FCX Q112 10-Q

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
 
FORM 10-Q
 
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2012
OR
[  ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from
 
to
Commission File Number: 001-11307-01
Freeport-McMoRan Copper & Gold Inc.
(Exact name of registrant as specified in its charter)
Delaware
74-2480931
(State or other jurisdiction of
(I.R.S. Employer Identification No.)
incorporation or organization)
 
 
 
333 North Central Avenue
 
Phoenix, AZ
85004-2189
(Address of principal executive offices)
(Zip Code)
(602) 366-8100
(Registrant's telephone number, including area code)
 
 
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
þ Yes  ¨ No

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate website, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).       þ Yes  ¨ No

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer þ         Accelerated filer ¨          Non-accelerated filer ¨         Smaller reporting company ¨

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
¨ Yes þ No

On April 30, 2012, there were issued and outstanding 949,116,060 shares of the registrant’s common stock, par value $0.10 per share.



FREEPORT-McMoRan COPPER & GOLD INC.

TABLE OF CONTENTS

 
 
 
Page
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
.


2

Table of Contents    

Part I.
FINANCIAL INFORMATION

Item 1.
Financial Statements.

FREEPORT-McMoRan COPPER & GOLD INC.
CONDENSED CONSOLIDATED BALANCE SHEETS (Unaudited)

 
March 31,
2012
 
December 31,
2011
 
(In millions)
ASSETS
 
 
 
Current assets:
 
 
 
Cash and cash equivalents
$
4,496

 
$
4,822

Trade accounts receivable
1,165

 
892

Other accounts receivable
272

 
250

Inventories:
 
 
 
Materials and supplies, net
1,450

 
1,354

Mill and leach stockpiles
1,392

 
1,289

Product
1,254

 
1,226

Other current assets
223

 
214

Total current assets
10,252

 
10,047

Property, plant, equipment and development costs, net
18,986

 
18,449

Long-term mill and leach stockpiles
1,747

 
1,686

Long-term receivables
727

 
675

Intangible assets, net
326

 
325

Other assets
867

 
888

Total assets
$
32,905

 
$
32,070

 
 
 
 
LIABILITIES AND EQUITY
 
 
 
Current liabilities:
 
 
 
Accounts payable and accrued liabilities
$
2,140

 
$
2,297

Dividends payable
298

 
240

Current portion of reclamation and environmental obligations
253

 
236

Accrued income taxes
229

 
163

Current portion of debt
4

 
4

Total current liabilities
2,924

 
2,940

Long-term debt, less current portion
3,517

 
3,533

Deferred income taxes
3,413

 
3,255

Reclamation and environmental obligations, less current portion
2,170

 
2,138

Other liabilities
1,582

 
1,651

Total liabilities
13,606

 
13,517

Equity:
 
 
 
FCX stockholders’ equity:
 
 
 
Common stock
107

 
107

Capital in excess of par value
19,043

 
19,007

Retained earnings
1,013

 
546

Accumulated other comprehensive loss
(453
)
 
(465
)
Common stock held in treasury
(3,575
)
 
(3,553
)
Total FCX stockholders’ equity
16,135

 
15,642

Noncontrolling interests
3,164

 
2,911

Total equity
19,299

 
18,553

Total liabilities and equity
$
32,905

 
$
32,070

 
The accompanying notes are an integral part of these consolidated financial statements.

