384
$ 32,488
Revenues:a
U.S.
Switzerland
Indonesia
Japan
Spain
China
United Kingdom
Germany
Chile
France
India
Korea
Belgium
Philippines
Bermuda
Other
Total
$ 5,248
2,032
1,760
1,205
785
692
491
248
221
153
152
89
36
34
—
1,052
$ 14,198
$ 5,107
2,223
1,894
1,181
884
531
233
311
242
198
107
140
160
73
38
1,080
$ 14,402
$ 5,790
2,941
2,226
1,946
1,070
873
296
256
294
255
389
269
278
221
207
1,317
$ 18,628
a. Revenues are attributed to countries based on the location of the customer.
Major Customers and Affiliated Companies. Copper concentrate
sales to PT Smelting totaled 12 percent of FCX’s consolidated
revenues for the year ended December 31, 2020, 13 percent for
the year ended December 31, 2019, and 12 percent for the
year ended December 31, 2018, which is the only customer that
accounted for 10 percent or more of FCX’s consolidated
revenues during the three years ended December 31, 2020.
Consolidated revenues include sales to the noncontrolling
interest owners of FCX’s South America mining operations
totaling $0.9 billion in 2020, $1.0 billion in 2019 and $1.2 billion
in 2018, and PT-FI’s sales to PT Smelting totaling $1.8 billion
in 2020, $1.9 billion in 2019 and $2.2 billion in 2018.
Labor Matters. As of December 31, 2020, approximately
38 percent of FCX’s global labor force was covered by collective
bargaining agreements, and approximately 16 percent was
covered by agreements that expired and are currently being
negotiated or will expire within one year. In December 2020,
PT-FI signed a new agreement with one union effective April 2020
through March 2022, giving all employees the option to reject
the new stipulations, but no employees have rejected the
agreement. Another union filed a lawsuit in November 2020
regarding the new agreement, and the pending decision could
modify the agreement.
113
NOTES TO CONSOLIDATED FINANCIAL STATEMENTSNOTES TO CONSOLIDATED FINANCIAL STATEMENTS2020 ANNUAL REPORT
Business Segments. FCX has organized its mining operations
North America Copper Mines. FCX operates seven open-pit
into four primary divisions—North America copper mines,
South America mining, Indonesia mining and Molybdenum mines,
and operating segments that meet certain thresholds are
reportable segments. Separately disclosed in the following
tables are FCX’s reportable segments, which include the
Morenci, Cerro Verde and Grasberg (Indonesia Mining) copper
mines, the Rod & Refining operations and Atlantic Copper
Smelting & Refining.
At year-end 2020, FCX’s Bagdad mine did not meet the
quantitative thresholds of a reportable segment. As a result,
FCX revised its segment disclosure for the years ended
December 31, 2019 and 2018, to conform with the current
year presentation.
Intersegment sales between FCX’s business segments are
based on terms similar to arm’s-length transactions with third
parties at the time of the sale. Intersegment sales may not
be reflective of the actual prices ultimately realized because of
a variety of factors, including additional processing, timing
of sales to unaffiliated customers and transportation premiums.
FCX defers recognizing profits on sales from its mines to
other segments, including Atlantic Copper Smelting & Refining,
and on 25 percent of PT-FI’s sales to PT Smelting, until final
sales to third parties occur. Quarterly variations in ore grades,
the timing of intercompany shipments and changes in product
prices result in variability in FCX’s net deferred profits and
quarterly earnings.
FCX allocates certain operating costs, expenses and capital
expenditures to its operating divisions and individual
segments. However, not all costs and expenses applicable to
an operation are allocated. U.S. federal and state income taxes
are recorded and managed at the corporate level (included
in Corporate, Other & Eliminations), whereas foreign income
taxes are recorded and managed at the applicable country
level. In addition, most mining exploration and research
activities are managed on a consolidated basis, and those
costs, along with some selling, general and administrative
costs, are not allocated to the operating divisions or individual
segments. Accordingly, the following Financial Information
by Business Segment 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.
copper mines in North America—Morenci, Bagdad, Safford
(including Lone Star), Sierrita and Miami in Arizona, and Chino
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 segment. In addition to copper, certain
of FCX’s North America copper mines also produce molybdenum
concentrate, gold and silver.
