Freeport-McMoRan
Annual Report 2021

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2023 Report
2022 Report
2021 Report
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2 0 2 1 A N N U A L R E P O R T E l e c t r i f y i n g t h e F u t u r e Working-Cvr.indd 1 Working-Cvr.indd 1 3/31/22 12:40 PM 3/31/22 12:40 PM Freeport-McMoRan Inc. (FCX or Freeport) is a leading international mining company with headquarters in Phoenix, Arizona. FCX operates large, long-lived, geographically diverse assets with significant proven and probable mineral 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. As a founding member of the International Council on Mining and Metals (ICMM), FCX is committed to implementing ICMM’s Mining Principles which serve as a best practice framework on sustainable development for the global mining and metals industry. 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. SUMMARY FINANCIAL HIGHLIGHTS Years ended December 31, (In millions, except per share amounts) Revenues Operating income Net income (loss) attributable to common stockholders Diluted net income (loss) per common share Dividends declared per common share Operating cash flows Capital expenditures At December 31: Cash and cash equivalents Total assets Total debt, including current portion Total stockholders’ equity 2021 2020 2019 $ 22,845 $ 14,198 $ 14,402 8,366 4,306 2.90 0.375 7,715 2,115 8,068 48,022 9,450 13,980 2,437 599 0.41 — 3,017 1,961 3,657 42,144 9,711 10,174 1,091 (239) (0.17) 0.20 1,482 2,652 2,020 40,809 9,826 9,298 revenues $ in billions 25 20 15 10 5 operating cash flows $ in billions CASH AND CASH EQUIVALENTS $ in billions 8 6 4 2 10 8 6 4 2 2019 2020 2021 2019 2020 2021 2019 2020 2021 Working-Cvr-R1.indd 2 4/6/22 6:28 AM The theme of this year’s annual report, “Electrifying the Future,” highlights our key role in supplying responsibly produced copper to support the global economy and the transition to clean energy. Freeport is Foremost in Copper and the prospects are bright for our assets to become more highly valued in the future. 1 2 0 2 1 A n n u a l R ep o r t 1 2 02 1 A nnu a l R ep or t Table of contents 4 6 8 Copper’s Critical Role Letter to Shareholders Operational Overview 20 Sustainability 22 Climate Strategy 24 25 Board of Directors and Leadership Financial and Operating Information 116 Performance Graph 117 Stockholder Information M I N I N G O P E R A T I O N S G E O G R A P H I C A L LY D I V E R S E P O R T F O L I O HENDERSON, COLORADO CLIMAX, COLORADO CHINO, NEW MEXICO TYRONE, NEW MEXICO MORENCI, ARIZONA BAGDAD, ARIZONA SAFFORD/LONE STAR, ARIZONA SIERRITA, ARIZONA MIAMI, ARIZONA EL ABRA, CHILE CERRO VERDE, PERU Reserves at 12/31/21 2021 Sales NORTH AMERICA SOUTH AMERICA INDONESIA CONSOLIDATED TOTALS Cu 43.0 billion lbs 0.5 million ozs Au Mo 2.69 billion lbs Cu 31.9 billion lbs Mo 0.69 billion lbs Cu Au 32.2 billion lbs 26.6 million ozs Cu 107.2 billion lbs Au 27.1 million ozs Mo 3.39 billion lbs 1.4 billion lbs Cu 0.1 million ozs Au Mo 82 million lbs* Cu 1.1 billion lbs Cu Au 1.3 billion lbs 1.3 million ozs Cu Au Mo 3.8 billion lbs 1.4 million ozs 82 million lbs * Includes sales of molybdenum produced at FCX’s North America and South America copper mines. Note: lbs=pounds; ozs=ounces. 2 Fre e p or t-McMoR an GLOBAL INDUSTRY LEADER One of the world’s largest publicly traded copper producers; seasoned and value- driven global team; ~25 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. GRASBERG MINERALS DISTRICT, INDONESIA COPPER (CU) GOLD (AU) MOLYBDENUM (MO) 3 2 0 2 1 A n n u a l R ep o r t C O P P E R ’ S C R I T I C A L R O L E COPPER’S CRITICAL ROLE IN OUR FUTURE i n f r a s t r u c t u r e Copper is the backbone of construction and urbanization. It is a critical metal for wire, plumbing and hardware and possesses the best electrical and thermal heat conductivity of any industrial metal. t e c h n o l o gy Copper demand is expected to benefit from technology advances in communications, artificial intelligence applications, expanding connectivity through global infrastructure and public health initiatives. 4 Fre epor t -McMoR an 4 Fre ep or t-McMoR a n Copper has been integral in driving economic progress over time as it enables a higher standard of living while contributing to infrastructure, the food chain, manufacturing and medical devices. With the transition to clean energy accelerating on a global scale, we believe we are entering a multi-year period of growth and a new era for broad-based copper demand. These demand drivers position copper as a strategic metal for the future. D E C A R B O N I Z A T I O N Copper is vital to energy efficiency. Global decarbonization is expected to drive intensity of copper use. For example, electric vehicles use up to four times more copper than internal combustion engines. By 2030, copper could support reduction of global carbon emissions by 16%.* *Source: International Copper Association D i f f i c u lt t o R e p l i c at e Copper is an extremely versatile metal. Copper’s physical attributes include superior electrical conductivity, corrosion resistance, structural capability, efficient heat transfer and aesthetics. 5 2 0 2 1 A n n u a l R ep o r t 5 2 02 1 A nnu a l R ep or t 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 I am incredibly proud of our global team’s performance during 2021. Our strong results reflect the success by our team in executing our long-term plan in an exceptional fashion. The theme of this year’s annual report, “Electrifying the Future,” highlights our key role in supplying responsibly produced copper to support the global economy and the transition to clean energy. During 2021, our global team delivered significant growth in copper and gold volumes, effectively managed costs and capital in a challenging environment and advanced our sustainability objectives. Notably, we reached our targets of Copper demand is growing at a time when the industry’s pipeline of new mine supply development is shrinking. Absent a major downturn in the global economy, this backdrop is exceptionally favorable for long-term fundamentals and for our company. achieving our annual run rate for copper and gold production As a responsible producer of scale with a strategy focused on in the Grasberg minerals district in Papua, Indonesia. This copper, the prospects are bright for our assets to become more major milestone, more than a decade in the making, is of great highly valued in the future. We have a long-lived portfolio of significance to our company, the global mining industry and the mineral reserves — spanning over 25 years — and substantial country of Indonesia. We are successfully managing the largest options to expand our reserve base in the future from our large and most modern underground mining complex in the history inventory of mineral resources beyond reported reserves. of the global mining industry. We have multiple options for brownfield, low-risk growth across Our Americas team did great work restoring production curtailed our portfolio. We are highly optimistic about our opportunities in in 2020 as a result of the pandemic, optimizing our new Lone the U.S. to invest in mine expansions and unlock value through Star mine in Arizona, advancing technologies and is now actively engaged in enhancing our opportunities for future organic growth. We generated strong financial results in 2021, achieved our net exciting new opportunities from leach recovery technologies. We also have an attractive expansion opportunity at our El Abra mine in Chile. Following the success of our block cave development in Indonesia, we commenced development of the Kucing Liar debt targets, restored our investment grade credit ratings with two underground deposit in the Grasberg minerals district, which leading rating agencies and commenced a new performance-based will provide long-term, low-cost copper and gold volumes. These payout framework to provide increasing cash returns to shareholders. opportunities provide significant value enhancing options for Freeport was the top performing stock in our peer group for the the future, particularly in the context of the scarcity of future second consecutive year and the seventh best performing stock in development opportunities industry wide. the S&P 500 for the two-year period ended 2021. Our safety performance in 2021, measured by incident rates of Looking ahead, the fundamental outlook for the copper market 0.70, was similar to the average of the last three years. Regrettably, is increasingly positive. Copper is essential to decarbonization we had two fatalities in our operations during the year. Fatality and is a strategic metal for the future. With the transition to prevention is our top priority and we are implementing programs clean energy accelerating on a global scale, we believe we are to increase risk awareness and further embed fatal risk entering a multi-year period of growth and a new era for broad- management in all of our processes and daily tasks. based copper demand. We continue to expand resources dedicated to our sustainability objectives. During 2021, we advanced our climate strategy and 6 Fre e por t-McMoR an our work with the International Council of Mining and Metals (ICMM). We lead the industry in achieving third-party validation of our operations using the robust criteria and process established by the Copper Mark. I am also proud of our strong partnerships with communities where we operate. I encourage you to review our annual sustainability and climate reports for details on our program and initiatives in all of these important areas. We welcomed six new high-quality, independent directors in 2021, enhancing the skills, experience and diversity of our Board. This was an important initiative and I could not be more pleased with the depth and breadth of our Board. I am personally grateful to each of our directors for their service and contribution to the future success of Freeport. I want to close by recognizing and thanking our global team for their performance and commitment to our future success. We are optimistic about our business and our strategy and have the capabilities and drive to continue to meet and exceed our own expectations and those of our stakeholders. As Foremost in Copper, Freeport is “Electrifying the Future, ‘’ and we will continue to do so responsibly, reliably and relentlessly. Respectfully yours, 2021 Highlights +61% total stockholder Return (cid:27)(cid:28)(cid:11)(cid:7)(cid:8)(cid:9)(cid:18)(cid:6)(cid:9)(cid:25)(cid:8)(cid:26)(cid:5)(cid:8)(cid:12)(cid:14)(cid:17)(cid:11)(cid:29)(cid:25)(cid:8)(cid:25)(cid:30)(cid:8)(cid:9)(cid:5)(cid:7)(cid:8)(cid:8)(cid:9)(cid:5)(cid:14)(cid:9)(cid:6)(cid:28)(cid:7)(cid:5) (cid:10)(cid:31)(cid:8)(cid:9)(cid:10)(cid:14)(cid:8)(cid:5)(cid:6)(cid:18)(cid:5)(cid:4) (cid:24)(cid:5)(cid:26)(cid:28)(cid:9)(cid:12)(cid:13)(cid:14)(cid:5)(cid:2)(cid:3)(cid:2)(cid:4) $7.7 billion (cid:2)(cid:3)(cid:2)(cid:4)(cid:5)(cid:6)(cid:7)(cid:8)(cid:9)(cid:10)(cid:11)(cid:12)(cid:13)(cid:14)(cid:5)(cid:15)(cid:10)(cid:16)(cid:17)(cid:5)(cid:18)(cid:19)(cid:6)(cid:20)(cid:16)(cid:21)(cid:5) (cid:4)(cid:22)(cid:23)(cid:24)(cid:5)(cid:12)(cid:13)(cid:15)(cid:9)(cid:8)(cid:10)(cid:16)(cid:8)(cid:5)(cid:15)(cid:6)(cid:25)(cid:7)(cid:10)(cid:9)(cid:8)(cid:26)(cid:5)(cid:11)(cid:6)(cid:5)(cid:2)(cid:3)(cid:2)(cid:3) $19 billion R I C H A R D C . A D K E R S O N C H A I R M A N O F T H E B O A R D A N D C H I E F E X E C U T I V E O F F I C E R !(cid:8)(cid:11)(cid:5)(cid:26)(cid:8)(cid:30)(cid:11)(cid:5)(cid:9)(cid:8)(cid:26)(cid:28)(cid:15)(cid:11)(cid:12)(cid:6)(cid:13)(cid:5)(cid:16)(cid:12)(cid:13)(cid:15)(cid:8)(cid:5)"(cid:8)(cid:10)(cid:9)(cid:29)(cid:8)(cid:13)(cid:26)(cid:5)(cid:2)(cid:3)(cid:4)(cid:22) 6 #(cid:26)(cid:26)(cid:12)(cid:11)(cid:12)(cid:6)(cid:13)(cid:16)(cid:5)(cid:11)(cid:6)(cid:5)$(cid:6)(cid:10)(cid:9)(cid:26)(cid:5)(cid:6)(cid:18)(cid:5)%(cid:12)(cid:9)(cid:8)(cid:15)(cid:11)(cid:6)(cid:9)(cid:16)(cid:5)(cid:5) (cid:26)(cid:28)(cid:9)(cid:12)(cid:13)(cid:14)(cid:5)(cid:2)(cid:3)(cid:2)(cid:4) March 21, 2022 7 2 0 2 1 A n n u a l R ep o r t O P E R A T I O N A L O V E R V I E W c o n s o l i d at e d r e s u lt s FCX’s consolidated sales volumes of 3.8 billion pounds of copper and 1.4 million ounces of gold in 2021 were higher than 3.2 billion pounds of copper and 0.9 million ounces of gold in 2020, primarily reflecting the ramp-up of underground mining at the Grasberg minerals district. Consolidated molybdenum sales totaled 82 million pounds in 2021 and 80 million pounds in 2020. During 2022, FCX expects to grow production and sales volumes while continuing to execute its operating plans. FCX’s consolidated sales for 2022 are expected to approximate 4.3 billion pounds of copper, 1.6 million ounces of gold and 80 million pounds of molybdenum. This operating plan coupled with a favorable market outlook positions FCX to generate strong cash flows, which will support the advancement of organic growth initiatives and cash returns to shareholders under its established financial policy. FUTURE ORGANIC GROWTH OPPORTUNITIES New Leach Technologies in the Americas • Focused on initiatives to advance sulfide leaching technologies and to drive continuous recovery improvement • Leveraging both research and development and in-field trials at existing leach stockpiles and future opportunities to recover copper from below mill cut-off grade material • Success would enable utilization of latent tank house capacity with limited capital investment 8 Fre e por t-McMoR an During 2021, FCX delivered growth in volumes and solid cost and capital management in a challenging environment. FCX has a clear strategy of being foremost in copper, with a strong balance sheet and strong cash flows. 2021 Highlights 3.8 billion LBS (cid:2)(cid:3)(cid:2)(cid:4)(cid:5)(cid:15)(cid:6)(cid:13)(cid:16)(cid:6)(cid:19)(cid:12)(cid:26)(cid:10)(cid:11)(cid:8)(cid:26)(cid:5)(cid:15)(cid:6)(cid:7)(cid:7)(cid:8)(cid:9)(cid:5)(cid:16)(cid:10)(cid:19)(cid:8)(cid:16) 19% increase &(cid:8)(cid:10)(cid:9)(cid:5)(cid:6)(cid:31)(cid:8)(cid:9)(cid:5)"(cid:8)(cid:10)(cid:9)(cid:5)(cid:15)(cid:17)(cid:10)(cid:13)(cid:14)(cid:8)(cid:5)(cid:12)(cid:13)(cid:5) (cid:15)(cid:6)(cid:7)(cid:7)(cid:8)(cid:9)(cid:5)(cid:16)(cid:10)(cid:19)(cid:8)(cid:16) 1.36 MILLION OZS (cid:2)(cid:3)(cid:2)(cid:4)(cid:5)(cid:15)(cid:6)(cid:13)(cid:16)(cid:6)(cid:19)(cid:12)(cid:26)(cid:10)(cid:11)(cid:8)(cid:26)(cid:5)(cid:14)(cid:6)(cid:19)(cid:26)(cid:5)(cid:16)(cid:10)(cid:19)(cid:8)(cid:16) 59% Increase &(cid:8)(cid:10)(cid:9)(cid:5)(cid:6)(cid:31)(cid:8)(cid:9)(cid:5)"(cid:8)(cid:10)(cid:9)(cid:5)(cid:15)(cid:17)(cid:10)(cid:13)(cid:14)(cid:8)(cid:5)(cid:12)(cid:13)(cid:5) (cid:14)(cid:6)(cid:19)(cid:26)(cid:5)(cid:16)(cid:10)(cid:19)(cid:8)(cid:16)(cid:5) 9 2 0 2 1 A n n u a l R ep o r t 9 2 02 1 A nnu a l R ep or t In-pit shovel rebuild at the Morenci mine, Arizona FCX is increasing exploration in the Lone Star area to support metallurgical testing and mine development planning for a potential long-term investment in a concentrator. LONE STAR COPPER MINE IN ARIZONA 200 MILLION LBS ’(cid:13)(cid:12)(cid:11)(cid:12)(cid:10)(cid:19)(cid:5)(cid:26)(cid:8)(cid:16)(cid:12)(cid:14)(cid:13)(cid:5)(cid:15)(cid:10)(cid:7)(cid:10)(cid:15)(cid:12)(cid:11)"(cid:5)(cid:5) (cid:18)(cid:6)(cid:9)(cid:5)(cid:6)((cid:12)(cid:26)(cid:8)(cid:5)(cid:7)(cid:9)(cid:6)(cid:26)(cid:28)(cid:15)(cid:11)(cid:12)(cid:6)(cid:13)(cid:5) 235 MILLION LBS (cid:2)(cid:3)(cid:2)(cid:4)(cid:5)(cid:7)(cid:9)(cid:6)(cid:26)(cid:28)(cid:15)(cid:11)(cid:12)(cid:6)(cid:13)(cid:5)(cid:9)(cid:10)(cid:11)(cid:8) 300 MILLION LBS )(cid:10)(cid:9)(cid:14)(cid:8)(cid:11)(cid:5)(cid:7)(cid:9)(cid:6)(cid:26)(cid:28)(cid:15)(cid:11)(cid:12)(cid:6)(cid:13)(cid:5)(cid:18)(cid:6)(cid:19)(cid:19)(cid:6)(cid:20)(cid:12)(cid:13)(cid:14)(cid:5) (cid:12)(cid:13)(cid:15)(cid:9)(cid:8)(cid:25)(cid:8)(cid:13)(cid:11)(cid:10)(cid:19)(cid:5)(cid:8)((cid:7)(cid:10)(cid:13)(cid:16)(cid:12)(cid:6)(cid:13)(cid:5) (cid:28)(cid:13)(cid:26)(cid:8)(cid:9)(cid:20)(cid:10)"(cid:5) ~50 BILLION LBS *(cid:12)(cid:13)(cid:8)(cid:9)(cid:10)(cid:19)(cid:5)(cid:7)(cid:6)(cid:11)(cid:8)(cid:13)(cid:11)(cid:12)(cid:10)(cid:19)(cid:5)(cid:10)(cid:16)(cid:16)(cid:6)(cid:15)(cid:12)(cid:10)(cid:11)(cid:8)(cid:26)(cid:5) (cid:20)(cid:12)(cid:11)(cid:17)(cid:5)(cid:26)(cid:8)(cid:8)(cid:7)(cid:8)(cid:9)(cid:5)(cid:16)(cid:28)(cid:19)(cid:18)(cid:12)(cid:26)(cid:8)(cid:5)(cid:6)(cid:9)(cid:8)(cid:16) Exploration drilling at the Lone Star mine, Arizona 10 Fre ep o r t-McMoR an 10 Fre ep or t-McMoR a n O P E R A T I O N A L O V E R V I E W n o r t h a m e r i c a m i n i n g 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 mineral reserves and future opportunities in the United States (U.S.), primarily associated with existing mining operations. Current operations at the Lone Star copper leach project exceeded initial design capacity of 200 million pounds annually and produced approximately 235 million pounds of copper in 2021. FCX continues to advance opportunities to increase Lone Star operating rates and is advancing plans to increase volumes to achieve 300 million pounds of copper per year from oxide ores. FCX is also evaluating an expansion of the Bagdad operation and is engaging stakeholders. Feasibility studies to double Bagdad’s operating rates are expected to commence in 2022. North America’s consolidated copper sales totaled 1.4 billion pounds in both 2021 and 2020. FCX expects copper sales from its North America copper mines to approximate 1.55 billion pounds in 2022. Consolidated molybdenum sales, including sales of molybdenum produced at FCX’s North America and South America copper mines, totaled 82 million pounds in 2021 and 80 million pounds in 2020. FCX expects consolidated molybdenum sales to approximate 80 million pounds in 2022. FUTURE ORGANIC GROWTH OPPORTUNITIES Bagdad Expansion in Arizona • Double concentrator capacity • Commencing feasibility study, stakeholder engagement • Increasing confidence in potential 2026 start-up 11 2 0 2 1 A n n u a l R e p o r t Lone Star Expansions in Arizona • Near-term oxide expansions • Increasing exploration to define resource • Potential long-term sulfide investment in concentrator O P E R A T I O N A L O V E R V I E W s o u t h a m e r i c a m i n i n g 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. Milling rates at Cerro Verde’s concentrator facilities averaged 380,300 metric tons of ore per day for the year 2021, compared with 331,600 metric tons of ore per day for the year 2020 when COVID-19 restrictions resulted in reduced rates. Subject to ongoing monitoring of COVID-19 protocols, Cerro Verde is targeting milling rates to increase to approximately 400,000 metric tons of ore per day during 2022. El Abra increased operating rates to pre-COVID-19 pandemic levels during 2021. Increased mining and stacking activities are expected to result in a 30 percent increase in El Abra copper production for the year 2022, compared with the year 2021. Consolidated copper sales from FCX’s South America mines of 1.1 billion pounds in 2021 were higher than 1.0 billion pounds in 2020, primarily reflecting higher mining and milling rates at Cerro Verde. FCX expects copper sales from its South America mines to approximate 1.2 billion pounds in 2022. FUTURE ORGANIC GROWTH OPPORTUNITIES El Abra Expansion in Chile • Large sulfide resource supports a major expansion opportunity • Preparations for submitting environmental impact statement and stakeholder engagement • Monitoring regulatory considerations 12 Fre e por t-McMoR an FCX’s Cerro Verde mine in Peru contains the largest mill concentrating facility in the world. 1 3 2 0 2 1 A n n u a l R e p o r t 13 2 02 1 A nnu a l R ep or t 2021 HIGHLIGHTS 3.5% of copper reserves +,-(cid:5)(cid:15)(cid:6)(cid:13)(cid:16)(cid:6)(cid:19)(cid:12)(cid:26)(cid:10)(cid:11)(cid:8)(cid:26)(cid:5)(cid:15)(cid:6)(cid:7)(cid:7)(cid:8)(cid:9)(cid:5) (cid:9)(cid:8)(cid:16)(cid:8)(cid:9)(cid:31)(cid:8)(cid:16)(cid:5)(cid:10)(cid:16)(cid:16)(cid:6)(cid:15)(cid:12)(cid:10)(cid:11)(cid:8)(cid:26)(cid:5)(cid:20)(cid:12)(cid:11)(cid:17)(cid:5)(cid:5) .(cid:19)(cid:5)#(cid:30)(cid:9)(cid:10)(cid:5)(cid:12)(cid:13)(cid:5),(cid:17)(cid:12)(cid:19)(cid:8) 30% increase .((cid:7)(cid:8)(cid:15)(cid:11)(cid:8)(cid:26)(cid:5)(cid:12)(cid:13)(cid:15)(cid:9)(cid:8)(cid:10)(cid:16)(cid:8)(cid:5)(cid:12)(cid:13)(cid:5).(cid:19)(cid:5)#(cid:30)(cid:9)(cid:10)(cid:5) (cid:7)(cid:9)(cid:6)(cid:26)(cid:28)(cid:15)(cid:11)(cid:12)(cid:6)(cid:13)(cid:5)(cid:12)(cid:13)(cid:5)(cid:2)(cid:3)(cid:2)(cid:2) (cid:5) 380,o00 METRIC TONS OF ORE PER DAY (cid:2)(cid:3)(cid:2)(cid:4)(cid:5)(cid:25)(cid:12)(cid:19)(cid:19)(cid:5)(cid:9)(cid:10)(cid:11)(cid:8)(cid:5)(cid:10)(cid:11)(cid:5),(cid:8)(cid:9)(cid:9)(cid:6)(cid:5)/(cid:8)(cid:9)(cid:26)(cid:8) 400,000 METRIC TONS OF ORE PER DAY )(cid:10)(cid:9)(cid:14)(cid:8)(cid:11)(cid:8)(cid:26)(cid:5)(cid:25)(cid:12)(cid:19)(cid:19)(cid:5)(cid:9)(cid:10)(cid:11)(cid:8)(cid:5)(cid:10)(cid:11)(cid:5)(cid:5) ,(cid:8)(cid:9)(cid:9)(cid:6)(cid:5)/(cid:8)(cid:9)(cid:26)(cid:8)(cid:5)(cid:26)(cid:28)(cid:9)(cid:12)(cid:13)(cid:14)(cid:5)(cid:2)(cid:3)(cid:2)(cid:2) KEY UNDERGROUND DEVELOPMENT highlights 2004 &(cid:8)(cid:10)(cid:9)(cid:5)(cid:15)(cid:6)(cid:25)(cid:25)(cid:6)(cid:13)(cid:5)(cid:12)(cid:13)(cid:18)(cid:9)(cid:10)(cid:16)(cid:11)(cid:9)(cid:28)(cid:15)(cid:11)(cid:28)(cid:9)(cid:8)(cid:5) (cid:26)(cid:8)(cid:31)(cid:8)(cid:19)(cid:6)(cid:7)(cid:25)(cid:8)(cid:13)(cid:11)(cid:5)(cid:15)(cid:6)(cid:25)(cid:25)(cid:8)(cid:13)(cid:15)(cid:8)(cid:26)(cid:5)(cid:18)(cid:6)(cid:9)(cid:5) (cid:28)(cid:13)(cid:26)(cid:8)(cid:9)(cid:14)(cid:9)(cid:6)(cid:28)(cid:13)(cid:26)(cid:5)(cid:9)(cid:8)(cid:16)(cid:8)(cid:9)(cid:31)(cid:8)(cid:16) 2019 &(cid:8)(cid:10)(cid:9)(cid:5)(cid:7)(cid:9)(cid:6)(cid:26)(cid:28)(cid:15)(cid:11)(cid:12)(cid:6)(cid:13)(cid:5)(cid:7)(cid:17)(cid:10)(cid:16)(cid:8)(cid:5) (cid:15)(cid:6)(cid:25)(cid:25)(cid:8)(cid:13)(cid:15)(cid:8)(cid:26)(cid:5)(cid:18)(cid:6)(cid:9)(cid:5)0(cid:9)(cid:10)(cid:16)(cid:30)(cid:8)(cid:9)(cid:14)(cid:5) $(cid:19)(cid:6)(cid:15)1(cid:5),(cid:10)(cid:31)(cid:8)(cid:5)(cid:10)(cid:13)(cid:26)(cid:5)%(cid:8)(cid:8)(cid:7)(cid:5)*(cid:12)(cid:19)(cid:19)(cid:5)(cid:5) 2(cid:8)(cid:31)(cid:8)(cid:19)(cid:5)3(cid:6)(cid:13)(cid:8) 2021 &(cid:8)(cid:10)(cid:9)(cid:5)4)(cid:29)+’(cid:5)(cid:10)(cid:15)(cid:17)(cid:12)(cid:8)(cid:31)(cid:8)(cid:26)(cid:5)(cid:10)(cid:13)(cid:13)(cid:28)(cid:10)(cid:19)(cid:5)(cid:9)(cid:28)(cid:13)(cid:5) (cid:9)(cid:10)(cid:11)(cid:8)(cid:5)(cid:18)(cid:6)(cid:9)(cid:5)(cid:28)(cid:13)(cid:26)(cid:8)(cid:9)(cid:14)(cid:9)(cid:6)(cid:28)(cid:13)(cid:26)(cid:5)(cid:15)(cid:6)(cid:7)(cid:7)(cid:8)(cid:9)(cid:5) (cid:10)(cid:13)(cid:26)(cid:5)(cid:14)(cid:6)(cid:19)(cid:26)(cid:5)(cid:7)(cid:9)(cid:6)(cid:26)(cid:28)(cid:15)(cid:11)(cid:12)(cid:6)(cid:13) over 350 miles (cid:27)(cid:18)(cid:5)(cid:11)(cid:28)(cid:13)(cid:13)(cid:8)(cid:19)(cid:12)(cid:13)(cid:14)(cid:5)(cid:26)(cid:8)(cid:31)(cid:8)(cid:19)(cid:6)(cid:7)(cid:8)(cid:26) FCX NOW HAS THE EXCITING FUTURE OF managing the largest and most modern underground operations in the history of the global mining industry. Underground rail car loading at the Grasberg Block Cave mine 14 Fre epor t-McMoR an 14 Fre ep or t-McMoR a n O P E R A T I O N A L O V E R V I E W i n d o n e s i a m i n i n g Through its subsidiary, PT Freeport Indonesia (PT-FI), FCX mines one of the world’s largest copper and gold deposits in the Grasberg minerals district in Papua, Indonesia. In addition to copper and gold, PT-FI produces silver. 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. PT-FI currently has three underground operating mines in the Grasberg minerals district: Grasberg Block Cave, Deep Mill Level Zone and Big Gossan. During 2021, PT-FI began development of the Kucing Liar underground ore body. The ramp-up of underground production at the Grasberg minerals district continues to advance on schedule. Higher consolidated sales of 1.3 billion pounds of copper and 1.3 million ounces of gold in 2021, compared with 0.8 billion pounds of copper and 0.8 million ounces of gold in 2020, primarily reflect the ramp-up of underground mining at the Grasberg minerals district. Consolidated sales volumes from PT-FI are expected to approximate 1.6 billion pounds of copper and 1.6 million ounces of gold in 2022. FUTURE ORGANIC GROWTH OPPORTUNITIES Kucing Liar Grasberg Minerals District in Indonesia • Commenced development of underground copper and gold reserves • Approximate 10-year development timeframe • Benefits from substantial shared infrastructure • Sustain large-scale, low-cost production 1 5 2 0 2 1 A n n u a l R ep o r t 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 A T E R I A L 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 FCX has significant mineral reserves, mineral resources and future development opportunities within its portfolio of mining assets. FCX’s estimated consolidated recoverable proven and probable mineral reserves from its mines at December 31, 2021, included 107.2 billion pounds of copper, 27.1 million ounces of gold, 3.39 billion pounds of molybdenum and 345.7 million ounces of silver, which were determined using metal 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. In addition to the estimated consolidated recoverable proven and probable mineral reserves, FCX’s estimated mineral resources (including measured, indicated and inferred resources) at December 31, 2021, which were assessed using $3.00 per pound for copper, totaled 191 billion pounds of incremental contained copper. FCX continues to pursue opportunities to convert this material into mineral reserves, future production volumes and cash flow. ESTIMATED RECOVERABLE PROVEN AND PROBABLE RESERVES COPPER RESERVES BY REGION (cid:4)(cid:3)56(cid:2)(cid:5)(cid:30)(cid:12)(cid:19)(cid:19)(cid:12)(cid:6)(cid:13)(cid:5)(cid:19)(cid:30)(cid:16)(cid:5)(cid:10)(cid:16)(cid:5)(cid:6)(cid:18)(cid:5)(cid:2)(cid:3)(cid:2)(cid:4) 40% North America 30% 30% South America indonesia 16 Fre epor t -McMoR an FCX has long-lived reserves and a significant resource position in its existing portfolio. LONG-LIVED ASSET BASE 107.2 BILLION LBS .(cid:16)(cid:11)(cid:12)(cid:25)(cid:10)(cid:11)(cid:8)(cid:26)(cid:5)(cid:9)(cid:8)(cid:15)(cid:6)(cid:31)(cid:8)(cid:9)(cid:10)(cid:30)(cid:19)(cid:8)(cid:5)(cid:5) (cid:7)(cid:9)(cid:6)(cid:31)(cid:8)(cid:13)(cid:5)(cid:10)(cid:13)(cid:26)(cid:5)(cid:7)(cid:9)(cid:6)(cid:30)(cid:10)(cid:30)(cid:19)(cid:8)(cid:5)(cid:15)(cid:6)(cid:7)(cid:7)(cid:8)(cid:9)(cid:5) (cid:25)(cid:12)(cid:13)(cid:8)(cid:9)(cid:10)(cid:19)(cid:5)(cid:9)(cid:8)(cid:16)(cid:8)(cid:9)(cid:31)(cid:8)(cid:16)(cid:5)(cid:10)(cid:16)(cid:5)(cid:6)(cid:18)(cid:5) %(cid:8)(cid:15)(cid:8)(cid:25)(cid:30)(cid:8)(cid:9)(cid:5)7(cid:4)(cid:21)(cid:5)(cid:2)(cid:3)(cid:2)(cid:4) $2.50 PER LB ,(cid:6)(cid:7)(cid:7)(cid:8)(cid:9)(cid:5)(cid:7)(cid:9)(cid:12)(cid:15)(cid:8)(cid:5)(cid:28)(cid:16)(cid:8)(cid:26)(cid:5)(cid:11)(cid:6)(cid:5)(cid:26)(cid:8)(cid:11)(cid:8)(cid:9)(cid:25)(cid:12)(cid:13)(cid:8)(cid:5) (cid:9)(cid:8)(cid:15)(cid:6)(cid:31)(cid:8)(cid:9)(cid:10)(cid:30)(cid:19)(cid:8)(cid:5)(cid:9)(cid:8)(cid:16)(cid:8)(cid:9)(cid:31)(cid:8)(cid:16)(cid:5) 25 YEARS ’(cid:25)(cid:7)(cid:19)(cid:12)(cid:8)(cid:26)(cid:5)(cid:9)(cid:8)(cid:16)(cid:8)(cid:9)(cid:31)(cid:8)(cid:5)(cid:19)(cid:12)(cid:18)(cid:8)(cid:5)(cid:18)(cid:6)(cid:9)(cid:5)(cid:15)(cid:6)(cid:7)(cid:7)(cid:8)(cid:9) 191 BILLION LBS .(cid:16)(cid:11)(cid:12)(cid:25)(cid:10)(cid:11)(cid:8)(cid:26)(cid:5)(cid:12)(cid:13)(cid:15)(cid:9)(cid:8)(cid:25)(cid:8)(cid:13)(cid:11)(cid:10)(cid:19)(cid:5)(cid:15)(cid:6)(cid:7)(cid:7)(cid:8)(cid:9)(cid:5) (cid:9)(cid:8)(cid:16)(cid:6)(cid:28)(cid:9)(cid:15)(cid:8)(cid:16)(cid:5)(cid:6)(cid:13)(cid:5)(cid:10)(cid:5)(cid:15)(cid:6)(cid:13)(cid:11)(cid:10)(cid:12)(cid:13)(cid:8)(cid:26)(cid:5)(cid:30)(cid:10)(cid:16)(cid:12)(cid:16)(cid:5) (cid:10)(cid:16)(cid:5)(cid:6)(cid:18)(cid:5)%(cid:8)(cid:15)(cid:8)(cid:25)(cid:30)(cid:8)(cid:9)(cid:5)7(cid:4)(cid:21)(cid:5)(cid:2)(cid:3)(cid:2)(cid:4) 1 7 2 0 2 1 A n n u a l R ep o r t 1 7 2 02 1 A nnu a l R ep or t Haul road at the Lone Star mine, Arizona FCX’s new performance-based payout framework is providing increasing cash returns to shareholders. SHAREHOLDER RETURNS up to 50% +(cid:9)(cid:8)(cid:8)(cid:5)(cid:15)(cid:10)(cid:16)(cid:17)(cid:5)(cid:18)(cid:19)(cid:6)(cid:20)(cid:5)(cid:11)(cid:6)(cid:5)(cid:30)(cid:8)(cid:5)(cid:9)(cid:8)(cid:11)(cid:28)(cid:9)(cid:13)(cid:8)(cid:26)(cid:5)(cid:11)(cid:6)(cid:5) (cid:16)(cid:11)(cid:6)(cid:15)1(cid:17)(cid:6)(cid:19)(cid:26)(cid:8)(cid:9)(cid:16)(cid:5)(cid:28)(cid:13)(cid:26)(cid:8)(cid:9)(cid:5)(cid:7)(cid:8)(cid:9)(cid:18)(cid:6)(cid:9)(cid:25)(cid:10)(cid:13)(cid:15)(cid:8)(cid:29) (cid:30)(cid:10)(cid:16)(cid:8)(cid:26)(cid:5)(cid:7)(cid:10)"(cid:6)(cid:28)(cid:11)(cid:5)(cid:18)(cid:9)(cid:10)(cid:25)(cid:8)(cid:20)(cid:6)(cid:9)1 $0.60 PER SHARE IN dividendS ’(cid:13)(cid:15)(cid:19)(cid:28)(cid:26)(cid:8)(cid:16)(cid:5)8(cid:3)67(cid:3)(cid:5)(cid:7)(cid:8)(cid:9)(cid:5)(cid:16)(cid:17)(cid:10)(cid:9)(cid:8)(cid:5)(cid:10)(cid:13)(cid:13)(cid:28)(cid:10)(cid:19)(cid:5) (cid:30)(cid:10)(cid:16)(cid:8)(cid:5)(cid:26)(cid:12)(cid:31)(cid:12)(cid:26)(cid:8)(cid:13)(cid:26)(cid:5)(cid:10)(cid:13)(cid:26)(cid:5)8(cid:3)67(cid:3)(cid:5)(cid:7)(cid:8)(cid:9)(cid:5) (cid:16)(cid:17)(cid:10)(cid:9)(cid:8)(cid:5)(cid:31)(cid:10)(cid:9)(cid:12)(cid:10)(cid:30)(cid:19)(cid:8)(cid:5)(cid:26)(cid:12)(cid:31)(cid:12)(cid:26)(cid:8)(cid:13)(cid:26)(cid:5)(cid:18)(cid:6)(cid:9)(cid:5)(cid:2)(cid:3)(cid:2)(cid:2) $3.0 BILLION SHARE REPURCHASE PROGRAM $(cid:6)(cid:10)(cid:9)(cid:26)(cid:5)(cid:10)(cid:7)(cid:7)(cid:9)(cid:6)(cid:31)(cid:8)(cid:26)(cid:5)(cid:12)(cid:13)(cid:5)(cid:5) !(cid:6)(cid:31)(cid:8)(cid:25)(cid:30)(cid:8)(cid:9)(cid:5)(cid:2)(cid:3)(cid:2)(cid:4) 25 MILLION SHARES 9(cid:8)(cid:7)(cid:28)(cid:9)(cid:15)(cid:17)(cid:10)(cid:16)(cid:8)(cid:26)(cid:5)(cid:10)(cid:16)(cid:5)(cid:6)(cid:18)(cid:5)*(cid:10)(cid:9)(cid:15)(cid:17)(cid:5)7(cid:4)(cid:21)(cid:5) (cid:2)(cid:3)(cid:2)(cid:2)(cid:21)(cid:5)(cid:12)(cid:13)(cid:5)(cid:6)(cid:7)(cid:8)(cid:13)(cid:5)(cid:25)(cid:10)(cid:9)1(cid:8)(cid:11) Haul trucks delivering ore from the Morenci mine, Arizona 18 Fre epor t-McMoR an 18 Fre ep or t-McMoR a n F I N A N C I A L P E R F O R M A N C E F I N A N C I A L P E R F O R M A N C e FCX believes that its cash generating capability and financial +(cid:12)(cid:13)(cid:10)(cid:13)(cid:15)(cid:12)(cid:13)(cid:14)(cid:5))(cid:9)(cid:10)(cid:13)(cid:16)(cid:10)(cid:15)(cid:11)(cid:12)(cid:6)(cid:13)(cid:16) condition will allow it to meet its operating, investing and financing needs over the next several years. (cid:27)(cid:7)(cid:8)(cid:9)(cid:10)(cid:11)(cid:12)(cid:13)(cid:14)(cid:5),(cid:10)(cid:16)(cid:17)(cid:5)+(cid:19)(cid:6)(cid:20)(cid:16)(cid:5)(cid:10)(cid:13)(cid:26)(cid:5)2(cid:12):(cid:28)(cid:12)(cid:26)(cid:12)(cid:11)" Net repayments of debt in 2021 totaled $260 million, primarily associated with the $524 million redemption of FCX’s 3.55% Senior Notes due 2022 and the repayment of $200 million under Cerro Verde’s term loan, partly offset by borrowings of $432 million under FCX generated consolidated operating cash flows of $7.7 billion in 2021. At December 31, 2021, FCX had consolidated total debt of the PT-FI term loan. $9.5 billion, consolidated cash and cash equivalents of $8.1 billion, FCX’s next senior note maturity is in March 2023, with redemption and no borrowings and $3.5 billion available under its revolving rights, at par, beginning in December 2022. credit facility. +(cid:12)(cid:13)(cid:10)(cid:13)(cid:15)(cid:12)(cid:10)(cid:19)(cid:5)4(cid:6)(cid:19)(cid:12)(cid:15)" Based on current sales volume and costs estimates, and assuming average prices of $4.50 per pound of copper, $1,800 per ounce of gold and $19.00 per pound of molybdenum, FCX’s consolidated operating cash flows are expected to approximate $8.0 billion in 2022. The impact of copper price changes during 2022 on operating cash flows would approximate $365 million for each $0.10 per pound In February 2021, FCX’s Board of Directors (the Board) adopted a financial policy for the allocation of cash flows aligned with FCX’s strategic objectives of maintaining a strong balance sheet and increasing cash returns to shareholders while advancing opportunities for future growth. change in the average price of copper. In February 2021, the Board reinstated a cash dividend on FCX’s ’(cid:13)(cid:31)(cid:8)(cid:16)(cid:11)(cid:12)(cid:13)(cid:14)(cid:5)#(cid:15)(cid:11)(cid:12)(cid:31)(cid:12)(cid:11)(cid:12)(cid:8)(cid:16) common stock (base dividend) at an annual rate of $0.30 per share, and following achievement of FCX’s net debt target in the range FCX’s capital expenditures totaled $2.1 billion in 2021, including of $3.0 billion to $4.0 billion (excluding debt for additional smelting $1.25 billion for major projects, primarily associated with capacity in Indonesia), in November 2021 the Board approved underground development activities in the Grasberg the implementation of a performance-based payout framework, minerals district. Capital expenditures are expected to approximate $4.7 billion in 2022, including $2.0 billion for major mining projects ($1.4 billion for underground development activities in the Grasberg minerals district and $0.6 billion for discretionary growth projects) and including (i) a new $3.0 billion share repurchase program and (ii) a variable cash dividend on common stock for 2022 at an expected annual rate of $0.30 per share. The combined annual rate of the base dividend and the variable dividend is expected to total $0.60 per share for 2022. $1.4 billion for development of additional smelting capacity The policy is being implemented to direct up to 50 percent of cash in Indonesia. Capital expenditures for the Indonesia smelter projects are currently being funded through PT-FI’s $1.0 billion unsecured bank credit facility. PT-FI is currently arranging incremental financing for these projects, with the cost of debt shared by its shareholders. flows, after planned capital spending (excluding the Indonesia smelter projects) and distributions to noncontrolling interests, to shareholder returns, with the balance available for investments in future value enhancing growth projects and further debt reductions. The Board will review the structure and the amount of performance- based payout at least annually. 19 2 0 2 1 A n n u a l R ep o r t S U S T A I N A B I L I T Y S U S TA I N A B I L I T Y FCX is foremost in the global copper industry, 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. FCX’s sustainability approach is underpinned by the recognition that its work and the products it produces are key contributors to progress around the world. FCX recognizes the importance of effective management, integration, and governance of key environmental, social and governance (ESG) matters. Strong ESG performance is imperative to the long-term success of FCX and its ability to deliver value to stakeholders. FCX’s highest priority is the health, safety and well-being of its workforce and the communities where it operates. FCX seeks to work collaboratively with its stakeholders to support shared value creation in its host communities and countries and to recognize, respect and promote human rights everywhere it conducts business. FCX is also dedicated to effective environmental protection and stewardship, which are key to ensuring the long-term viability of its business, including maintaining the necessary support from communities and governments. One of the ways FCX is working to demonstrate its commitment to responsible production is through the Copper Mark, a comprehensive assurance framework developed specifically for the copper industry. To achieve the Copper Mark, each site is required to be independently assessed against a comprehensive set of 32 ESG criteria. In 2020, FCX began the process of validating all of its copper producing sites against the Copper Mark. To date, FCX has achieved the Copper Mark at 9 global operations, two sites have signed letters of commitment and FCX plans to commence the process at PT-FI in 2022. Read more about FCX’s sustainability programs and progress in its 2021 Annual Report on Sustainability, available at fcx.com/sustainability. 2 0 Fre e por t-McMoR an FCX HAS ACHIEVED THE COPPER MARK AT THE FOLLOWING 9 SITES: Atlantic Copper smelter and refinery in Spain Bagdad mine in Arizona, U.S. El Paso refinery in Texas, U.S. Miami mine and smelter in Arizona, U.S. Cerro Verde mine in Peru Morenci mine in Arizona, U.S. Chino mine in New Mexico, U.S. Tyrone mine in Arizona, U.S. El Abra mine in Chile COMMUNITY INVESTMENTS $164 MILLION (cid:2)(cid:3)(cid:2)(cid:4)(cid:5)(cid:11)(cid:6)(cid:11)(cid:10)(cid:19)(cid:5)(cid:12)(cid:13)(cid:31)(cid:8)(cid:16)(cid:11)(cid:25)(cid:8)(cid:13)(cid:11) $2.1 BILLION ,(cid:28)(cid:25)(cid:28)(cid:19)(cid:10)(cid:11)(cid:12)(cid:31)(cid:8)(cid:5)(cid:12)(cid:13)(cid:31)(cid:8)(cid:16)(cid:11)(cid:25)(cid:8)(cid:13)(cid:11)(cid:5)(cid:5) (cid:16)(cid:12)(cid:13)(cid:15)(cid:8)(cid:5)(cid:2)(cid:3)(cid:3) 2 1 2 0 2 1 A n n u a l R e p o r t 2 1 2 02 1 A nnu a l R ep or t C L I M A T E S T R A T E G Y C L I M A T E S T R A T E GY As one of the world’s largest copper producers, FCX understands its critical role in the low-carbon energy transition. FCX is dedicated to supplying the global economy with responsibly produced copper while operating in a manner that manages and mitigates its greenhouse gas (GHG) emissions and other climate- related risks. Building upon its 2020 progress, in 2021, FCX completed its first global climate scenario analysis, significantly enhanced the climate expertise on its Board, directly aligned climate performance with its annual executive compensation program, and advanced its analysis of renewable energy opportunities in the U.S. During the year, FCX also established a 30 percent GHG emissions intensity reduction target for its Indonesia operations by 2030 (versus a 2018 baseline); the Indonesia target is in addition to FCX’s 2030 intensity reduction target established in 2020 for its Americas copper business. FCX is committed to validating its 2030 interim targets with the Science Based Targets initiative. FCX recognizes that climate change poses considerable near- and long-term challenges for society and for FCX’s operational and financial performance. Mining is energy-intensive and generates significant GHG emissions that contribute to climate change. This is why FCX aspires to participate in — and positively contribute to — a 2050 net zero economy. In support of this ambition, FCX is working collaboratively with various industry consortiums and equipment manufacturers to develop viable technological solutions necessary to achieve its climate commitments. Read more about FCX’s climate strategy and progress in its 2020 Climate Report, available at fcx.com/sustainability. 2 2 Fre e por t-McMoR an FCX aspires to participate in — and positively contribute to — a 2050 net zero economy. CLIMATE STRATEGY PILLARS PILLAR 1 Reduction 9(cid:8)(cid:26)(cid:28)(cid:15)(cid:8)(cid:5)0;0(cid:5)(cid:8)(cid:25)(cid:12)(cid:16)(cid:16)(cid:12)(cid:6)(cid:13)(cid:16)(cid:5) (cid:12)(cid:13)(cid:15)(cid:19)(cid:28)(cid:26)(cid:12)(cid:13)(cid:14)(cid:5)(cid:6)(cid:28)(cid:9)(cid:5)#(cid:25)(cid:8)(cid:9)(cid:12)(cid:15)(cid:10)(cid:16)(cid:5)(cid:10)(cid:13)(cid:26)(cid:5) 4)(cid:29)+’(cid:5)(cid:2)(cid:3)7(cid:3)(cid:5)0;0(cid:5)(cid:12)(cid:13)(cid:11)(cid:8)(cid:13)(cid:16)(cid:12)(cid:11)"(cid:5) (cid:9)(cid:8)(cid:26)(cid:28)(cid:15)(cid:11)(cid:12)(cid:6)(cid:13)(cid:5)(cid:11)(cid:10)(cid:9)(cid:14)(cid:8)(cid:11)(cid:16) PILLAR 2 Resilience .(cid:13)(cid:17)(cid:10)(cid:13)(cid:15)(cid:8)(cid:5)(cid:9)(cid:8)(cid:16)(cid:12)(cid:19)(cid:12)(cid:8)(cid:13)(cid:15)(cid:8)(cid:5)(cid:11)(cid:6)(cid:5)(cid:15)(cid:19)(cid:12)(cid:25)(cid:10)(cid:11)(cid:8)(cid:5) (cid:15)(cid:17)(cid:10)(cid:13)(cid:14)(cid:8)(cid:5)(cid:9)(cid:12)(cid:16)1(cid:16) PILLAR 3 Contribution ,(cid:6)(cid:13)(cid:11)(cid:9)(cid:12)(cid:30)(cid:28)(cid:11)(cid:8)(cid:5)(cid:9)(cid:8)(cid:16)(cid:7)(cid:6)(cid:13)(cid:16)(cid:12)(cid:30)(cid:19)"(cid:5) (cid:7)(cid:9)(cid:6)(cid:26)(cid:28)(cid:15)(cid:8)(cid:26)(cid:5)(cid:15)(cid:6)(cid:7)(cid:7)(cid:8)(cid:9)(cid:5)(cid:11)(cid:6)(cid:5)(cid:11)(cid:17)(cid:8)(cid:5)(cid:14)(cid:19)(cid:6)(cid:30)(cid:10)(cid:19)(cid:5) (cid:8)(cid:13)(cid:8)(cid:9)(cid:14)"(cid:5)(cid:11)(cid:9)(cid:10)(cid:13)(cid:16)(cid:12)(cid:11)(cid:12)(cid:6)(cid:13) 2 3 2 0 2 1 A n n u a l R e p o r t 2 3 2 02 1 A nnu a l R ep or t Mangrove reclamation in Papua, Indonesia BOARD OF DIRECTORS Richard C. Adkerson Chairman of the Board and Chief Executive Officer Freeport-McMoRan Inc. Dustan E. McCoy (1, 2) Lead Independent Director Freeport-McMoRan Inc. Retired Chairman and Chief Executive Officer Brunswick Corporation David P. Abney (1, 2) Retired Chairman and Chief Executive Officer United Parcel Service, Inc. Marcela E. Donadio (3) Retired Partner and Americas Oil & Gas Sector Leader Ernst & Young LLP EXECUTIVE OFFICERS Richard C. Adkerson Chairman of the Board and Chief Executive Officer Kathleen L. Quirk President Maree Robertson* Senior Vice President and Chief Financial Officer Douglas N. Currault II Senior Vice President and General Counsel Stephen T. Higgins Senior Vice President and Chief Administrative Officer * Ms. Robertson’s appointment was effective March 1, 2022. 