3

Table of Contents    

FREEPORT-McMoRan COPPER & GOLD INC.
CONSOLIDATED STATEMENTS OF INCOME (Unaudited)

 
Three Months Ended
 
March 31,
 
2012
 
2011
 
(In millions, except per share amounts)
Revenues
$
4,605

 
$
5,709

Cost of sales:
 
 
 
Production and delivery
2,428

 
2,377

Depreciation, depletion and amortization
267

 
232

Total cost of sales
2,695

 
2,609

Selling, general and administrative expenses
104

 
114

Exploration and research expenses
62

 
50

Environmental obligations and shutdown costs
10

 

Total costs and expenses
2,871

 
2,773

Operating income
1,734

 
2,936

Interest expense, net
(63
)
 
(98
)
Losses on early extinguishment of debt
(168
)
 
(7
)
Other (expense) income, net
(13
)
 
10

Income before income taxes and equity in affiliated companies’ net earnings
1,490

 
2,841

Provision for income taxes
(491
)
 
(984
)
Equity in affiliated companies’ net earnings
2

 
4

Net income
1,001

 
1,861

Net income attributable to noncontrolling interests
(237
)
 
(362
)
Net income attributable to FCX common stockholders
$
764

 
$
1,499

 
 
 
 
Net income per share attributable to FCX common stockholders:
 
 
 
Basic
$
0.81

 
$
1.58

Diluted
$
0.80

 
$
1.57

 
 
 
 
Weighted-average common shares outstanding:
 
 
 
Basic
949

 
946

Diluted
955

 
955

 
 
 
 
Dividends declared per share of common stock
$
0.3125

 
$
0.25

 
The accompanying notes are an integral part of these consolidated financial statements.


4

Table of Contents    

FREEPORT-McMoRan COPPER & GOLD INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (Unaudited)

 
Three Months Ended
 
March 31,
 
2012
 
2011
 
(In millions)
Net Income
$
1,001

 
$
1,861

 
 
 
 
Other comprehensive income, net of taxes:
 
 
 
Unrealized gains on securities arising during the period

 
1

Translation adjustments arising during the period

 
1

Defined benefit plans:
 
 
 
Amortization of unrecognized amounts included in net periodic benefit costs
7

 
3

Adjustment to deferred tax valuation allowance
5

 

Other comprehensive income
12

 
5

 
 
 
 
Comprehensive income
1,013

 
1,866

Comprehensive income attributable to noncontrolling interests
(237
)
 
(362
)
Comprehensive income attributable to FCX common stockholders
$
776

 
$
1,504


The accompanying notes are an integral part of these consolidated financial statements.




5

Table of Contents    

FREEPORT-McMoRan COPPER & GOLD INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
 
Three Months Ended
 
March 31,
 
2012
 
2011
 
(In millions)
Cash flow from operating activities:
 
 
 
Net income
$
1,001

 
$
1,861

Adjustments to reconcile net income to net cash provided by operating activities:
 
 
 
Depreciation, depletion and amortization
267

 
232

Stock-based compensation
32

 
43

Pension plans contributions
(52
)
 

Charges for reclamation and environmental obligations, including accretion
35

 
38

Payments of reclamation and environmental obligations
(45
)
 
(52
)
Losses on early extinguishment of debt
168

 
7

Deferred income taxes
168

 
127

(Increase) decrease in long-term mill and leach stockpiles
(61
)
 
23

Other, net
8

 
(34
)
(Increases) decreases in working capital:
 
 
 
Accounts receivable
(482
)
 
511

Inventories
(248
)
 
(253
)
Other current assets
40

 
(18
)
Accounts payable and accrued liabilities
(64
)
 
(264
)
Accrued income and other taxes
34

 
138

Net cash provided by operating activities
801

 
2,359

 
 
 
 
Cash flow from investing activities:
 
 
 
Capital expenditures:
 
 
 
North America copper mines
(143
)
 
(119
)
South America
(152
)
 
(140
)
Indonesia
(182
)
 
(125
)
Africa
(127
)
 
(11
)
Molybdenum
(95
)
 
(71
)
Other
(8
)
 
(39
)
Other, net
(7
)
 

Net cash used in investing activities
(714
)
 
(505
)
 
 
 
 
Cash flow from financing activities:
 
 
 
Proceeds from debt
3,004

 
9

Repayments of debt
(3,159
)
 
(13
)
Restricted cash for early extinguishment of debt

 
(1,124
)
Cash dividends paid:
 
 
 