The Morenci open-pit mine, located in southeastern Arizona,
produces copper cathode and copper concentrate. In addition
to copper, the Morenci mine also produces molybdenum
concentrate. The Morenci mine produced 50 percent of FCX’s
North America copper during 2020.
South America Mining. South America mining includes two
operating copper mines—Cerro Verde in Peru and El Abra
in Chile. These operations include open-pit mining, sulfide ore
concentrating, leaching and SX/EW operations.
The Cerro Verde open-pit copper mine, located near
Arequipa, Peru, produces copper cathode and copper
concentrate. In addition to copper, the Cerro Verde mine also
produces molybdenum concentrate and silver. The Cerro Verde
mine produced 84 percent of FCX’s South America copper
during 2020.
Indonesia Mining. Indonesia mining includes PT-FI’s
Grasberg minerals district that produces copper concentrate
that contains significant quantities of gold and silver.
Molybdenum Mines. Molybdenum mines include the wholly
owned Henderson underground mine and Climax open-pit mine,
both in Colorado. The Henderson and Climax mines produce
high-purity, chemical-grade molybdenum concentrate, which
is typically further processed into value-added molybdenum
chemical products.
Rod & Refining. The Rod & Refining segment consists of
copper conversion facilities located in North America, and
includes a refinery and two rod mills, which are combined
in accordance with segment reporting aggregation guidance.
These operations process copper produced at FCX’s North
America copper 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.
114
Fr e e p or t-M cM oR a n
NOTES TO CONSOLIDATED FINANCIAL STATEMENTSNOTES TO CONSOLIDATED FINANCIAL STATEMENTS Atlantic Copper Smelting & Refining. Atlantic Copper smelts
and refines copper concentrate and markets refined copper
and precious metals in slimes. During 2020, Atlantic Copper
purchased 10 percent of its concentrate requirements from
FCX’s North America copper mines, 7 percent from FCX’s
South America mining operations and 4 percent from FCX’s
Indonesia mining operations, with the remainder purchased
from unaffiliated third parties.
Corporate, Other & Eliminations. Corporate, Other &
Eliminations consists of FCX’s other mining, oil and gas
operations and other corporate and elimination items.
Other mining includes the Miami smelter (a smelter at
FCX’s Miami, Arizona, mining operation), Freeport Cobalt,
molybdenum conversion facilities in the U.S. and Europe,
five non-operating copper mines in North America (Ajo,
Bisbee, Tohono, Twin Buttes and Christmas in Arizona) and
other mining support entities.
FINANCIAL INFORMATION BY BUSINESS SEGMENT
North America Copper Mines
South America Mining
Morenci
Other
Total
Cerro
Verde
Other
Total
Indonesia Molybdenum
Mining
Mines
Rod &
Refining
Atlantic
Copper
Smelting
& Refining
Corporate,
Other &
Eliminations
FCX
Total
Year Ended December 31, 2020
Revenues:
Unaffiliated customers
Intersegment
Production and delivery
Depreciation, depletion and amortization
Metals inventory adjustments
Selling, general and administrative expenses
Mining exploration and research expenses
Environmental obligations and shutdown costs
Net gain on sales of assets
Operating income (loss)
Interest expense, net
Provision for income taxes
Total assets at December 31, 2020
Capital expenditures
$
2,015
1,269
166
4
2
—
—
—
603
29 $ 48
2,272
1,831
189
48
2
2
(1)
—
249
2
—
2,574
102
—
—
5,163
326
$ 77
4,287
3,100
355
52
4
2
(1)
—
852
2
—
7,737
428
$ 2,282 $ 431 $ 2,713 $ 3,534
80
242
1,606
1,599
580
367
—
—
108
6
—
—
—
—
—
—
552d
1,320
242
1,978
421
3
6
—
—
—
547
—
379
54
3
—
—
—
—
(5)
$ —
222
230
57
10
—
—
—
—
(75)
$ 4,781 $ 2,020 $ 1,073a $ 14,198
—
10,031
1,528
96
370
50
159
(473)
2,437d
(4,881)
(3,664)
70
28
231
48
159b
(473)c
(207)d
17
1,962
29
—
21
—
—
—
25
33
4,819
16
3
—
—
1
—
(25)d
139
238
8,474
141
—
1
1,678
42
139
239
10,152
183
39e
606
17,169
1,266
—
—
1,760
19
—
—
211
6
6
2
877
29
412
97f
4,238
30
598
944
42,144
1,961
a. Includes revenues from FCX’s molybdenum sales company, which includes sales of molybdenum produced by the Molybdenum mines and by certain of the North America and South America copper mines.