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 John J. Stephens (1) Retired Senior Executive Vice President and Chief Financial Officer AT&T Inc. Frances Fragos Townsend (2, 4) Executive Vice President for Corporate Affairs, Corporate Secretary and Chief Compliance Officer 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 #(cid:26)(cid:25)(cid:12)(cid:13)(cid:12)(cid:16)(cid:11)(cid:9)(cid:10)(cid:11)(cid:12)(cid:6)(cid:13) Robert R. Boyce Vice President and Treasurer William E. Cobb Vice President and Chief Sustainability 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 * Mr. Whitmire will retire June 30, 2022. Robert W. “Bob” Dudley (3, 4) Retired Group Chief Executive BP, p.l.c. Hugh Grant (2) Retired Chairman of the Board, President and Chief Executive Officer Monsanto Company Lydia H. Kennard (3, 4) President and Chief Executive Officer KDG Construction Consulting and Quality Engineering Solutions Ryan M. Lance (4) Chairman and Chief Executive Officer ConocoPhillips Sara Grootwassink Lewis (1) Retired Chief Executive Officer Lewis Corporate Advisors SENIOR LEADERSHIP (cid:27)(cid:7)(cid:8)(cid:9)(cid:10)(cid:11)(cid:12)(cid:6)(cid:13)(cid:16) Mark J. Johnson Director and Executive Vice President PT Freeport Indonesia President and Chief Operating Officer Freeport-McMoRan Indonesia Joshua F. “Josh” Olmsted President and Chief Operating Officer Freeport-McMoRan Americas Richard E. “Rick” Coleman President Freeport-McMoRan Growth Support A. Cory Stevens President Freeport-McMoRan Mining Services 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 24 Fre e p or t -McMoR an F I N A N C I A L A N D O P E R A T I N G I N F O R M A T I O N Table of contents 26 Selected Operating Data 28 63 64 65 68 69 70 Management’s Discussion and Analysis Management’s Report on Internal Control Over Financial Reporting Report of Independent Registered Public Accounting Firm Report of Independent Registered Public Accounting Firm Consolidated Statements of Operations Consolidated Statements of Comprehensive Income (Loss) Consolidated Statements of Cash Flows 71 Consolidated Balance Sheets 72 Consolidated Statements of Equity 73 Notes to Consolidated Financial Statements 2 5 2 0 2 1 A n n u a l R ep o r t S E L E C T E D O P E R A T I N G D A T A Years Ended December 31, 2021 2020 2019 2018 2017 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) a. Amounts are net of Morenci’s joint venture partners’ undivided interest. b. Cerro Verde mill operations were impacted by COVID-19 restrictions. 3,843 3,807 4.33 $ 1,381 1,360 $ 1,796 85 82 $ 15.56 3,206 3,202 2.95 $ 857 855 $ 1,832 76 80 $ 10.20 3,247 3,292 2.73 $ 882 991 $ 1,415 90 90 $ 12.61 1,460 1,436 4.30 $ 1,418 1,422 2.82 $ 1,457 1,442 2.74 $ 34 33 32 665,900 0.29 1,056 714,300 0.27 1,047 750,900 0.23 993 3,813 3,811 2.91 $ 2,439 2,389 $ 1,254 95 94 $ 12.50 $ 1,404 1,428 2.96 32 681,400 0.24 951 3,737 3,700 2.93 $ 1,577 1,562 $ 1,268 $ $ 92 95 9.33 1,518 1,484 2.85 33 679,000 0.28 1,016 269,500 279,700 326,100 301,000 299,500 0.38 0.03 81.2 649 1,047 1,055 4.34 $ 21 163,900 0.32 256 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 $ 1,249 1,253 2.87 28 195,200 0.33 287 0.39 0.03 86.4 788 $ 1,235 1,235 2.97 27 142,800 0.37 255 380,300 331,600b 393,100 387,600 360,100 0.31 0.01 87.3 791 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 26 Fre epor t-McMoR an S E L E C T E D O P E R A T I N G D A T A Years Ended December 31, 2021 2020 2019 2018 2017 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) 1,336 1,316 4.34 $ 1,370 1,349 $ 1,796 809 804 $ 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 $ 1,268 151,600 87,700 110,100 178,100 140,400 1.30 1.04 89.8 77.0 1,336 1,370 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 30 21,800 0.19 24 20,700 0.17 29 30,100 0.14 35 27,900 0.18 1.01 1.15 91.6 85.0 996 1,554 32 22,500 0.20 a. Prior to December 21, 2018, PT Freeport Indonesia (PT-FI) had an unincorporated joint venture with Rio Tinto. 27 2 0 2 1 A n n u a l R ep o r t M A N A G E M E N T ’ S D I S C U S S I O N A N D A N A L Y S I S In Management’s Discussion and Analysis of Financial Condition opportunities for future growth. Following achievement of our net and Results of Operations and Quantitative and Qualitative debt target in the range of $3.0 billion to $4.0 billion (excluding Disclosures About Market Risk (MD&A), “we,” “us” and “our” refer debt for additional smelting capacity in Indonesia), we announced to Freeport-McMoRan Inc. and its consolidated subsidiaries. in November 2021 the implementation of a performance-based The results of operations reported and summarized below are not payout framework, including the commencement of a new necessarily indicative of future operating results (refer to “Cautionary $3.0 billion share repurchase program (through February 15, 2022, Statement” below for further discussion). References to “Notes” we acquired 18.2 million shares of our common stock for a total are Notes included in our Notes to Consolidated Financial cost of $710 million, $39.10 per share) and expected base and Statements. Throughout MD&A, all references to earnings or losses variable dividends on common stock totaling $0.60 per share for per share are on a diluted basis. 2022. Our Board will review the structure and the amount of This section of our Form 10-K discusses the results of operations the performance-based payout framework at least annually. Refer for the years 2021 and 2020 and comparisons between these to Note 10 and “Capital Resources and Liquidity” for further years. Discussion of the results of operations for the year 2019 and discussion of our financial policy. comparisons between the years 2020 and 2019 are not included in As further discussed in “Operations,” highlights during this Form 10-K and can be found in Items 7. and 7A. “Management’s 2021 include: Discussion and Analysis of Financial Condition and Results of • The successful ramp-up of underground mining at the Grasberg Operations and Quantitative and Qualitative Disclosures About minerals district, achieving quarterly copper and gold volumes in Market Risk” contained in Part II of our Annual Report on Form 10-K the fourth quarter approximating 100 percent of the projected for the fiscal year ended December 31, 2020. annualized levels. OVERVIEW • Operations at the Lone Star copper leach project at our Safford mine exceeded initial design capacity of 200 million pounds of We are a leading international mining company with headquarters copper annually and produced approximately 235 million pounds in Phoenix, Arizona. We operate large, long-lived, geographically of copper. diverse assets with significant proven and probable mineral • Cerro Verde’s concentrator facilities milling rates averaged reserves of copper, gold and molybdenum. We are one of the world’s 380,300 metric tons of ore per day, compared with 331,600 metric largest publicly traded copper producers. Our portfolio of assets tons of ore per day in 2020. Subject to ongoing monitoring includes the Grasberg minerals district in Indonesia, one of the of COVID-19 protocols, Cerro Verde is targeting milling rates to world’s largest copper and gold deposits; and significant mining increase to approximately 400,000 metric tons of ore per day operations in North America and South America, including the during 2022. large-scale Morenci minerals district in Arizona and the Cerro Verde • Advancement of several initiatives to recover additional operation in Peru. copper from our large existing leach stockpiles across our Our results for 2021 reflect strong operating and financial North America and South America operations, which incorporate performance, and cash flow generation. We remained focused on new applications, technologies and data analytics currently cost and capital management and advanced our sustainability being developed. objectives. Despite continued challenges associated with the Net income attributable to common stock totaled $4.3 billion COVID-19 pandemic, we achieved a 19 percent increase in copper in 2021 and $599 million in 2020. Our results in 2021, compared sales volumes and a 59 percent increase in gold sales volumes to 2020, primarily reflect increased copper and gold volumes and in 2021, compared with 2020. During 2022, we expect to grow higher copper and molybdenum prices, partly offset by higher production and sales volumes while continuing to execute our production and delivery costs and provision for income taxes. operating plans, which we expect will provide strong cash flows Refer to “Consolidated Results” for discussion of items to support advancement of organic growth initiatives and continue impacting our consolidated results for the two years ended cash returns to shareholders under our established financial December 31, 2021. policy, based on a favorable operational and market outlook. At December 31, 2021, we had consolidated debt of $9.5 billion In February 2021, our Board of Directors (Board) adopted a and consolidated cash and cash equivalents of $8.1 billion, financial policy for the allocation of cash flows aligned with resulting in net debt of $1.4 billion. This represents a reduction in our strategic objectives of maintaining a strong balance sheet net debt of $4.7 billion from December 31, 2020. Refer to “Net and increasing cash returns to shareholders while advancing Debt” for reconciliations of consolidated debt and consolidated cash and cash equivalents to net debt. 28 Fre epor t-McMoR an M A N A G E M E N T ’ S D I S C U S S I O N A N D A N A L Y S I S At December 31, 2021, we had no borrowings and $3.5 billion further discussion. Because we cannot control the price of our available under our revolving credit facility. In 2021, we redeemed products, the key measures that management focuses on in all $524 million of our 3.55% Senior Notes due 2022 at a operating our business are sales volumes, unit net cash costs, redemption price equal to 100 percent of the principal amount, operating cash flows and capital expenditures. plus accrued and unpaid interest. Our next senior note maturity is in March 2023, with redemption rights, at par, beginning in Sales Volumes. Following are our projected consolidated sales volumes for 2022 and actual consolidated sales volumes for 2021: December 2022. During 2021, we also prepaid $200 million of the Cerro Verde Term Loan (the $325 million balance at December 31, 2021, matures in June 2022). Refer to Note 8 and “Capital Resources and Liquidity” for further discussion. We have significant mineral reserves, mineral resources and future development opportunities within our portfolio of mining assets. At December 31, 2021, our estimated consolidated recoverable proven and probable mineral reserves totaled 107.2 billion pounds of copper, 27.1 million ounces of gold and 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) 2022 (Projected) 2021 (Actual) 1,550 1,180 1,570 4,300 1,580 80a 1,436 1,055 1,316 3,807 1,360 82 3.39 billion pounds of molybdenum. Refer to “Critical Accounting a. Includes 50 million pounds from our North America and South America copper mines and 30 million Estimates—Mineral Reserves” and Note 17 for further discussion. During 2021, production from our mines totaled 3.8 billion pounds of copper, 1.4 million ounces of gold and 85 million pounds of molybdenum. Following is an allocation of our consolidated copper, gold and molybdenum production in 2021 by geographic location: pounds from our Molybdenum mines. Consolidated sales for first-quarter 2022 are expected to approximate 970 million pounds of copper, 380 thousand ounces of gold and 20 million pounds of molybdenum. Projected sales volumes are dependent on operational performance, weather- North America South America Indonesia Copper Gold Molybdenum related conditions, timing of shipments and other factors. For 38% 27 35 100% 1% — 99 100% 76%a 24 — 100% other important factors that could cause results to differ materially from projections, refer to “Cautionary Statement” below and Item 1A. “Risk Factors” contained in Part I of our annual report on Form 10-K for the year ended December 31, 2021. a. Our North America copper mines produced 40 percent of consolidated molybdenum production, Consolidated Unit Net Cash Costs. Assuming average prices and our Henderson and Climax molybdenum mines produced 36 percent. Copper production from the Morenci mine in North America, Cerro Verde mine in Peru and the Grasberg minerals district in Indonesia together totaled 74 percent of our consolidated copper production in 2021. OUTLOOK We continue to view the long-term outlook for our business positively, supported by expected rising demand associated with limitations on supplies of copper, the global economic recovery of $1,800 per ounce of gold and $19.00 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 $1.35 per pound of copper in 2022. The impact of price changes on 2022 consolidated unit net cash costs would approximate $0.03 per pound for each $100 per ounce change in the average price of gold and $0.02 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 and infrastructure development and new demand associated with gold and molybdenum. clean energy. 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 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 $4.50 per pound of copper, $1,800 per ounce of gold and 29 2 0 2 1 A n n u a l R ep o r t M A N A G E M E N T ’ S D I S C U S S I O N A N D A N A L Y S I S $19.00 per pound of molybdenum, our consolidated operating cash flows are estimated to approximate $8.0 billion (net of LME Copper Prices Through December 31, 2021 $1.3 billion of working capital and other uses, mostly for income tax payments) for the year 2022. Estimated consolidated operating cash flows in 2022 also reflect a projected income tax provision of $3.2 billion (refer to “Consolidated Results—Income Taxes” for further discussion of our projected income tax rate for the year 2022). The impact of price changes during 2022 on operating cash flows would approximate $365 million for each $0.10 per pound change in the average price of copper, $100 million for each $100 per ounce change in the average price of gold and $110 million for each $2 per pound change in the average price of molybdenum. Consolidated Capital Expenditures. Capital expenditures for the year 2022 are expected to approximate $4.7 billion, $3.3 billion excluding the greenfield smelter and precious metals refinery 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 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 LME Copper Prices Exchange Stocks (PMR) (collectively, the Indonesia smelter projects discussed This graph presents LME copper settlement prices and the below), including $2.0 billion for major mining projects ($1.4 billion combined reported stocks of copper at the LME, Commodity for planned major projects primarily related to development Exchange Inc., and the Shanghai Futures Exchange from January activities associated with the Grasberg Block Cave and Deep Mill 2012 through December 2021. For the year 2021, LME copper Level Zone (DMLZ) underground mines and $0.6 billion for settlement prices ranged from a low of $3.52 per pound to a discretionary growth projects). record high of $4.86 per pound, averaged $4.23 per pound and Capital expenditures for the Indonesia smelter projects are closed at $4.40 per pound on December 31, 2021. Copper prices expected to approximate $1.4 billion for the year 2022. have been supported by strong demand during the pandemic Development of additional smelting capacity in Indonesia will recovery, rising investor sentiment associated with copper’s result in the elimination of export duties, providing an offset to the prominent role in the global transition to cleaner energy, ongoing economic cost associated with the Indonesia smelter projects. supply disruptions and falling inventories. The LME copper MARKETS settlement price was $4.36 per pound on January 31, 2022. Long-term fundamentals for copper remain positive. We believe World prices for copper, gold and molybdenum can fluctuate future demand will be supported by copper’s role in the global significantly. During the period from January 2012 through transition to renewable power, electric vehicles and other December 2021, the London Metal Exchange (LME) copper carbon-reduction initiatives, and continued urbanization in settlement price varied from a low of $1.96 per pound in 2016 to a developing countries. The small number of approved, large-scale record high of $4.86 per pound in 2021; the London Bullion Market projects beyond those expected to commence operations in 2022 Association (London) PM gold price fluctuated from a low of and 2023, the long lead times required to permit and build new $1,049 per ounce in 2015 to a record high of $2,067 per ounce in mines and declining ore grades at existing operations continue to 2020, and the Metals Week Molybdenum Dealer Oxide weekly highlight the fundamental supply challenges for copper. average price ranged from a low of $4.46 per pound in 2015 to a high of $20.01 per pound in 2021. Copper, gold and molybdenum prices are affected by numerous factors beyond our control as described further in Item 1A. “Risk Factors” contained in Part I of our annual report on Form 10-K for the year ended December 31, 2021. 30 Fre epor t-McMoR an M A N A G E M E N T ’ S D I S C U S S I O N A N D A N A L Y S I S London Gold Prices Through December 31, 2021 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 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 This graph presents London PM gold prices from January 2012 through December 2021. For the year 2021, London PM gold prices ranged from a low of $1,684 per ounce to a high of $1,943 per ounce, averaged $1,799 per ounce and closed at $1,806 per ounce on December 30, 2021 (there was no London PM gold price quote on December 31, 2021). While the global economic recovery has put downward pressure on gold prices, many analysts expect gold prices to remain supported by the effects of elevated debt levels associated with large pandemic-related stimulus efforts and historically low United States (U.S.) interest rates. The London PM gold price was $1,795 per ounce on January 31, 2022. Metals Week Molybdenum Dealer Oxide Prices Through December 31, 2021 D o l l a r s p e r p o u n d $25 $20 $15 $10 $5 $0 2012 2013 2014 2015 2016 2017 2018 2019 2020 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. 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 authorities over the interpretation of our contracts or laws. During 2021, PT-FI recorded charges to provision for income taxes totaling $186 million associated with historical contested tax matters in Indonesia. Refer to Note 11 for further discussion. This graph presents the Metals Week Molybdenum Dealer Oxide As discussed in Note 11, we operate in the U.S. and multiple weekly average price from January 2012 through December 2021. international tax jurisdictions, and our income tax returns are For the year 2021, the weekly average price for molybdenum subject to examination by tax authorities in those jurisdictions who ranged from a low of $10.09 per pound to a high of $20.01 per may challenge any tax position on these returns. Uncertainty in a pound, averaged $15.92 per pound and was $18.70 per pound on tax position may arise because tax laws are subject to interpretation. December 31, 2021. Molybdenum prices have risen in reaction to We use significant judgment to (1) determine whether, based on supply constraints and increased demand, as mines in both Chile the technical merits, a tax position is more likely than not to be and Peru reported lower production, and logistics challenges sustained and (2) measure the amount of tax benefit that qualifies continued globally. The Metals Week Molybdenum Dealer Oxide for recognition. weekly average price was $19.12 per pound on January 31, 2022. 31 2 0 2 1 A n n u a l R ep o r t M A N A G E M E N T ’ S D I S C U S S I O N A N D A N A L Y S I S We have uncertain tax positions related to income tax assessments Accounting for environmental obligations represents a critical in Indonesia and Peru, including penalties and interest, which accounting estimate because (i) changes to environmental laws have not been recorded at December 31, 2021. Final taxes paid and regulations and/or circumstances affecting our operations may be dependent upon many factors, including negotiations with could result in significant changes to our estimates, which could taxing authorities. In certain jurisdictions, we pay a portion of have a significant impact on our results of operations, (ii) we will the disputed amount before formally appealing an assessment. not incur most of these costs for a number of years, requiring Such payment is recorded as a receivable if we believe the amount us to make estimates over a long period, (iii) calculating the is collectible. Refer to Note 12 for further discussion. discounted cash flows for certain of our environmental obligations A valuation allowance is provided for those deferred income tax requires management to estimate the amounts and timing of assets for which the weight of available evidence suggests that projected cash flows and make long-term assumptions about the related benefits will not be realized. In determining the amount inflation rates and (iv) changes in estimates used in determining of the valuation allowance, we consider estimated future taxable our environmental obligations could have a significant impact income or loss as well as feasible tax planning strategies in each on our results of operations. jurisdiction. If we determine that we will not realize all or a portion We perform a comprehensive annual review of our of our deferred income tax assets, we will increase our valuation environmental obligations and also review changes in facts and allowance. Conversely, if we determine that we will ultimately circumstances associated with these obligations at least quarterly. be able to realize all or a portion of the related benefits for which Judgments and estimates are based upon currently available a valuation allowance has been provided, all or a portion of the facts, existing technology, presently enacted laws and regulations, related valuation allowance will be reduced. remediation experience, whether or not we are a potentially Our valuation allowances totaled $4.1 billion at December 31, responsible party (PRP), the ability of other PRPs to pay their 2021, which covered all of our U.S. foreign tax credits and U.S. allocated portions and take into consideration reasonably federal net operating losses (NOLs), substantially all of our U.S. possible outcomes. Our cost estimates can change substantially state NOLs, and a portion of our foreign NOLs. During 2021, as additional information becomes available regarding the valuation allowances decreased by $645 million. Refer to Note 11 nature or extent of site contamination, updated cost assumptions for further discussion. (including increases and decreases to cost estimates), changes Environmental Obligations. Our current and historical operating in the anticipated scope and timing of remediation activities, the activities are subject to various national, state and local settlement of environmental matters, required remediation environmental laws and regulations that govern the protection of methods and actions by or against governmental agencies or the environment, and compliance with those laws requires private parties. significant expenditures. Environmental expenditures are charged Asset Retirement Obligations. We record the fair value of our to expense or capitalized, depending upon their future economic estimated asset retirement obligations (AROs) associated with benefits. The guidance provided by U.S. GAAP requires that tangible long-lived assets in the period incurred. Fair value is liabilities for contingencies be recorded when it is probable that measured as the present value of cash flow estimates after obligations have been incurred, and the cost can be reasonably considering inflation and a market risk premium. Our cost estimates estimated. At December 31, 2021, environmental obligations are reflected on a third-party cost basis and comply with our recorded in our consolidated balance sheet totaled $1.7 billion, legal obligation to retire tangible long-lived assets in the period which reflect obligations for environmental liabilities attributed to incurred. These cost estimates may differ from financial assurance the Comprehensive Environmental Response, Compensation, and cost estimates for reclamation activities because of a variety of Liability Act of 1980 (CERCLA) or analogous state programs and factors, including obtaining updated cost estimates for for estimated future costs associated with environmental matters. reclamation activities, the timing of reclamation activities, changes Refer to Item 1A. “Risk Factors” contained in Part I of our annual in scope and the exclusion of certain costs not considered report on Form 10-K for the year ended December 31, 2021, and reclamation and closure costs. At December 31, 2021, AROs Notes 1 and 12 for further discussion of environmental obligations, recorded in our consolidated balance sheet totaled $2.7 billion, including a summary of changes in our estimated environmental including $0.3 billion associated with our remaining oil and gas obligations for the three years ended December 31, 2021. operations. In 2021, primarily because of safety constraints and other concerns regarding our reclamation activities associated 32 Fre epor t-McMoR an M A N A G E M E N T ’ S D I S C U S S I O N A N D A N A L Y S I S with an overburden stockpile at our Indonesia operations, we costs incurred to develop and mine our mineral reserves. Our recorded a $397 million adjustment to our Indonesia AROs. Refer estimates of recoverable proven and probable mineral reserves are to Item 1A. “Risk Factors” contained in Part I of our annual report prepared by and are the responsibility of our employees. These on Form 10-K for the year ended December 31, 2021, and to Notes 1 estimates are reviewed and verified regularly by independent and 12 for further discussion of reclamation and closure costs, experts in mining, geology and reserve determination. including a summary of changes in our AROs for the three years Our consolidated estimated recoverable proven and probable ended December 31, 2021. mineral reserves shown below were assessed using long-term Generally, ARO activities are specified by regulations or in price assumptions of $2.50 per pound for copper, $1,200 per ounce permits issued by the relevant governing authority, and of gold and $10 per pound of molybdenum. The following table management’s judgment is required to estimate the extent and summarizes changes in our estimated consolidated recoverable timing of expenditures. Accounting for AROs represents a critical proven and probable copper, gold and molybdenum mineral accounting estimate because (i) we will not incur most of these reserves during 2020 and 2021: 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 mineral reserves were determined from the application of relevant modifying factors to geological data, in order to establish an operational, economically viable mine plan and have been prepared in accordance with the disclosure requirements of subpart 1300 of Securities and Exchange Commission Regulation S-K. The determination of mineral reserves involves numerous uncertainties with respect to the ultimate geology of the ore bodies, including quantities, grades and recoveries. 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 Consolidated reserves at December 31, 2019 Net additions Production Consolidated reserves at December 31, 2020 Net revisions Production Consolidated reserves at December 31, 2021 Coppera (billion pounds) Gold (million ounces) Molybdenum (billion pounds) 116.0 0.4 (3.2) 113.2 (2.2) (3.8) 107.2 29.6 0.2 (0.9) 28.9 (0.4) (1.4) 27.1 3.58 0.21 (0.08) 3.71 (0.24) (0.08) 3.39 a. Includes estimated recoverable metals contained in stockpiles. See below for additional discussion of recoverable copper in stockpiles. Refer to Note 17, and Items 1. and 2. “Business and Properties” and Item 1A. “Risk Factors” contained in Part I of our annual report on Form 10-K for the year ended December 31, 2021, 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 mineral 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, 2021, we estimate that our annual depreciation, depletion and amortization (DD&A) expense for 2022 would 33 2 0 2 1 A n n u a l R e p o r t M A N A G E M E N T ’ S D I S C U S S I O N A N D A N A L Y S I S decrease by approximately $50 million (approximately $30 million Impairment of Long-Lived Assets. As discussed in Note 1, we to net income attributable to common stock), and a 10 percent assess the carrying values of our long-lived mining assets when decrease in copper reserves would increase DD&A expense by events or changes in circumstances indicate that the related approximately $165 million (approximately $85 million to net income carrying amounts of such assets may not be recoverable. In attributable to common stock). We perform annual assessments evaluating our long-lived mining assets for recoverability, we use of our existing assets in connection with the review of mine estimates of pre-tax undiscounted future cash flows of our mines. operating and development plans. If it is determined that assigned Estimates of future cash flows are derived from current asset lives do not reflect the expected remaining period of benefit, business plans, which are developed using near-term metal price any change could affect prospective DD&A rates. forecasts reflective of the current price environment and As discussed below and in Note 1, we review and evaluate our management’s projections for long-term average metal prices. In long-lived assets for impairment when events or changes in addition to near- and long-term metal price assumptions, other circumstances indicate that the related carrying amount of such key assumptions include estimates of commodity-based and other assets may not be recoverable, and changes to our estimates input costs; proven and probable mineral reserves estimates, of recoverable proven and probable mineral reserves could have including the timing and cost to develop and produce the mineral an impact on our assessment of asset recoverability. reserves; value beyond proven and probable mineral reserve Recoverable Copper in Stockpiles. We record, as inventory, estimates (refer to Note 1); and the use of appropriate discount applicable costs for copper contained in mill and leach stockpiles rates in the measurement of fair value. We believe our estimates that are expected to be processed in the future based on proven and models used to determine fair value are similar to what processing technologies. Mill and leach stockpiles are evaluated a market participant would use. As quoted market prices are periodically to ensure that they are stated at the lower of unavailable for our individual mining operations, fair value is weighted-average cost or net realizable value (refer to Note 4 and determined through the use of after-tax discounted estimated “Consolidated Results” for further discussion of inventory future cash flows. adjustments recorded for the three years ended December 31, During the two-year period ended December 31, 2021, 2021). Accounting for recoverable copper from mill and leach no material impairments of our long-lived mining assets were stockpiles represents a critical accounting estimate because recorded. (i) it is impracticable to determine copper contained in mill and In addition to decreases in future metal price assumptions, leach stockpiles by physical count, thus requiring management other events that could result in future impairment of our long-lived to employ reasonable estimation methods and (ii) recoveries mining assets include, but are not limited to, decreases in from leach stockpiles can vary significantly. Refer to Note 1 for estimated recoverable proven and probable mineral reserves and further discussion of our accounting policy for recoverable any event that might otherwise have a material adverse effect on copper in stockpiles. mine site production levels or costs. Refer to Item 1A. “Risk Factors” At December 31, 2021, estimated consolidated recoverable contained in Part I of our annual report on Form 10-K for the year copper was 1.8 billion pounds in leach stockpiles (with a carrying ended December 31, 2021. value of $2.1 billion) and 0.3 billion pounds in mill stockpiles (with a carrying value of $0.4 billion). 34 Fre epor t -McMoR an M A N A G E M E N T ’ S D I S C U S S I O N A N D A N A L Y S I S CONSOLIDATED RESULTS Years Ended December 31, SUMMARY FINANCIAL DATA (in millions, except per share amounts) Revenuesa,b Operating incomea Net income attributable to common stockc Diluted net income per share attributable to common stock Diluted weighted-average common shares outstanding Operating cash flowsf Capital expenditures At December 31: Cash and cash equivalents Total debt, including current portion 2021 2020 $ 22,845 $ 8,366 $ 4,306d $ 2.90d 1,482 $ 7,715 $ 2,115 $ 8,068 $ 9,450 $ 14,198 $ 2,437 $ 599e $ 0.41e 1,461 $ 3,017 $ 1,961 $ 3,657 $ 9,711 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. 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. d. Includes net charges in 2021 totaling $331 million ($0.22 per share), primarily associated with net adjustments to AROs mostly at PT Freeport Indonesia (PT-FI), historical contested tax matters at PT-FI (including historical tax audits and an administrative fine levied by the Indonesia government) and nonrecurring labor-related charges for labor agreements at Cerro Verde, partly offset by the release of a valuation allowance on NOLs at PT-FI’s subsidiary, a gain on the sale of Freeport Cobalt, refunds of Arizona transaction privilege taxes related to purchased electricity and favorable adjustments to prior-years’ profit sharing at Cerro Verde. e. Includes net charges in 2020 totaling $191 million ($0.13 per share), primarily associated with the COVID-19 pandemic and revised operating plans (including employee separation costs), a framework for the resolution of all current and future potential talc-related litigation, net losses on early extinguishment of debt, metals inventory adjustments and historical contested tax audits at PT-FI. These charges were partly offset primarily by a gain on the sale of our interests in the Kisanfu exploration project. f. Working capital and other sources totaled $755 million in 2021 and $665 million in 2020. 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 2021 2020 3,843 3,807 $ 4.33 $ 1.93 $ 1.34 1,381 1,360 $ 1,796 85 82 $ 15.56 3,206 3,202 $ 2.95 $ 1.88 $ 1.48 857 855 $ 1,832 76 80 $ 10.20 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.” 35 2 0 2 1 A n n u a l R e p o r t M A N A G E M E N T ’ S D I S C U S S I O N A N D A N A L Y S I S Revenues prices, which results in an embedded derivative on provisionally Consolidated revenues totaled $22.8 billion in 2021 and $14.2 billion priced concentrate and cathode sales that is adjusted to fair value in 2020. Our revenues primarily include the sale of copper through earnings each period, using the period-end forward concentrate, copper cathode, copper rod, gold in concentrate and prices, until final pricing on the date of settlement. To the extent molybdenum. Following is a summary of changes in our consolidated final prices are higher or lower than what was recorded on a revenues from 2020 to 2021 (in millions): Consolidated revenues – 2020 Mining operations: Higher 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 Higher Atlantic Copper revenues Higher treatment charges Higher royalties and export duties Other, including intercompany eliminations Consolidated revenues – 2021 $ 14,198 1,784 925 13 5,253 (48) 439 271 (64) 924 (83) (291) (476) $ 22,845 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. Prior Year Provisionally Priced Copper Sales. Net favorable (unfavorable) adjustments to prior years’ provisionally priced copper sales (i.e., provisionally priced copper sales at December 31, 2020 and 2019) recorded in consolidated revenues totaled $169 million in 2021 and $(102) million in 2020. 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. Purchased Copper. Lower revenues associated with purchased copper in 2021, compared to 2020, primarily reflects lower Sales Volumes. Copper and gold sales volumes were higher volumes, partly offset by higher copper prices. We purchased in 2021, compared to 2020, primarily reflecting the ramp-up of copper cathode primarily for processing by our Rod & Refining underground mining at the Grasberg minerals district. operations, totaling 173 million pounds in 2021 and 290 million Refer to “Operations” for further discussion of sales volumes pounds in 2020. at our mining operations. Atlantic Copper Revenues. Higher Atlantic Copper revenues Realized Prices. Our consolidated revenues can vary significantly in 2021, compared with 2020, primarily reflect higher copper prices. as a result of fluctuations in the market prices of copper, gold and Treatment Charges. Revenues from our concentrate sales are molybdenum. In 2021, our average realized prices were 47 percent recorded net of treatment charges (i.e., fees paid to smelters that higher for copper, 2 percent lower for gold and 53 percent higher are generally negotiated annually), which will vary with the sales for molybdenum, compared with 2020. volumes and the price of copper. Average realized copper prices include net favorable adjustments Royalties and Export Duties. Royalties are primarily for sales to current year provisionally priced copper sales (i.e., provisionally from PT-FI and vary with the volume of metal sold and the prices of priced sales during the years 2021 and 2020) totaling $256 million copper and gold. PT-FI will continue to pay export duties until for 2021 and $361 million for 2020. Refer to Note 14 for a development progress for additional smelting capacity in Indonesia summary of total adjustments to prior period and current period exceeds 50 percent. Refer to “Operations—Indonesia Mining” for provisionally priced sales. As discussed below and in “Disclosures further discussion of the current progress on additional smelting About Market Risks—Commodity Price Risk,” substantially all of capacity in Indonesia and to Note 13 for a summary of PT-FI’s our copper concentrate and cathode sales contracts provide final royalties and export duties. 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 36 Fre e por t-McMoR an M A N A G E M E N T ’ S D I S C U S S I O N A N D A N A L Y S I S Production and Delivery Costs Consolidated production and delivery costs totaled $12.0 billion in 2021, compared with $10.0 billion in 2020. Higher consolidated production and delivery costs in 2021 primarily reflect higher sales volumes, the ramp-up of underground mining at the Grasberg minerals district, higher milling rates at Cerro Verde associated with the return to pre-COVID-19 operating rates and higher hours of electricity at our North America and South America copper mining operations (we generate all of our power at our Indonesia mining operation); approximately 750 thousand metric tons of coal for our coal power plant in Indonesia; and approximately 1 million MMBtu (million British thermal units) of natural gas at certain of our North America mines. Based on current cost estimates, energy will approximate 25 percent maintenance and input costs. The year 2021 includes net charges of our copper mine site operating costs for 2022. totaling $415 million primarily associated with an unfavorable ARO adjustment (refer to Note 12) and other net charges at PT-FI and nonrecurring labor-related charges at Cerro Verde for collective labor agreements, partly offset by refunds of Arizona transaction privilege taxes related to purchased electricity and favorable adjustments to prior-years’ profit sharing at Cerro Verde. The year 2020 includes net charges totaling $252 million, primarily associated with the COVID-19 pandemic and revised operating plans (including employee separation costs). Refer to Note 16 for details of production and delivery costs by operating segment. 