Common stock
(238
)
 
(238
)
Noncontrolling interests
(1
)
 
(133
)
Contributions from noncontrolling interests

 
5

Net payments for stock-based awards
(4
)
 
(20
)
Excess tax benefit from stock-based awards
7

 
21

Other, net
(22
)
 
(9
)
Net cash used in financing activities
(413
)
 
(1,502
)
 
 
 
 
Net (decrease) increase in cash and cash equivalents
(326
)
 
352

Cash and cash equivalents at beginning of year
4,822

 
3,738

Cash and cash equivalents at end of period
$
4,496

 
$
4,090

The accompanying notes are an integral part of these consolidated financial statements.

6

Table of Contents    

FREEPORT-McMoRan COPPER & GOLD INC.
CONSOLIDATED STATEMENT OF EQUITY (Unaudited)

 
FCX Stockholders’ Equity
 
 
 
 
 
Common Stock
 
 
 
Retained
Earnings
 
Accumu-
lated
Other Compre-
hensive
Loss
 
Common Stock
Held in Treasury
 
Total FCX
Stock-holders' Equity
 
 
 
 
 
Number
of
Shares
 
At Par
Value
 
Capital in
Excess of
Par Value
 
 
 
Number
of
Shares
 
At
Cost
 
 
Non-
controlling
Interests
 
Total
Equity
 
 
 
 
 
 
 
 
 
 
 
(In millions)
Balance at December 31, 2011
1,071

 
$
107

 
$
19,007

 
$
546

 
$
(465
)
 
123

 
$
(3,553
)
 
$
15,642

 
$
2,911

 
$
18,553

Exercised and issued stock-based awards
2

 

 
12

 

 

 

 

 
12

 

 
12

Stock-based compensation

 

 
32

 

 

 

 

 
32

 

 
32

Tax benefit for stock-based awards

 

 
3

 

 

 

 

 
3

 

 
3

Tender of shares for stock-based awards

 

 
6

 

 

 
1

 
(22
)
 
(16
)
 

 
(16
)
Dividends on common stock

 

 

 
(297
)
 

 

 

 
(297
)
 

 
(297
)
Dividends to noncontrolling interests

 

 

 

 

 

 

 

 
(1
)
 
(1
)
Change in ownership interests for noncontrolling interests

 

 
(17
)
 

 

 

 

 
(17
)
 
17

 

Comprehensive income

 

 

 
764

 
12

 

 

 
776

 
237

 
1,013

Balance at March 31, 2012
1,073

 
$
107

 
$
19,043

 
$
1,013

 
$
(453
)
 
124

 
$
(3,575
)
 
$
16,135

 
$
3,164

 
$
19,299

 
The accompanying notes are an integral part of these consolidated financial statements.


7

Table of Contents    

FREEPORT-McMoRan COPPER & GOLD INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

1.
GENERAL INFORMATION
The accompanying unaudited consolidated financial statements have been prepared in accordance with the instructions to Form 10-Q and do not include all information and disclosures required by generally accepted accounting principles (GAAP) in the United States (U.S.). Therefore, this information should be read in conjunction with Freeport-McMoRan Copper & Gold Inc.’s (FCX) consolidated financial statements and notes contained in its 2011 Annual Report on Form 10-K. The information furnished herein reflects all adjustments that are, in the opinion of management, necessary for a fair statement of the results for the interim periods reported. All such adjustments are, in the opinion of management, of a normal recurring nature. Operating results for the three-month period ended March 31, 2012, are not necessarily indicative of the results that may be expected for the year ending December 31, 2012.