b. Includes charges totaling $130 million associated with a framework for the resolution of all current and future potential talc-related litigation.
c. Includes a $486 million gain associated with the sale of FCX’s interests in the Kisanfu undeveloped project. Refer to Note 2 for further discussion.
d. Includes charges totaling $258 million associated with (i) idle facility costs (Cerro Verde), contract cancellation and other charges directly related to the COVID-19 pandemic and (ii) the April 2020 revised operating
plans (including employee separation costs). These charges were primarily recorded in the Cerro Verde segment ($89 million), Corporate, Other & Eliminations ($57 million) and the Rod & Refining segment
($30 million).
e. Includes charges totaling $35 million associated with PT-FI’s historical contested tax audits.
f.
Includes tax charges totaling $135 million associated with the sale of the Kisanfu undeveloped project, partly offset by tax credits of $53 million associated with the reversal of a year-end 2019 tax charge related
to the sale of FCX’s interest in the lower zone of the Timok exploration project in Serbia.
115
NOTES TO CONSOLIDATED FINANCIAL STATEMENTSNOTES TO CONSOLIDATED FINANCIAL STATEMENTS2020 ANNUAL REPORT
FINANCIAL INFORMATION BY BUSINESS SEGMENT (continued)
Year Ended December 31, 2019
Revenues:
Unaffiliated customers
Intersegment
Production and delivery
Depreciation, depletion and amortization
Metals inventory adjustments
Selling, general and administrative expenses
Mining exploration and research expenses
Environmental obligations and shutdown costs
Net gain on sales of assets
Operating income (loss)
Interest expense, net
Provision for (benefit from) income taxes
Total assets at December 31, 2019
Capital expenditures
North America Copper Mines
South America Mining
Morenci
Other
Total
Cerro
Verde
Other
Total
Indonesia Molybdenum
Mining
Mines
Rod &
Refining
Atlantic
Copper
Smelting
& Refining
Corporate,
Other &
Eliminations
FCX
Total
$ 143
1,864
1,376
171
1
2
—
1
—
456
3
—
2,880
231
$ 224
2,155
1,943
178
29
2
2
—
—
225
1
—
5,109
646
$ 367
4,019
3,319
349
30
4
2
1
—
681
4
—
7,989
877
$ 2,576
313
1,852
406
2
8
—
—
—
621
114
250
8,612
232
$ 499
—
474
68
—
—
—
—
—
(43)
—
(11)
1,676
24
$ 3,075
313
2,326
474
2
8
—
—
—
578
114
239
10,288
256
$ 2,713a $ —
344
299
62
50
—
—
—
—
(67)
58
2,055c
406
5
125
—
—
—
180
82c
167c
16,485
1,369
—
—
1,798
19
$ 4,457
26
4,475
9
—
—
—
—
—
(1)
—
—
193
5
$ 2,063
5
1,971
28
—
20
—
—
—
49
22
5
761
34
$ 1,727b
(4,765)
(2,911)
84
92
237
102
104
(417)d
(329)
398
99e
3,295
92
$ 14,402
—
11,534
1,412
179
394
104
105
(417)
1,091
620
510
40,809
2,652
a. Includes charges totaling $155 million associated with an unfavorable Indonesia Supreme Court ruling related to PT-FI export duties. Refer to Note 12 for further discussion.