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 sulfuric acid, reagents, liners, tires and explosives. Consolidated unit site production and delivery costs (before net noncash and other costs) for our copper mines averaged $1.93 per pound of copper in 2021 and $1.88 per pound in 2020. Higher consolidated unit site production and delivery costs in 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 $2.0 billion in 2021 and $1.5 billion in 2020. Higher DD&A in 2021, compared with 2020, primarily relates to significant assets placed in service associated with the ramp-up of underground mining at the Grasberg minerals district. Metals Inventory Adjustments Unfavorable net realizable value metals inventory adjustments totaled $16 million in 2021 and $96 million in 2020. Metals inventory adjustments in 2021 were primarily related to a leach stockpile adjustment. Metals inventory adjustments in 2020 were related to volatility in copper and molybdenum prices associated with the COVID-19 pandemic. Refer to Note 4 for further details on our inventory adjustments. compared with 2020, primarily reflect higher mining and milling Environmental Obligations and Shutdown Costs costs associated with ramped-up operations and higher maintenance and input costs, partly offset by higher sales volumes. Consolidated site production and delivery costs per pound for the year 2021 included nonrecurring labor-related charges at Cerro Verde for collective labor agreements. 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. 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 $0.3 billion at December 31, 2021. We do not have take-or-pay contractual obligations for other energy commodities. Energy represented approximately 21 percent of our copper mine site operating costs in 2021, including purchases of approximately 220 million gallons of diesel fuel; approximately 8,000 gigawatt 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 $91 million in 2021, including unfavorable adjustments to environmental obligations totaling $41 million. Net charges for the year 2020 totaled $159 million, including 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 obligations. Refer to Note 12 for environmental obligations and litigation matters. 37 2 0 2 1 A n n u a l R ep o r t M A N A G E M E N T ’ S D I S C U S S I O N A N D A N A L Y S I S Net Gain on Sales of Assets Net gain on sales of assets totaled $80 million in 2021 and $473 million in 2020. Gains on sales of assets in 2021 were primarily associated with the sale of our remaining Freeport borrowings, and totaled $72 million in 2021 and $147 million in 2020. The decrease in capitalized interest in 2021, compared with 2020, is primarily related to significant assets at PT-FI’s underground mines being placed in service. Refer to “Operations” Cobalt assets and the sale of carbon dioxide emissions credits and “Capital Resources and Liquidity—Investing Activities” for at Atlantic Copper. Gains on sales of assets in 2020 were primarily associated with the sale of our interests in the Kisanfu undeveloped exploration project. Refer to Note 2 for further discussion of dispositions. Interest Expense, Net further discussion of current development projects. Other (Expense) Income, Net Other (expense) income, net, totaled $(105) million in 2021 and $59 million in 2020. The year 2021 includes charges totaling $208 million associated with historical contested tax matters at Consolidated interest costs (before capitalization and excluding PT-FI (refer to Note 11), partly offset by gains on currency interest expense associated with international tax matters) totaled exchange rate movements and other net credits. The year 2020 $634 million in 2021 and $649 million in 2020. Interest expense associated with international tax matters totaled $40 million in 2021 and $96 million in 2020 (refer to Note 11). Capitalized interest varies with the level of expenditures for our development projects and average interest rates on our includes a gain of $30 million for the sale of royalty interests. Income Taxes Following is a summary of the approximate amounts used in the calculation of our consolidated income tax provision for the years ended December 31 (in millions, except percentages): U.S.b South America Indonesia PT-FI historical contested tax disputesi Gain on sale of Kisanfu Eliminations and other Consolidated Income (Loss)a $ 1,883 2,072 3,986 (219) — (63) $ 7,659 2021 Effective Tax Rate 1% 40% 35% N/A N/A N/A 30% Tax (Provision) Benefit $ (10)c (820)e (1,377)g (147) — 55 $ (2,299) Income (Loss)a $ (532) 466 1,342 (44) 486 79 $ 1,797 2020 Effective Tax Rate 11% 51% 45% N/A N/A N/A 53%j Tax (Provision) Benefit $ 60d (239)f (608)h 2 (135) (24) $ (944) a. Represents income (loss) 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 valuation allowance release on prior year unbenefited NOLs. d. Includes tax benefits of $53 million associated with the reversal of a year-end 2019 tax charge related to the sale of our interest in the lower zone of the Timok exploration project and $6 million associated with the removal of a valuation allowance on deferred tax assets. e. Includes a tax benefit at Cerro Verde of $18 million primarily associated with completion of tax audits for the years 2014 and 2015. f. g. Includes net tax benefits associated with the release of valuation allowances recorded against PT Rio Tinto Indonesia NOLs totaling $189 million. The year 2021 also includes a tax benefit of $24 million, primarily Includes tax charges at Cerro Verde of $15 million primarily associated with adjustments to profit sharing for prior years. associated with the reversal of a tax reserve related to the treatment of prior-year contractor support costs; partly offset by a tax charge of $10 million associated with the audit of PT-FI’s 2019 tax returns. h. Includes tax charges of $21 million associated with establishing a tax reserve related to the treatment of prior-year contractor support costs and $8 million associated with an unfavorable 2012 Indonesia Supreme Court ruling. i. Refer to Note 11 for further discussion of these historical contested tax disputes. j. 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 Fre epor t -McMoR an M A N A G E M E N T ’ S D I S C U S S I O N A N D A N A L Y S I S Assuming achievement of current sales volume and cost estimates produced copper. Refer to Item 1A. “Risk Factors” contained in and average prices of $4.50 per pound for copper, $1,800 per Part I of our annual report on Form 10-K for the year ended ounce for gold and $19.00 per pound for molybdenum for 2022, we December 31, 2021, for further discussion of ESG-related risks. estimate our consolidated effective tax rate for the year 2022 2020 Climate Report. We published our updated climate report would approximate 30 percent. Changes in projected sales volumes in September 2021, which is available on our website. The climate and average prices during 2022 would incur tax impacts at report details the work underway across our global business to estimated effective rates of 39 percent for Peru, 38 percent for reduce greenhouse gas (GHG) emissions, improve energy Indonesia and 0 percent for the U.S. efficiency, advance the use of renewable energy and enhance our Variations in the relative proportions of jurisdictional income resilience to future climate-related risks. The updated climate result in fluctuations to our consolidated effective income tax report includes our GHG emissions reduction targets and aspirations rate. Because of our U.S. tax position, we do not record a financial and reflects our continued progress towards alignment with the statement impact for income or losses generated in the U.S. current recommendations of the Task Force on Climate-related Refer to Note 11 for further discussion of income taxes. Financial Disclosures. Refer to Item 1A. “Risk Factors” contained in OPERATIONS Responsible Production The Copper Mark. We are committed to validating all of our copper producing sites with the Copper Mark, a comprehensive assurance framework designed to demonstrate the copper industry’s responsible production practices. To achieve the Copper Mark, each site is required to complete an external assurance process to assess conformance with 32 environmental, social and governance (ESG) requirements. We have a total of seven sites that have been validated (Bagdad, Morenci, Miami, El Paso, Cerro Verde, El Abra and Atlantic Copper) and we have commenced the Copper Mark assessment process at four additional sites in North America, including Chino, Tyrone, Safford and Sierrita. International Council of Mining and Metals (ICMM). We are a founding and active member of the ICMM, an international organization dedicated to safe, fair and sustainable mining. We are committed to implementing ICMM’s Mining Principles, which serve as a best practice framework on sustainable development for the global mining and metals industry. Our Chairman of the Board and Chief Executive Officer serves as the current Chair of ICMM. 2020 Annual Report on Sustainability. We published our 2020 Annual Report on Sustainability in April 2021, which is available on our website. We have a long history of ESG programs and are continuously striving to improve and embrace evolving stakeholder expectations. This report marked our 20th year of reporting on our sustainability progress and our first year reporting in alignment with the Sustainability Accounting Standards Board Metals & Mining industry framework. We are committed to building upon our achievements in sustainability and seek to contribute positively to society by supplying the world with responsibly Part I of our annual report on Form 10-K for the year ended December 31, 2021, for further discussion of climate-related risks. Innovation Initiatives During 2021, 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. These initiatives are expected to allow us to recover additional copper from our large existing leach stockpiles. There are several projects ongoing across our North America and South America operations, which incorporate new applications, technologies and data analytics. Initial results are encouraging and support additional work on these emerging opportunities. 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. 39 2 0 2 1 A n n u a l R e p o r t M A N A G E M E N T ’ S D I S C U S S I O N A N D A N A L Y S I S Operating and Development Activities. We have substantial Copper sales volumes from our North America copper mines mineral reserves and future opportunities in the U.S., primarily totaled 1.4 billion pounds in 2021 and 2020. North America copper associated with existing mining operations. Current operations at sales are estimated to approximate 1.55 billion pounds in 2022. the Lone Star copper leach project at our Safford mine, which Refer to “Outlook” for projected molybdenum sales volumes. was completed in the second half of 2020, are exceeding the initial Unit Net Cash Costs. Unit net cash costs per pound of copper is design capacity of 200 million pounds annually and produced a measure intended to provide investors with information about approximately 235 million pounds of copper in 2021. We continue the cash-generating capacity of our mining operations expressed to advance opportunities to increase Lone Star operating rates on a basis relating to the primary metal product for our respective and are advancing plans to increase volumes to achieve 300 million operations. We use this measure for the same purpose and for pounds of copper per year from oxide ores. The oxide project monitoring operating performance by our mining operations. This advances the opportunity for development of the large-scale information differs from measures of performance determined sulfide resources at Lone Star. We are increasing exploration in in accordance with U.S. GAAP and should not be considered in the area to support metallurgical testing and mine development isolation or as a substitute for measures of performance determined planning for a potential long-term investment in a concentrator. in accordance with U.S. GAAP. This measure is presented by We are also evaluating an expansion to potentially double other metals mining companies, although our measure may not be concentrator capacity at our Bagdad operation in northwest comparable to similarly titled measures reported by other companies. Arizona, and are engaging stakeholders. Feasibility studies Gross Profit per Pound of Copper and Molybdenum. The to double Bagdad’s operating rates are expected to commence following table summarizes unit net cash costs and gross profit in 2022. per pound of copper at our North America copper mines for the Operating Data. Following is summary operating data for the two years ended December 31, 2021. Refer to “Product Revenues North America copper mines for the years ended December 31: and Production Costs” for an explanation of the “by-product” 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) Productiona 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) 2021 2020 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. 1,460 1,436 4.30 $ 1,418 1,422 2.82 $ 34 33 665,900 0.29 1,056 714,300 0.27 1,047 269,500 279,700 0.38 0.03 81.2 649 0.35 0.02 84.1 647 a. Refer to “Consolidated Results” for our consolidated molybdenum sales volumes, which include sales of molybdenum produced at the North America copper mines. 40 Fre epor t-McMoR an M A N A G E M E N T ’ S D I S C U S S I O N A N D A N A L Y S I S 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 $ 4.30 2.13 (0.33) 0.09 1.89 0.25 0.01 0.07b 2.22 — $ 2.08 1,436 2021 Co-Product Method Copper $ 4.30 1.96 — 0.09 2.05 0.24 0.01 0.07 2.37 — $ 1.93 1,436 Molybdenuma $ 14.14 8.17 — — 8.17 0.62 — 0.03 8.82 — $ 5.32 34 By-Product Method $ 2.82 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 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 credits totaling $0.02 per pound of copper associated with refunds of Arizona transaction privilege taxes related to purchased electricity. 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 South America mining includes open-pit mining, sulfide-ore because of differences in ore grades and characteristics, concentrating, leaching and SX/EW operations. Production from processing costs, by-product credits and other factors. During our South America mines is sold as copper concentrate or 2021, average unit net cash costs (net of by-product credits) for cathode under long-term contracts. Our South America mines the North America copper mines ranged from $1.47 per pound to also sell a portion of their copper concentrate production to $2.86 per pound at the individual mines and averaged $1.89 per Atlantic Copper. In addition to copper, the Cerro Verde mine pound. Higher average unit net cash costs (net of by-product produces molybdenum concentrate and silver. credits) of $1.89 in 2021, compared with $1.81 per pound in 2020, Operating and Development Activities. Milling rates at Cerro primarily reflect higher mining and milling costs associated with Verde’s concentrator facilities averaged 380,300 metric tons of ore higher operating rates at Lone Star and higher maintenance per day for the year 2021, compared with 331,600 metric tons of and input costs, partly offset by higher by-product credits because ore per day for the year 2020 when COVID-19 restrictions resulted of higher molybdenum prices. in reduced rates. Subject to ongoing monitoring of COVID-19 Average unit net cash costs (net of by-product credits) for protocols, Cerro Verde is targeting milling rates to increase our North America copper mines are expected to approximate to approximately 400,000 metric tons of ore per day during 2022. $2.00 per pound of copper in 2022, based on achievement of El Abra increased operating rates to pre-COVID-19 pandemic current sales volume and cost estimates and assuming an average levels during 2021. Increased mining and stacking activities are molybdenum price of $19.00 per pound. The impact of price expected to result in a 30 percent increase in El Abra copper changes during 2022 on North America’s average unit net cash production for the year 2022, compared with the year 2021. costs for the year 2022 would approximate $0.04 per pound for We continue to evaluate a large-scale expansion at El Abra to each $2 per pound change in the average price of molybdenum. process additional sulfide material and to achieve higher copper 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 51.0 percent interest), which are consolidated in our financial statements. recoveries. El Abra’s large sulfide resource could potentially support a major mill project similar to the facilities constructed at Cerro Verde in 2015. Technical and economic studies continue to be evaluated to determine the optimal scope and timing for the sulfide project, and we are engaging stakeholders and preparing data required for submission of a robust permit application. We are continuing to monitor potential changes in regulatory and fiscal matters in Chile and will defer major investment decisions pending clarity on these matters. 41 2 0 2 1 A n n u a l R e p o r t M A N A G E M E N T ’ S D I S C U S S I O N A N D A N A L Y S I S Operating Data. Following is summary operating data for our Gross Profit per Pound of Copper. The following table South America mining operations for the years ended December 31. summarizes unit net cash costs and gross profit per pound of 2021 2020 copper at our South America mining operations for the two years Copper (millions of recoverable pounds) Production Sales Average realized price per pound Molybdenum (millions of recoverable pounds) Productiona 1,047 1,055 4.34 $ $ 21 979 976 3.05 19 Leach operations Leach ore placed in stockpiles (metric tons per day) Average copper ore grade (percent) Copper production (millions of recoverable pounds) 163,900 0.32 256 160,300 0.35 241 Mill operations Ore milled (metric tons per day) Average ore grade (percent): Copper Molybdenum Copper recovery rate (percent) Copper production (millions of recoverable pounds) 380,300 331,600b 0.31 0.01 87.3 791 0.34 0.01 84.3 738 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 impacted by COVID-19 restrictions. Higher consolidated copper sales volumes from South America of 1.1 billion pounds in 2021, compared with 1.0 billion pounds in 2020, primarily reflect higher mining and milling rates at Cerro Verde. Copper sales from South America mines are expected to approximate 1.2 billion pounds in 2022. Refer to “Outlook” for projected molybdenum sales volumes. Unit Net Cash Costs. Unit net cash costs per pound of copper ended December 31, 2021. 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. 2021 2020 By-Product Co-Product By-Product Co-Product Method Method Method Method $ 4.34 $ 4.34 $ 3.05 $ 3.05 2.23a (0.32) 0.13 0.01 2.05 0.39 0.03b 2.47 2.06 — 0.13 0.01 2.20 0.37 0.03 2.60 1.86 (0.17) 0.15 0.01 1.85 0.43 0.13c 2.41 1.74 — 0.15 0.01 1.90 0.41 0.12 2.43 0.09 $ 1.96 0.09 $ 1.83 (0.07) $ 0.57 (0.07) $ 0.55 1,055 1,055 976 976 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) is a measure intended to provide investors with information about the cash-generating capacity of our mining operations expressed a. Includes charges totaling $0.09 per pound of copper associated with nonrecurring labor-related charges at Cerro Verde for collective labor agreements reached with its hourly employees. b. Includes credits totaling $0.03 per pound of copper associated with favorable adjustments to 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. prior-years’ profit sharing at Cerro Verde. c. 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 $2.05 per pound of copper in 2021, compared with $1.85 per pound in 2020, primarily reflect increased profit-sharing costs and nonrecurring labor-related charges at Cerro Verde for collective labor agreements and higher maintenance and input costs, partly offset by higher sales volumes and by-product credits. 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. 42 Fre e por t-McMoR an M A N A G E M E N T ’ S D I S C U S S I O N A N D A N A L Y S I S Because certain assets are depreciated on a straight-line PT-FI expects milling rates to average approximately 180,000 basis, South America’s unit depreciation rate may vary with asset metric tons of ore per day in 2022. The installation of additional additions and the level of copper production and sales. milling facilities are in progress and are currently expected to be Revenue adjustments primarily result from changes in prices on completed in 2023, which will increase milling capacity to provisionally priced copper sales recognized in prior periods. approximately 240,000 metric tons of ore per day. Refer to “Consolidated Results—Revenues” for further discussion PT-FI expects to generate average annual production of of adjustments to prior period provisionally priced copper sales. approximately 1.6 billion pounds of copper and 1.6 million ounces Average unit net cash costs (net of by-product credits) for our of gold for the next five years at an attractive unit net cash cost, South America mines are expected to approximate $2.06 per providing significant margins and cash flows. pound of copper in 2022, based on current sales volume and cost PT-FI’s estimated capital spending on the Grasberg Block Cave estimates and assuming an average price of $19.00 per pound and DMLZ underground projects for the year 2022 is expected of molybdenum. 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 3, under the terms of the shareholders agreement, our economic interest in PT-FI approximates 81 percent through 2022 and 48.76 percent thereafter. 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 2021, 41 percent of PT-FI’s copper concentrate was sold to PT Smelting (PT-FI owned 25.0 percent of PT Smelting prior to April 30, 2021, and 39.5 percent thereafter— See Note 2). Operating and Development Activities. PT-FI currently has three underground operating mines in the Grasberg minerals district: Grasberg Block Cave, DMLZ and Big Gossan. The ramp-up of underground production at the Grasberg minerals district continues to advance on schedule. For the year 2021, highlights include: to approximate $1.0 billion, net of scheduled contributions from PT Indonesia Asahan Aluminium (Persero) (PT Inalum, also known as MIND ID). PT-FI is also advancing construction of a dual-fuel power plant and upgrades to the mill circuit to improve recoveries. In accordance with applicable accounting guidance, the aggregate costs (before scheduled contributions from PT Inalum), expected to approximate $1.2 billion for the year 2022, will be reflected as an investing activity in our cash flow statement, and contributions from PT Inalum will be reflected as a financing activity. Kucing Liar. In October 2021, PT-FI commenced long-term mine development activities for its Kucing Liar deposit, which is expected to produce over 6 billion pounds of copper and 5 million ounces of gold between 2028 and the end of 2041. Similar to PT-FI’s experience with large-scale, block-cave mines, pre-production development activities will occur over an approximate 10-year timeframe. At full operating rates, annual production from Kucing Liar is expected to approximate 600 million pounds of copper and 500 thousand ounces of gold, providing PT-FI with sustained long-term, large-scale and low-cost production. Capital investments for Kucing Liar over the next 10 years are expected to average approximately $400 million per year. Kucing Liar will benefit from substantial shared infrastructure and PT-FI’s experience and long-term success in • Achieved quarterly copper and gold volumes in fourth-quarter block-cave mining. 2021 approximating 100 percent of the projected annualized levels discussed below. • 139 new drawbells were constructed at the Grasberg Block Cave and DMLZ underground mines, bringing cumulative open drawbells to 510. • Combined average production from the Grasberg Block Cave and DMLZ underground mines approximated 128,600 metric tons of ore per day (more than double the year 2020 rates) and PT-FI’s total milling rates averaged 151,600 metric tons of ore per day. Indonesia Smelter Capacity. In connection with PT-FI’s 2018 agreement with the Indonesia government to secure the extension of its long-term mining rights, PT-FI committed to construct additional domestic smelting capacity totaling 2 million metric tons of concentrate per year by the end of 2023. During 2020, PT-FI notified the Indonesia government of schedule delays resulting from the COVID-19 pandemic and continues to review with the government a revised schedule for satisfying its commitment. 43 2 0 2 1 A n n u a l R ep o r t M A N A G E M E N T ’ S D I S C U S S I O N A N D A N A L Y S I S On January 7, 2021, the Indonesia government levied an Operating Data. Following is summary operating data for our administrative fine of $149 million on PT-FI for failing to achieve Indonesia mining operations for the years ended December 31. physical development progress on the greenfield smelter as of July 31, 2020. During 2021, PT-FI recorded charges totaling $16 million for a potential settlement of the administrative fine. On January 25, 2022, the Indonesia government submitted a new estimate of the administrative fine totaling $57 million. On February 15, 2022, PT-FI responded to the Indonesia government with a revised calculation of $37 million. PT-FI expects to record a charge in first-quarter 2022 for an amount in excess of the previously recorded $16 million. Refer to Note 12 and Item 1A. “Risk Factors” contained in Part I of our annual report on Form 10-K for the year ended December 31, 2021, for further discussion. PT-FI is actively engaging in the following projects for additional domestic smelting capacity: • Construction of a greenfield smelter with a capacity to process approximately 1.7 million metric tons of concentrate per year. In July 2021, PT-FI awarded a construction contract with an estimated cost of $2.8 billion. During 2021, PT-FI progressed site preparation activities and expects engineering procurement and construction activities to advance during 2022 and 2023. The smelter construction is expected to be completed as soon as feasible in 2024, which is subject to potential pandemic-related disruptions and other factors. • Expansion of PT Smelting’s capacity by 30 percent to 1.3 million metric tons of concentrate per year, which is expected to be completed by the end of 2023. PT-FI completed agreements in November 2021 with the majority owner of PT Smelting to implement the expansion plans. PT-FI is funding the cost of the expansion, estimated to approximate $250 million, with a loan that will convert to equity and increase ownership in PT Smelting to a majority ownership interest once the expansion is complete. • Construction of a PMR to process gold and silver from the greenfield smelter and PT Smelting at an estimated cost of $250 million. In July 2021, PT-FI entered into a $1.0 billion, five-year, unsecured bank credit facility to advance these projects. As of December 31, 2021, $443 million ($432 million net of debt issuance costs) was drawn under this facility. PT-FI is currently arranging incremental financing for these projects, with the cost of debt shared 48.76 percent by us and 51.24 percent by PT Inalum. Refer to Note 8 for further discussion. Capital expenditures for the Indonesia smelter projects totaled $0.2 billion for 2021, and are expected to approximate $1.4 billion for 2022, $1.1 billion for 2023 and $0.4 billion for 2024, excluding capitalized interest, owner’s costs and commissioning. Development of additional smelting capacity in Indonesia will result in the elimination of export duties, providing an offset to the economic cost associated with the Indonesia smelter projects. 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 DMLZ Deep Ore Zonea Big Gossan Other 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) a. Ore body depleted in 2021. 2021 2020 1,336 1,316 4.34 $ 1,370 1,349 $ 1,796 70,600 58,000 8,700 7,500 6,800 151,600 1.30 1.04 89.8 77.0 1,336 1,370 809 804 $ 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 Higher consolidated sales of 1.3 billion pounds of copper and 1.3 million ounces of gold in 2021, compared with 0.8 billion pounds of copper and 0.8 million ounces of gold in 2020, primarily reflect the ramp-up of underground mining at the Grasberg minerals district. Consolidated sales volumes from PT-FI are expected to approximate 1.6 billion pounds of copper and 1.6 million ounces of gold in 2022. 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 Fre epor t-McMoR an M A N A G E M E N T ’ S D I S C U S S I O N A N D A N A L Y S I S Gross Profit per Pound of Copper and per Ounce of Gold. explanation of “by-product” and “co-product” methods and a The following table summarizes the unit net cash costs and reconciliation of unit net cash costs per pound to production and gross profit per pound of copper and per ounce of gold at our delivery costs applicable to sales reported in our consolidated Indonesia mining operations for the two years ended December 31, financial statements. 2021. Refer to “Product Revenues and Production Costs” for an 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 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) 2021 Co-Product Method Gold Copper $ 4.34 $ 1,796 By-Product Method $ 4.34 1.49 (1.95) 0.24 0.17 0.24 0.19 0.80 0.27a 1.26 0.05 (0.07) $ 3.06 1.03 — 0.17 0.11 0.17 1.48 0.55 0.18 2.21 0.05 (0.05) $ 2.13 1,316 1,316 424 — 69 47 67 607 228 77 912 (3) (19) $ 862 1,349 By-Product Method $ 3.08 1.88 (2.03) 0.27 0.12 0.19 0.43 0.72 0.11b 1.26 (0.03) (0.01) $ 1.78 804 2020 Co-Product Method Gold Copper $ 3.08 1.13 — 0.17 0.07 0.11 1.48 0.43 0.07 1.98 (0.03) (0.01) $ 1.06 804 $ 1,832 674 — 98 41 72 885 259 41 1,185 5 (5) $ 647 842 a. Includes charges totaling $0.26 per pound of copper associated with an ARO adjustment. b. Includes COVID-19 related costs (including one-time incremental employee benefits and health and safety costs) totaling $0.02 per pound of copper. A significant portion of PT-FI’s costs are fixed and unit costs vary Revenue adjustments primarily result from changes in prices on depending on volumes and other factors. PT-FI’s unit net cash provisionally priced copper sales recognized in prior periods. costs (including gold and silver credits) of $0.19 per pound of Refer to “Consolidated Results—Revenues” for further discussion copper in 2021 were lower than unit net cash costs of $0.43 per of adjustments to prior period provisionally priced copper sales. pound in 2020, primarily reflecting higher copper and gold PT Smelting intercompany loss represents the change in sales volumes. the deferral of PT-FI’s profit on sales to PT Smelting (25.0 percent Treatment charges vary with the volume of metals sold and prior to April 30, 2021, and 39.5 percent thereafter). Refer to the price of copper, and royalties vary with the volume of metals “Operations—Smelting & Refining” below for further discussion. sold and the prices of copper and gold. Assuming an average gold price of $1,800 per ounce for 2022 PT-FI’s export duties totaled $218 million in 2021 and $93 million and achievement of current sales volume and cost estimates, in 2020, and PT-FI’s royalties totaled $319 million in 2021 and unit net cash costs (including gold and silver credits) for PT-FI $153 million in 2020. PT-FI will continue to pay export duties until are expected to approximate $0.18 per pound of copper in 2022. The development progress for additional smelting capacity in Indonesia impact of price changes during 2022 on PT-FI’s average unit net exceeds 50 percent. Refer to Note 13 for further discussion of cash costs would approximate $0.09 per pound of copper for each PT-FI’s export duties and royalties. $100 per ounce change in the average price of gold. Because certain assets are depreciated on a straight-line PT-FI’s projected sales volumes and unit net cash costs for basis, PT-FI’s unit depreciation rate may vary with asset additions the year 2022 are dependent on a number of factors, including and the level of copper production and sales. DD&A per pound operational performance, timing of shipments and the Indonesia of copper under the by-product method was $0.80 in 2021, government’s extension of PT-FI’s export permit. In March 2021, compared with $0.72 in 2020, primarily reflecting significant PT-FI received a one-year extension of its export license through underground development assets placed in service. 45 2 0 2 1 A n n u a l R ep o r t M A N A G E M E N T ’ S D I S C U S S I O N A N D A N A L Y S I S March 15, 2022. Refer to Note 12 and Item 1A. “Risk Factors” costs for 2022, compared with 2021, primarily reflects higher contained in Part I of our annual report on Form 10-K for the year mining and input costs. Refer to “Product Revenues and ended December 31, 2021, for a discussion of the administrative Production Costs” for a reconciliation of unit net cash costs per fine levied by the Indonesia government on PT-FI for failing to pound to production and delivery costs applicable to sales achieve physical development progress on the greenfield smelter reported in our consolidated financial statements. and ongoing discussions with the Indonesia government regarding a deferred schedule for the completion of the greenfield smelter. Smelting & Refining Molybdenum Mines We wholly own and operate the Miami smelter in Arizona, the El Paso refinery in Texas and a smelter and refinery in Spain (Atlantic We have two wholly owned molybdenum mines in Colorado—the Copper). Additionally, PT-FI has a 39.5 percent ownership interest Henderson underground mine and the Climax open-pit mine. in PT Smelting and expects its ownership to increase to a majority The Henderson and Climax mines produce high-purity, chemical- interest upon completion of the project to expand PT Smelting’s grade molybdenum concentrate, which is typically further smelting capacity. See “Indonesia Smelter Capacity” above processed into value-added molybdenum chemical products. for additional information regarding the PT Smelting expansion The majority of the molybdenum concentrate produced at the and Note 13 for information regarding the tolling agreement Henderson and Climax mines, as well as from our North America effective in 2023. Treatment charges for smelting and refining and South America copper mines, is processed at our own copper concentrate consist of a base rate per pound of copper and conversion facilities. per ounce of gold and are generally fixed. Treatment charges Operating and Development Activities. Production from the represent a cost to our mining operations and income to Atlantic Molybdenum mines totaled 30 million pounds of molybdenum Copper and PT Smelting. Thus, higher treatment charges benefit in 2021 and 24 million pounds in 2020. The increase in 2021, our smelter operations and adversely affect our mining operations. compared with 2020, primarily reflects higher ore grades. We Our North America copper mines are less significantly affected by plan to increase mining rates at the Climax mine in 2022 changes in treatment charges because these operations are largely to provide options to increase volumes in response to market integrated with our Miami smelter and El Paso refinery. Through demand for molybdenum. this form of downstream integration, we are assured placement of Unit Net Cash Costs Per Pound of Molybdenum. Unit net cash a significant portion of our concentrate production. costs per pound of molybdenum is a measure intended to provide Our Miami smelter processes concentrate produced by our investors with information about the cash-generating capacity of U.S. mines and also provides acid for copper leaching operations. our mining operations expressed on a basis relating to the primary During 2021, we incurred charges totaling $87 million associated metal product for our respective operations. We use this measure with a major maintenance turnaround at our Miami smelter, which for the same purpose and for monitoring operating performance were higher than original estimates as a result of extended by our mining operations. This information differs from measures downtime to address additional required maintenance work, the of performance determined in accordance with U.S. GAAP COVID-19 pandemic and weather events. The next major and should not be considered in isolation or as a substitute for maintenance turnaround is scheduled for the first half of 2024. measures of performance determined in accordance with U.S. Atlantic Copper smelts and refines copper concentrate and GAAP. This measure is presented by other metals mining markets refined copper and precious metals in slimes. Following is companies, although our measure may not be comparable to an allocation of Atlantic Copper’s concentrate purchases from similarly titled measures reported by other companies. unaffiliated third parties and our copper mining operations for the Unit net cash costs for our Molybdenum mines of $8.87 per two years ended December 31, 2021: pound of molybdenum in 2021 were lower than $9.50 per pound in 2020, primarily reflecting higher volumes. Based on current sales volume and cost estimates, average unit net cash costs for the Molybdenum mines are expected to approximate $12.50 per pound of molybdenum in 2022. The increase in expected unit net cash Third parties North America copper mines Indonesia mining South America mining 2021 66% 18 9 7 100% 2020 79% 10 4 7 100% 46 Fre epor t-McMoR an M A N A G E M E N T ’ S D I S C U S S I O N A N D A N A L Y S I S Atlantic Copper’s major maintenance turnarounds typically occur CAPITAL RESOURCES AND LIQUIDITY approximately every eight years, with shorter-term maintenance turnarounds in the interim. Atlantic Copper last completed a major maintenance turnaround in 2013 and most recently completed a 16-day maintenance turnaround in 2019. The next major maintenance turnaround is scheduled for the first half of 2022. Atlantic Copper has take-or-pay contractual obligations for the procurement of copper concentrate totaling $3.1 billion at December 31, 2021, 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 100 percent of PT Smelting’s concentrate requirements in 2021 and 74 percent in 2020. PT Smelting processed 41 percent of PT-FI’s concentrate production in 2021 and 50 percent of such production in 2020. In December 2021, PT Smelting received a 12-month extension of its anodes slimes export license, which currently expires December 9, 2022, subject to review and approval by the Indonesia government every 6 months. 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 shorter-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. In addition, PT Smelting has a planned 75-day shutdown scheduled for the first half of 2023 associated with its expansion project. We defer recognizing profits on sales from our mining operations to Atlantic Copper and on PT-FI’s sales to PT Smelting (on 25.0 percent prior to April 30, 2021, and 39.5 percent thereafter) 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 $(188) million ($(106) million to net income attributable to common stock) in 2021 and $(7) million ($1 million to net income attributable to common stock) in 2020. 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 $175 million at December 31, 2021. 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. No significant changes in deferred profits are expected in the first quarter of 2022. 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” and Item 1A. “Risk Factors” contained in Part I of our annual report on Form 10-K for the year ended December 31, 2021, for further discussion of our energy requirements and related costs. Our operating cash flows during 2021 primarily reflected strong operating and financial performance and favorable copper prices. During 2022, we expect to grow production and sales volumes while continuing to execute our operating plans, which we expect will provide strong cash flows to support advancement of organic growth initiatives and continue cash returns to shareholders under our established financial policy, based on a favorable operational and market outlook. We believe that we have a high-quality portfolio of long-lived copper assets positioned to generate long-term value. During fourth-quarter 2021, PT-FI successfully ramped-up production from its underground mining operations and achieved quarterly copper and gold volumes approximating 100 percent of the projected annualized level, as well as commenced long-term mine development activities for its Kucing Liar deposit at the Grasberg minerals district. Production from the Lone Star copper leach project at our Safford operation is exceeding initial design capacity with production totaling approximately 235 million pounds in 2021. We are also evaluating organic growth opportunities for expansion of certain of our operations in North America and South America, including at Bagdad, Lone Star and El Abra, the timing of which will be dependent on, among other things, market conditions. Based on current sales volume, cost and metal price estimates discussed in “Outlook”, our available cash and cash equivalents plus our projected consolidated operating cash flows of $8.0 billion for the year 2022 exceed our expected consolidated capital expenditures of $4.7 billion (which includes $2.0 billion for major projects and $1.4 billion for the Indonesia smelter projects) and other expected cash requirements for the year, including share repurchases, noncontrolling interest distributions, income tax payments, common stock dividends (base and variable) and debt repayments. 