2.
EARNINGS PER SHARE
FCX’s basic net income per share of common stock was calculated by dividing net income attributable to common stock by the weighted-average shares of common stock outstanding during the period. Following is a reconciliation of net income and weighted-average shares of common stock outstanding for purposes of calculating diluted net income per share (in millions, except per share amounts):
 
Three Months Ended
 
 
March 31,
 
 
2012
 
2011
 
Net income
$
1,001

 
$
1,861

 
Net income attributable to noncontrolling interests
(237
)
 
(362
)
 
Net income attributable to FCX common stockholders
$
764

 
$
1,499

 
 
 
 
 
 
Weighted-average shares of common stock outstanding
949

 
946

 
Add stock issuable upon exercise or vesting of:
 
 
 
 
 Dilutive stock optionsa
5

 
8

 
 Restricted stock units
1

 
1

 
Weighted-average shares of common stock outstanding
 
 
 
 
 for purposes of calculating diluted net income per share
955

 
955

 
 
 
 
 
 
Diluted net income per share attributable to FCX
     common stockholders
$
0.80

 
$
1.57

 
a.
Potential additional shares of common stock that were anti-dilutive totaled approximately three million for first-quarter 2012 and approximately two million for first-quarter 2011.

Outstanding stock options with exercise prices greater than the average market price of FCX’s common stock during the period are excluded from the computation of net income per share of common stock. Excluded amounts were approximately 9 million stock options with a weighted-average exercise price of $50.63 per option for first-quarter 2012 and less than 1 million stock options with a weighted-average exercise price of $57.86 per option for first-quarter 2011.

8

Table of Contents    


3.
INVENTORIES, INCLUDING LONG-TERM MILL AND LEACH STOCKPILES
The components of inventories follow (in millions):
 
March 31,
2012
 
December 31, 2011
Mining operations:a
 
 
 
Raw materials
$
1

 
$
1

Finished goodsb
805

 
769

Atlantic Copper, S.L.U. (Atlantic Copper):
 
 
 
Raw materials (concentrates)
218

 
260

Work-in-process
212

 
187

Finished goods
18

 
9

Total product inventories
1,254

 
1,226

Total materials and supplies, netc
1,450

 
1,354

Total inventories, less current portion of mill and leach stockpiles
$
2,704

 
$
2,580

a.
FCX's mining operations also have work-in-process inventories (i.e., mill and leach stockpiles), which have been summarized below.
b.
Primarily includes molybdenum concentrates, and copper concentrates, anodes, cathodes and rod.
c.
Materials and supplies inventory is net of obsolescence reserves totaling $27 million at March 31, 2012, and $26 million at December 31, 2011.

A summary of mill and leach stockpiles follows (in millions):
 
March 31,
2012
 
December 31, 2011
Current:
 
 
 
Mill stockpiles
$
85

 
$
69

Leach stockpiles
1,307

 
1,220

Total current mill and leach stockpiles
$
1,392

 
$
1,289

Long-term:a
 
 
 
Mill stockpiles
$
549

 
$
535

Leach stockpiles
1,198

 
1,151

Total long-term mill and leach stockpiles
$
1,747

 
$
1,686

 
a.
Metals in stockpiles not expected to be recovered within the next 12 months.

4.
INCOME TAXES
Geographic sources of FCX's provision for income taxes follow (in millions):
 
Three Months Ended
 
March 31,
 
2012
 
2011
United States operations
$
83

 
$
138

International operations
408

 
846

Total
$
491

 
$
984


FCX’s consolidated effective income tax rate totaled 33 percent for first-quarter 2012 and 35 percent for first-quarter 2011. Variations in the relative proportions of jurisdictional income can result in fluctuations to FCX’s consolidated effective income tax rate.


9

Table of Contents    

5.
DEBT AND EQUITY TRANSACTIONS
In February 2012, FCX sold $500 million of 1.40% Senior Notes due 2015, $500 million of 2.15% Senior Notes due 2017 and $2.0 billion of 3.55% Senior Notes due 2022 for total net proceeds of $2.97 billion. Interest on the 1.40% Senior Notes is payable semiannually on February 13 and August 13 commencing on August 13, 2012. Interest on the 2.15% Senior Notes and the 3.55% Senior Notes is payable semiannually on March 1 and September 1 commencing on September 1, 2012. The unsecured senior notes rank equally with FCX's other existing and future unsecured and unsubordinated indebtedness.