b. Includes revenues from FCX’s molybdenum sales company, which includes sales of molybdenum produced by the Molybdenum mines and by certain of the North America and South America copper mines.
c. Includes net charges totaling $28 million in production and delivery costs for an adjustment to the settlement of the historical surface water tax matters with the local regional tax authority in Papua, Indonesia, and
$78 million in interest expense and $103 million of tax charges in provision for income taxes associated with PT-FI’s historical contested tax disputes.
d. Includes net gains totaling $343 million associated with the sale of FCX’s interest in the lower zone of the Timok exploration project and $59 million for the sale of a portion of Freeport Cobalt. Refer to Note 2 for
further discussion.
e. Includes tax charges totaling $53 million associated with the sale of FCX’s interest in the lower zone of the Timok exploration project and $49 million primarily to adjust deferred taxes on historical balance sheet
items in accordance with tax accounting principles.
116
Fr e e p or t-M cM oR a n
NOTES TO CONSOLIDATED FINANCIAL STATEMENTSNOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FINANCIAL INFORMATION BY BUSINESS SEGMENT (continued)
Year Ended December 31, 2018
Revenues:
Unaffiliated customers
Intersegment
Production and delivery
Depreciation, depletion and amortization
Metals inventory adjustments
Selling, general and administrative expenses
Mining exploration and research expenses
Environmental obligations and shutdown costs
Net gain on sales of assets
Operating income (loss)
Interest expense, net
Provision for (benefit from) income taxes
Total assets at December 31, 2018
Capital expenditures
North America Copper Mines
South America Mining
Morenci
Other
Total
Cerro
Verde
Other
Total
Indonesia Molybdenum
Mining
Mines
Rod &
Refining
Atlantic
Copper
Smelting
& Refining
Corporate,
Other &
Eliminations
FCX
Total
$ 90
2,051
1,183
176
—
3
—
—
—
779
3
—
2,922
216
$ 54
2,499
1,941
184
4
3
3
2
—
416
1
—
4,608
385
$ 144
4,550
3,124
360
4
6
3
2
—
1,195
4
—
7,530
601
$ 2,709
352
1,887b,c
456
—
9
—
—
—
709
429b
253b
8,524
220
$ 594
—
478
90
—
—
—
—
—
26
—
15
1,707
17
$ 3,303
352
2,365
546
—
9
—
—
—
735
429
268
10,231
237
$ 5,446
113
1,864d
606
—
123
—
—
—
2,966
1
755g
15,646
1,001
$ —
410
289
79
—
—
—
—
—
42
—
—
1,796
9
$ 5,103
31
5,117
11
—
—
—
—
—
6
—
—
233
5
$ 2,299
3
2,218
27
—
21
—
—
—
36
25
1
773
16
$ 2,333a
(5,459)
(3,269)
125e
—
263
102
87
(208)f
(226)
$ 18,628
—
11,708
1,754
4
422
105
89
(208)
4,754
486
(33)h
6,007
102
945
991
42,216
1,971
a. Includes revenues from FCX’s molybdenum sales company, which includes sales of molybdenum produced by the Molybdenum mines and by certain of the North America and South America copper mines.
b. Includes net charges totaling $14 million in production and delivery costs, $370 million in interest expense and $35 million of net tax benefits in provision for income taxes associated with disputed royalties for
prior years.
c. Includes charges totaling $69 million associated with Cerro Verde’s three-year collective labor agreement.
d. Includes net charges of $223 million, primarily associated with surface water tax disputes with the local regional tax authority in Papua, Indonesia, assessments for prior period permit fees with Indonesia’s MOEF,
disputed payroll withholding taxes for prior years and other tax settlements, and to write off certain previously capitalized project costs for the new smelter in Indonesia, partially offset by inventory adjustments.
e. Includes $31 million of depreciation expense at Freeport Cobalt from December 2016 through December 2017 that was suspended while it was classified as held for sale.
f.