47 2 0 2 1 A n n u a l R e p o r t M A N A G E M E N T ’ S D I S C U S S I O N A N D A N A L Y S I S We believe that our cash generating capability and financial Cash condition, which includes $8.1 billion of consolidated cash and cash equivalents at December 31, 2021, together with $3.5 billion available under our FCX revolving credit facility, will be adequate 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 to meet our operating, investing and financing needs over the next costs at December 31, 2021 (in billions): several years. Expenditures for the Indonesia smelter projects are currently being funded by PT-FI’s new $1.0 billion unsecured bank credit facility and additional debt financing is being evaluated. Refer to “Outlook” for further discussion of projected operating cash flows and capital expenditures for 2022 and to “Debt” below and Note 8 for further discussion of PT-FI’s credit facility. Financial Policy. In February 2021, our Board adopted a financial policy for the allocation of cash flows aligned with our strategic 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 $ 5.2 2.9 8.1 (0.9) $ 7.2 (0.2) $ 7.0 objectives of maintaining a strong balance sheet and increasing Cash held at our international operations is generally used cash returns to shareholders while advancing opportunities for to support our foreign operations’ capital expenditures, operating future growth. expenses, debt repayments, working capital or other cash needs. In February 2021, the Board reinstated a cash dividend on Management believes that sufficient liquidity is available in the our common stock (base dividend) at an annual rate of $0.30 per U.S. from cash balances and availability from our revolving credit share, and following achievement of our net debt target in the facility. We have not elected to permanently reinvest earnings from range of $3.0 billion to $4.0 billion (excluding debt for additional our foreign subsidiaries, and we have recorded deferred tax smelting capacity in Indonesia), in November 2021 the Board liabilities for foreign earnings that are available to be repatriated to approved the implementation of a performance-based payout the U.S. From time to time, our foreign subsidiaries distribute framework, including (i) a new $3.0 billion share repurchase earnings to the U.S. through dividends that are subject to applicable program and (ii) a variable cash dividend on common stock for withholding taxes and noncontrolling interests’ share. See Item 1A. 2022 at an expected annual rate of $0.30 per share. The “Risk Factors” contained in Part I of our annual report on Form 10-K combined annual rate of the base dividend and the variable for the year ended December 31, 2021, for further discussion of dividend is expected to total $0.60 per share for 2022. Based on our holding company structure. current shares outstanding totaling 1.5 billion, the total common stock dividends (base and variable) for 2022 are expected to approximate $0.9 billion. Refer to “Financing Activities” below for further discussion. In December 2021, our Board declared dividends totaling $0.15 per share on our common stock (including a $0.075 per share quarterly base cash dividend and a $0.075 per share quarterly variable cash dividend), which was paid on February 1, 2022, to shareholders of record as of January 14, 2022. Refer to Item 1A. “Risk Factors” contained in Part I of our annual report on Form 10-K for the year ended December 31, 2021, and “Cautionary Statement” below for further discussion. Debt At December 31, 2021, consolidated debt totaled $9.5 billion, with a related weighted-average interest rate of 4.6 percent. We had no borrowings, $8 million in letters of credit issued and approximately $3.5 billion available under our FCX revolving credit facility at December 31, 2021. On December 1, 2021, we redeemed all of our outstanding $524 million aggregate principal amount of 3.55% Senior Notes due 2022 at a redemption price equal to 100 percent of the principal amount of the notes outstanding, plus accrued and unpaid interest. Our next senior note maturity is March 2023, with redemption rights at par beginning in December 2022. In September 2021, Cerro Verde elected to prepay $200 million on its term loan, reducing the outstanding balance to $325 million, which matures in June 2022. 48 Fre epor t-McMoR an M A N A G E M E N T ’ S D I S C U S S I O N A N D A N A L Y S I S In July 2021, PT-FI entered into a $1.0 billion, five-year, unsecured contingent consideration associated with the 2016 sale of the bank credit facility (consisting of a $667 million term loan and a Tenke Fungurume Mining assets and the sale of royalty assets. $333 million revolving credit facility) to fund projects associated Refer to Note 2 for further discussion. with its commitment to construct additional smelting capacity Loans to PT Smelting for Expansion. PT-FI made loans to in Indonesia. As of December 31, 2021, $443 million ($432 million PT Smelting totaling $36 million in 2021 to fund PT Smelting’s net of debt issuance costs) was drawn under the PT-FI term loan expansion project. Refer to “Operations—Indonesia Mining” and no amounts were drawn under the revolving credit facility. for further discussion. Refer to Note 8 for further discussion of the above items and Acquisition of Minority Interest in PT Smelting. On April 30, for information regarding our debt arrangements. 2021, PT-FI acquired 14.5 percent of the outstanding common Operating Activities stock of PT Smelting for $33 million, increasing its ownership interest from 25.0 percent to 39.5 percent. We generated consolidated operating cash flows of $7.7 billion in 2021 (including $0.8 billion from working capital and other Financing Activities sources) and $3.0 billion in 2020 (including $0.7 billion from Debt Transactions. Net repayments of debt in 2021 totaled working capital and other sources). $260 million, primarily associated with the $524 million redemption of Higher operating cash flows for 2021, compared with 2020, our 3.55% Senior Notes due 2022 and the repayment of $200 million primarily reflect increased copper and gold volumes, higher under Cerro Verde’s term loan, partly offset by borrowings of copper and molybdenum prices and the timing of tax payments. $432 million under the PT-FI term loan. We have estimated 2021 final income tax payments primarily in Net repayments of debt in 2020 totaled $193 million, primarily Indonesia and Peru due in the first half of 2022 totaling reflecting the repayment of $305 million under Cerro Verde’s approximately $1.3 billion. Investing Activities Capital Expenditures. Capital expenditures, including capitalized term loan. During 2020, we also 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 interest, totaled $2.1 billion for the year 2021, including $1.25 billion corporate purposes. for major projects, and $2.0 billion for the year 2020, including $1.2 billion for major projects. Major projects were primarily associated with underground development activities in the Grasberg minerals district. 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 2022. Refer to Note 8 for further discussion of debt transactions. Cash Dividends and Distributions Paid. We paid cash dividends on our common stock totaling $331 million in 2021 and $73 million in 2020. The declaration and payment of dividends (base or variable) is at the discretion of the Board and will depend on our financial results, cash requirements, business prospects, global economic conditions and other factors deemed relevant by the Board. Refer to Item 1A. “Risk Factors” contained in Part I of our annual report on Form 10-K for the year ended December 31, 2021, “Cautionary Statement” below and discussion of our financial Proceeds from Sales of Assets. In September 2021, we policy above. completed the sale of our remaining Freeport Cobalt assets to Jervois Global Limited (Jervois) for $208 million, including net cash proceeds of $150 million and shares of Jervois, and in December 2021, we collected $50 million in consideration associated with the 2019 sale of the Timok exploration project. Proceeds from sales of other assets totaled $47 million in 2021. In 2020, we sold the Kisanfu undeveloped exploration project for $550 million and collected proceeds of $45 million related to Cash dividends and distributions paid to noncontrolling interests at PT-FI and Cerro Verde totaled $583 million in 2021. Based on the estimates discussed in “Outlook,” we currently expect cash dividends and distributions paid to noncontrolling interests to exceed $1.4 billion in 2022. There were no cash dividends or distributions to noncontrolling interests paid in 2020. Cash dividends and distributions to noncontrolling interests vary based on the operating results and cash requirements of our the 2019 sale of the Timok exploration project. Proceeds from sales consolidated subsidiaries. of other assets totaled $109 million in 2020 primarily related to 49 2 0 2 1 A n n u a l R ep o r t M A N A G E M E N T ’ S D I S C U S S I O N A N D A N A L Y S I S Treasury Stock Purchases. In fourth-quarter 2021, we acquired Refer to Items 1. and 2. “Business and Properties,” and Item 1A. 12.7 million shares under our share repurchase program for a total “Risk Factors” contained in Part I of our annual report on Form 10-K cost of $488 million, $38.32 per share. Through February 15, 2022, for the year ended December 31, 2021, Note 12 and “Critical we have acquired 18.2 million shares under our share repurchase Accounting Estimates—Environmental Obligations” above for program for a total cost of $710 million, $39.10 per share, and further information about environmental regulation, including $2.3 billion remains available. The timing and amount of share significant environmental matters. repurchases is at the discretion of management and will depend on a variety of factors. The share repurchase program may be modified, increased, suspended or terminated at any time at the Board’s discretion. Refer to Item 1A. “Risk Factors” contained in Part I of our annual report on Form 10-K for the year ended December 31, 2021, “Cautionary Statement” below and discussion of our financial policy above. Contributions from Noncontrolling Interests. PT-FI received equity contributions from PT Inalum for their share of capital spending on the underground mine development projects in the Grasberg minerals district totaling $182 million in 2021 and $156 million in 2020. Stock-based awards. Following an increase in our stock price during 2021, proceeds from exercised stock options totaled $210 million and payments for related employee taxes totaled $29 million. See Note 10 for a discussion of stock-based awards. CONTINGENCIES Environmental The cost of complying with environmental laws is a fundamental and substantial cost of our business. At December 31, 2021, we had $1.7 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 both 2021 and 2020. For 2022, we expect to incur approximately $0.5 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. 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 (included in property, plant, equipment and mine development costs) in the period of disturbance. For non-operating properties without mineral 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, 2021, we had $2.7 billion recorded in our consolidated balance sheet for AROs, including $0.3 billion related to our oil and gas properties. Spending on AROs totaled $201 million in 2021 and $156 million in 2020 (including $77 million in 2021 and $38 million in 2020 for our oil and gas operations). At our former Grasberg open-pit operations in Indonesia, we recorded an ARO adjustment of $397 million in 2021, with $340 million charged to production and delivery costs, as it relates to the depleted Grasberg open pit. For 2022, we expect to incur approximately $0.2 billion in aggregate ARO payments (including $0.1 billion for our oil and gas operations). Refer to Note 12 and “Critical Accounting Estimates—Asset Retirement Obligations” above for further discussion. Litigation and Other Contingencies Refer to Notes 2 and 12, and Item 1A. “Risk Factors” and Item 3. “Legal Proceedings” contained in Part I of our annual report on Form 10-K for the year ended December 31, 2021, for further discussion of contingencies associated with legal proceedings and other matters. 50 Fre e por t-McMoR an M A N A G E M E N T ’ S D I S C U S S I O N A N D A N A L Y S I S 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 in the market prices of the commodities we produce, primarily copper and gold, and to a lesser extent molybdenum. 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 Item 1A. “Risk Factors” contained in Part I of our annual report on Form 10-K for the year ended December 31, 2021, for further discussion of financial Following are the favorable (unfavorable) 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 2021 $ 169 $ 65 $ 0.04 2020 $ (102) $ (42) $ (0.03) At December 31, 2021, we had provisionally priced copper sales at our copper mining operations totaling 397 million pounds of copper (net of intercompany sales and noncontrolling interests) recorded at an average price of $4.42 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, 2021, provisional price recorded would have an approximate $12 million effect on 2022 net income attributable to common stock. The LME copper settlement price closed at $4.36 per pound on January 31, 2022. risks associated with fluctuations in the market prices of the 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 $66 million in 2021 and $34 million in 2020. 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. commodities we sell. During 2021, our mined copper was sold 59 percent in concentrate, 21 percent as cathode and 20 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. 51 2 0 2 1 A n n u a l R e p o r t M A N A G E M E N T ’ S D I S C U S S I O N A N D A N A L Y S I S 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 10% Change in Exchange Rate (in millions of U.S. dollars)a 2021 2020 (in local currency) (in millions of U.S. dollars)b Increase Decrease 14,198 1.37 4.00 845 0.88 14,034 1.30 3.62 711 0.82 14.2 trillion 244 million 2.9 billion 193 billion $ 1,000 $ 178 $ 735 $ 228 172 million $ 195 $ (91) $ (16) $ (67) $ (21) $ (18) $ 111 $ 20 $ 82 $ 25 $ 22 a. Reflects the estimated impact on annual operating costs assuming a 10 percent increase or decrease in the exchange rate reported at December 31, 2021. b. Based on exchange rates at December 31, 2021. Interest Rate Risk London Interbank Offered Rate. The table below presents average At December 31, 2021, we had total debt maturities based on interest rates for our scheduled maturities of principal for our principal amounts of $9.5 billion, of which approximately 9 percent outstanding debt and the related fair values at December 31, 2021 was variable-rate debt with interest rates primarily based on the (in millions, except percentages): Fixed-rate debt Average interest rate Variable-rate debt Average interest rate 2022 $ 4 —% $ 368 1.8% 2023 $ 997 3.9% $ — —% 2024 $ 735 4.5% $ — —% 2025 $ 4 —% $ 133 2.2% 2026 $ 4 —% $ 310 2.2% Thereafter Fair Value $ 6,971 5.0% $ — —% $ 9,819 $ 4.9% 811 2.0% NEW ACCOUNTING STANDARDS We did not adopt any new accounting standards in 2021. NET DEBT Net debt, which we define as consolidated debt less consolidated cash and cash equivalents, is intended to provide investors with information related to the performance-based payout framework in our financial policy, which requires achievement of a net debt Our net debt follows, which may not be comparable to similarly titled measures reported by other companies (in millions): December 31, Current portion of debt Long-term debt, less current portion Consolidated debt Less: consolidated cash and cash equivalents Net debt 2021 $ 372 9,078 9,450a 8,068 $ 1,382 2020 34 $ 9,677 9,711 3,657 $ 6,054 target in the range of $3 billion to $4 billion (excluding project debt a. Includes $432 million, net of debt issuance costs, for the PT-FI term loan (refer to Note 8). for additional smelting capacity in Indonesia). This information differs from consolidated debt determined in accordance with U.S. GAAP and should not be considered in isolation or as a substitute for consolidated debt determined in accordance with U.S. GAAP. 52 Fre epor t-McMoR an M A N A G E M E N T ’ S D I S C U S S I O N A N D A N A L Y S I S 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, long-lived asset impairments, idle facility costs, 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. 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. 53 2 0 2 1 A n n u a l R e p o r t M A N A G E M E N T ’ S D I S C U S S I O N A N D A N A L Y S I S North America Copper Mines Product Revenues, Production Costs and Unit Net Cash Costs Year Ended December 31, 2021 (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 miningd Corporate, other & eliminations As reported in our consolidated financial statements By-Product Method Co-Product Method Copper Molybdenuma Otherb Total $ 120 75 — 5 80 7 — 2 89 — $ 31 $ 6,775 3,173 — 135 3,308 368 13 105 3,794 7 $ 2,988 $ 6,174 $ 6,174 3,051 (479) 135 2,707 368 13 105c 3,193 7 $ 2,988 2,820 — 130 2,950 340 13 102 3,405 7 $ 2,776 1,436 1,436 $ 4.30 $ 4.30 2.13 (0.33) 0.09 1.89 0.25 0.01 0.07c 2.22 — $ 2.08 1.96 — 0.09 2.05 0.24 0.01 0.07 2.37 — $ 1.93 $ 481 278 — — 278 21 — 1 300 — $ 181 34 $ 14.14 8.17 — — 8.17 0.62 — 0.03 8.82 — $ 5.32 Revenues Production and Delivery Metals Inventory Adjustments DD&A $ 6,775 (24) — 7 67 6,825 22,229 (6,209) $ 22,845 $ 3,173 111 105 — 72 3,461 14,395 (5,840) $ 12,016 $ 368 — — — 1 369 1,562 67 $ 1,998 $ 13 — — — — 13 1 2 $ 16 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 credits totaling $27 million ($0.02 per pound of copper) associated with refunds of Arizona transaction privilege taxes related to purchased electricity. d. Represents the combined total for our other mining operations as presented in Note 16. 54 Fre epor t-McMoR an M A N A G E M E N T ’ S D I S C U S S I O N A N D A N A L Y S I S North America Copper Mines Product Revenues, Production Costs and Unit Net Cash Costs (continued) 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 the 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. 55 2 0 2 1 A n n u a l R e p o r t M A N A G E M E N T ’ S D I S C U S S I O N A N D A N A L Y S I S South America Mining Product Revenues, Production Costs and Unit Net Cash Costs Year Ended December 31, 2021 (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 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 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 miningd Corporate, other & eliminations As reported in our consolidated financial statements By-Product Method $ 4,585 2,349b (338) 140 10 2,161 413 38c 2,612 99 $ 2,072 1,055 $ 4.34 2.23b (0.32) 0.13 0.01 2.05 0.39 0.03c 2.47 0.09 $ 1.96 Revenues $ 4,968 (140) (10) — 99 (1) 4,916 24,138 (6,209) $ 22,845 Copper $ 4,585 2,175 — 140 9 2,324 379 36 2,739 99 $ 1,945 1,055 $ 4.34 2.06 — 0.13 0.01 2.20 0.37 0.03 2.60 0.09 $ 1.83 Production and Delivery $ 2,394 — — 38 — (3) 2,429 15,427 (5,840) $ 12,016 Co-Product Method Othera Total $ 383 219 — — 1 220 34 2 256 — $ 127 $ 4,968 2,394 — 140 10 2,544 413 38 2,995 99 $ 2,072 DD&A $ 413 — — — — — 413 1,518 67 $ 1,998 a. Includes silver sales of 3.7 million ounces ($24.73 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 nonrecurring charges totaling $92 million ($0.09 per pound of copper) associated with labor-related charges at Cerro Verde for collective labor agreements reached with its hourly employees. c. Includes credits totaling $26 million ($0.03 per pound) associated with favorable adjustments to prior-years’ profit sharing at Cerro Verde. d. Represents the combined total for our other mining operations as presented in Note 16. 56 Fre epor t-McMoR an M A N A G E M E N T ’ S D I S C U S S I O N A N D A N A L Y S I S South America Mining Product Revenues, Production Costs and Unit Net Cash Costs (continued) 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 the April 2020 revised operating plans. c. Represents the combined total for our other mining operations as presented in Note 16. 57 2 0 2 1 A n n u a l R ep o r t M A N A G E M E N T ’ S D I S C U S S I O N A N D A N A L Y S I S Indonesia Mining Product Revenues, Production Costs and Unit Net Cash Costs Year Ended December 31, 2021 (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 $ 8,281 1,953 — 320 218 319 2,810 1,049 355 4,214 68 (86) $ 4,049 By-Product Method Copper Co-Product Method Gold Silvera $ 143 33 — 6 4 6 49 18 6 73 — (1) $ 69 $ 5,715 $ 5,715 1,953 (2,562) 320 218 319 248 1,049 355b 1,652 72 (86) $ 4,049 1,348 — 221 150 223 1,942 724 245 2,911 72 (60) $ 2,816 1,316 1,316 $ 4.34 $ 4.34 1.49 (1.95) 0.24 0.17 0.24 0.19 0.80 0.27b 1.26 0.05 (0.07) $ 3.06 1.03 — 0.17 0.11 0.17 1.48 0.55 0.18 2.21 0.05 (0.05) $ 2.13 Revenues Production and Delivery $ 8,281 (320) (218) (319) 31 68 — 7,523 21,531 (6,209) $ 22,845 $ 1,953 — — — 386 — 86 2,425 15,431 (5,840) $ 12,016 $ 2,423 572 — 93 64 90 819 307 104 1,230 (4) (25) $ 1,164 1,349 $ 1,796 424 — 69 47 67 607 228 77 912 (3) (19) $ 862 DD&A $ 1,049 — — — — — — 1,049 882 67 $ 1,998 a. Includes silver sales of 5.9 million ounces ($24.30 per ounce average realized price). b. Includes charges totaling $340 million ($0.26 per pound of copper) associated with an ARO adjustment. Also, includes credits of $31 million ($0.02 per pound of copper) associated with adjustments to prior-year treatment charges and charges of $16 million ($0.01 per pound of copper) associated with a potential settlement of an administrative fine levied by the Indonesia government. c. Represents the combined total for our other mining operations as presented in Note 16. 58 Fre e por t-McMoR an M A N A G E M E N T ’ S D I S C U S S I O N A N D A N A L Y S I S Indonesia Mining Product Revenues, Production Costs and Unit Net Cash Costs (continued) 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. 59 2 0 2 1 A n n u a l R e p o r t M A N A G E M E N T ’ S D I S C U S S I O N A N D A N A L Y S I S 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 profit (loss) Molybdenum sales (millions of recoverable pounds)a Gross profit (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 profit (loss) per pound 2021 2020 $ 470 $ 243 243 26 269 67 1 10 347 123 30 $ $ 15.52 8.02 0.85 8.87 2.22 0.03 0.33 11.45 $ 4.07 211 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) Reconciliation to Amounts Reported (In millions) Year Ended December 31, 2021 Totals presented above Treatment charges and other Noncash and other costs, net Molybdenum mines Other mining c Corporate, other & eliminations As reported in our consolidated financial statements Year Ended December 31, 2020 Totals presented above Treatment charges and other Noncash and other costs, net Molybdenum mines Other mining c Corporate, other & eliminations As reported in our consolidated financial statements Revenues Production and Delivery DD&A Metals Inventory Adjustments $ 470 (26) — 444 28,610 (6,209) $ 22,845 $ 243 (21) — 222 17,784 (3,808) $ 14,198 $ 243 — 10 253 17,603 (5,840) $ 12,016 $ 211 — 19 230 13,465 (3,664) $ 10,031 $ 67 — — 67 1,864 67 $ 1,998 $ 57 — — 57 1,401 70 $ 1,528 $ 1 — — 1 13 2 $ 16 $ 10 — — 10 58 28 $ 96 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 Fre e por t-McMoR an M A N A G E M E N T ’ S D I S C U S S I O N A N D A N A L Y S I S 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 business outlook, strategy, goals or targets; ore grades and milling rates; production and sales volumes; unit net cash costs; capital expenditures; operating costs; operating plans; cash flows; liquidity; PT-FI’s financing, construction and completion of additional domestic smelting capacity in Indonesia in accordance with the terms of its special mining license (IUPK); our commitments to deliver responsibly produced copper, including plans to implement and validate all of our operating sites under the Copper Mark and to comply with other disclosure frameworks; execution of our energy and climate strategies and the underlying assumptions and estimated impacts on our business related thereto; achievement of climate commitments and net zero aspirations; improvements in operating procedures and technology innovations; exploration efforts and results; development and production activities, rates and costs; future organic growth opportunities; tax rates; export quotas and duties; impact of copper, gold and molybdenum price changes; the impact of deferred intercompany profits on earnings; mineral reserve and mineral resource estimates; final resolution of settlements associated with ongoing legal proceedings; and the ongoing implementation of our financial policy and future returns to shareholders, including dividend payments (base or variable) and share repurchases. The words “anticipates,” “may,” “can,” “plans,” “believes,” “estimates,” “expects,” “projects,” “targets,” “intends,” “likely,” “will,” “should,” “could,” “to be,” ”potential,” “assumptions,” “guidance,” “aspirations,” “future” and any similar expressions are intended to identify those assertions as forward-looking statements. The declaration and payment of dividends (base or variable) and timing and amount of any share repurchases is at the discretion of our Board and management, respectively, and is subject to a number of factors, including maintaining our net debt target, capital 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, supply of and demand for, and prices of the commodities we produce, primarily copper; changes in our cash requirements, financial position, financing or investment plans; changes in general market, economic, tax, regulatory or industry conditions; reductions in liquidity and access to capital; the ongoing COVID-19 pandemic and any future public health crisis; political and social risks; operational risks inherent in mining, with higher inherent risks in underground mining; fluctuations in price and availability of commodities purchased; constraints on supply, logistics and transportation services; mine sequencing; changes in mine plans or operational modifications, delays, deferrals or cancellations; production rates; timing of shipments; results of technical, economic or 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, 2022; satisfaction of requirements in accordance with PT-FI’s IUPK to extend mining rights from 2031 through 2041; the Indonesia government’s approval of a deferred schedule for completion of additional domestic smelting capacity in Indonesia; cybersecurity incidents; labor relations, including labor-related work stoppages and costs; compliance with applicable environmental, health and safety laws and regulations; weather- and climate-related risks; environmental risks and litigation results; 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 Item 1A. “Risk Factors” contained in Part I of our annual report on Form 10-K for the year ended availability, our financial results, cash requirements, business December 31, 2021. prospects, global economic conditions, changes in laws, contractual restrictions and other factors deemed relevant by our Board or management, as applicable. Our share repurchase program may be modified, increased, suspended or terminated at any time at the Board’s discretion. 61 2 0 2 1 A n n u a l R ep o r t M A N A G E M E N T ’ S D I S C U S S I O N A N D A N A L Y S I S Investors are cautioned that many of the assumptions upon which Our annual report on Form 10-K for the year ended December 31, our forward-looking statements are based are likely to change after 2021, also contains financial measures such as net debt and unit the date the forward-looking statements are made, including for net cash costs per pound of copper and molybdenum, which example commodity prices, which we cannot control, and production are not recognized under U.S. GAAP. Refer to “Operations—Unit volumes and costs or technological solutions and innovation, some Net Cash Costs” for further discussion of unit net cash costs aspects of which we may not be able to control. Further, we may associated with our operating divisions, and to “Product Revenues make changes to our business plans that could affect our results. We and Production Costs” for reconciliations of per pound costs by caution investors that we undertake no obligation to update any operating division to production and delivery costs applicable forward-looking statements, which speak only as of the date made, to sales reported in our consolidated financial statements. Refer to notwithstanding any changes in our assumptions, changes in “Net Debt” for reconciliations of consolidated debt and business plans, actual experience or other changes. consolidated cash and cash equivalents to net debt. Our annual report on Form 10-K for the year ended December 31, 2021, also includes forward-looking statements regarding mineral resources not included in proven and probable mineral reserves. A mineral resource, which includes measured, indicated and inferred mineral resources, is a concentration or occurrence of material of economic interest in or on the Earth’s crust in such form, grade or quality, and quantity that there are reasonable prospects for economic extraction. Such a deposit cannot qualify as recoverable proven and probable mineral reserves until legal and economic feasibility are confirmed based upon a comprehensive evaluation of development and operating costs, grades, recoveries and other material factors. Accordingly, no assurance can be given that the estimated mineral resources will become proven and probable mineral reserves. 62 Fre e por t-McMoR an M A N A G E M E N T ’ S R E P O R T O N I N T E R N A L C O N T R O L O V E R F I N A N C I A L R E P O R T I N G Freeport-McMoRan Inc.’s (the Company’s) management is Because of its inherent limitations, internal control over responsible for establishing and maintaining adequate internal financial reporting may not prevent or detect misstatements. control over financial reporting. Internal control over financial Projections of any evaluation of effectiveness to future periods are reporting is defined in Rule 13a-15(f) or 15d-15(f) under the subject to the risk that controls may become inadequate because Securities Exchange Act of 1934 as a process designed by, or of changes in conditions, or that the degree of compliance with under the supervision of, the Company’s principal executive and the policies or procedures may deteriorate. principal financial officers and effected by the Company’s Our management, including our principal executive officer and Board of Directors, management and other personnel, to provide principal financial officer, assessed the effectiveness of our reasonable assurance regarding the reliability of financial internal control over financial reporting as of the end of the fiscal reporting and the preparation of financial statements for external year covered by this annual report on Form 10-K. In making this purposes in accordance with generally accepted accounting assessment, our management used the criteria set forth in Internal 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 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, 2021, our Company’s internal control over financial reporting is effective based on the COSO criteria. accordance with generally accepted accounting principles, and Ernst & Young LLP, an independent registered public accounting that receipts and expenditures of the Company are being made firm, who audited the Company’s consolidated financial statements only in accordance with authorizations of management and included in this Form 10-K, has issued an attestation report on directors of the Company; and the Company’s internal control over financial reporting, which is • Provide reasonable assurance regarding prevention or timely included herein. detection of unauthorized acquisition, use or disposition of the Company’s assets that could have a material effect on the financial statements. Richard C. Adkerson Kathleen L. Quirk Chairman of the Board and President and Chief Executive Officer Chief Financial Officer 63 2 0 2 1 A n n u a l R e p o r t R E P O R T O F I N D E P E N D E N T R E G I S T E R E D P U B L I C A C C O U N T I N G F I R M 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, 2021, 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, 2021, 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, 2021 and 2020, 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, 2021, and the related notes and our report dated February 15, 2022 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 15, 2022 64 Fre epor t-McMoR an R E P O R T O F I N D E P E N D E N T R E G I S T E R E D P U B L I C A C C O U N T I N G F I R M 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, 2021 and 2020, 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, 2021, and the 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 related notes (collectively referred to as the “consolidated the PCAOB. financial statements”). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company at December 31, 2021 and 2020, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2021, 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, 2021, 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 15, 2022 expressed an unqualified opinion thereon. 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. 65 2 0 2 1 A n n u a l R e p o r t R E P O R T O F I N D E P E N D E N T R E G I S T E R E D P U B L I C A C C O U N T I N G F I R M Uncertain tax positions Description of the Matter As discussed in Note 11 to the consolidated financial statements, the Company operates in the United States and multiple international tax jurisdictions, and its income tax returns are subject to examination by tax authorities in those jurisdictions who may challenge any tax position on these returns. Uncertainty in a tax position may arise because tax laws are subject to interpretation. The Company uses significant judgment to (1) determine whether, based on the technical merits, a tax position is more likely than not to be sustained and (2) measure the amount of tax benefit that qualifies for recognition. Auditing management’s estimate of the amount of tax benefit that qualifies for recognition involved auditor judgment because management’s estimate is complex, requires a high degree of judgment and is based on interpretations of tax laws and legal rulings. 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. Our audit procedures included, among others, evaluating the Company’s accounting for these tax positions by using our knowledge of and experience with the application of respective tax laws by the relevant tax authorities, or our understanding of the contractual arrangements with the applicable government, if the position is 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 disclosures included in Note 12 in relation to these 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, 2021, the Company’s consolidated environmental obligations totaled $1.7 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 extent of contamination at each site, the nature and 66 Fre e por t-McMoR an R E P O R T O F I N D E P E N D E N T R E G I S T E R E D P U B L I C A C C O U N T I N G F I R M extent of required cleanup efforts under existing environmental regulations, the duration and effectiveness of the chosen remedial strategy, and allocation of costs among other potentially responsible parties. Actual costs incurred in future periods could differ from amounts estimated. 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 contingencies, among other procedures, we 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 professionals 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 15, 2022 67 2 0 2 1 A n n u a l R e p o r t C O N S O L I D A T E D S T A T E M E N T S O F O P E R A T I O N S 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 on early extinguishment of debt Other (expense) income, 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 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. 2021 2020 2019 $ 22,845 $ 14,198 $ 14,402 12,016 1,998 16 14,030 383 55 91 (80) 14,479 8,366 (602) — (105) 7,659 (2,299) 5 5,365 — 5,365 (1,059) $ 4,306 $ 2.93 — $ 2.93 $ 2.90 — $ 2.90 1,466 1,482 $ 0.375 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 68 Fre epor t-McMoR an C O N S O L I D A T E D S T A T E M E N T S O F C O M P R E H E N S I V E I N C O M E ( 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 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 2021 2020 2019 $ 5,365 $ 865 $ (189) 179 18 (1) 196 5,561 (1,060) $ 4,501 46 45 (1) 90 955 (263) $ 692 (116) 47 1 (68) (257) (53) $ (310) The accompanying Notes to Consolidated Financial Statements are an integral part of these consolidated financial statements. 69 2 0 2 1 A n n u a l R e p o r t C O N S O L I D A T E D S T A T E M E N T S O F C A S H F L O W S 2021 2020 2019 $ 5,365 $ 865 1,998 16 (80) 98 540 (273) — 4 (109) — (171) 11 (421) (18) (472) (618) (101) 495 1,451 7,715 (342) (162) (1,296) (222) (6) (87) 247 (36) (33) (27) (1,964) 1,201 (1,461) (331) (583) (488) 182 210 (29) (41) (1,340) 4,411 3,903 $ 8,314 1,528 96 (473) 99 181 (216) 130 65 (121) 101 181 32 (139) 23 132 42 (27) 115 403 3,017 (428) (183) (1,161) (105) (19) (65) 704 — — (7) (1,264) 3,531 (3,724) (73) — — 156 51 (17) (52) (128) 1,625 2,278 $ 3,903 $ (189) 1,412 179 (417) 63 221 (244) — 108 (75) 27 29 65 (187) 141 119 259 60 (60) (29) 1,482 (877) (256) (1,369) — (19) (131) 561 — — (12) (2,103) 1,879 (3,197) (291) (82) — 165 2 (8) (24) (1,556) (2,177) 4,455 $ 2,278 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 for talc-related litigation Net charges for defined pension and postretirement plans Pension plan contributions Net loss on early extinguishment of debt Deferred income taxes Charges for Cerro Verde royalty dispute Payments for Cerro Verde royalty dispute 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 mining Indonesia smelter development Molybdenum mines Other Proceeds from sales of assets Loans to PT Smelting for expansion Acquisition of minority interest in PT Smelting Other, net Net cash used in investing activities Cash flow from financing activities: Proceeds from debt Repayments of debt Cash dividends and distributions paid: Common stock Noncontrolling interests Treasury stock purchases Contributions from noncontrolling interests Proceeds from exercised stock options Payments for withholding of employee taxes related to stock-based awards Debt financing costs and other, net Net cash used in 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 Fre epor t-McMoR an C O N S O L I D A T E D B A L A N C E S H E E T S 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 Accrued income taxes Current portion of debt Current portion of environmental and asset retirement obligations 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, 1,603 shares and 1,590 shares issued, respectively Capital in excess of par value Accumulated deficit Accumulated other comprehensive loss Common stock held in treasury—146 shares and 132 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. 2021 2020 $ 8,068 1,168 574 1,669 1,170 1,658 523 14,830 30,345 1,387 1,460 $ 48,022 $ 3,495 1,541 372 264 220 5,892 9,078 4,234 4,116 1,683 25,003 160 25,875 (7,375) (388) (4,292) 13,980 9,039 23,019 $ 48,022 $ 3,657 892 520 1,594 1,014 1,285 341 9,303 29,818 1,463 1,560 $ 42,144 $ 2,708 324 34 351 — 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 71 2 0 2 1 A n n u a l R e p o r t C O N S O L I D A T E D S T A T E M E N T S O F E Q U I T Y Stockholders’ Equity (In millions) Balance at January 1, 2019 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 Changes in noncontrolling interests Contributions from noncontrolling interests Net income attributable to common stockholders Net income attributable to noncontrolling interests Other comprehensive income (loss) Balance at December 31, 2020 Exercised and issued stock-based awards Stock-based compensation, including the tender of shares Treasury stock purchases Dividends Contributions from noncontrolling interests Net income attributable to common stockholders Net income attributable to noncontrolling interests Other comprehensive income Common Stock Number of At Par Value Shares 1,579 3 — — — — — — — — 1,582 8 — — — — — — 1,590 13 — — — — — — — $ 158 — — — — — — — — — 158 1 — — — — — — 159 1 — — — — — — — 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 $ 26,013 $ (12,041) $ (605) — — — — — — — — (71) 1 50 (291) (1) 80 (22) — — — — — — — — — (239) — — 25,830 57 74 — 76 — — — 26,037 225 75 — (551) 89 — — — (12,280) — — — — 599 — — (11,681) — — — — — 4,306 — — (676) — — — — — — 93 (583) — — — — — — — 195 130 — 1 — — — — — — — 131 — 1 — — — — — 132 — 1 13 — — — — — $ (3,727) — (7) — — — — — — — (3,734) — (24) — — — — — (3,758) — (46) (488) — — — — — $ 9,798 1 43 (291) (1) 80 (22) (239) — (71) 9,298 58 50 — 76 599 — 93 10,174 226 29 (488) (551) 89 4,306 — 195 $ 8,094 — 1 (73) (11) 86 — — 50 3 8,150 — — 1 80 — 266 (3) 8,494 — (5) — (603) 93 — 1,059 1 $ 17,892 1 44 (364) (12) 166 (22) (239) 50 (68) 17,448 58 50 1 156 599 266 90 18,668 226 24 (488) (1,154) 182 4,306 1,059 196 Balance at December 31, 2021 1,603 $ 160 $ 25,875 $ (7,375) $ (388) 146 $ (4,292) $ 13,980 $ 9,039 $ 23,019 The accompanying Notes to Consolidated Financial Statements are an integral part of these consolidated financial statements. 