On March 14, 2012, FCX redeemed the remaining $3.0 billion of its outstanding 8.375% Senior Notes due 2017 for which holders received 104.553 percent of the principal amount together with the accrued and unpaid interest. As a result of this redemption, FCX recorded a loss on early extinguishment of debt of $168 million ($149 million to net income attributable to FCX common stockholders or $0.16 per diluted share) in first-quarter 2012.

During the first quarter of 2011, FCX entered into a new senior unsecured revolving credit facility, which replaced the existing revolving credit facilities that were scheduled to mature on March 19, 2012. FCX recognized a loss on early extinguishment of debt totaling $7 million ($6 million to net income attributable to FCX common shareholders or $0.01 per diluted share) in first-quarter 2011 associated with this transaction.

On February 24, 2011, FCX announced its intent to redeem the remaining $1.1 billion of its outstanding 8.25% Senior Notes due 2015. On March 30, 2011, FCX transferred funds totaling $1.2 billion to a restricted cash account to pay the holders of the 8.25% Senior Notes (principal and premium amounts together with accrued and unpaid interest). On April 1, 2011, holders of these senior notes received 104.125 percent of the principal amount together with accrued and unpaid interest. As a result of this redemption, FCX recorded a loss on early extinguishment of debt totaling $55 million ($49 million to net income attributable to FCX common stockholders or $0.05 per diluted share) in second-quarter 2011.

Consolidated interest expense (excluding capitalized interest) totaled $99 million in first-quarter 2012 and $123 million in first-quarter 2011. Capitalized interest totaled $36 million in first-quarter 2012 and $25 million in first-quarter 2011.

On February 7, 2012, the Board of Directors authorized an increase in the cash dividend on FCX's common stock from an annual rate of $1.00 per share to $1.25 per share. On March 28, 2012, FCX's Board of Directors declared a quarterly dividend of $0.3125 per share, which was paid on May 1, 2012, to common shareholders of record at the close of business on April 13, 2012.

6. 
FINANCIAL INSTRUMENTS
FCX does not purchase, hold or sell derivative financial instruments unless there is an existing asset or obligation or it anticipates a future activity that is likely to occur and will result in exposure to market risks that 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 forward, futures and swap contracts to hedge the market risk associated with fluctuations in the prices of commodities it purchases and sells. Derivative financial instruments used by FCX to manage its risks do not contain credit risk-related contingent provisions. As of March 31, 2012, FCX had no price protection contracts relating to its mine production. A discussion of FCX’s derivative commodity contracts and programs follows.


10

Table of Contents    

Derivatives Designated as Hedging Instruments – Fair Value Hedges
Copper Futures and Swap Contracts. Some of Freeport-McMoRan Corporation’s (FMC) U.S. copper rod customers request a fixed market price instead of the New York Mercantile Exchange (COMEX) average copper price in the month of shipment. FCX hedges this price exposure in a manner that allows it to receive the COMEX average price in the month of shipment while the customers pay the fixed price they requested. FCX accomplishes this by entering into copper futures and swap contracts and then liquidating the copper futures contracts and settling the copper swap contracts during the month of shipment, which generally results in FCX receiving the COMEX average copper price in the month of shipment. Hedge gains or losses from these copper futures and swap contracts are recorded in revenues. FCX did not have any significant gains or losses during the three-month periods ended March 31, 2012 and 2011, resulting from hedge ineffectiveness. At March 31, 2012, FCX held copper futures and swap contracts that qualified for hedge accounting for 68 million pounds at an average contract price of $3.72 per pound, with maturities through April 2013.