Includes net gains totaling $97 million associated with a favorable adjustment to the estimated fair value less costs to sell for Freeport Cobalt and fair value adjustments of $31 million associated with potential
contingent consideration related to the 2016 sale of onshore California oil and gas properties.
g. Includes tax credits totaling $549 million related to the change in PT-FI’s tax rates in accordance with its IUPK ($482 million), U.S. tax reform ($47 million) and adjustments to PT-FI’s historical tax positions ($20 million).
h. Includes net tax credits totaling $76 million, primarily related to the Act and $22 million related to the change in PT-FI’s tax rates in accordance with its IUPK. Refer to Note 11 for further discussion.
117
NOTES TO CONSOLIDATED FINANCIAL STATEMENTSNOTES TO CONSOLIDATED FINANCIAL STATEMENTS2020 ANNUAL REPORT
The recoverable proven and probable reserves presented
in the table below represent the 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.
Estimated Recoverable Proven and Probable
Mineral Reserves at December 31, 2020
Gold
(million ounces)
Coppera
(billion pounds)
Molybdenum
(billion pounds)
North America
South America
Indonesiab
Consolidatedc
Net equity interestd
47.1
32.7
33.4
113.2
81.8
0.6
—
28.3
28.9
15.5
3.01
0.70
—
3.71
3.39
a. Estimated consolidated recoverable copper reserves included 1.7 billion pounds in leach stockpiles
and 0.3 billion pounds in mill stockpiles.
b. Reflects estimates of minerals that can be recovered through 2041. Refer to Note 13 for discussion
of PT-FI’s IUPK.
c. Consolidated reserves represent estimated metal quantities after reduction for joint venture partner
interests at the Morenci mine in North America (refer to Note 3 for further discussion). Excluded
from the table above were FCX’s estimated recoverable proven and probable reserves of 362 million
ounces of silver, which were determined using $15 per ounce.
d. Net equity interest reserves represent estimated consolidated metal quantities further reduced
for noncontrolling interest ownership (refer to Note 3 for further discussion of FCX’s ownership in
subsidiaries). FCX’s net equity interest for estimated metal quantities in Indonesia reflects
approximately 81 percent from 2021 through 2022 and 48.76 percent from 2023 through 2041.
Excluded from the table above were FCX’s estimated recoverable proven and probable reserves
of 247 million ounces of silver.
NOTE 17. SUPPLEMENTARY MINERAL RESERVE
INFORMATION (UNAUDITED)
Recoverable proven and probable reserves have been estimated
as of December 31, 2020, 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 dimensions 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.
Estimated recoverable proven and probable reserves at
December 31, 2020, were determined using metals price
assumptions of $2.50 per pound for copper, $1,200 per ounce
for gold and $10 per pound for molybdenum. For the three-
year period ended December 31, 2020, LME copper settlement
prices averaged $2.83 per pound, London PM gold prices
averaged $1,477 per ounce and the weekly average price for
molybdenum quoted by Metals Week averaged $10.65
per pound.