72 Fre epor t -McMoR an N O T E S T O C O N S O L I D A T E D F I N A N C I A L S T A T E M E N T S 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, 2021, 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 Note 3 for further discussion, including FCX’s conclusion to consolidate PT-FI. FMC’s unincorporated joint venture at Morenci is 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. 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 (expense) income, net, as are gains and losses from foreign currency transactions. Foreign currency gains totaled $66 million in 2021, $34 million in 2020 and $24 million in 2019. 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 greenfield 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. 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. 73 2 0 2 1 A n n u a l R ep o r t N O T E S T O C O N S O L I D A T E D F I N A N C I A L S T A T E M E N T S Expected copper recoveries for mill stockpiles are determined Property, Plant, Equipment and Mine Development Costs. by metallurgical testing. The recoverable copper in mill stockpiles, Property, plant, equipment and mine development costs are once entered into the production process, can be produced into carried at cost. Mineral exploration costs, as well as drilling and copper concentrate almost immediately. other costs incurred for the purpose of converting mineral Expected copper recoveries for leach stockpiles are determined resources to proven and probable mineral reserves or identifying using small-scale laboratory tests, small- to large-scale column new mineral resources at development or production stage testing (which simulates the production process), historical trends properties, are charged to expense as incurred. Development costs and other factors, including mineralogy of the ore and rock type. are capitalized beginning after proven and probable mineral Total copper recovery in leach stockpiles can vary significantly from reserves have been established. Development costs include costs a low percentage to more than 90 percent depending on several incurred resulting from mine pre-production activities undertaken variables, including processing methodology, processing variables, to gain access to proven and probable mineral reserves, including mineralogy and particle size of the rock. For newly placed material shafts, adits, drifts, ramps, permanent excavations, infrastructure on active stockpiles, as much as 80 percent of the total copper and removal of overburden. For underground mines certain costs recovery may occur during the first year, and the remaining copper related to panel development, such as undercutting and drawpoint may be recovered over many years. development, are also capitalized as mine development costs until Process rates and copper recoveries for mill and leach stockpiles production reaches sustained design capacity for the mine. After are monitored regularly, and recovery estimates are adjusted reaching design capacity, the mine transitions to the production periodically as additional information becomes available and as phase and panel development costs are allocated to inventory and related technology changes. Recovery adjustments will typically then included as a component of cost of goods sold. Additionally, result in a future impact to the value of the material removed from interest expense allocable to the cost of developing mining the stockpiles at a revised weighted-average cost per pound of properties and to constructing new facilities is capitalized until recoverable copper. assets are ready for their intended use. Product. Product inventories include raw materials, work-in- Expenditures for replacements and improvements are process and finished goods. Corporate general and administrative capitalized. Costs related to periodic scheduled maintenance (i.e., costs are not included in inventory costs. turnarounds) are charged to expense as incurred. Depreciation Raw materials are primarily unprocessed concentrate at Atlantic for mining and milling life-of-mine assets, infrastructure and other Copper’s smelting and refining operations. common costs is determined using the unit-of-production (UOP) Work-in-process inventories are primarily copper concentrate at method based on total estimated recoverable proven and probable various stages of conversion into anode and cathode at Atlantic copper reserves (for primary copper mines) and proven and Copper’s operations. Atlantic Copper’s in-process inventories are probable molybdenum reserves (for primary molybdenum mines). valued at the weighted-average cost of the material fed to the Development costs and acquisition costs for proven and probable smelting and refining process plus in-process conversion costs. mineral reserves that relate to a specific ore body are depreciated Finished goods for mining operations represent salable using the UOP method based on estimated recoverable proven and products (e.g., copper and molybdenum concentrate, copper probable mineral reserves for the ore body benefited. Depreciation, anode, copper cathode, copper rod, molybdenum oxide, and depletion and amortization using the UOP method is recorded high-purity molybdenum chemicals and other metallurgical upon extraction of the recoverable copper or molybdenum from the products). Finished goods are valued based on the weighted- ore body or production of finished goods (as applicable), at which average cost of source material plus applicable conversion costs time it is allocated to inventory cost and then included as a relating to associated process facilities. Costs of finished goods component of cost of goods sold. Other assets are depreciated and work-in-process (i.e., not raw materials) inventories include on a straight-line basis over estimated useful lives for the related labor and benefits, supplies, energy, depreciation, depletion, assets of up to 50 years for buildings and 3 to 50 years for amortization, site overhead costs and other necessary costs machinery and equipment, and mobile equipment. associated with the extraction and processing of ore, such as Included in property, plant, equipment and mine development mining, milling, smelting, leaching, SX/EW, refining, roasting and costs is value beyond proven and probable mineral reserves chemical processing. (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) measured and 74 Fre e por t-McMoR an N O T E S T O C O N S O L I D A T E D F I N A N C I A L S T A T E M E N T S indicated mineral resources that FCX believes could be brought outside the current mining area for future production that are into production with the establishment or modification of required considered to be pre-production mine development, are capitalized permits and should market conditions and technical assessments and amortized using the UOP method based on estimated warrant, (ii) inferred mineral resources and (iii) exploration potential. recoverable proven and probable mineral reserves for the ore body Carrying amounts assigned to VBPP are not charged to expense benefited. However, where a second or subsequent pit or major until the VBPP becomes associated with additional proven and expansion is considered to be a continuation of existing mining probable mineral reserves and the reserves are produced or the activities, stripping costs are accounted for as a current production VBPP is determined to be impaired. Additions to proven and cost and a component of the associated inventory. probable mineral reserves for properties with VBPP will carry with Environmental Obligations. Environmental expenditures are them the value assigned to VBPP at the date acquired, less any charged to expense or capitalized, depending upon their future impairment amounts. Refer to Note 5 for further discussion. economic benefits. Accruals for such expenditures are recorded Impairment of Long-Lived Mining Assets. FCX assesses the when it is probable that obligations have been incurred and the carrying values of its long-lived mining assets for impairment when costs can be reasonably estimated. Environmental obligations events or changes in circumstances indicate that the related attributed to the Comprehensive Environmental Response, carrying amounts of such assets may not be recoverable. In Compensation, and Liability Act of 1980 (CERCLA) or analogous evaluating long-lived mining assets for recoverability, estimates of state programs are considered probable when a claim is asserted, pre-tax undiscounted future cash flows of FCX’s individual mines or is probable of assertion, and FCX, or any of its subsidiaries, have are used. An impairment is considered to exist if total estimated been associated with the site. Other environmental remediation undiscounted future cash flows are less than the carrying amount obligations are considered probable based on specific facts and of the asset. Once it is determined that an impairment exists, an circumstances. FCX’s estimates of these costs are based on an impairment loss is measured as the amount by which the asset evaluation of various factors, including currently available facts, carrying value exceeds its fair value. The estimated undiscounted existing technology, presently enacted laws and regulations, cash flows used to assess recoverability of long-lived assets and remediation experience, whether or not FCX is a potentially to measure the fair value of FCX’s mining operations are derived responsible party (PRP) and the ability of other PRPs to pay their from current business plans, which are developed using near-term allocated portions. With the exception of those obligations price forecasts reflective of the current price environment and assumed in the acquisition of FMC that were initially recorded at management’s projections for long-term average metal prices. In estimated fair values (refer to Note 12 for further discussion), addition to near- and long-term metal price assumptions, other key environmental obligations are recorded on an undiscounted basis. assumptions include estimates of commodity-based and other Where the available information is sufficient to estimate the input costs; proven and probable mineral reserves estimates, amount of the obligation, that estimate has been used. Where the including the timing and cost to develop and produce the reserves; information is only sufficient to establish a range of probable VBPP estimates; and the use of appropriate discount rates in the liability and no point within the range is more likely than any other, measurement of fair value. FCX believes its estimates and models the lower end of the range has been used. Possible recoveries of used to determine fair value are similar to what a market some of these costs from other parties are not recognized in the participant would use. As quoted market prices are unavailable for consolidated financial statements until they become probable. FCX’s individual mining operations, fair value is determined Legal costs associated with environmental remediation (such as through the use of after-tax discounted estimated future cash flows fees to third-party legal firms for work relating to determining the (i.e., Level 3 measurement). extent and type of remedial actions and the allocation of costs Deferred Mining Costs. Stripping costs (i.e., the costs of among PRPs) are included as part of the estimated obligation. removing overburden and waste material to access mineral Environmental obligations assumed in the acquisition of FMC, deposits) incurred during the production phase of an open-pit mine which were initially recorded at fair value and estimated on a are considered variable production costs and are included discounted basis, are accreted to full value over time through charges as a component of inventory produced during the period in which to interest expense. Adjustments arising from changes in amounts stripping costs are incurred. Major development expenditures, and timing of estimated costs and settlements may result in including stripping costs to prepare unique and identifiable areas 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. 75 2 0 2 1 A n n u a l R ep o r t N O T E S T O C O N S O L I D A T E D F I N A N C I A L S T A T E M E N T S FCX performs a comprehensive review of its environmental FCX’s product revenues are also recorded net of treatment obligations annually and also reviews changes in facts and charges, royalties and export duties. Moreover, because a portion circumstances associated with these obligations at least quarterly. of the metals contained in copper concentrate is unrecoverable as Asset Retirement Obligations. FCX records the fair value of a result of the smelting process, FCX’s revenues from concentrate estimated asset retirement obligations (AROs) associated with sales are also recorded net of allowances based on the quantity tangible long-lived assets in the period incurred. AROs associated and value of these unrecoverable metals. These allowances are a with long-lived assets are those for which there is a legal obligation to negotiated term of FCX’s contracts and vary by customer. settle under existing or enacted law, statute, written or oral contract Treatment and refining charges represent payments or price or by legal construction. These obligations, which are initially adjustments to smelters and refiners that are generally fixed. Refer estimated based on discounted cash flow estimates, are accreted to Note 16 for a summary of revenue by product type. to full value over time through charges to cost of sales. In addition, Gold sales are priced according to individual contract terms, asset retirement costs (ARCs) are capitalized as part of the generally the average London PM gold price for a specified month related asset’s carrying value and are depreciated over the asset’s near the month of shipment. useful life. The majority of FCX’s molybdenum sales are priced based on For mining operations, reclamation costs for disturbances are the average published Metals Week price, plus conversion recognized as an ARO and as a related ARC in the period of the premiums for products that undergo additional processing, such disturbance and depreciated primarily on a UOP basis. FCX’s as ferromolybdenum and molybdenum chemical products, for the AROs for mining operations consist primarily of costs associated month prior to the month of shipment. with mine reclamation and closure activities. These activities, Stock-Based Compensation. Compensation costs for share- which are site specific, generally include costs for earthwork, based payments to employees are measured at fair value and revegetation, water treatment and demolition. charged to expense over the requisite service period for awards that For non-operating properties without reserves, changes to the are expected to vest. The fair value of stock options is determined ARO are recorded in earnings. using the Black-Scholes-Merton option valuation model. The fair At least annually, FCX reviews its ARO estimates for changes in value for stock-settled restricted stock units (RSUs) is based on the projected timing of certain reclamation and closure/restoration FCX’s stock price on the date of grant. Shares of common stock are costs, changes in cost estimates and additional AROs incurred issued at the vesting date for stock-settled RSUs. The fair value of during the period. Refer to Note 12 for further discussion. performance share units (PSUs) is determined using FCX’s stock Revenue Recognition. FCX recognizes revenue for its products price and a Monte-Carlo simulation model. The fair value for upon transfer of control in an amount that reflects the liability-classified awards (i.e., cash-settled RSUs) is remeasured consideration it expects to receive in exchange for those products. each reporting period using FCX’s stock price. FCX has elected to Transfer of control is in accordance with the terms of customer recognize compensation costs for stock option awards that vest contracts, which is generally upon shipment or delivery of the over several years on a straight-line basis over the vesting period, product. While payment terms vary by contract, terms generally and for RSUs on the graded-vesting method over the vesting include payment to be made within 30 days, but not longer than period. Refer to Note 10 for further discussion. 60 days. Certain of FCX’s concentrate and cathode sales contracts Earnings Per Share. FCX calculates its basic net income (loss) also provide for provisional pricing, which is accounted for as per share of common stock under the two-class method and an embedded derivative (refer to Note 14 for further discussion). calculates its diluted net income (loss) per share of common stock For provisionally priced sales, 90 percent to 100 percent of the using the more dilutive of the two-class method or the treasury- provisional invoice amount is collected upon shipment or within stock method. Basic net income (loss) per share of common stock 20 days, and final balances are settled in a contractually specified was computed by dividing net income (loss) attributable to common future month (generally one to four months from the shipment stockholders (after deducting accumulated dividends and date) based on quoted monthly average copper settlement prices undistributed earnings to participating securities) by the weighted- on the London Metal Exchange (LME) or the Commodity average shares of common stock outstanding during the year. Exchange Inc. (COMEX), and quoted monthly average London Diluted net income (loss) per share of common stock was calculated Bullion Market Association (London) PM gold prices. 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. 76 Fre e por t-McMoR an N O T E S T O C O N S O L I D A T E D F I N A N C I A L S T A T E M E N T S Reconciliations of net income (loss) and weighted-average basic and diluted net income (loss) per share for the years ended shares of common stock outstanding for purposes of calculating 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 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 2021 $ 5,365 (1,059) (7) 4,299 — $ 4,299 1,466 16 1,482 $ 2.93 — $ 2.93 $ 2.90 — $ 2.90 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) a. Excludes approximately 11 million shares of common stock in 2019 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. Outstanding stock options with exercise prices greater than the consisting of cash consideration of $173 million and 7 percent of average market price of FCX’s common stock during the year are Jervois common stock (valued at $35 million at the time of excluded from the computation of diluted net income (loss) per closing). At closing, Freeport Cobalt’s assets included cash of share of common stock. Stock options for 5 million shares of common approximately $20 million and other net assets of $125 million. FCX stock in 2021, 31 million shares in 2020 and 42 million shares in recorded a gain of $60 million ($34 million to net income attributable 2019 were excluded. to common stock) in 2021 associated with this transaction. In Global Intangible Low-Taxed Income (GILTI). FCX has elected addition, KCHL will have the right to receive contingent consideration to treat taxes due on future U.S. inclusions in taxable income related of up to $40 million based on the future performance of Freeport to GILTI as a current period expense when incurred. Cobalt. Any gain related to the contingent consideration will be Reclassifications. For comparative purposes, certain prior year recognized when received. amounts have been reclassified to other, net on FCX’s consolidated In fourth-quarter 2019, FCX completed the sale of its cobalt statements of cash flows to conform with the current year refinery in Kokkola, Finland, and related cobalt cathode precursor presentation. Additionally, FCX has revised prior year amounts business (consisting of approximately $271 million of assets and related to activities associated with its reserve for unrecognized $63 million of liabilities at the time of closing) to Umicore for total tax benefits in conjunction with uncertain tax positions. See cash consideration of approximately $200 million, including Note 11 for further detail. approximately $50 million of working capital. FCX recorded a gain of Subsequent Events. FCX evaluated events after December 31, $59 million in 2019 ($33 million to net loss attributable to common 2021, and through the date the financial statements were issued, stock) associated with this transaction. and determined any events or transactions occurring during Following these transactions, FCX no longer has cobalt operations. this period that would require recognition or disclosure are PT Smelting. On April 30, 2021, PT-FI acquired 14.5 percent appropriately addressed in these financial statements. of the outstanding common stock of PT Smelting, a smelter and NOTE 2. ACQUISITIONS AND DISPOSITIONS refinery in Gresik, Indonesia, for $33 million, increasing its ownership interest from 25.0 percent to 39.5 percent. The remaining outstanding Cobalt Business. In September 2021, FCX’s 56-percent-owned shares of PT Smelting continue to be owned by Mitsubishi Materials subsidiary, Koboltti Chemicals Holdings Limited (KCHL), Corporation. PT-FI has continued to account for its investment in completed the sale of its remaining cobalt business based PT Smelting using the equity method since it does not have control in Kokkola, Finland (Freeport Cobalt) to Jervois Global Limited over PT Smelting. (Jervois) for $208 million (before post-closing adjustments), 77 2 0 2 1 A n n u a l R e p o r t N O T E S T O C O N S O L I D A T E D F I N A N C I A L S T A T E M E N T S On November 30, 2021, PT-FI entered into a convertible loan TF Holdings Limited—Discontinued Operations. In 2016, FCX agreement to fund the expansion of PT Smelting’s current capacity completed the sale of its 70 percent interest in TF Holdings by 30 percent to 1.3 million metric tons of concentrate per year. Limited (TFHL) to CMOC for $2.65 billion in cash (before closing Upon completion of the expansion project, targeted for year-end adjustments) and contingent consideration of up to $120 million 2023, PT-FI’s loan will convert into PT Smelting equity resulting in in cash, consisting of $60 million if the average copper price a majority ownership interest and consolidation of PT Smelting in exceeded $3.50 per pound and $60 million if the average cobalt FCX’s consolidated financial statements. price exceeded $20 per pound, both during the 24-month period Kisanfu Transaction. In December 2020, FCX completed the ending December 31, 2019. sale of its interests in the Kisanfu undeveloped project to a wholly The contingent consideration was considered a derivative, and owned subsidiary of China Molybdenum Co., Ltd. (CMOC) for the fair value was adjusted through December 31, 2019. FCX $550 million, with after-tax net cash proceeds totaling $415 million. realized and collected in January 2020 contingent consideration of The Kisanfu project, located in the Democratic Republic of Congo, $60 million because the average cobalt price exceeded $20 per is an undeveloped cobalt and copper resource. FCX did not have any pound during the 24-month period ending December 31, 2019 (no proven and probable mineral reserves associated with the Kisanfu amount was realized associated with the copper price). Gains project. FCX recorded a gain of $486 million in 2020 associated with resulting from changes in the fair value of the contingent this transaction. consideration derivative totaling $3 million in 2019 were included in Timok Transaction. In 2016, FCX sold an interest in the upper net income from discontinued operations and primarily resulted zone of the Timok exploration project in Serbia (the 2016 Transaction). from fluctuations in cobalt prices. In accordance with accounting In December 2019, FCX completed the sale of its interest in guidance, FCX reported the results from TFHL as discontinued the lower zone of the Timok exploration project to an affiliate of the operations in the consolidated statements of operations because purchaser in the 2016 Transaction, for cash consideration of the disposal represented a strategic shift that had a major effect $240 million at closing plus the right to future contingent payments on operations. 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 NOTE 3. OWNERSHIP IN SUBSIDIARIES AND JOINT VENTURE Ownership in Subsidiaries. FMC produces copper and molybdenum lower zone, the purchaser can settle, or FCX can demand payment from mines in North America and South America. At December 31, of, such deferred payment obligation, in each case, for a total of 2021, FMC’s operating mines in North America were Morenci, $60 million. As these deferred payments are contingent upon future Bagdad, Safford (including Lone Star), Sierrita and Miami located in production (the Timok lower zone project is still pre-operational) and Arizona; Tyrone and Chino located in New Mexico; and Henderson would result in gain recognition, no amounts were recorded upon and Climax located in Colorado. FMC has a 72 percent interest the closing of the transaction. Subsequent recognition will be in Morenci (refer to “Joint Venture—Sumitomo and SMM Morenci, based on the gain contingency model, in which the consideration Inc.”) and owns 100 percent of the other North America mines. would be recorded in the period in which all contingencies are At December 31, 2021, operating mines in South America were resolved and the gain is realized. This is expected to be when FCX Cerro Verde (53.56 percent owned) located in Peru and El Abra (i) is provided periodic product sales information by the purchaser (51 percent owned) located in Chile. At December 31, 2021, FMC’s or (ii) gives notice to the purchaser or receives notice from the net assets totaled $18.4 billion and its accumulated deficit totaled purchaser regarding the settlement of the deferred payments for $12.6 billion. FCX had $111 million in loans to FMC outstanding at $60 million. December 31, 2021. In addition, in lieu of payment upon achievement of defined FCX owns 48.76 percent of PT-FI (refer to “PT-FI Divestment”). development milestones provided for in the 2016 Transaction, the At December 31, 2021, PT-FI’s net assets totaled $12.7 billion and its purchaser agreed to pay $107 million in three installment payments retained earnings totaled $8.4 billion. FCX had no loans to PT-FI of $45 million (collected in 2020), $50 million (collected in 2021), outstanding at December 31, 2021. and $12 million by March 31, 2022. As a result of this transaction, FCX FCX owns 100 percent of the outstanding Atlantic Copper recorded a gain of $343 million in 2019, consisting of the cash (FCX’s wholly owned smelting and refining unit in Spain) common consideration ($240 million) and the aggregate discounted amount stock. At December 31, 2021, Atlantic Copper’s net assets totaled of the three installment payments ($103 million). $167 million and its accumulated deficit totaled $379 million. FCX had $274 million in loans to Atlantic Copper outstanding at December 31, 2021. 78 Fre epor t -McMoR an N O T E S T O C O N S O L I D A T E D F I N A N C I A L S T A T E M E N T S PT-FI Divestment. On December 21, 2018, FCX completed the agreement, as previously discussed. The economics replacement transaction with the Indonesia government regarding PT-FI’s agreement entitles FCX to approximately 81 percent of PT-FI long-term mining rights and share ownership (the 2018 dividends paid during the Initial Period, with the remaining 19 percent transaction). Pursuant to the divestment agreement and related paid to the noncontrolling interests. PT-FI paid dividends totaling documents, PT Indonesia Asahan Aluminium (Persero) (PT Inalum, $1.3 billion during 2021, of which $1.0 billion was paid to FCX. also known as MIND ID), an Indonesia state-owned enterprise, No other dividends have been paid by PT-FI during the Initial Period. acquired all of Rio Tinto plc’s (Rio Tinto) interests associated with PT-FI’s net income for 2021 totaled $2.4 billion, of which $2.0 billion its joint venture with PT-FI (the former Rio Tinto Joint Venture) and was attributed to FCX, and $765 million for 2020, of which $621 million 100 percent of FCX’s interests in PT Indonesia Papua Metal Dan was attributed to FCX. PT-FI’s net loss for 2019 totaled $203 million, Mineral (PTI—formerly known as PT Indocopper Investama). of which $165 million was attributed to FCX. PT-FI’s cumulative net In connection with the 2018 transaction, PT-FI acquired all of the income from December 21, 2018, through December 31, 2021, totaled common stock of PT Rio Tinto Indonesia that held the former Rio $2.9 billion, of which $2.3 billion was attributed to FCX. Tinto Joint Venture interest. After the transaction, PT Inalum’s The above-described attribution of PT-FI’s net income or loss (26.24 percent) and PTI’s (25.00 percent) collective share applies only through the Initial Period. Beginning January 1, 2023, ownership of PT-FI totals 51.24 percent and FCX’s share ownership the attribution of PT-FI’s net income or loss will be based on equity totals 48.76 percent. The arrangements provide for FCX and the ownership percentages (48.76 percent for FCX, 26.24 percent for other pre-transaction PT-FI shareholders (i.e., PT Inalum and PTI) PT Inalum and 25.00 percent for PTI). to retain the economics of the revenue and cost sharing For all of its other partially owned consolidated subsidiaries, arrangements under the former Rio Tinto Joint Venture. As a result, FCX attributes net income or loss based on equity ownership FCX’s economic interest in PT-FI is expected to approximate percentages. 81 percent through 2022 and 48.76 percent thereafter (see further Joint Venture. Sumitomo and SMM Morenci, Inc. FMC owns discussion below). a 72 percent undivided interest in Morenci via an unincorporated FCX, PT-FI, PTI and PT Inalum entered into a shareholders joint venture. The remaining 28 percent is owned by Sumitomo agreement (the PT-FI Shareholders Agreement), which includes (15 percent) and SMM Morenci, Inc. (13 percent). Each partner provisions related to the governance and management of PT-FI. takes in kind its share of Morenci’s production. FMC purchased FCX considered the terms of the PT-FI Shareholders Agreement and 82 million pounds of Morenci’s copper cathode from Sumitomo related governance structure, including whether PT Inalum has and SMM Morenci, Inc. at market prices for $349 million during substantive participating rights, and concluded that it has retained 2021. FMC had receivables from Sumitomo and SMM Morenci, Inc. control and would continue to consolidate PT-FI in its financial totaling $20 million at December 31, 2021, and $15 million at statements following the 2018 transaction. Among other terms, December 31, 2020. 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 NOTE 4. INVENTORIES, INCLUDING LONG-TERM MILL AND LEACH STOCKPILES by FCX. Additionally, as discussed above, the existing PT-FI The components of inventories follow: shareholders will retain the economics of the revenue and cost December 31, 2021 2020 sharing arrangements under the former Rio Tinto Joint Venture, so that FCX’s economic 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 Current inventories: Total materials and supplies, neta Mill stockpiles Leach stockpiles statements is in accordance with the U.S. Securities and Exchange Total current mill and leach stockpiles 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. Raw materials (primarily concentrate) Work-in-process Finished goods Total product Long-term inventories: Mill stockpiles Leach stockpiles Attribution of PT-FI Net Income or Loss. FCX has concluded that Total long-term mill and leach stockpilesb $ 1,669 $ 193 977 $ 1,170 $ 536 195 927 $ 1,658 $ 226 1,161 $ 1,387 $ 1,594 $ 205 809 $ 1,014 $ 366 174 745 $ 1,285 $ 223 1,240 $ 1,463 the attribution of PT-FI’s net income or loss from December 21, 2018 a. Materials and supplies inventory was net of obsolescence reserves totaling $36 million at (the date of the divestment transaction), through December 31, 2022 December 31, 2021, and $32 million at December 31, 2020. (the Initial Period), should be based on the economics replacement b. Estimated metals in stockpiles not expected to be recovered within the next 12 months. 79 2 0 2 1 A n n u a l R ep o r t N O T E S T O C O N S O L I D A T E D F I N A N C I A L S T A T E M E N T S FCX recorded NRV inventory adjustments to decrease metals NOTE 6. OTHER ASSETS inventory carrying values totaling $16 million in 2021, primarily associated with stockpiles no longer expected to be leached; $96 million in 2020, associated with lower market prices for copper ($58 million) and molybdenum ($38 million); and $179 million in 2019, associated with lower market prices for molybdenum ($84 million), cobalt ($58 million) and copper ($37 million). Refer to Note 16 for metals inventory adjustments by business segment. FCX’s Morenci mine has experienced improved recoveries at certain of its leach stockpiles and following an analysis of column testing results, Morenci concluded it had sufficient evidence to increase its estimated recoveries for certain of its leach stockpiles effective July 1, 2021. As a result of the revised recoveries, Morenci increased its estimated recoverable copper in leach stockpiles, net to its joint venture interest, by 191 million pounds. The effect of this change in estimate reduced site production and delivery costs and increased net income by $112 million ($0.08 per share) in 2021. 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 2021 2020 $ 7,142 376 11,309 9,412 14,399 4,605 2,477 27,298 77,018 (46,673) $ 7,142 376 10,686 9,214 14,235 4,495 1,454 27,281 74,883 (45,065) development costs, net $ 30,345 $ 29,818 a. Includes accumulated amortization for oil and gas properties of $27.3 billion at December 31, 2021 and 2020. 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 2021 (none in 2021 and less than $0.1 million in 2020). 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 $72 million in 2021, $147 million in 2020 and $149 million in 2019. During the three-year period ended December 31, 2021, no material impairments of FCX’s long-lived mining assets were recorded. The components of other assets follow: December 31, 2021 2020 Intangible assetsa Legally restricted fundsb Disputed tax assessments:c Cerro Verde PT-FI Long-term receivable for taxesd Investments: Assurance bonde Fixed income, equity securities and other PT Smeltingf Contingent consideration associated with sales of assetsg Loans to PT Smeltingh Long-term employee receivables Other Total other assets $ 412 209 237 57 84 132 74 26 70 36 20 103 $ 1,460 $ 401 213 190 143 106 148 70 77 96 — 19 97 $ 1,560 a. Indefinite-lived intangible assets totaled $215 million at December 31, 2021 and 2020. Accumulated amortization of definite-lived intangible assets totaled $35 million at December 31, 2021, and $32 million at December 31, 2020. b. Includes $208 million at December 31, 2021, and $212 million at December 31, 2020, held in trusts for AROs related to properties in New Mexico (refer to Note 12 for further discussion). c. Refer to Note 12 for further discussion. d. Includes tax overpayments and refunds not expected to be realized within the next 12 months. e. Relates to PT-FI’s commitment for the development of a greenfield smelter in Indonesia (refer to Note 13 for further discussion). f. PT-FI’s ownership in PT Smelting is recorded using the equity method. Amounts were reduced by unrecognized profits on sales from PT-FI to PT Smelting totaling $126 million at December 31, 2021, and $39 million at December 31, 2020. Trade accounts receivable from PT Smelting totaled $411 million at December 31, 2021, and $265 million at December 31, 2020. g. Refer to Note 15 for further discussion. h. Refer to Note 2 for further discussion. NOTE 7. ACCOUNTS PAYABLE AND ACCRUED LIABILITIES The components of accounts payable and accrued liabilities follow: December 31, 2021 2020 Accounts payable Salaries, wages and other compensation PT-FI contingenciesa Accrued interestb Deferred revenue Pension, postretirement, postemployment and other employee benefitsc Accrued taxes, other than income taxes Leasesd Litigation accruals Other Total accounts payable and accrued liabilities $ 2,035 334 259 203 191 190 64 38 28 153 $ 3,495 $ 1,473 312 196 243 65 91 76 38 86 128 $ 2,708 a. Refer to Note 12 for further discussion. b. Third-party interest paid, net of capitalized interest, was $640 million in 2021, $472 million in 2020 and $591 million in 2019. c. Refer to Note 9 for long-term portion. d. Refer to Note 13 for further discussion. 80 Fre epor t-McMoR an N O T E S T O C O N S O L I D A T E D F I N A N C I A L S T A T E M E N T S NOTE 8. DEBT FCX’s debt at December 31, 2021, included additions of $9 million ($10 million at December 31, 2020) for unamortized fair value adjustments, and is net of reductions of $86 million ($85 million at December 31, 2020) for unamortized net discounts and unamortized debt issuance costs. The components of debt follow: December 31, Revolving credit facility Senior notes and debentures: Issued by FCX: 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 PT-FI Term Loan Cerro Verde Term Loan Other Total debt Less current portion of debt Long-term debt 2021 2020 $ — $ — — 995 728 594 693 643 593 593 841 742 1,846 115 123 117 432 325 70 9,450 (372) $ 9,078 523 994 728 593 691 642 593 592 840 742 1,845 115 124 117 — 523 49 9,711 (34) $ 9,677 Revolving Credit Facility. At December 31, 2021, FCX had no borrowings outstanding and $8 million in letters of credit issued In December 2021, Freeport-McMoRan Oil & Gas LLC, a 100-percent-owned subsidiary of FCX Oil & Gas LLC (FM O&G) and indirect subsidiary of FCX, was released as co-borrower from FCX’s revolving credit facility and released as guarantor from all of the indentures relating to FCX’s outstanding senior notes. 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 its revolving credit facility, reference LIBOR which is 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. Senior Notes. In December 2021, FCX redeemed all of its outstanding $524 million aggregate principal amount of 3.55% Senior Notes due 2022, at a redemption price equal to 100 percent of the principal amount of the notes outstanding, plus accrued and unpaid interest. 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 under its revolving credit facility, resulting in availability of used for general corporate purposes. approximately $3.5 billion, of which approximately $1.5 billion could In March 2020, FCX completed the sale of $700 million of 4.125% 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 FCX’s 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 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 transactions; engage in mergers, liquidations and dissolutions; expenses in connection with the transaction. and sell assets. FCX’s revolving credit facility also contains financial ratios governing maximum total leverage and minimum interest expense coverage. At December 31, 2021, FCX was in compliance with its revolving credit facility covenants. 81 2 0 2 1 A n n u a l R e p o r t N O T E S T O C O N S O L I D A T E D F I N A N C I A L S T A T E M E N T S Listed below are the FCX senior notes, redeemed in full or PT-FI Credit Facility. In July 2021, PT-FI entered into a purchased during the three-year period ended December 31, 2021. $1.0 billion, five-year, unsecured credit facility (consisting of a Year Ended December 31, 2021 FCX 3.55% Senior Notes due 2022 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 Book Net Principal Amount Adjustments Value Redemption/ Tender Value Loss $ 524 $ — $ 524 $ 524 $ — $ 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 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 3.875% Senior Notes due 2023 4.55% Senior Notes due 2024 5.40% Senior Notes due 2034 5.450% Senior Notes due 2043 Date December 31, 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. $667 million term loan and a $333 million revolving credit facility) to fund project costs in connection with the PT Smelting expansion and construction of a precious metals refinery (PMR), and for PT-FI’s general corporate purposes. The term loan allows for borrowings up to $667 million within the first three years, and then amortizes in four installments, with 15 percent of the outstanding balance due in January 2025, 15 percent due in July 2025, 35 percent due in January 2026 and the remaining 35 percent due in July 2026. The $333 million revolving credit facility is available for drawings until June 2026. Amounts drawn under the credit facility bear interest at LIBOR plus a margin of 1.875% or 2.125%, as defined by the agreement. PT-FI’s credit facility contains customary affirmative covenants and representations and also contains standard covenants that, among other things, restrict, subject to certain exceptions, the ability of PT-FI to incur additional indebtedness; create liens on assets; enter into sale and leaseback transactions; sell assets; and modify or amend the shareholders agreement or related governance structure. The credit facility also contains financial ratios governing maximum total leverage and minimum interest expense coverage and certain environmental and social compliance requirements. At December 31, 2021, PT-FI was in compliance with its credit facility covenants. As of December 31, 2021, $443 million ($432 million net of debt issuance costs) was drawn under the PT-FI Term Loan and no amounts were drawn under the revolving credit facility. Cerro Verde Term Loan. Repayments of the Cerro Verde Term Loan totaled $200 million in 2021, $305 million in 2020 and $200 million in 2019, with the remaining balance of $325 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 2.00 percent at Cerro Verde Shareholder Loans. In December 2014, Cerro Verde entered into loan agreements with three of its shareholders for borrowings up to $800 million due June 2024. No amounts were outstanding at December 31, 2021 and 2020, and availability under these agreements totals $200 million at December 31, 2021. Maturities. Maturities of debt instruments based on the principal amounts and terms outstanding at December 31, 2021, total $372 million in 2022, $997 million in 2023, $735 million in 2024, $137 million in 2025, $314 million in 2026 and $7.0 billion thereafter. 82 Fre epor t-McMoR an N O T E S T O C O N S O L I D A T E D F I N A N C I A L S T A T E M E N T S NOTE 9. OTHER LIABILITIES, INCLUDING EMPLOYEE BENEFITS The components of other liabilities follow: December 31, 2021 2020 Pension, postretirement, postemployment and other employment benefitsa Leasesb Provision for tax positions Litigation accruals Indemnification of PT Inalumb Cerro Verde royalty disputec Other Total other liabilities a. Refer to Note 7 for current portion. b. Refer to Note 13 for further discussion. c. Refer to Note 12 for further discussion. $ 845 281 232 131 78 — 116 $ 1,683 $ 1,213 190 261 110 42 376 77 $ 2,269 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 primary investment objectives for the FMC plan assets held in a master trust (Master Trust) are to maintain funds sufficient to pay all benefit and expense obligations when due, minimize the volatility of the plan’s funded status to the extent practical, and to maintain prudent levels of risk consistent with the plan’s investment policy. Historically, FMC plan assets have been invested in a balanced portfolio of return-seeking assets and risk-mitigating assets, with the allocation between these portfolios dependent on the funded status of the plan. During 2021, FCX reallocated essentially all of the portfolio to risk- mitigating assets with the objective of minimizing funded-status volatility. The risk-mitigating assets are allocated among multiple fixed income managers. The current target allocation of the portfolio is long-duration credit (50 percent); long-duration U.S. government/credit (20 percent); core fixed income (16 percent); long-term U.S. Treasury Separate Trading of Registered Interest and Principal Securities (STRIPS) (13 percent); and cash equivalents (1 percent). 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 3.00 percent per annum beginning January 1, 2022, 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 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. The participant has elected to receive an equivalent lump sum payment. The payment will equal a percentage of the participant’s 83 2 0 2 1 A n n u a l R ep o r t N O T E S T O C O N S O L I D A T E D F I N A N C I A L S T A T E M E N T S highest average compensation for any consecutive three-year Information on the qualified and non-qualified FCX (FMC and period during the five years immediately preceding the completion SERP plans) and PT-FI plans as of December 31 follows: 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. Change in benefit obligation: Benefit obligation at beginning of year Service cost Interest cost 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 14,198 rupiah Actuarial (gains) losses Plan amendments Foreign exchange (gains) losses Curtailment Benefits and administrative expenses paid to one U.S. dollar on December 31, 2021, and 14,034 rupiah to one Benefit obligation at end of year U.S. dollar on December 31, 2020. Indonesia labor laws require that companies provide a minimum severance 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 7.00 percent per annum beginning January 1, 2022. 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. 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 2021 2020 $ 2,476 2,476 1,988 $ 2,666 2,664 1,884 FCX PT-FI 2021 2020 2021 2020 $ 2,722 12 66 (117) — (1) — $ 2,576 37 77 308 — 1 (154) $ 238 13 14 (3) (2) (3) — $ 217 11 14 12 — (2) — (129) 2,553 (123) 2,722 (20) 237 (14) 238 1,946 150 105 (1) 1,677 272 119 1 251 8 4 (3) 254 13 2 (4) Change in plan assets: Fair value of plan assets at beginning of year Actual return on plan assets Employer contributionsa Foreign exchange (losses) gains Benefits and administrative expenses paid (129) (123) (20) (14) Fair value of plan assets at end of year Funded status 2,071 1,946 240 $ (482) $ (776) $ 3 Accumulated benefit obligation $ 2,551 $ 2,719 $ 194 251 $ 13 $ 194 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 2.85% —% 2.50% —% 6.50% 4.00% 6.25% 4.00% $ 6 $ 7 $ 3 $ 13 (4) (484) $ (482) (4) (779) $ (776) — — $ 3 — — $ 13 a. Employer contributions for 2022 are currently expected to approximate $112 million for the FCX plans and $1 million for the PT-FI plan (based on a December 31, 2021, exchange rate of 14,198 Indonesia rupiah to one U.S. dollar), and are subject to change. 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. 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 remeasurement 84 Fre e por t-McMoR an N O T E S T O C O N S O L I D A T E D F I N A N C I A L S T A T E M E N T S and curtailment resulted in the projected benefit obligation Included in accumulated other comprehensive loss are the increasing by $184 million and plan assets increasing by $103 million. following amounts that have not been recognized in net periodic In addition, FCX recognized a curtailment loss of $4 million in 2020. pension cost as of December 31: During 2021, the actuarial gain of $117 million for the FCX pension plans primarily resulted from the increase in the discount rate from 2.50 percent to 2.85 percent. 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. 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 2021 2020 2019 2.50% 5.25% —% 2.98% 6.25% 3.25% 4.40% 6.50% 3.25% $ 12 66 (98) 25 — 5 $ $ 37 77 (105) 45 4 $ 58 $ 42 95 (90) 48 — $ 95 a. The assumptions shown relate only to the FMC Retirement Plan. 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 2021 2020 2019 6.25% 7.75% 4.00% 7.25% 7.75% 4.00% 8.25% 8.25% 4.00% $ 13 14 (19) 1 (1) $ 8 $ 11 14 (19) 2 (3) $ 5 $ 12 17 (17) 1 (1) $ 12 The service cost component of net periodic benefit cost is included in operating income, and the other components are included in other (expense) income, net in the consolidated statements of operations. Net actuarial losses Prior service costs 2021 After Taxes and Before Noncontrolling Taxes Interests 2020 After Taxes and Before Noncontrolling Taxes Interests $ 488 2 $ 490 $ 369 — $ 369 $ 673 6 $ 679 $ 558 1 $ 559 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, 2021 Total NAV Level 1 Level 2 Level 3 Commingled/collective funds: Fixed income securities Real estate property Short-term investments Fixed income: Corporate bonds Government bonds Private equity investments Other investments Total investments Cash and receivables Payables Total pension plan net assets $ 522 72 38 911 437 11 74 2,065 18 (12) $ 2,071 $ 522 72 38 — — 11 — $ 643 $ — — — — — — 1 $ 1 $ — — — 911 437 — 73 $ 1,421 $ — — — — — — — $ — Fair Value at December 31, 2020 Total NAV Level 1 Level 2 Level 3 $ 527 404 76 59 51 51 25 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: 381 Corporate bonds Government bonds 181 Global large-cap equity securities 109 10 Private equity investments 55 Other investments 1,929 Total investments $ 527 404 76 59 51 51 25 — — — 10 — $ 1,203 $ — — — — — — — — — 109 — 1 $ 110 $ — — — — — — — 381 181 — — 54 $ 616 $ — — — — — — — — — — — — $ — Cash and receivables Payables Total pension plan net assets 100 (83) $ 1,946 85 2 0 2 1 A n n u a l R ep o r t N O T E S T O C O N S O L I D A T E D F I N A N C I A L S T A T E M E N T S 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) primarily require up to a two-business-day notice for redemptions. The real estate property fund is valued at NAV using information from independent appraisal firms, who have 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 a. Cash consists primarily of short-term time deposits. $ 117 77 18 $ 212 $ — — — $ — $ — — — $ — knowledge and expertise about the current market values of real Following is a description of the valuation techniques used for property in the same vicinity as the investments. Redemptions pension plan assets measured at fair value associated with the of the real estate property fund are allowed once per quarter (with PT-FI plan. There have been no changes to the techniques used a 30-calendar-day notice), subject to available cash. to measure fair value. Fixed income investments include government and corporate Government bonds, common stocks and mutual funds are bonds held directly by the Master Trust. Fixed income securities are valued at the closing price reported on the active market on which valued using a bid-evaluation price or a mid-evaluation price and, the individual securities are traded and, as such, are classified as such, are classified within Level 2 of the fair value hierarchy. within Level 1 of the fair value hierarchy. A bid-evaluation price is an estimated price at which a dealer The techniques described above may produce a fair value would pay for a security. A mid-evaluation price is the average of calculation that may not be indicative of NRV or reflective of future the estimated price at which a dealer would sell a security and the fair values. Furthermore, while FCX believes its valuation estimated price at which a dealer would pay for a security. These techniques are appropriate and consistent with those used by evaluations are based on quoted prices, if available, or models that other market participants, the use of different techniques or use observable inputs. assumptions to determine the fair value of certain financial Common stocks included in global large-cap equity securities instruments could result in a different fair value measurement at and preferred stocks included in other investments are valued at the reporting date. the closing price reported on the active market on which the The expected benefit payments for FCX’s and PT-FI’s pension individual securities are traded and, as such, are classified within plans follow: 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. A summary of the fair value hierarchy for pension plan assets associated with the PT-FI plan follows: 2022 2023 2024 2025 2026 2027 through 2031 FCX $ 127 178 130 131 132 653 PT-FIa $ 17 27 30 27 30 146 Fair Value at December 31, 2021 Level 1 Level 2 Level 3 Total a. Based on a December 31, 2021, exchange rate of 14,198 Indonesia rupiah to one U.S. dollar. Government bonds Common stocks Mutual funds Total investments Cash and receivablesa Payables Total pension plan net assets $ 114 80 18 212 29 (1) $ 240 $ 114 80 18 $ 212 $ — — — $ — $ — — — $ — 86 Fre epor t-McMoR an N O T E S T O C O N S O L I D A T E D F I N A N C I A L S T A T E M E N T S Postretirement and Other Benefits. FCX also provides postretirement medical and life insurance benefits for certain U.S. employees NOTE 10. STOCKHOLDERS’ EQUITY AND STOCK-BASED COMPENSATION and, in some cases, employees of certain international subsidiaries. These postretirement benefits vary among plans, and many plans FCX’s authorized shares of capital stock total 3.05 billion shares, consisting of 3.0 billion shares of common stock and 50 million require contributions from retirees. The expected cost of providing shares of preferred stock. 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 $57 million (included in other liabilities) at December 31, 2021, and a current portion of $7 million and a long-term portion of $69 million at December 31, 2020. 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 $35 million (included in other liabilities) at December 31, 2021, and a current portion of $6 million and a long-term portion of $42 million at December 31, 2020. FCX also sponsors a retirement savings plan for most of its U.S. employees. The plan allows employees to contribute a portion of their income in accordance with specified guidelines. The savings plan is a qualified 401(k) plan for all U.S. salaried and non-bargained hourly employees. Participants exercise control and direct the investment of their contributions and account balances among various investment options under the plan. FCX contributes to the plan and matches a percentage of employee contributions up to certain limits. For employees whose eligible compensation exceeds certain levels, FCX provides a nonqualified unfunded defined contribution plan, which had a liability balance of $51 million at December 31, 2021, and $49 million at December 31, 2020, all of which was included in other liabilities. The costs charged to operations for the employee savings plan totaled $95 million in 2021, $40 million in 2020 and $85 million in 2019. The costs were lower in 2020, compared with 2021 and 2019, because of a temporary suspension of FCX contributions implemented as part of FCX’s 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. Financial Policy. In February 2021, FCX’s Board of Directors (Board) adopted a financial policy for the allocation of cash flows aligned with FCX’s strategic objectives of maintaining a strong balance sheet and increasing cash returns to shareholders while advancing opportunities for future growth. The policy includes a base dividend and a performance-based payout framework, whereby 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, subject to FCX maintaining its net debt at a level not to exceed the net debt target of $3 billion to $4 billion (excluding project debt for additional smelting capacity in Indonesia). In February 2021, the Board reinstated a cash dividend on FCX’s common stock (base dividend), and on November 1, 2021, the Board approved (i) a new share repurchase program authorizing repurchases of up to $3.0 billion of FCX common stock and (ii) a variable cash dividend on FCX’s common stock for 2022. In fourth-quarter 2021, FCX acquired 12.7 million shares under the share repurchase program for a total cost of $488 million ($38.32 per share). Through February 15, 2022, FCX acquired 18.2 million shares of its common stock for a total cost of $710 million ($39.10 per share) and $2.3 billion remains available for repurchases. On December 22, 2021, FCX declared dividends totaling $0.15 per share on its common stock, which was paid on February 1, 2022, to common stockholders of record as of January 14, 2022. This payment includes a $0.075 per share quarterly base cash dividend and a $0.075 per share quarterly variable cash dividend. The declaration and payment of dividends (base or variable) and timing and amount of any share repurchases is at the discretion of FCX’s Board and management, respectively, and is subject to a number of factors, including maintaining FCX’s net debt target, capital availability, FCX’s financial results, cash requirements, business prospects, global economic conditions, changes in laws, contractual restrictions and other factors deemed relevant by FCX’s Board or management, as applicable. FCX’s share repurchase program may be modified, increased, suspended or terminated at any time at the Board’s discretion. 87 2 0 2 1 A n n u a l R ep o r t N O T E S T O C O N S O L I D A T E D F I N A N C I A L S T A T E M E N T S Accumulated Other Comprehensive Loss. A summary of retirement-eligible employees. The award agreements also provide changes in the balances of each component of accumulated other for accelerated vesting upon certain qualifying terminations of comprehensive loss, net of tax, follows: employment within one year following a change of control. Balance at January 1, 2019 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 Amounts arising during the perioda,b Amounts reclassifiedc Balance at December 31, 2021 Defined Benefit Plans Translation Adjustment $ (615) (118) 47 (686) 47 46 (593) 176 19 $ (398) $ 10 — — 10 — — 10 — — $ 10 Total $ (605) (118) 47 (676) 47 46 (583) 176 19 $ (388) a. Includes net actuarial (losses) gains, net of noncontrolling interest, totaling $(111) million for 2019, $40 million for 2020 and $174 million for 2021. b. Includes tax (benefit) provision totaling $(8) million for 2019, $7 million for 2020 and $2 million for 2021. c. Includes amortization primarily related to actuarial losses, net of taxes of less than $1 million for 2019, 2020 and 2021. 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, 2021, 30.7 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) 2021 $ 64 34 98 (5) $ 93 2020 $ 70 29 99 (5) $ 94 2019 $ 48 15 63 (4) $ 59 a. Charges in the U.S. are not expected to generate a future tax benefit. Stock Options. Stock options granted under the plans generally expire 10 years after the date of grant. Stock options vest in one-third 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 A summary of stock options outstanding as of December 31, 2021, and activity during the year ended December 31, 2021, follows: Weighted- Average Exercise Price Per Share Weighted- Average Remaining Aggregate Intrinsic Contractual Value Term (years) $ 25.58 28.14 19.48 51.15 23.78 4.3 $ 411 Number of Options 37,100,098 598,000 (11,527,957) (4,347,579) 21,822,562 17,119,081 26.62 3.4 $ 278 Balance at January 1 Granted Exercised Expired/Forfeited Balance at December 31 Vested and exercisable at December 31 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 expected 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. Information related to stock options during the years ended December 31 follows: 2021 2020 2019 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 58.1% 5.90 2.5% 0.6% $ 11.92 $ 194 16 $ 47.7% 5.83 1.7% 1.5% $ 4.72 $ 82 $ 28 47.8% 6.10 1.8% 2.5% $ 4.87 3 $ $ 26 As of December 31, 2021, FCX had $5 million of total unrecognized compensation cost related to unvested stock options expected to be recognized over a weighted-average period of approximately 1.0 years. 88 Fre epor t-McMoR an N O T E S T O C O N S O L I D A T E D F I N A N C I A L S T A T E M E N T S Stock-Settled PSUs and RSUs. Beginning in 2014, FCX’s The total fair value of stock-settled RSUs and PSUs granted was executive officers received annual grants of PSUs that vest after $62 million during 2021, $47 million during 2020 and $24 million three years. The total grant date target shares related to the during 2019. The total intrinsic value of stock-settled RSUs and PSU grants were 0.7 million for 2019, 0.8 million for 2020 and PSUs vested was $56 million during 2021, $18 million during 2020 0.3 million for 2021, of which the executive officers will earn and $26 million during 2019. As of December 31, 2021, FCX had (i) between 0 percent and 200 percent of the target shares based $17 million of total unrecognized compensation cost related on achievement of financial metrics and (ii) +/- up to 25 percent to unvested stock-settled RSUs expected to be recognized over of the target shares based on FCX’s total shareholder return approximately 1.2 years. compared to the total shareholder return of a peer group. All of FCX’s Cash-Settled RSUs. Cash-settled RSUs are similar to stock- executive officers who hold PSUs are retirement eligible, and their settled RSUs, but are settled in cash rather than in shares PSU awards are therefore non-forfeitable. As such, FCX charges of common stock. These cash-settled RSUs generally vest over the estimated fair value of the PSU awards to expense at the time three years of service. Some award agreements allow for the financial and operational, if applicable, metrics are established. participants to receive the following year’s vesting upon retirement. FCX grants RSUs that vest over a period of three years or at the Therefore, on the date of grant of these cash-settled RSU awards, end of three years to certain employees. Some award agreements FCX accelerates one year of amortization for retirement-eligible allow for participants to receive the following year’s vesting upon employees. The cash-settled RSUs are classified as liability retirement. Therefore, on the date of grant of these RSU awards, awards, and the fair value of these awards is remeasured each FCX accelerates one year of amortization for retirement-eligible reporting period until the vesting dates. The award agreements for employees. FCX also grants RSUs to its directors, which vest on cash-settled RSUs provide for accelerated vesting upon certain the first anniversary of the date of grant. The fair value of the RSUs qualifying terminations of employment within one year following a is amortized over the vesting period or the period until the director change of control. becomes retirement eligible, whichever is shorter. Upon a Dividends attributable to cash-settled RSUs accrue and are director’s retirement, all of their unvested RSUs immediately vest. paid if the award vests. A summary of outstanding cash-settled For retirement-eligible directors, the fair value of RSUs is RSUs as of December 31, 2021, and activity during the year ended recognized in earnings on the date of grant. December 31, 2021, follows: The award agreements provide for accelerated vesting of all 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 Balance at January 1 Granted Vested Forfeited and PSUs as of December 31, 2021, and activity during the year Balance at December 31 ended December 31, 2021, follows: Weighted- Average Grant-Date Aggregate Intrinsic Fair Value Value Per Award $ 12.92 28.00 13.94 15.37 16.56 $ 44 Number of Awards 1,521,097 308,600 (753,574) (22,199) 1,053,924 Balance at January 1 Granted Vested Forfeited Balance at December 31 Number of Awards 7,523,022 2,121,755 (1,814,976) (28,916) 7,800,885 $ 16.79 29.15 15.72 20.29 20.38 Weighted- Average Grant-Date Aggregate Intrinsic Fair Value Value Per Award The total grant-date fair value of cash-settled RSUs was $9 million during 2021, $11 million during 2020 and $10 million during 2019. The intrinsic value of cash-settled RSUs vested was $24 million during 2021, $11 million during 2020 and $8 million during 2019. The accrued liability associated with cash-settled RSUs consisted of a current portion of $26 million (included in accounts payable and accrued liabilities) and a long-term portion of $6 million $ 326 (included in other liabilities) at December 31, 2021, and a current portion of $22 million and a long-term portion of $6 million at December 31, 2020. 89 2 0 2 1 A n n u a l R ep o r t N O T E S T O C O N S O L I D A T E D F I N A N C I A L S T A T E M E N T S Other Information. The following table includes amounts related other differences between the book and tax carrying amounts of its to exercises of stock options and vesting of RSUs and PSUs during investments in material foreign subsidiaries as FCX considers its the years ended December 31: ownership positions to be permanent in duration, and quantification 2021 2020 2019 of the related deferred tax liability is not practicable.  FCX’s provision for income taxes for the years ended December 31 consists of the following: FCX shares tendered to pay the exercise price and/or the minimum required withholding taxesa Cash received from stock option exercises Actual tax benefit realized for tax deductions Amounts FCX paid for employee taxes 1,358,101 1,193,183 670,508 $ $ $ 210 9 29 $ $ $ 51 2 17 $ $ $ 2 1 8 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 withholding taxes. NOTE 11. INCOME TAXES Current income taxes: Federal State Foreign Total current Deferred income taxes: Federal State Foreign Total deferred 2021 2020 2019 $ — (11) (2,460) (2,471) (184) (4) (23) (211) 193e 190 $ 53a (1) (816)d (764) 3 5 (306) (298) 37 81 $ (23)b,c 3 (462) (482) 48 8 (101) (45) 12 5 Geographic sources of income (losses) before income taxes and equity in affiliated companies’ net earnings for the years ended Adjustments Operating loss carryforwards December 31 consist of the following: Provision for income taxes $ (2,299) $ (944) $ (510) U.S. Foreign Total 2021 2020 2019 $ 1,861 5,798 $ 7,659 $ (40) 1,837 $ 1,797 $ (287) 593 $ 306 Income taxes are provided on the earnings of FCX’s material foreign subsidiaries under the assumption that these earnings will a. Includes a credit of $53 million associated with the reversal of the charge discussed in footnote c below. b. As a result of the 2017 Tax Cuts and Jobs Act (the Act) guidance released in 2019, FCX recorded a $29 million credit. c. Includes a charge of $53 million associated with the sale of FCX’s interest in the lower zone of the Timok exploration project. d. Includes a charge of $135 million associated with the gain on sale of Kisanfu. e. Primarily reflects the release of valuation allowances on NOLs at PT Rio Tinto (see below). be distributed. FCX has not provided deferred income taxes for A reconciliation of the U.S. federal statutory tax rate to FCX’s U.S. federal statutory tax rate Valuation allowancea PT Rio Tinto valuation allowancea PT-FI historical tax disputesb 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 Timok exploration project sale Sale of Kisanfu Other items, net Provision for income taxes effective income tax rate for the years ended December 31 follows: 2021 2020 2019 Amount Percent Amount Percent Amount Percent $ (1,608) 221 189 (193) 221 (328) (678) — — 13 — (11) (14) — — — (111) $(2,299) (21)% 3 2 (3) 3 (4) (9) — — — — — — — — — (1) (30)% $ (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)c (47) (47) 29d (16) 16 2 (15) — (24) $ (510) (21)% (49) — (47) 39 (21) (18) (16) (15) (15) 9 (5) 6 1 (5) — (9) (166)% a. Refer to “Valuation Allowance” below. b. Refer to “Income Tax Matters” below. c. Represents net charges primarily to adjust deferred taxes on historical balance sheet items in accordance with tax accounting principles. d. As a result of the Act guidance released in 2019, FCX recorded a $29 million credit. e. Refer to Note 12 for further discussion. 90 Fre epor t-McMoR an N O T E S T O C O N S O L I D A T E D F I N A N C I A L S T A T E M E N T S FCX paid federal, state and foreign income taxes totaling $1.3 billion The valuation allowance related to FCX’s U.S. federal, state and in 2021, $397 million in 2020 and $610 million in 2019. FCX foreign NOLs totaled $2.0 billion and other deferred tax assets received refunds of federal, state and foreign income taxes of totaled $561 million at December 31, 2021. NOLs and deferred tax $109 million in 2021, $265 million in 2020 and $306 million in 2019. assets represent future deductions for which a benefit will only The components of deferred taxes follow: be realized to the extent these deductions offset future income. December 31, 2021 2020 Deferred tax assets: Foreign tax credits Accrued expenses Net operating losses (NOLs) 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 $ 1,536 1,193 2,220 105 252 5,306 (4,087) 1,219 (4,492) (807) (152) (5,451) $ (4,232) $ 1,641 1,194 2,443 177 227 5,682 (4,732) 950 (4,489) (694) (175) (5,358) $ (4,408) Tax Attributes. At December 31, 2021, FCX had (i) U.S. foreign tax credits of $1.5 billion that will expire between 2022 and 2027, (ii) U.S. federal net operating losses (NOLs) of $6.1 billion that primarily expire between 2036 and 2037, of which $0.2 billion can be carried forward indefinitely, (iii) U.S. state NOLs of $10.9 billion that primarily expire between 2022 and 2041, (iv) Spanish NOLs of $0.5 billion that can be carried forward indefinitely and (v) Indonesia NOLs of $0.9 billion that expire between 2022 and 2026. Valuation Allowances. On the basis of available information at December 31, 2021, 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 $4.1 billion at December 31, 2021, and covered all of FCX’s U.S. foreign tax credits and U.S. federal NOLs, substantially all of its U.S. state NOLs, and a portion of its foreign NOLs. Valuation allowances totaled $4.7 billion at December 31, 2020, and covered all of FCX’s U.S. foreign tax credits, U.S. federal NOLs, foreign net operating losses and substantially all of its U.S. state NOLs. The valuation allowance related to FCX’s U.S. foreign tax credits totaled $1.5 billion at December 31, 2021. 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. 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 NOLs 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 NOLs 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 $645 million net decrease in the valuation allowances during 2021 is primarily related to a $219 million decrease associated with U.S. federal NOLs utilized during 2021, a $105 million decrease related to expirations of U.S. foreign tax credits and a $228 million decrease associated with PT Rio Tinto NOLs resulting from positive evidence supporting future taxable income against which net operating losses can be used. Changes in assumptions about future taxable income against which PT Rio Tinto NOLs can be utilized resulted from delays in timing of the anticipated merger of PT Rio Tinto into PT-FI. Other Events. In connection with the negative impacts of the COVID-19 pandemic on the global economy, governments throughout the world announced measures that are intended to provide tax and other financial relief. Such measures include the American Rescue Plan Act of 2021, enacted on March 11, 2021, and the Coronavirus Aid, Relief, and Economic Security Act (CARES Act), enacted on March 27, 2020. None of these measures resulted in material impacts to FCX’s provision for income taxes for the years ended December 31, 2021 and 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. alternative minimum tax (AMT). FCX collected U.S. AMT refunds of $24 million in 2021 and $244 million in 2020. 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. 91 2 0 2 1 A n n u a l R ep o r t N O T E S T O C O N S O L I D A T E D F I N A N C I A L S T A T E M E N T S Indonesia Tax Matters. In 2018, PT-FI received unfavorable which Cerro Verde has contested on the basis that its 1998 Indonesia Tax Court decisions with respect to its appeal of stability agreement exempts from royalties all minerals extracted capitalized mine development costs on its 2012 and 2014 corporate from its mining concessions, irrespective of the method used for income tax returns. PT-FI appealed those decisions to the processing those minerals. Refer to Note 12 for further discussion Indonesia Supreme Court. In 2019, the Indonesia Supreme Court of the Cerro Verde royalty dispute. communicated an unfavorable ruling regarding the treatment In December 2016, the Peru parliament passed tax legislation of mine development costs on PT-FI’s 2014 tax return. During the that, in part, modified the applicable tax rates established in its fourth quarter of 2019, PT-FI met with the Indonesia Tax Office December 2014 tax legislation, which progressively decreased the and developed a framework for resolution of the disputed matters. corporate income tax rate to 26 percent in 2019 and thereafter, and On December 30, 2019, PT-FI made a payment of $250 million also increased the dividend tax rate on distributions to 9.3 percent in based on its understanding of the framework for resolution of 2019 and thereafter. Under the tax legislation, which was effective disputes arising from the audits of the tax years 2012 through 2016, January 1, 2017, the corporate income tax rate was 29.5 percent, and as well as tax years 2017 and 2018. Additional administrative the dividend tax rate on distributions of earnings was 5 percent. steps would need to be completed by both PT-FI and the Indonesia Cerro Verde’s current mining stability agreement subjects it to a Tax Office in order to implement the resolution. stable income tax rate of 32 percent through the expiration of the During October 2021, PT-FI participated in discussions with agreement on December 31, 2028. The tax rate on dividend the Indonesia tax office regarding progress on the framework for distributions is not stabilized by the agreement. resolution of disputes arising from the audits of tax years 2012 Chile Tax Matters. In September 2014, the Chile legislature through 2016. As a result of these discussions and the revised approved a tax reform package that implemented a dual tax positions taken by both the Indonesia tax office and PT-FI, FCX system, which was amended in January 2016. Under previous rules, believes it can no longer conclude a resolution of all of the disputed FCX’s share of income from Chile operations was subject to an tax items at a more-likely-than-not threshold. PT-FI will continue effective 35 percent tax rate allocated between income taxes and to engage with the Indonesia tax office in pursuit of certain aspects dividend withholding taxes. Under the amended tax reform of the original framework for resolution. package, FCX’s Chile operation is subject to the “Partially-Integrated During 2019, in conjunction with the framework for resolution, System,” resulting in FCX’s share of income from El Abra being PT-FI recorded net charges totaling $304 million, including subject to progressively increasing effective tax rates of 35 percent $123 million for non-deductible penalties recorded to other (expense) through 2019 and 44.5 percent in 2020 and thereafter. In income, net, $78 million for non-deductible interest recorded to November 2017, the progression of increasing tax rates was interest expense, net and $103 million to provision for income tax delayed by the Chile legislature so that the 35 percent rate continued expense, primarily for the impact of a reduction in the statutory through 2021, increasing to 44.5 percent in 2022 and thereafter. rate on PT-FI’s deferred tax assets. In January 2020, the Chile legislature approved a tax reform During 2020, in connection with progress of the framework for package that would further delay the 44.5 percent rate until 2027 resolution, PT-FI recorded additional net charges of $46 million, and thereafter.  including $9 million for non-deductible penalties recorded to other In 2010, the Chile legislature approved an increase in mining (expense) income, net and $35 million for non-deductible interest royalty taxes to help fund earthquake reconstruction activities, recorded to interest expense, net, and $2 million to provision for education and health programs. Beginning in 2018, and through income tax expense. 2023 mining royalty rates at FCX’s El Abra mine are based During 2021, mostly in connection with the October 2021 on a sliding scale of 5 to 14 percent (depending on a defined meeting with the Indonesia tax office and the progress of the operational margin). framework for resolution, PT-FI recorded total additional net Uncertain Tax Positions. FCX accounts for uncertain income tax charges of $384 million, including $155 million for non-deductible positions using a threshold and measurement criteria for the penalties recorded to other (expense) income, net, $43 million financial statement recognition and measurement of a tax position for non-deductible interest recorded to interest expense, net, and taken or expected to be taken in a tax return. FCX’s policy $186 million to provision for income tax expense. associated with uncertain tax positions is to record accrued interest Peru Tax Matters. SUNAT (National Superintendency of in interest expense and accrued penalties in other (expense) Customs and Administration), the Peru national tax authority, has income, net rather than in the provision for income taxes. assessed mining royalties on ore processed by the Cerro Verde concentrator for the period December 2006 to December 2013, 92 Fre epor t -McMoR an N O T E S T O C O N S O L I D A T E D F I N A N C I A L S T A T E M E N T S A summary of the activities associated with FCX’s reserve for NOTE 12. CONTINGENCIES unrecognized tax benefits for the years ended December 31 follows. The balance at year-end December 31, 2019, was revised by $115 million and the balance at year-end December 31, 2020, was revised by $179 million to adjust for amounts paid on accruals not yet settled. Balance at beginning of year Additions: Prior year tax positions Current year tax positions Decreases: Prior year tax positions Settlements with taxing authorities Balance at end of year 2021 $ 474 330 71 (30) (37) $ 808 2020 $ 491 56 60 (82) (51) $ 474 2019 $ 494 86 11 (75) (25) $ 491 The total amount of accrued interest and penalties associated with unrecognized tax benefits was $620 million at December 31, 2021, primarily relating to unrecognized tax benefits associated with cost recovery methods and royalties and other related mining taxes, $307 million at December 31, 2020, and $339 million at December 31, 2019. The reserve for unrecognized tax benefits of $808 million at December 31, 2021, included $694 million ($465 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 current and prior-year tax positions were primarily related to uncertainties associated with FCX’s tax treatment of 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 2022, 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. The tax years for FCX’s major tax jurisdictions that remain subject to examination are as follows: 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 Jurisdiction U.S. Federal Indonesia Peru Chile Years Subject to Examination Additional Open Years damaged natural resources (NRD) and to litigation by individuals 2017-2018 2011-2018 2016 2020 2014-2016, 2019-2021 2020-2021 2017-2021 2018-2019, 2021 allegedly exposed to hazardous substances. As of December 31, 2021, FCX had more than 100 active remediation projects, including NRD claims, in 24 U.S. states. The aggregate environmental obligation for approximately 60 percent of the active remediation projects totaled less than $20 million at December 31, 2021. 93 2 0 2 1 A n n u a l R ep o r t N O T E S T O C O N S O L I D A T E D F I N A N C I A L S T A T E M E N T S A summary of changes in estimated environmental obligations 2010 settlement agreement, Miami agreed to take full responsibility for the years ended December 31 follows: for future groundwater remediation at the Pinal Creek site, with Balance at beginning of year Accretion expensea Additionsb Reductionsb Spending Balance at end of year Less current portion Long-term portion 2021 2020 2019 $ 1,584 104 60 (20) (64) 1,664 (64) $ 1,600 $ 1,561 102 38 (58) (59) 1,584 (83) $ 1,501 $ 1,511 102 23 (1) (74) 1,561 (106) $ 1,455 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. Adjustments primarily reflect revisions for changes in the anticipated scope and timing of projects and other noncash adjustments. 