118
Fr e e p or t-M cM oR a n
NOTES TO CONSOLIDATED FINANCIAL STATEMENTSNOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Estimated Recoverable Proven and Probable Mineral Reserves
at December 31, 2020
Average Ore Grade
Per Metric Tona
Orea
(million
metric tons)
Copper
(%)
Gold
(grams)
Molybdenum
(%)
4,300
3,240
2,591
777
313
156
60
33
—
0.23
0.22
0.31
0.45
0.44
—
—
0.27
—
—
—c
—c
—
0.03
—
—
—
—
—c
0.02
0.02
—
—
0.15
0.17
—
—
4,077
779
0.36
0.41
—
—
0.01
—
874
439
53
8
1.08
0.89
2.30
0.55
0.73
0.72
0.98
0.47
351
0.92
0.90
18,052e
—
—
—
—
—
North America
Developed and producing:
Morenci
Sierrita
Bagdad
Safford, including Lone Star
Chino, including Cobre
Climax
Henderson
Tyrone
Miami
South America
Developed and producing:
Cerro Verde
El Abra
Indonesiad
Developed and producing:
Grasberg Block Cave
Deep Mill Level Zone
Big Gossan
Deep Ore Zone
Undeveloped:
Kucing Liar
Total 100% basis
Consolidated f
FCX’s equity shareg
Recoverable Proven and
Probable Reservesb
Gold
(million
ounces)
Molybdenum
(billion
pounds)
Copper
(billion
pounds)
14.3
13.2
15.2
5.7
2.5
—
—
0.2
0.1
28.6
4.2
17.5
7.4
2.5
0.1
6.0
117.2e
113.2
81.8
—
0.2
0.2
—
0.2
—
—
—
—
0.20
1.28
0.92
—
—
0.48
0.20
—
—
—
—
0.70
—
13.1
8.1
1.1
0.1
6.0
28.9e
28.9
15.5
—
—
—
—
—
3.77e
3.71
3.39
a. Excludes material contained in stockpiles.
b. Includes estimated recoverable metals contained in stockpiles.
c. Amounts not shown because of rounding.
d. Estimated recoverable proven and probable reserves from Indonesia reflect estimates of minerals that can be recovered through 2041. Refer to Note 13 for discussion of PT-FI’s IUPK.
e. Does not foot because of rounding.
f. Consolidated reserves represent estimated metal quantities after reduction for joint venture partner interests at the Morenci mine in North America. Refer to Note 3 for further discussion.
g. Net equity interest reserves represent estimated consolidated metal quantities further reduced for noncontrolling interest ownership. FCX’s net equity interest for estimated metal quantities in Indonesia reflects
an approximate 81 percent from 2021 through 2022 and 48.76 percent from 2023 through 2041. Refer to Note 3 for further discussion of FCX’s ownership in subsidiaries.
119
NOTES TO CONSOLIDATED FINANCIAL STATEMENTSNOTES TO CONSOLIDATED FINANCIAL STATEMENTS2020 ANNUAL REPORT
PERFO RM A N CE GR A PH
The following graph compares the change in the cumulative
are classified in the metals and mining sub-industry. This
total stockholder return on our common stock with the
comparison assumes $100 invested on December 31, 2015,
cumulative total return of the S&P 500 Stock Index and the
in (a) Freeport-McMoRan Inc. common stock, (b) the
S&P Metals and Mining Select Industry Index from 2016
S&P 500 Stock Index and (c) the S&P Metals and Mining Select
through 2020. The S&P Metals and Mining Select Industry
Industry Index (with the reinvestment of all dividends).
Index comprises stocks in the S&P Total Market Index that
Comparison of 5-Year Cumulative Total Return
Among Freeport-McMoRan Inc., the S&P 500 Stock Index and the S&P Metals and Mining Select Industry Index
$450
$400
$350
$300
$250
$200
$150
$100
$50
$0
12/31/15
12/31/16
12/31/17
12/31/18
12/31/19
12/31/20
Freeport-McMoRan Inc.
S&P 500 Stock Index
December 31,
2015
2016
2017
2018
2019
2020
$ 100.00
$ 194.83
$ 280.06
$ 153.76
$ 199.1 6
$ 396.48
100.00
1 1 1 .96
136.40
130.42
171.49
203.04
S&P Metals and Mining Select Industry Index
100.00
205.20
247.53
183.04
210.1 8
244.73
120
Fr e e p or t-M cM oR a n
S T O C K H O L D E R I N F O R M AT I O N
INVESTOR INQUIRIES
FCX COMMON STOCK
The Investor Relations Department is pleased to receive
any inquiries about the company. Our Principles of Business
Conduct and our Annual Report on Form 10-K filed with the U.S.