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 Estimated future environmental cash payments (on an undiscounted companies and the City of New York that EPA considers them and de-escalated basis) total $89 million in 2022, $80 million in PRPs under CERCLA. The notified parties began working with 2023, $105 million in 2024, $98 million in 2025, $100 million in 2026 EPA to identify other PRPs. In 2010, EPA designated the creek and $3.2 billion thereafter. The amount and timing of these as a Superfund site, and in 2011, PDRC and four other companies estimated payments will change as a result of changes in regulatory (the Newtown Creek Group, NCG) and the City of New York requirements, changes in scope and timing of remediation entered an Administrative Order on Consent (AOC) to perform a activities, the settlement of environmental matters and as actual remedial investigation/feasibility study (RI/FS) to assess the nature spending occurs. and extent of environmental contamination in the creek and At December 31, 2021, FCX’s environmental obligations totaled identify remedial options. The NCG’s RI/FS work and efforts to $1.7 billion, including $1.5 billion recorded on a discounted basis identify other PRPs are ongoing. The NCG submitted a final for those obligations assumed in the FMC acquisition at fair value. draft RI report in October 2021, which is currently under review by On an undiscounted and de-escalated basis, these obligations EPA. The NCG expects to submit a draft FS report to EPA in late totaled $3.7 billion. FCX estimates it is reasonably possible that 2025 and currently expects EPA to select a creek-wide remedy in these obligations could range between $3.3 billion and $4.2 billion 2026, with the actual remediation construction starting several on an undiscounted and de-escalated basis. years later. In July 2019, the NCG entered into an AOC with EPA At December 31, 2021, the most significant environmental to conduct a Focused Feasibility Study (FFS) of the first two miles of obligations were associated with the Pinal Creek site in Arizona; the creek to support an evaluation of an early interim remedy the Newtown Creek site in New York City; historical smelter sites for that section of the creek. In July 2021, EPA terminated the FFS, principally located in Arizona, Indiana, Kansas, Missouri, New which effectively means remediation of the lower creek will be Jersey, Oklahoma and Pennsylvania; and uranium mining sites in performed at the same time as the site-wide remedy. FCX’s the western U.S. The recorded environmental obligations for these environmental liability balance for the creek was $318 million at sites totaled $1.4 billion at December 31, 2021. FCX may also be December 31, 2021. The final costs of fulfilling this remedial subject to litigation brought by private parties, regulators and local obligation and the allocation of costs among PRPs are uncertain governmental authorities related to these historical sites. A discussion of these sites follows. and subject to change based on the results of the RI/FS, the remedy ultimately selected by EPA and related allocation Pinal Creek. The Pinal Creek site was listed under the Arizona determinations. Changes to the overall cost of this remedial Department of Environmental Quality’s (ADEQ) Water Quality obligation and the portion ultimately allocated to PDRC could be Assurance Revolving Fund program in 1989 for contamination in material to FCX. the shallow alluvial aquifers within the Pinal Creek drainage near Historical Smelter Sites. FCX subsidiaries and their predecessors Miami, Arizona. Since that time, environmental remediation has at various times owned or operated copper, zinc and lead smelters been performed by members of the Pinal Creek Group, consisting or refineries in states including Arizona, Indiana, Kansas, Missouri, of Freeport-McMoRan Miami Inc. (Miami), an indirect wholly New Jersey, Oklahoma and Pennsylvania. For some of these owned subsidiary of FCX, and two other companies. Pursuant to a 94 Fre epor t -McMoR an N O T E S T O C O N S O L I D A T E D F I N A N C I A L S T A T E M E N T S former processing sites, certain FCX subsidiaries have been other damages. In January 2020, the parties completed briefing on advised by EPA or state agencies that they may be liable for costs the plaintiffs’ motion for class certification. The judge indicated of investigating and, if appropriate, remediating environmental in late 2021 that the plaintiffs may submit rebuttal expert reports, conditions associated with these former processing facilities. At which will likely result in additional discovery and refiling of a new other sites, certain FCX subsidiaries have entered into state briefing on class certification. This will likely delay the court’s voluntary remediation programs to investigate and, if appropriate, decision on class certification. FCX continues to vigorously defend remediate on-site and off-site conditions associated with the this matter. facilities. The historical processing sites are in various stages of Uranium Mining Sites. During a period between 1940 and the assessment and remediation. At some of these sites, disputes early 1980s, certain FCX subsidiaries and their predecessors were with local residents and elected officials regarding alleged health involved in uranium exploration and mining in the western U.S., effects or the effectiveness of remediation efforts have resulted primarily on federal and tribal lands in the Four Corners region of in litigation of various types, and similar litigation at other sites the southwest. Similar exploration and mining activities by other is possible. companies have also caused environmental impacts warranting From 1920 until 1986, United States Metals Refining Company remediation. In 2017, the Department of Justice, EPA, Navajo (USMR), an indirect wholly owned subsidiary of FCX, owned and Nation, and two FCX subsidiaries reached an agreement regarding operated a copper smelter and refinery in the Borough of Carteret, the financial contribution of the U.S. Government and the FCX New Jersey. Since the early 1980s, the site has been the subject subsidiaries and the scope of the environmental investigation and of environmental investigation and remediation, under the direction remediation work for 94 former uranium mining sites on tribal and supervision of the New Jersey Department of Environmental lands. Under the terms of the Consent Decree executed in May 2017, Protection (NJDEP). On-site contamination is in the later stages of and approved by the U.S. District Court for the District of Arizona, remediation. In 2012, after receiving a request from NJDEP, USMR the U.S. contributed $335 million into a trust fund to cover the also began investigating and remediating off-site properties, government’s initial share of the costs, and FCX’s subsidiaries are which is ongoing. As a result of off-site soil sampling in public and proceeding with the environmental investigation and remediation private areas near the former Carteret smelter, FCX established work at the 94 sites. The program is expected to take more than an environmental obligation for known and potential off-site 20 years to complete. In 2020, FCX reduced its associated obligation environmental remediation. Assessments of sediments in the and recorded a $47 million credit to operating income to reflect adjacent Arthur Kill and sampling and analysis within the offsite area the discounting effect of the recent and expected pace of project as we obtain access to residential properties are ongoing and work under post-COVID-19 pandemic conditions. By letter dated could result in additional adjustments to the related environmental September 29, 2021, EPA also informed an FCX subsidiary that it remediation obligation in future periods. The extent of contamination does not expect to have funds sufficient to remediate sites covered and potential remedial actions are uncertain and may take several by a bankruptcy settlement with Tronox and EPA considers a years to evaluate. subsidiary of FCX to be potentially liable for 23 of these sites. FCX is On January 30, 2017, a putative class action titled Juan Duarte, also conducting site surveys of historical uranium mining claims Betsy Duarte and N.D., Infant, by Parents and Natural Guardians associated with FCX subsidiaries on non-tribal federal lands in the Juan Duarte and Betsy Duarte, Leroy Nobles and Betty Nobles, on Four Corners region. Under a memorandum of understanding with behalf of themselves and all others similarly situated v. United the U.S. Bureau of Land Management (BLM), site surveys are being States Metals Refining Company, Freeport-McMoRan Copper & performed on approximately 15,000 mining claims, ranging from Gold Inc. and Amax Realty Development, Inc., Docket No. 734-17, undisturbed claims to claims with mining features. Based on these was filed in the Superior Court of New Jersey against USMR, FCX, surveys, BLM has issued no further action determinations for and Amax Realty Development, Inc. The defendants removed this certain undisturbed claims. A similar agreement is in place with the litigation to the U.S. District Court for the District of New Jersey, U.S. Forest Service for mine features on U.S. Forest Service land. where it remains pending, and FMC was added as a defendant. Either BLM or the U.S. Forest Service may request additional The suit alleges that USMR generated and disposed of smelter assessment or remediation activities for other claims with mining waste at the site and allegedly released contaminants on-site and features. FCX will update this obligation when it has a sufficient off-site through discharges to surface water and air emissions over number of remedy decisions from the BLM or the U.S. Forest a period of decades and seeks unspecified compensatory and Service to support a reasonably certain range of outcomes. FCX punitive damages for economic losses, including diminished expects it will take several years to complete this work. property values, additional soil investigation and remediation and 95 2 0 2 1 A n n u a l R e p o r t N O T E S T O C O N S O L I D A T E D F I N A N C I A L S T A T E M E N T S AROs. FCX’s ARO estimates are reflected on a third-party cost of which $0.9 billion was in the form of guarantees issued by basis and are based on FCX’s legal obligation to retire tangible, FCX and FMC. At December 31, 2021, FCX had trust assets totaling long-lived assets. A summary of changes in FCX’s AROs for the $208 million (included in other assets), which are legally restricted years ended December 31 follows: 2021 2020 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 $ 2,472 2 331a 112 — (201) 2,716 (200) $ 2,516 $ 2,505 7 (13) 131 (2) (156) 2,472 (268) $ 2,204 2019 $ 2,547 20 (5) 118 (5) (170) 2,505 (330) $ 2,175 a. Includes an adjustment at PT-FI totaling $397 million, see further discussion below. 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 $424 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 ARO costs may increase or decrease significantly in the future as a operations to submit closure plans for NMED’s approval. The closure result of changes in regulations, changes in engineering designs plans must include measures to assure meeting applicable and technology, permit modifications or updates, changes in mine groundwater quality standards following the closure of discharging plans, settlements, inflation or other factors and as reclamation facilities and to abate groundwater or surface water contamination (concurrent with mining operations or post mining) spending to meet applicable standards. FCX’s New Mexico operations also occurs. ARO activities and expenditures for mining operations are subject to regulation under the 1993 New Mexico Mining Act generally are made over an extended period of time commencing (the Mining Act) and the related rules that are administered by the near the end of the mine life; however, certain reclamation Mining and Minerals Division of the New Mexico Energy, Minerals activities may be accelerated if legally required or if determined and Natural Resources Department. Under the Mining Act, mines to be economically beneficial. The methods used or required are required to obtain approval of reclamation plans. In 2020, to plug and abandon non-producing oil and gas wellbores; remove the agencies approved updates to the closure plan and financial platforms, tanks, production equipment and flow lines; and restore assurance instruments and completed a permit renewal for Chino. wellsites could change over time. In 2021, the agencies approved updates to the closure plan and Financial Assurance. New Mexico, Arizona, Colorado and other financial assurance instruments, and completed a permit renewal states, as well as federal regulations governing mine operations for Tyrone. At December 31, 2021, FCX had accrued reclamation on federal land, require financial assurance to be provided for the and closure costs of $510 million for its New Mexico operations. estimated costs of mine reclamation and closure, including Additional accruals may be required based on the state’s periodic groundwater quality protection programs. FCX has satisfied review of FCX’s updated closure plans and any resulting permit financial assurance requirements by using a variety of mechanisms, conditions, and the amount of those accruals could be material. primarily involving parent company performance guarantees and Arizona Environmental and Reclamation Programs. FCX’s financial capability demonstrations, but also including trust funds, Arizona operations are subject to regulatory oversight by the ADEQ. surety bonds, letters of credit and other collateral. The applicable ADEQ has adopted regulations for its aquifer protection permit regulations specify financial strength tests that are designed (APP) program that require permits for, among other things, certain to confirm a company’s or guarantor’s financial capability to fund facilities, activities and structures used for mining, leaching, estimated reclamation and closure costs. The amount of financial concentrating and smelting, and require compliance with aquifer assurance FCX subsidiaries are required to provide will vary water quality standards during operations and closure. An with changes in laws, regulations, reclamation and closure application for an APP requires a proposed closure strategy requirements, and cost estimates. At December 31, 2021, FCX’s that will meet applicable groundwater protection requirements financial assurance obligations associated with these U.S. mine following cessation of operations and an estimate of the closure and reclamation/restoration costs totaled $1.5 billion, 96 Fre epor t-McMoR an N O T E S T O C O N S O L I D A T E D F I N A N C I A L S T A T E M E N T S implementation cost, with a more detailed closure plan required Chile Reclamation and Closure Programs. El Abra is subject at the time operations cease. A permit applicant must demonstrate to regulation under the Mine Closure Law administered by the its financial ability to meet the closure costs approved by ADEQ. Chile Mining and Geology Agency. In compliance with the Closure costs for facilities covered by APPs are required to be requirement for five-year updates, in November 2018, El Abra updated every six years and financial assurance mechanisms are submitted an updated plan with closure cost estimates based on required to be updated every two years. Morenci’s APP requires the existing approved closure plan. Approval of the updated updated stockpile reclamation plans in 2022, which are expected closure plan and cost estimates was received in August 2020, to result in increased closure costs. Bagdad’s APP also requires and did not result in a material increase to closure costs. At an updated cost estimate for its closure plan in 2022, which is December 31, 2021, FCX had accrued reclamation and closure expected to result in increased closure costs. FCX will continue costs of $82 million for its El Abra operation. updating its closure strategy and closure cost estimates at other Peru Reclamation and Closure Programs. Cerro Verde is subject Arizona sites and intends to submit an updated tailings dam to regulation under the Mine Closure Law administered by the Peru system closure cost for Bagdad according to a schedule to be Ministry of Energy and Mines. Under the closure regulations, mines determined by ADEQ. must submit a closure plan that includes the reclamation methods, Portions of Arizona mining facilities that operated after January 1, closure cost estimates, methods of control and verification, closure 1986, also are subject to the Arizona Mined Land Reclamation Act and post-closure plans, and financial assurance. In compliance (AMLRA). AMLRA requires reclamation to achieve stability and with the requirement for five-year updates, in 2017 Cerro Verde safety consistent with post-mining land use objectives specified in submitted its closure plan and cost estimate updated for the mine a reclamation plan. Reclamation plans must be approved by the expansion, which was approved in February 2018. At December 31, State Mine Inspector and must include an estimate of the cost to 2021, FCX had accrued reclamation and closure costs of $141 million perform the reclamation measures specified in the plan along for its Cerro Verde operation. with financial assurance. FCX will continue to evaluate options for Indonesia Reclamation and Closure Programs. The ultimate future reclamation and closure activities at its operating and amount of reclamation and closure costs to be incurred at PT-FI’s non-operating sites, which are likely to result in adjustments to operations will be determined based on applicable laws and FCX’s AROs, and those adjustments could be material. At regulations and PT-FI’s assessment of appropriate remedial activities December 31, 2021, FCX had accrued reclamation and closure under the circumstances, after consultation with governmental costs of $363 million for its Arizona operations. authorities, affected local residents and other affected parties and Colorado Reclamation Programs. FCX’s Colorado operations cannot currently be projected with precision. Some reclamation are regulated by the Colorado Mined Land Reclamation Act costs will be incurred during mining activities, while the remaining (Reclamation Act) and regulations promulgated thereunder. Under reclamation costs will be incurred at the end of mining activities, the Reclamation Act, mines are required to obtain approval of plans which are currently estimated to continue through 2041. The for reclamation of lands affected by mining operations to be construction time frame for reclamation of the West Wanagon performed during mining or upon cessation of mining operations. overburden stockpile has been extended from 2025 to 2029 In March 2020, the Division of Reclamation, Mining, and Safety because safety constraints for working in steep and difficult terrain (DRMS) approved Henderson’s proposed update to its closure plan have reduced labor and equipment operating efficiencies. The time and closure cost estimate. As of December 31, 2021, FCX had frame extension resulted in longer and escalating fixed costs, accrued reclamation and closure costs of $153 million for its combined with additional anticipated volumes of stockpile material Colorado operations. to be moved. As a result of the change in estimated costs, an In 2019, Colorado enacted legislation that requires proof of an ARO adjustment of $397 million was recorded in 2021, with end date for water treatment as a condition of permit authorizations $340 million charged to production and delivery costs, as it relates for new mining operations and expansions beyond current permit to the depleted Grasberg open pit. At December 31, 2021, FCX authorizations. While this requirement does not apply to existing had accrued reclamation and closure costs of $1.1 billion for its operations, it may lead to changes in long-term water management PT-FI operations. 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. 97 2 0 2 1 A n n u a l R e p o r t N O T E S T O C O N S O L I D A T E D F I N A N C I A L S T A T E M E N T S Indonesia government regulations issued in 2010 require coastal wetlands and caused significant land loss along the a company to provide a mine closure guarantee in the form of a Louisiana coast. The state of Louisiana, through the Attorney time deposit placed in a state-owned bank in Indonesia. In General and separately through the Louisiana Department of December 2018, PT-FI, in conjunction with the issuance of its Natural Resources, intervened in the litigation in support of the special mining license (IUPK), submitted a revised mine closure parishes’ claims. Specifically, the cases alleged the defendants plan to Indonesia’s Department of Energy and Mineral Resources failed to obtain and/or comply with required coastal use permits in to reflect the extension of operations to 2041. At December 31, violation of the Louisiana State and Local Coastal Resources 2021, PT-FI had restricted time deposits totaling $113 million for Management Act of 1978, and sought unspecified damages for the mine closure and reclamation guarantees. alleged statutory violations, and restoration of the properties at Oil and Gas Properties. Substantially all of FM O&G’s oil and issue to their original condition. Certain FCX affiliates were named gas leases require that, upon termination of economic production, as defendants in two of the five cases that had been set for trial, the working interest owners plug and abandon non-producing both originally filed on November 8, 2013: Parish of Plaquemines v. wellbores, remove equipment and facilities from leased acreage, ConocoPhillips Company et al., 25th Judicial District Court, and restore land in accordance with applicable local, state and Plaquemines Parish, Louisiana; No. 60-982, Div. B and Parish of federal laws. Following several sales transactions, FM O&G’s Plaquemines v. Hilcorp Energy Company et al., 25th Judicial remaining operating areas primarily include offshore California and District Court, Plaquemines Parish, Louisiana; No. 60-999, Div. B. the Gulf of Mexico (GOM). As of December 31, 2021, FM O&G In 2019, affiliates of FCX reached an agreement in principle to settle AROs cover 135 wells and approximately 100 platforms and other all 13 cases. The maximum out-of-pocket settlement payment will structures and it had accrued reclamation and closure costs of be $23.5 million with the initial payment of $15 million to be paid $337 million. upon execution of the settlement agreement. The initial payment Litigation. In addition to the material pending legal proceedings will be held in trust and later deposited into a newly formed discussed below and above under “Environmental,” we are Coastal Zone Recovery Fund (the Fund) if the state of Louisiana involved periodically in ordinary routine litigation incidental to our passes enabling legislation to establish the Fund. The settlement business and not required to be disclosed, some of which may agreement will also require the FCX affiliates to pay into the Fund result in adverse judgments, settlements, fines, penalties, twenty annual installments of $4.25 million beginning in 2023 injunctions or other relief. SEC regulations require us to disclose provided the state of Louisiana passes the enabling legislation. environmental proceedings involving a governmental authority if The first two of those annual installments are conditioned only on we reasonably believe that such proceedings may result in the enactment of the enabling legislation within three years of monetary sanctions above a stated threshold. Pursuant to the SEC execution of the settlement agreement, but all subsequent regulations, we use a threshold of $1 million for purposes of installments are also conditioned on the FCX affiliates receiving determining whether disclosure of any such environmental simultaneous reimbursement on a dollar-for-dollar basis from the proceedings is required. Management does not believe, based on proceeds of environmental credit sales generated by the Fund, currently available information, that the outcome of any current resulting in the $23.5 million maximum total payment obligation. pending legal proceeding will have a material adverse effect on The settlement agreement must be executed by all parties, FCX’s financial condition, although individual or cumulative including authorized representatives of the six south Louisiana outcomes could be material to FCX’s operating results for a parishes originally plaintiffs in the suit and certain other particular period, depending on the nature and magnitude of the non-plaintiff Louisiana parishes and the state of Louisiana. The outcome and the operating results for the period. agreement in principle does not include any admission of liability Louisiana Parishes Coastal Erosion Cases. Certain FCX by FCX or its affiliates. FCX recorded a charge in 2019 for the initial affiliates were named as defendants, along with numerous payment of $15 million, which will be paid upon execution of the co-defendants, in 13 cases out of a total of 42 cases filed in settlement agreement. The settlement agreement has been Louisiana state courts by six south Louisiana parishes (Cameron, executed by the FCX affiliates, several of the Louisiana parishes, Jefferson, Plaquemines, St. Bernard, St. John the Baptist and the state of Louisiana. FCX is continuing its efforts to obtain and Vermilion), alleging that certain oil and gas exploration and signatures from or on behalf of the remaining parishes to finalize production operations and sulfur mining and production the settlement. Upon execution of the settlement agreement by all operations in coastal Louisiana contaminated and damaged parties, the FCX affiliates will be fully released and dismissed from all 13 pending cases. 98 Fre e por t-McMoR an N O T E S T O C O N S O L I D A T E D F I N A N C I A L S T A T E M E N T S Asbestos and Talc Claims. Since approximately 1990, various sole right to access, the proceeds of the legacy insurance coverage FCX affiliates have been named as defendants in a large number of of Cyprus Mines and CAMC for talc liabilities. In March 2019, lawsuits alleging personal injury from exposure to asbestos or Cyprus Mines and CAMC challenged this position and obtained talc allegedly contained in industrial products such as electrical emergency relief from the bankruptcy court to gain access to the wire and cable, raw materials such as paint and joint compounds, insurance until the question of ownership and contractual access talc-based lubricants used in rubber manufacturing or from could be decided in an adversary proceeding before the bankruptcy asbestos contained in buildings and facilities located at properties court, which is currently on hold. owned or operated by affiliates of FCX. Many of these suits involve On December 22, 2020, Imerys filed an amended bankruptcy a large number of codefendants. Based on litigation results to plan disclosing a global settlement with Cyprus Mines and CAMC, date and facts currently known, FCX believes there is a reasonable which provides a framework for a full and comprehensive possibility that losses may have been incurred related to these resolution of all current and future potential liabilities arising out of matters; however, FCX also believes that the amounts of any such the Cyprus Mines talc business, including claims against FCX, its losses, individually or in the aggregate, are not material to its affiliates, Cyprus Mines, and CAMC. consolidated financial statements. There can be no assurance that In 2021, Imerys obtained an injunction temporarily staying future developments will not alter this conclusion. approximately 950 talc-related lawsuits against CAMC and Cyprus There has been a significant increase in the number of cases Mines, which has been extended through June 2022. The interim alleging the presence of asbestos contamination in talc-based stay is a component of the global settlement but there can be cosmetic and personal care products and in cases alleging no assurance that the bankruptcy court will continue to impose the exposure to talc products that are not alleged to be contaminated interim stay. with asbestos. The primary targets have been the producers of On January 23, 2021, Imerys filed the form of a settlement and those products, but defendants in many of these cases also include release agreement to be entered into by CAMC, Cyprus Mines, talc miners. Cyprus Amax Minerals Company (CAMC), an indirect FCX, Imerys and the other debtors, tort claimants’ committee and wholly owned subsidiary of FCX, and Cyprus Mines Corporation future claims representative in the Imerys bankruptcy. In (Cyprus Mines), a wholly owned subsidiary of CAMC, are among accordance with the global settlement, among other things, (1) CAMC those targets. Cyprus Mines was engaged in talc mining and will pay a total of $130 million in cash to a settlement trust processing from 1964 until 1992 when it exited its talc business by in seven annual installments, which will be guaranteed by FCX; conveying it to a third party in two related transactions. Those (2) CAMC and Cyprus Mines and their affiliates will contribute to transactions involved (1) a transfer by Cyprus Mines of the assets the settlement trust all rights that they have to the proceeds of of its talc business to a newly formed subsidiary that assumed all certain legacy insurance policies as well as indemnity rights they pre-sale and post-sale talc liabilities, subject to limited have against Johnson & Johnson, and (3) Cyprus Mines will file for reservations, and (2) a sale of the stock of that subsidiary to the Chapter 11 bankruptcy protection with CAMC paying expenses third party. In 2011, the third party sold that subsidiary to Imerys of Cyprus Mines’ bankruptcy process, subject to certain limitations. Talc America (Imerys), an affiliate of Imerys S.A. In accordance On February 11, 2021, Cyprus Mines filed for Chapter 11 bankruptcy with the terms of the 1992 transactions and subsequent protection. In connection with executing the settlement and release agreements, Imerys undertook the defense and indemnification agreement, FCX concluded that it has a probable loss and, in of Cyprus Mines and CAMC in talc lawsuits. 2020, recorded a $130 million charge to environmental obligations Cyprus Mines has contractual indemnification rights, subject and shutdown costs. to limited reservations, against Imerys, which has historically In October 2021, Johnson & Johnson announced it established acknowledged those indemnification obligations and took a new subsidiary to hold and manage its cosmetic talc liabilities, responsibility for all cases tendered to it. However, in February 2019, which entity subsequently filed for Chapter 11 bankruptcy Imerys filed for Chapter 11 bankruptcy protection, which triggered protection. This filing could further slow and complicate FCX’s an immediate automatic stay under the federal bankruptcy code efforts to implement a resolution. prohibiting any party from continuing or initiating litigation or FCX’s global settlement is subject to, among other things, asserting new claims against Imerys. As a result, Imerys stopped votes by claimants in both the Imerys and Cyprus Mines bankruptcy defending the talc lawsuits against Cyprus Mines and CAMC. In cases as well as bankruptcy court approvals in both cases, and addition, Imerys took the position that it alone owns, and has the there can be no assurance that the global settlement will be successfully implemented. FCX has a $130 million liability balance at December 31, 2021, associated with the proposed settlement. 99 2 0 2 1 A n n u a l R ep o r t N O T E S T O C O N S O L I D A T E D F I N A N C I A L S T A T E M E N T S 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 assessed mining royalties on ore processed by the Cerro Verde concentrator for the period from December 2006 to December 2013. No royalty assessments can be issued for the 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 under protest the disputed assessments mostly under installment payment programs provided under Peruvian law. During 2021, Cerro Verde made payments totaling $421 million, which was the balance of its royalty dispute liabilities. On February 28, 2020, FCX filed on its own behalf and on behalf of Cerro Verde international arbitration proceedings against the Government of Peru under the United States-Peru Trade Promotion Agreement. The hearing on the merits is scheduled to take place in May 2023. In April 2020, SMM Cerro Verde Netherlands B.V., another shareholder of Cerro Verde, filed another international arbitration proceeding against the Government of Peru under the Netherlands-Peru Bilateral Investment Treaty. The Tax Year 2003 to 2008 2009 2010 2011 and 2012 2013 2014 to 2016 Tax Assessment Penalties and Interest $ 48 56 54 41 48 5 $ 252 $ 130 52 122 72 65 28 $ 469 Total $ 178 108 176 113 113 33 $ 721 As of December 31, 2021, Cerro Verde had paid $642 million on these disputed tax assessments. A reserve has been applied against these payments totaling $405 million, resulting in a net receivable of $237 million (included in other assets), which Cerro Verde believes is collectible. Cerro Verde’s income tax assessments, penalties and interest included in the table above totaled $0.6 billion at December 31, 2021, of which $0.3 billion has not been recorded. 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 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, including potential penalties follows: Tax Year 2005 2007 2008 and 2011 2012 and 2013 2014 and 2015 2016 2017 and 2019 Tax Assessment Penalties and Interest $ 62 48 28 41 121 257 48 $ 605 $ 30 23 36 43 — 483 47 $ 662 Total $ 92 71 64 84 121 740 95 $ 1,267 hearing on the merits is scheduled to take place in February 2023. As of December 31, 2021, PT-FI had paid $278 million on these 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 disputed tax assessments. A reserve has been applied against these payments totaling $221 million, resulting in a net receivable of $57 million (included in other assets). PT-FI’s income tax assessments, penalties and interest included in the table above totaled $1.1 billion at December 31, 2021, of which and paid its taxes. A summary of these assessments follows: $0.5 billion has not been recorded. 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 100 Fre epor t-McMoR an N O T E S T O C O N S O L I D A T E D F I N A N C I A L S T A T E M E N T S disputes and charged $69 million to production and delivery costs of the ongoing COVID-19 pandemic. Refer to Note 13 for discussion in December 2018. In May 2019, PT-FI agreed to a final settlement of PT-FI’s commitment for the development of additional smelting of 1.394 trillion rupiah (approximately $99 million) and recorded capacity in Indonesia under the terms of its IUPK. an incremental charge of $28 million. PT-FI paid 708.5 billion rupiah On January 7, 2021, the Indonesia government levied an ($50 million) in October 2019, and paid the balance of 685.5 billion administrative fine of $149 million for the period from March 30, rupiah ($48 million) during 2021. 2020, through September 30, 2020, on PT-FI for failing to achieve Export Duty Matter. In April 2017, PT-FI entered into a physical development progress on the greenfield smelter as of memorandum of understanding with the Indonesia government July 31, 2020. On January 13, 2021, PT-FI responded to the (the 2017 MOU) confirming that the former contract of work Indonesia government objecting to the fine because of events (COW) would continue to be valid and honored until replaced by outside of its control causing a delay of the greenfield smelter’s a mutually agreed IUPK and investment stability agreement and development progress. PT-FI believes that its communications agreed to continue to pay export duties of 5 percent on copper during 2020 with the Indonesia government were not properly concentrate export sales until completion of the divestment and considered before the administrative fine was levied. new IUPK. Subsequently, the Customs Office of the Minister of In June 2021, the Indonesia government issued a ministerial Finance refused to recognize the 5 percent export duty agreed to decree for the calculation of an administrative fine for lack of under the 2017 MOU and imposed a 7.5 percent export duty under smelter development in light of the COVID-19 pandemic. During the Ministry of Finance regulations. PT-FI paid $155 million for 2021, PT-FI recorded charges totaling $16 million for a potential these duties under protest and appealed the disputed amounts to settlement of the administrative fine. On January 25, 2022, the Indonesia Tax Court. The Indonesia Tax Court subsequently the Indonesia government submitted a new estimate of the ruled in favor of PT-FI related to the cases involving $29 million of administrative fine totaling $57 million. On February 15, 2022, PT-FI the disputed amounts, which were refunded by the Indonesia responded to the Indonesia government with a revised calculation Customs Office to PT-FI. The Indonesia Customs Office appealed of $37 million. PT-FI expects to record a charge in the first quarter the Indonesia Tax Court decisions on these cases to the Indonesia of 2022 for an amount in excess of the previously recorded Supreme Court. On October 29, 2019, the Indonesia Supreme Court $16 million. posted on its website rulings unfavorable to PT-FI for certain of Letters of Credit, Bank Guarantees and Surety Bonds. Letters of the appealed cases involving approximately half of the $29 million credit and bank guarantees totaled $239 million at December 31, that had been refunded to PT-FI. As a result of the October 2019 2021, primarily associated with environmental obligations, AROs ruling, FCX recorded a charge of $155 million in 2019 to fully reserve and for copper concentrate shipments from PT-FI to Atlantic for this matter. Copper as required by Indonesia regulations. In addition, FCX had Withholding Tax Assessments. In January 2019, the Indonesia surety bonds totaling $492 million at December 31, 2021, primarily Supreme Court posted on its website an unfavorable decision associated with environmental obligations and AROs. related to a PT-FI 2005 withholding tax matter. PT-FI had also Insurance. FCX purchases a variety of insurance products to received an unfavorable Indonesia Supreme Court decision in mitigate potential losses, which typically have specified deductible November 2017. PT-FI currently has other pending cases at the amounts or self-insured retentions and policy limits. FCX generally Indonesia Supreme Court related to withholding taxes for employees is self-insured for U.S. workers’ compensation, but purchases and other service providers for the year 2005 and the year excess insurance up to statutory limits. An actuarial analysis is 2007, which total $47 million (based on the exchange rate as of performed twice a year on the various casualty insurance programs December 31, 2021, and included in accounts payable and accrued covering FCX’s U.S.-based mining operations, including workers’ liabilities in the consolidated balance sheet at December 31, 2021), compensation, to estimate expected losses. At December 31, 2021, including penalties and interest. FCX’s liability for expected losses under these insurance Smelter Development Progress. As a result of COVID-19 programs totaled $62 million, which consisted of a current portion mitigation measures, there have been disruptions to work and of $11 million (included in accounts payable and accrued liabilities) travel schedules of international contractors and restrictions on and a long-term portion of $51 million (included in other liabilities). access to the proposed physical site of the greenfield smelter in In addition, FCX has receivables of $26 million (a current portion Gresik, Indonesia. PT-FI continues to discuss with the Indonesia of $7 million included in other accounts receivable and a long-term government a deferred schedule for the greenfield smelter in light portion of $19 million included in other assets) for expected claims associated with these losses to be filed with insurance carriers. 101 2 0 2 1 A n n u a l R e p o r t N O T E S T O C O N S O L I D A T E D F I N A N C I A L S T A T E M E N T S FCX’s oil and gas operations are subject to all of the risks The future minimum payments for leases presented in the normally incidental to the production of oil and gas, including well consolidated balance sheet at December 31, 2021, follow: 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 2022 2023 2024 2025 2026 Thereafter Total payments Less amount representing interest Present value of net minimum lease payments Less current portion Long-term portion $ 46 35 73 27 24 194 399 (80) 319 (38) $ 281 Leases. Effective January 1, 2019, FCX adopted the new Accounting Contractual Obligations. At December 31, 2021, based on Standards Update (ASU) for lease accounting, and nearly all applicable prices on that date, FCX has unconditional purchase of FCX’s leases were considered operating leases under the new obligations (including take-or-pay contracts with terms less than ASU. FCX leases various types of properties, including land, one year) of $4.3 billion, primarily comprising the procurement offices and equipment under non-cancelable leases. of copper concentrate ($3.1 billion), transportation services The components of FCX’s leases presented in the consolidated ($0.4 billion) and electricity ($0.3 billion). Some of FCX’s unconditional balance sheet for the years ended December 31 follow: purchase obligations are settled based on the prevailing market 2021 2020 rate for the service or commodity purchased. In some cases, the 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 $ 277 $ 207 $ 38 281a $ 319 $ 38 190 $ 228 a. Includes a land lease by PT-FI for the greenfield smelter totaling $126 million. This is FCX’s only significant finance lease. Operating lease costs, primarily included in production and delivery expense in the consolidated statement of operations, for the three years ended December 31 follow: Operating leases Variable and short-term leases Total operating lease costs 2021 2020 2019 $ 42 62 $ 104 $ 42 $ 74 $ 116 $ 55 79 $ 134 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. Transportation obligations are primarily for South America contracted ocean freight. Electricity obligations are primarily for long-term power purchase agreements in North America and contractual minimum demand at the South America mines. FCX’s unconditional purchase obligations by year total $1.6 billion in 2022, $1.5 billion in 2023, $0.5 billion in 2024, $0.2 billion in 2025, $0.2 billion in 2026 and $0.3 billion thereafter. During the three-year period ended December 31, 2021, FCX fulfilled its minimum contractual purchase obligations. IUPK—Indonesia. 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 FCX payments included in operating cash flows for its lease closing of the transaction, the Indonesia government granted liabilities totaled $54 million in 2021, $36 million in 2020 and PT-FI an IUPK to replace its former COW, enabling PT-FI to $38 million in 2019. FCX payments included in financing cash flows conduct operations in the Grasberg minerals district through 2041. for its lease liabilities totaled $25 million in 2021 and $4 million in Under the terms of the IUPK, PT-FI has been granted an extension both 2020 and 2019. As of December 31, 2021, the weighted- of mining rights through 2031, with rights to extend mining rights average discount rate used to determine the lease liabilities was through 2041, subject to PT-FI completing the development of 4.2 percent (5.4 percent as of December 31, 2020) and the weighted-average remaining lease term was 12.4 years (7.7 years as of December 31, 2020). 102 Fre e por t-McMoR an N O T E S T O C O N S O L I D A T E D F I N A N C I A L S T A T E M E N T S additional smelting capacity in Indonesia by the end of 2023 expects engineering procurement and construction activities to (an extension of which has been requested due to COVID-19 advance during 2022 and 2023. Construction of the greenfield mitigation measures subject to the approval of the Indonesia smelter is expected to be completed as soon as feasible in 2024, government, refer to Note 12), and fulfilling its defined fiscal which is subject to no additional COVID-19-related disruptions and obligations to the Indonesia government. The IUPK, and related other factors. documentation, contains legal and fiscal terms and is legally PT-FI Tolling Agreement. PT-FI entered into a tolling agreement enforceable through 2041, assuming the additional extension is with PT Smelting that will be effective January 1, 2023, and will received. In addition, FCX, as a foreign investor, has rights replace the current concentrate sales agreements between PT-FI to resolve investment disputes with the Indonesia government and PT Smelting. Under the tolling agreement, PT-FI will pay through international arbitration. PT Smelting to smelt and refine its concentrate and will retain title The key fiscal terms set forth in the IUPK include a 25 percent to all products for sale to third parties. corporate income tax rate, a 10 percent profits tax on net income, Indemnification. The PT-FI divestment agreement, discussed in and royalty rates of 4 percent for copper, 3.75 percent for gold and Note 3, provides that FCX will indemnify PT Inalum and PTI from 3.25 percent for silver. PT-FI’s royalties totaled $319 million in any losses (reduced by receipts) arising from any tax disputes of 2021, $160 million in 2020 and $106 million in 2019. PT-FI disclosed to PT Inalum in a Jakarta, Indonesia tax court letter Dividend distributions from PT-FI to FCX totaled $1.0 billion in limited to PTI’s respective percentage share at the time the loss is 2021 and are subject to a 10 percent withholding tax. There were finally incurred. Any net obligations arising from any tax settlement no dividend distributions from PT-FI to FCX in 2020 or 2019. would be paid on December 21, 2025. FCX had accrued $78 million The IUPK requires PT-FI to pay export duties of 5 percent, as of December 31, 2021, and $42 million as of December 31, 2020, declining to 2.5 percent when smelter development progress (included in other liabilities in the consolidated balance sheets) exceeds 30 percent and eliminated when development progress for related to this indemnification. additional smelting capacity in Indonesia exceeds 50 percent. Community Development Programs. FCX has adopted policies PT-FI had previously agreed to and has been paying export duties that govern its working relationships with the communities where since July 2014 (refer to Note 12 for further discussion of disputed it operates. These policies are designed to guide its practices and export duties). PT-FI’s export duties charged against revenues programs in a manner that respects and promotes basic human totaled $218 million in 2021, $92 million in 2020 and $66 million in rights and the culture of the local people impacted by FCX’s 2019 (excluding $155 million associated with the historical export operations. FCX continues to make significant expenditures on duty matter discussed in Note 12). community development, education, training and cultural programs. The IUPK also requires PT-FI to pay surface water taxes of In 1996, PT-FI established the Freeport Partnership Fund for $15 million annually, which began in 2019 and are recognized in Community Development (Partnership Fund) through which PT-FI production and delivery costs. has made available funding and technical assistance to support In connection with a memorandum of understanding previously community development initiatives in the areas of health, entered into with the Indonesia government in July 2014, PT-FI education, economic development and local infrastructure of the provided an assurance bond to support its commitment to construct area. Throughout 2019, PT-FI consulted with key stakeholders to a greenfield smelter in Indonesia ($132 million based on exchange restructure the management of the Partnership Fund in rate as of December 31, 2021). compliance with PT-FI’s IUPK. Throughout the restructuring In March 2021, PT-FI received a one-year extension of its export process, PT-FI continued its contributions to ensure no disruptions license through March 15, 2022. In December 2021, PT Smelting in implementation of approved projects. Beginning in February received a twelve-month extension of its anodes slimes export 2020, the Partnership Fund is managed by a legally-recognized license, which expires December 9, 2022, subject to review and Indonesia foundation (Yayasan Pemberdayaan Masyarakat approval by the Indonesia government every six months. Amungme dan Kamoro, or YPMAK). PT-FI charged $75 million in Chiyoda Contract. In July 2021, PT-FI awarded a construction 2021, $36 million in 2020 and $28 million in 2019 to cost of sales contract to Chiyoda for the construction of a greenfield smelter in for this commitment. Gresik, Indonesia with an estimated contract cost of $2.8 billion. During 2021, PT-FI progressed site preparation activities and 103 2 0 2 1 A n n u a l R ep o r t N O T E S T O C O N S O L I D A T E D F I N A N C I A L S T A T E M E N T S Guarantees. FCX provides certain financial guarantees (including In April 2020, FCX entered into forward sales contracts for indirect guarantees of the indebtedness of others) and indemnities. 150 million pounds of copper for settlement in May and June of Prior to its acquisition by FCX, FMC and its subsidiaries have, as 2020. The forward sales provided for fixed pricing of $2.34 per part of merger, acquisition, divestiture and other transactions, pound of copper on approximately 60 percent of North America’s from time to time, indemnified certain sellers, buyers or other parties sales volumes for May and June 2020. These contracts related to the transaction from and against certain liabilities resulted in hedging losses totaling $24 million for the year associated with conditions in existence (or claims associated with ended December 31, 2020. There were no remaining forward actions taken) prior to the closing date of the transaction. As part sales contracts after June 30, 2020. of these transactions, FMC indemnified the counterparty from and A discussion of FCX’s other derivative contracts and against certain excluded or retained liabilities existing at the time programs follows. 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 Derivatives Designated as Hedging Instruments— Fair Value Hedges Copper Futures and Swap Contracts. Some of FCX’s U.S. copper rod and cathode 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 are recorded in revenues. FCX did not have any significant gains or losses resulting from hedge ineffectiveness during the year ended December 31, 2021. At December 31, 2021, FCX held copper futures and swap contracts that qualified for hedge accounting for 78 million pounds at an average contract price of $4.30 per pound, with maturities through October 2023. 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, FCX does not purchase, hold or sell derivative financial instruments including the unrealized gains (losses) on the related hedged item unless there is an existing asset or obligation, or it anticipates a follows (in millions): 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. 2021 2020 2019 Copper futures and swap contracts: Unrealized (losses) gains: Derivative financial instruments Hedged item—firm sales commitments $ (4) 4 $ 9 (9) $ 15 (15) Realized gains (losses): Matured derivative financial instruments 65 22 (8) 104 Fre e por t-McMoR an N O T E S T O C O N S O L I D A T E D F I N A N C I A L S T A T E M E N T S Derivatives Not Designated as Hedging Instruments hedge against changes in copper prices, with the mark-to-market 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 hedging gains or losses recorded in production and delivery costs. At December 31, 2021, Atlantic Copper held net copper forward sales contracts for 2 million pounds at an average contract price of $4.53 per pound, with maturities through March 2022. contract. FCX receives market prices based on prices in the specified Summary of Gains (Losses). A summary of the realized and future month, which results in price fluctuations recorded in unrealized gains (losses) recognized in operating income for revenues until the date of settlement. FCX records revenues and commodity contracts that do not qualify as hedge transactions, invoices customers at the time of shipment based on then-current including embedded derivatives, follows (in millions): LME or COMEX copper prices and the 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 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, 2021, 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: 682 223 $ 4.37 1,797 $ 4.42 July 2022 1,822 March 2022 Embedded derivatives in provisional sales contractsa: Copper Gold and other Copper forward contractsb 2021 2020 2019 $ 425 (2) (15) $ 259 45 3 $ 34 20 (7) a. Amounts recorded in revenues. b. Amounts recorded in cost of sales as production and delivery costs. Unsettled Derivative Financial Instruments A summary of the fair values of unsettled commodity derivative financial instruments follows: December 31, 2021 2020 Commodity Derivative Assets: Derivatives designated as hedging instruments: Copper futures and swap contracts $ 12 $ 15 Derivatives not designated as hedging instruments: Embedded derivatives in provisional sales/ purchase contracts Copper forward 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 64 1 $ 77 $ 27 1 $ 28 169 — $ 184 $ 21 — $ 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 Copper (millions of pounds) 132 4.38 4.42 April 2022 contracts are netted with the corresponding outstanding Copper Forward Contracts. Atlantic Copper 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 receivable/payable balances. 105 2 0 2 1 A n n u a l R ep o r t N O T E S T O C O N S O L I D A T E D F I N A N C I A L S T A T E M E N T S A summary of these unsettled commodity contracts that are December 31, 2021, and $0.3 billion at December 31, 2020), offset in the balance sheet follows (in millions): restricted cash, restricted cash equivalents, accounts receivable, Assets 2021 2020 Liabilities 2020 2021 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 $ 64 13 77 $ 169 15 184 $ 27 1 28 $ 21 — 21 of investment securities, legally restricted funds and debt). In addition, as of December 31, 2021, FCX has contingent consideration assets related to the sales of certain oil and gas properties (refer to Note 15 for the related fair values). Trade Accounts Receivable Agreements. In first-quarter 2021, PT-FI entered into agreements to sell certain trade accounts receivables to unrelated third-party financial institutions. The 3 1 4 1 — 1 3 1 4 1 — 1 agreements were entered into in the normal course of business to fund the working capital for the additional quantity of copper to be supplied by PT-FI to PT Smelting. The balances sold under the agreements were 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 Copper derivatives 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 61 12 $ 73 $ 51 12 10 $ 73 168 15 $ 183 $ 168 15 — $ 183 24 — $ 24 $ 14 — 10 $ 24 20 — $ 20 $ — — 20 $ 20 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. As of December 31, 2021, the maximum amount of credit exposure associated with derivative transactions was $77 million. Other Financial Instruments. Other financial instruments excluded from trade accounts receivable on the consolidated balance sheet at December 31, 2021. Receivables are considered sold when (i) they are transferred beyond the reach of PT-FI and its creditors, (ii) the purchaser has the right to pledge or exchange the receivables, and (iii) PT-FI has no continuing involvement in the transferred receivables. In addition, PT-FI provides no other forms of continued financial support to the purchaser of the receivables once the receivables are sold. Gross amounts sold under these arrangements totaled $431 million in 2021. Discounts on the sold receivables totaled $2 million in 2021. 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 (in millions): December 31, 2021 2020 Balance sheet components: Cash and cash equivalents Restricted cash and restricted cash equivalents included in: Other current assets Other assets $ 8,068 $ 3,657 114 132 97 149 include cash and cash equivalents, restricted cash, restricted cash Total cash, cash equivalents, restricted cash equivalents, accounts receivable, investment securities, legally restricted funds, accounts payable and accrued liabilities, dividends payable and debt. The carrying value for cash and cash equivalents (which included time deposits of $0.2 billion at and restricted cash equivalents presented in the consolidated statements of cash flows $ 8,314 $ 3,903 106 Fre e por t-McMoR an N O T E S T O C O N S O L I D A T E D F I N A N C I A L S T A T E M E N T S 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 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 gives the highest priority to unadjusted quoted prices in active markets (including those measured at NAV as a practical expedient), other for identical assets or liabilities (Level 1) and the lowest priority to than cash and cash equivalents, restricted cash, restricted cash unobservable inputs (Level 3). FCX did not have any significant transfers equivalents, accounts receivable, accounts payable and accrued in or out of Level 3 for 2021. FCX’s financial instruments are recorded on the consolidated balance sheets at fair value except for contingent consideration associated with liabilities, and dividends payable (refer to Note 14) follows: At December 31, 2021 Total NAV Fair Value Level 1 Level 2 Level 3 $ 50 29 79 64 53 45 20 18 8 1 209 64 12 1 77 81 27 1 28 10,630 $ — 29 29 64 — — — — — — 64 — — — — — — — — — $ $ 50 — 50 — — — — 53 45 20 18 — 1 137 64 3 — 67 — 27 — 27 10,630 $ — — — — — — — — — — — — — — — 81 — — — — — — — — — 8 — 8 — 9 1 10 — — 1 1 — Assets Investment securities:a,b Equity securities U.S. core fixed income fund 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 Municipal bonds Total Derivatives: Embedded derivatives in provisional sales/purchase contracts in a gross asset positionc Copper futures and swap contractsc Copper forward 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 Copper forward contracts Total Long-term debt, including current portiond Carrying Amount $ 50 29 79 64 53 45 20 18 8 1 209 64 12 1 77 90 27 1 28 9,450 107 2 0 2 1 A n n u a l R ep o r t N O T E S T O C O N S O L I D A T E D F I N A N C I A L S T A T E M E N T S At December 31, 2020 Carrying Amount Total NAV Fair Value Level 1 Level 2 Level 3 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 $ $ 29 7 36 $ $ — 7 7 29 7 36 65 49 43 30 16 5 4 1 213 169 15 184 $ 29 — 29 65 — — — — — — — 65 — — — 88 — 21 10,994 — — 65 49 43 30 16 5 4 1 213 169 15 184 108 21 9,711 — — — — 49 43 30 16 — 4 1 143 169 2 171 — 21 10,994 $ — — — — — — — — — — — — — — — 88 — — — — — — — 5 — — 5 — 13 13 — — — 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 $114 million at December 31, 2021, and $97 million at December 31, 2020, and (ii) other assets of $132 million at December 31, 2021, and $148 million at December 31, 2020, primarily associated with an assurance bond to support PT-FI’s commitment for the development of a greenfield 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. 108 Fre e por t-McMoR an N O T E S T O C O N S O L I D A T E D F I N A N C I A L S T A T E M E N T S Valuation Techniques. Equity securities are valued at the closing handling agreement for an offshore platform, with the related price reported on the active market on which the individual payments commencing in third-quarter 2018. The contingent securities are traded and, as such, are classified within Level 1 of consideration included in (i) other current assets totaled $20 million the fair value hierarchy. at December 31, 2021, and $12 million at December 31, 2020, The U.S. core fixed income fund is valued at NAV. The fund and (ii) other assets totaled $70 million at December 31, 2021, and strategy seeks total return consisting of income and capital $96 million at December 31, 2020. The fair value of this contingent appreciation primarily by investing in a broad range of investment- consideration was calculated based on a discounted cash flow grade debt securities, including U.S. government obligations, model using inputs that include third-party estimates for reserves, corporate bonds, mortgage-backed securities, asset-backed production rates and production timing, and discount rates. securities and money market instruments. There are no restrictions Because significant inputs are not observable in the market, the on redemptions (which are usually within one business day of notice). contingent consideration is classified within Level 3 of the fair Fixed income securities (government securities, corporate value hierarchy. bonds, asset-backed securities, collateralized mortgage-backed Long-term debt, including current portion, is primarily valued securities and municipal bonds) are valued using a bid-evaluation using available market quotes and, as such, is classified within price or a mid-evaluation price. These evaluations are based on Level 2 of the fair value hierarchy. quoted prices, if available, or models that use observable inputs The techniques described above may produce a fair value and, as such, are classified within Level 2 of the fair value hierarchy. that may not be indicative of NRV or reflective of future fair values. Money market funds are classified within Level 1 of the fair value Furthermore, while FCX believes its valuation techniques are hierarchy because they are valued using quoted market prices in appropriate and consistent with other market participants, the use active markets. of different techniques or assumptions to determine fair value of FCX’s embedded derivatives on provisional copper concentrate, certain financial instruments could result in a different fair value copper cathode and gold purchases and sales are valued using measurement at the reporting date. There have been no changes in only quoted monthly LME or COMEX copper forward prices and the the techniques used at December 31, 2021, as compared to those adjusted London gold prices at each reporting date based on the techniques used at December 31, 2020. month of maturity (refer to Note 14 for further discussion); however, A summary of the changes in the fair value of FCX’s Level 3 FCX’s contracts themselves are not traded on an exchange. As instrument, contingent consideration for the sale of the a result, these derivatives are classified within Level 2 of the fair Deepwater GOM oil and gas properties, for the years ended value hierarchy. December 31 follows: Balance at beginning of year Net unrealized gains (losses) related to assets still held at the end of the year Settlements Balance at end of year 2021 $ 88 12 (19) $ 81 2020 $ 108 (6) (14) $ 88 2019 $ 127 2 (21) $ 108 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 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 is being received over time as future cash flows are realized from a third-party production 109 2 0 2 1 A n n u a l R e p o r t N O T E S T O C O N S O L I D A T E D F I N A N C I A L S T A T E M E N T S NOTE 16. BUSINESS SEGMENT INFORMATION Product Revenues. FCX’s revenues attributable to the products it sold for the years ended December 31 follow: 2021 2020 2019 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 $ 8,705 5,900 3,369 757 2,580 1,283 821 (445) (330) (218) 22,422 423 $ 22,845 $ 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 a. FCX purchases copper cathode primarily for processing by its Rod & Refining operations. b. Primarily includes revenues associated with silver and cobalt. 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. Years Ended December 31, 2021 2020 2019 Revenues:a U.S. Switzerland Indonesia Japan Spain China United Kingdom Germany Chile Korea Egypt Philippines India Other Total $ 7,168 3,682 3,132 2,372 1,495 1,044 659 469 343 270 268 264 207 1,472 $ 22,845 $ 5,248 2,032 1,760 1,205 785 692 491 248 221 89 153 34 152 1,088 $ 14,198 $ 5,107 2,223 1,894 1,181 884 531 233 311 242 140 123 73 107 1,353 $ 14,402 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 14 percent of FCX’s consolidated revenues in 2021, 12 percent in 2020 and 13 percent in 2019, and they are the only customer that accounted for 10 percent or more of FCX’s consolidated revenues during the three years ended December 31, 2021. Consolidated revenues include sales to the noncontrolling interest owners of FCX’s South America mining operations totaling Geographic Area. Information concerning financial data by $1.4 billion in 2021, $0.9 billion in 2020 and $1.0 billion in 2019, and geographic area follows: December 31, Long-lived assets:a Indonesia U.S. Peru Chile Other Total a. Excludes deferred tax assets and intangible assets. 2021 2020 $ 16,288 8,292 6,827 1,110 261 $ 32,778 $ 15,567 8,420 6,989 1,172 290 $ 32,438 PT-FI’s sales to PT Smelting totaling $3.1 billion in 2021, $1.8 billion in 2020 and $1.9 billion in 2019. Labor Matters. As of December 31, 2021, approximately 31 percent of FCX’s global labor force was covered by collective bargaining agreements, and approximately 14 percent was covered by agreements that will or were scheduled to expire during 2022. In February 2022, PT-FI completed negotiations with its unions on a new two-year collective bargaining agreement that is effective through March 2024. 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. 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. 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. 110 Fre epor t-McMoR an N O T E S T O C O N S O L I D A T E D F I N A N C I A L S T A T E M E N T S FCX defers recognizing profits on sales from its mines to other The Cerro Verde open-pit copper mine, located near Arequipa, segments, including Atlantic Copper Smelting & Refining and on Peru, produces copper cathode and copper concentrate. In PT-FI’s sales to PT Smelting (on 25.0 percent prior to April 30, 2021, addition to copper, the Cerro Verde mine also produces molybdenum and 39.5 percent thereafter) until final sales to third parties occur. concentrate and silver. During 2021, the Cerro Verde mine Quarterly variations in ore grades, the timing of intercompany produced 85 percent of FCX’s South America copper and 23 percent shipments and changes in product prices result in variability in FCX’s of FCX’s consolidated copper production. net deferred profits and quarterly earnings. Indonesia Mining. Indonesia mining includes PT-FI’s FCX allocates certain operating costs, expenses and capital Grasberg minerals district that produces copper concentrate that expenditures to its operating divisions and individual segments. contains significant quantities of gold and silver. During 2021, However, not all costs and expenses applicable to an operation are PT-FI’s Grasberg minerals district produced 35 percent of FCX’s allocated. U.S. federal and state income taxes are recorded and consolidated copper production and 99 percent of FCX’s managed at the corporate level (included in Corporate, Other consolidated gold production. & Eliminations), whereas foreign income taxes are recorded and Molybdenum Mines. Molybdenum mines include the wholly managed at the applicable country level. In addition, most owned Henderson underground mine and Climax open-pit mine, mining exploration and research activities are managed on a both in Colorado. The Henderson and Climax mines produce consolidated basis, and those costs, along with some selling, high-purity, chemical-grade molybdenum concentrate, which is general and administrative costs, are not allocated to the typically further processed into value-added molybdenum operating divisions or individual segments. Accordingly, the chemical products. following Financial Information by Business Segment reflects Rod & Refining. The Rod & Refining segment consists of copper management determinations that may not be indicative of what conversion facilities located in North America, and includes a the actual financial performance of each operating division or refinery and two rod mills, which are combined in accordance with segment would be if it was an independent entity. segment reporting aggregation guidance. These operations North America Copper Mines. FCX operates seven open-pit process copper produced at FCX’s North America copper mines copper mines in North America—Morenci, Safford (including and purchased copper into copper cathode and rod. At times these Lone Star), Bagdad, Sierrita and Miami in Arizona, and Chino and operations refine copper and produce copper rod for customers on Tyrone in New Mexico. The North America copper mines include a toll basis. Toll arrangements require the tolling customer to open-pit mining, sulfide-ore concentrating, leaching and SX/EW deliver appropriate copper-bearing material to FCX’s facilities for operations. A majority of the copper produced at the North processing into a product that is returned to the customer, who America copper mines is cast into copper rod by FCX’s Rod & pays FCX for processing its material into the specified products. Refining segment. In addition to copper, certain of FCX’s North Atlantic Copper Smelting & Refining. Atlantic Copper smelts America copper mines also produce molybdenum concentrate, and refines copper concentrate and markets refined copper and gold and silver. precious metals in slimes. During 2021, Atlantic Copper purchased The Morenci open-pit mine, located in southeastern Arizona, 18 percent of its concentrate requirements from FCX’s North produces copper cathode and copper concentrate. In addition to America copper mines, 7 percent from FCX’s South America mining copper, the Morenci mine also produces molybdenum concentrate. operations and 9 percent from FCX’s Indonesia mining operations, During 2021, the Morenci mine produced 43 percent of FCX’s with the remainder purchased from unaffiliated third parties. North America copper and 16 percent of FCX’s consolidated Corporate, Other & Eliminations. Corporate, Other & copper production. Eliminations consists of FCX’s other mining, oil and gas operations South America Mining. South America mining includes two and other corporate and elimination items, which include the Miami operating copper mines—Cerro Verde in Peru and El Abra in Chile. smelter, Freeport Cobalt (until the sale of it in September 2021), These operations include open-pit mining, sulfide ore concentrating, molybdenum conversion facilities in the U.S. and Europe, the leaching and SX/EW operations. greenfield smelter and PMR in Indonesia, certain non-operating copper mines in North America (Ajo, Bisbee and Tohono in Arizona) and other mining support entities. 111 2 0 2 1 A n n u a l R e p o r t N O T E S T O C O N S O L I D A T E D F I N A N C I A L S T A T E M E N T S FINANCIAL INFORMATION BY BUSINESS SEGMENT Year Ended December 31, 2021 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, 2021 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 $ 82 2,728 1,226 152 13 2 — — — 1,417 — — 2,708 135 $ 180 3,835 2,235 217 — 2 1 (1) — 1,561 1 — 5,208 207 $ 262 6,563 3,461 369 13 4 1 (1) — 2,978 1 — 7,916 342 $ 3,736 460 2,000b 366 — 8 — — — 1,822 28 730 8,694 132 $ 720 — 429 47 — — — — — 244 — 90 1,921 30 $ 4,456 460 2,429 413 — 8 — — — 2,066 28 820 10,615 162 $ 7,241 282 2,425c 1,049 — 111 — — — 3,938 48 1,524f 18,971 1,296 $ — 444 253 67 1 — — — — 123 — — 1,713 6 $ 6,356 $ 2,961 — 29 2,907 6,381 28 5 — — 24 — — — — — (19) — 21 (1) $ 1,569a (7,778) (5,840)d 67 2 236 54 92 (61)e (759) — — 228 2 6 — 1,318 34 519 (45) 7,261 273g $ 22,845 — 12,016 1,998 16 383 55 91 (80) 8,366 602 2,299 48,022 2,115 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 nonrecurring charges totaling $92 million associated with labor-related charges at Cerro Verde for agreements reached with its hourly employees. c. Includes charges totaling $340 million associated with unfavorable ARO change. Refer to Note 12 for further discussion. d. Includes charges associated with the major maintenance turnaround at the Miami Smelter totaling $87 million. e. Includes a $60 million gain on the sale of FCX’s remaining cobalt business located in Kokkola, Finland. Refer to Note 2 for further discussion. f. g. Includes capital expenditures for the Indonesia smelter projects of $222 million. Includes net tax benefits of $189 million associated with the release of a portion of the valuation allowance recorded against PT Rio Tinto NOLs. Refer to Note 11 for further discussion. 112 Fre epor t-McMoR an N O T E S T O C O N S O L I D A T E D F I N A N C I A L S T A T E M E N T S FINANCIAL INFORMATION BY BUSINESS SEGMENT (continued) 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 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 $ 29 2,015 1,269 166 4 2 — — — 603 2 — 2,574 102 $ 48 2,272 1,831 189 48 2 2 (1) — 249 — — 5,163 326 $ 77 4,287 3,100 355 52 4 2 (1) — 852 2 — 7,737 428 $ 2,282 242 1,599 367 — 6 — — — 552d 139 238 8,474 141 $ 431 — 379 54 3 — — — — (5) — 1 1,678 42 $ 2,713 242 1,978 421 3 6 — — — 547 139 239 10,152 183 $ 3,534 80 1,606 580 — 108 — — — 1,320 $ — 222 230 57 10 — — — — (75) 39e 606 16,918 1,161 — — 1,760 19 $ 4,781 33 4,819 16 3 — — 1 — (25)d — — 211 6 $ 2,020 17 1,962 29 — 21 — — — 25 6 2 877 29 $ 1,073a (4,881) (3,664) 70 28 231 48 159b (473)c (207)d 412 97f 4,489 135g $ 14,198 — 10,031 1,528 96 370 50 159 (473) 2,437d 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. Refer to Note 12 for further discussion. 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. Refer to Note 12 for further discussion. 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. g. Includes capital expenditures for the Indonesia smelter projects of $105 million. 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 16,345 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 3,435 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. Refer to Note 12 for further discussion. 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. 113 2 0 2 1 A n n u a l R e p o r t N O T E S T O C O N S O L I D A T E D F I N A N C I A L S T A T E M E N T S NOTE 17. SUPPLEMENTARY MINERAL RESERVE INFORMATION (UNAUDITED) Recoverable proven and probable mineral reserves as of December 31, 2021, have been prepared using industry accepted practice and conform to the disclosure requirements under Subpart 1300 of SEC Regulation S-K. FCX’s proven and probable mineral reserves may not be comparable to similar information regarding mineral reserves disclosed in accordance with the guidance in other countries. Proven and probable mineral reserves were determined by the use of mapping, drilling, sampling, assaying and evaluation methods generally applied in the mining industry. Mineral reserves, as used in the reserve data presented here, mean an estimate of tonnage and grade of measured and indicated mineral resources that, in the opinion of the qualified person, can be the basis of an economically viable project. Proven mineral reserves are the economically mineable part of a measured mineral resource. To classify an estimate as a proven mineral reserve, the qualified person must possess a high degree of confidence of tonnage, grade and quality. Probable mineral reserves are the economically mineable part of an indicated or, in some Estimated recoverable proven and probable mineral reserves at December 31, 2021, 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, 2021, LME copper settlement prices averaged $3.25 per pound, London PM gold prices averaged $1,654 per ounce and the weekly average price for molybdenum quoted by Metals Week averaged $11.97 per pound. The recoverable proven and probable mineral reserves presented in the table below represent the estimated metal quantities from which FCX expects to be paid after application of estimated metallurgical recoveries and smelter recoveries, where applicable. Estimated Recoverable Proven and Probable Mineral Reserves at December 31, 2021 Gold (million ounces) Coppera (billion pounds) Molybdenum (billion pounds) North America South America Indonesiab Consolidated basisc,d Net equity interestb,e 43.0 31.9 32.2 107.2 76.2 0.5 — 26.6 27.1 14.2 2.69 0.69 — 3.39 3.06 cases, a measured mineral resource. The qualified person’s level a. Estimated consolidated recoverable copper reserves included 1.8 billion pounds in leach stockpiles of confidence will be lower in determining a probable mineral reserve than it would be in determining a proven mineral reserve. To classify an estimate as a probable mineral reserve, the qualified person’s confidence must still be sufficient to demonstrate that extraction is economically viable considering reasonable investment and market assumptions. FCX’s mineral 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. and 0.3 billion pounds in mill stockpiles. b. Estimated recoverable proven and probable mineral reserves from Indonesia reflect estimates of minerals that can be recovered through 2041. As a result, PT-FI’s current long-term mine plan and planned operations are based on the assumption that PT-FI will abide by the terms and conditions of the IUPK and will be granted the 10-year extension from 2031 through 2041 (refer to Note 13 for discussion of PT-FI’s IUPK). As a result, PT-FI will not mine all of these mineral reserves during the initial term of the IUPK. Prior to the end of 2031, PT-FI expects to mine 48 percent of aggregate proven and probable recoverable mineral reserves at December 31, 2021, representing 53 percent of FCX’s net equity share of recoverable copper reserves and 55 percent of FCX’s net equity share of recoverable gold reserves. c. Consolidated mineral 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 mineral reserves of 346 million ounces of silver, which were determined using $15 per ounce. d. May not foot because of rounding. e. Net equity interest mineral 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 for 2022 and 48.76 percent from 2023 through 2041. Excluded from the table above were FCX’s estimated recoverable proven and probable mineral reserves of 230 million ounces of silver. 114 Fre epor t -McMoR an N O T E S T O C O N S O L I D A T E D F I N A N C I A L S T A T E M E N T S Estimated Recoverable Proven and Probable Mineral Reserves at December 31, 2021 Average Ore Grade Per Metric Tona Orea (million metric tons) Copper (%) Gold (grams) Molybdenum (%) Recoverable Proven and Probable Reservesb Gold (million ounces) Molybdenum (billion pounds) Copper (billion pounds) 3,918 2,430 2,534 685 308 151 54 19 — 0.23 0.23 0.32 0.45 0.44 — — 0.28 — — —c —c — 0.03 — — — — —c 0.02 0.02 — — 0.15 0.16 — — 3,999 732 0.36 0.42 — — 0.01 — 1.06 0.85 2.26 0.71 0.73 0.97 1.03 0.91 — — — — 857 412 51 351 16,501 13.1 10.3 15.5 5.2 2.5 — — 0.2 —c 27.9 4.1 16.7 6.6 2.3 6.6 110.8 107.2 76.2 — 0.1 0.2 — 0.3 — — — — — — 12.6 7.6 1.1 5.3 27.1 27.1 14.2 0.15 1.02 0.92 — — 0.46 0.17 — — 0.69 — — — — — 3.43 3.39 3.06 North America Production stage: Morenci Sierrita Bagdad Safford, including Lone Star Chino, including Cobre Climax Henderson Tyrone Miami South America Production stage: Cerro Verde El Abra Indonesiad Production stage: Grasberg Block Cave Deep Mill Level Zone Big Gossan Development stage: Kucing Liar Total 100% basise Consolidated basisf FCX’s net equity interestg 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 mineral 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. Totals may not foot because of rounding. f. Consolidated mineral reserves represent estimated metal quantities after reduction for Morenci’s joint venture partner interests (refer to Note 3 for further discussion). g. Net equity interest mineral 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 for 2022 and 48.76 percent from 2023 through 2041. 115 2 0 2 1 A n n u a l R ep o r t P E R F O R M A N C E G R A P H The following graph compares the change in the cumulative total S&P Total Market Index that are classified in the metals and stockholder return on our common stock with the cumulative total mining sub-industry. This comparison assumes $100 invested on return of the S&P 500 Stock Index and the S&P Metals and December 31, 2016, in (a) Freeport-McMoRan Inc. common stock, Mining Select Industry Index from 2017 through 2021. The S&P (b) the S&P 500 Stock Index and (c) the S&P Metals and Mining Metals and Mining Select Industry Index comprises stocks in the Select Industry Index (with the reinvestment of all dividends). 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 $350 $300 $250 $200 $150 $100 $50 $0 12/31/16 12/31/17 12/31/18 12/31/19 12/31/20 12/31/21 Freeport-McMoRan Inc. S&P 500 Stock Index December 31, 2016 2017 2018 2019 2020 2021 $ 100.00 $ 143.75 $ 78.92 $ 102.22 $ 203.50 $ 328.41 100.00 12 1.83 116.49 153.17 181.35 233.41 S&P Metals and Mining Select Industry Index 100.00 120.63 89.20 102.43 119.27 161 .58 116 Fre epor t-McMoR an S T O C K H O L D E R I N F O R M A T I O N INVESTOR INQUIRIES COMMON STOCK DIVIDENDS 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 NOTICE OF ANNUAL MEETING The annual meeting of stockholders will be held June 9, 2022. Notice of the annual meeting will be sent to stockholders of record as of the close of business on April 12, 2022. 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). FCX COMMON STOCK FCX’s common stock trades on the New York Stock Exchange (NYSE) under the symbol “FCX.” As of March 15, 2022, the number of holders of record of FCX’s common stock was 10,637. NYSE composite tape common share price ranges during 2021 and 2020 were: 20220211 2021 2020 High High Low Low High First Quarter $ 39.10 $ 39.10 $ 24.71 $ 24.71 $ 13.64 Second Quarter 46.10 33.03 46.10 33.03 11.68 Third Quarter Fourth Quarter 39.20 39.20 4242 77.77 42.77 30.02 30.02 3030.9393 30.93 17.50 26.83 Low $ 4.82 6.14 11.24 15.22 On February 2, 2021, the Board of Directors (Board) adopted a financial policy for the allocation of cash flows aligned with FCX’s strategic objectives of maintaining a strong balance sheet and increasing cash returns to shareholders while advancing opportunities for future growth. The combined base dividend, variable dividend and share repurchases are designed to achieve the objectives of this performance-based payout framework. As a first step under the new financial policy, the Board reinstated a cash dividend on its common stock at an annual rate of $0.30 per share. FCX’s previous cash dividend on its common stock was $0.20 per share prior to suspending these payments in April 2020 in connection with its comprehensive response to the global pandemic. 20220211 2021 Amount per Share Amount per Share Record Date Record Date Payment Date Payment Date SSecond Quarter Second Quarter $0.075 $0.075 April 15, 2021 April 15, 2021 May 3, 2021 May 3, 2021 TThird Quarter Third Quarter FouFourthrth QuQuartarterer Fourth Quarter $0.075 $0.075 $0.$0.075075 $0.075 July 15, 2021 July 15, 2021 Aug. 2, 2021 Aug. 2, 2021 OctOct. 1. 15,5, 20220211 Oct. 15, 2021 NovNov. 1. 1, 2, 2021021 Nov. 1, 2021 2020 Amount per Share Record Date Payment Date First Quarter $ 0.05 Jan. 15, 2020 Feb. 3, 2020 In November 2021, following the achievement of FCX’s net debt target, the Board began to implement the new performance based- payout framework. A variable cash dividend on common stock for 2022 was approved at an expected annual rate of $0.30 per share. The combined annual rate of the base dividend and the variable dividend is expected to total $0.60 per share. The Board intends to declare quarterly dividends for 2022 of $0.15 per share (including the $0.075 variable component). The initial quarterly dividend was paid on February 1, 2022. Additionally, a new $3.0 billion share repurchase program was authorized. Through March 31, 2022, FCX acquired 25.0 million shares of FCX’s common stock for a total cost of $1,028.9 million ($41.12 per share) under this program. FM_FCX Freeport-McMoRan FreeportFCX freeportfcx Working-Cvr-R1.indd 3 4/6/22 6:30 AM 11 7 Fre e p or t-McMoR a n 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 Working-Cvr.indd 4 3/31/22 12:40 PM

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