Securities and Exchange Commission (SEC), which includes
certifications of our Chief Executive Officer and Chief Financial
Officer, are available on our website. Additionally, copies will be
furnished, without charge, to any stockholder of the company
entitled to vote at the annual meeting, upon written request. The
Investor Relations Department can be contacted as follows:
Freeport-McMoRan Inc.
Investor Relations Department
333 North Central Avenue
Phoenix, AZ 85004
Telephone 602.366.8400
fcx.com
TRANSFER AGENT
Questions about lost certificates, lost or missing dividend checks,
or notifications of change of address should be directed to our
transfer agent, registrar and dividend disbursement agent:
Computershare
462 South 4th Street, Suite 1600
Louisville, KY 40202
Telephone 800.953.2493
https://www-us.computershare.com/investor/contact
FCX’s common stock trades on the New York Stock
Exchange (NYSE) under the symbol “FCX.” As of
March 15, 2021, the number of holders of record
of FCX’s common stock was 11,260.
NYSE composite tape common share price
ranges during 2020 and 2019 were:
2020
2019
High
Low
High
Low
First Quarter
$ 13.64
$ 4.82
$ 13.86
$ 9.84
Second Quarter
11.68 6.14
14.68
Third Quarter
17.50
Fourth Quarter
26.83
11.24
15.22
12.07
13.38
9.47
8.58
8.43
COMMON STOCK DIVIDENDS
Our Board of Directors suspended the cash dividend on our common
stock in March 2020, and there were no cash dividends paid after
first-quarter 2020. In February 2021, our Board of Directors reinstated
a cash dividend on our common stock at an annual rate of $0.30
per share. In addition, the Board of Directors adopted a new financial
policy, which allows for a portion of available cash flows generated to be
allocated to shareholder returns once a net debt target in the range of
$3–$4 billion has been achieved.
2020
Amount per Share Record Date Payment Date
NOTICE OF ANNUAL MEETING
First Quarter
$ 0.05
Jan. 15, 2020
Feb. 3, 2020
The annual meeting of stockholders will be held June 8, 2021.
Notice of the annual meeting will be sent to stockholders of record
as of the close of business on April 12, 2021. In accordance with SEC
rules, we will report the voting results of our annual meeting on a
Form 8-K, which will be available on our website (fcx.com).
2019
Amount per Share Record Date Payment Date
First Quarter
$ 0.05
Jan. 15, 2019
Feb. 1, 2019
Second Quarter
0.05 April 15, 2019
May 1, 2019
Third Quarter
Fourth Quarter
0.05
0.05
July 15, 2019
Aug. 1, 2019
Oct. 15, 2019
Nov. 1, 2019
The declaration of dividends is at the discretion of our Board of
Directors and will depend upon our financial results, cash
requirements, future prospects and other factors deemed relevant.
CAUTIONARY STATEMENT AND REGULATION G DISCLOSURE
This 2020 Annual Report contains forward-looking statements in which FCX discusses its potential future performance. FCX cautions readers that forward-looking statements are
not guarantees of future performance and actual results may differ materially from those anticipated, expected, projected or assumed in the forward-looking statements. This report
also includes statements regarding mineralized material not included in proven and probable mineral reserves. 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 cannot qualify as recoverable proven and probable
reserves until legal and economic feasibility are confirmed based upon a comprehensive evaluation. Accordingly, no assurances can be given that estimated mineralized material will
become proven and probable reserves. Please refer to the Cautionary Statement on page 62 of this report. This 2020 Annual Report also contains certain financial measures, such as unit
net cash costs and net debt, which are not recognized under U.S. generally accepted accounting principles. As required by SEC Regulation G, reconciliations of unit net cash costs to
amounts reported in FCX’s consolidated financial statements are available beginning on page 53 of this report. Net debt equals consolidated debt less consolidated cash.
2 0 2 0 A N N U A L R E P O R T
121
3 3 3 N O R T H C E N T R A L A V E N U E
P H O E N I X , A R I Z O N A 8 5 0 0 4
6 0 2 . 3 6 6 . 8 1 0 0
F C X . C O M