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, along with the unrealized gains (losses) on the related hedged item (firm sales commitments) follows (in millions):
 
Three Months Ended
 
March 31,
 
2012
 
2011
Copper futures and swap contracts:
 
 
 
Unrealized gains (losses):
 
 
 
Derivative financial instruments
$
18

 
$
(15
)
Hedged item
(18
)
 
15

 
 
 
 
Realized gains:
 
 
 
Matured derivative financial instruments
10

 
12


Derivatives Not Designated as Hedging Instruments
Embedded Derivatives. As described in Note 1 to FCX’s 2011 Annual Report on Form 10-K under “Revenue Recognition,” certain FCX copper concentrate, copper cathode and gold sales contracts provide for provisional pricing primarily based on London Metal Exchange (LME) or COMEX prices (copper) and the London Bullion Market Association (London PM) price (gold) at the time of shipment as specified in the contract. Similarly, FCX purchases copper and molybdenum under contracts that provide for provisional pricing (molybdenum purchases are generally based on an average Metals Week Molybdenum Dealer Oxide price). FCX applies the normal purchases and normal sales scope exception in accordance with derivatives and hedge accounting guidance to the host sales agreements since the contracts do not allow for net settlement and always result in physical delivery. Sales and purchases with a provisional sales price contain an embedded derivative (i.e., the price settlement mechanism that is settled after the time of delivery) that is required to be bifurcated from the host contract. The host contract is the sale or purchase of the metals contained in the concentrates or cathodes at the then-current LME or COMEX price (copper), London PM price (gold) or the average Metals Week Molybdenum Dealer Oxide price (molybdenum) as defined in the contract. Mark-to-market price fluctuations recorded through the settlement date are reflected in revenues for sales contracts and in cost of sales as production and delivery costs for purchase contracts.

A summary of FCX’s embedded derivatives at March 31, 2012, follows:
 
Open
 
Average Price
Per Unit
 
Maturities
 
Positions
 
Contract
 
Market
 
Through
Embedded derivatives in provisional sales contracts:
 
 
 
 
 
 
 
Copper (millions of pounds)
326

 
$
3.69

 
$
3.82

 
August 2012
Gold (thousands of ounces)
53

 
1,690

 
1,663

 
May 2012
Embedded derivatives in provisional purchase contracts:
 
 
 
 
 
 
 
Copper (millions of pounds)
181

 
3.69

 
3.84

 
June 2012
Molybdenum (thousand of pounds)
42

 
12.83

 
12.44

 
April 2012


11

Table of Contents    

Copper Forward Contracts. Atlantic Copper, FCX’s wholly owned smelting and refining unit in Spain, enters into forward copper contracts designed to hedge its copper price risk whenever its physical purchases and sales pricing periods do not match. These economic hedge transactions are intended to hedge against changes in copper prices, with the mark-to-market hedging gains or losses recorded in cost of sales. At March 31, 2012, Atlantic Copper held net forward copper purchase contracts for 22 million pounds at an average contract price of $3.81 per pound, with maturities through May 2012.

A summary of the realized and unrealized gains (losses) recognized in income before income taxes and equity in affiliated companies’ net earnings for commodity contracts that do not qualify as hedge transactions, including embedded derivatives, follows (in millions):
 
Three Months Ended
 
March 31,
 
2012
 
2011
Embedded derivatives in provisional sales contractsa
$
184

 
$
(47
)
Copper forward contractsb
11

 

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 derivative financial instruments recorded on the consolidated balance sheets follows (in millions):
 
March 31,
2012
 
December 31, 2011
Derivatives designated as hedging instruments
 
 
 
Commodity contracts:
 
 
 
Copper futures and swap contracts:a
 
 
 
Asset positionb
$
10

 
$
3

Liability positionc
(3
)
 
(13
)
 
 
 
 
Derivatives not designated as hedging instruments
 
 
 
Commodity contracts:
 
 
 
Embedded derivatives in provisional sales/purchase contracts:d
 
 
 
Asset position
$
46

 
$
72

Liability position
(29
)
 
(82
)
Copper forward contracts:
 
 
 
Asset positionb
1

 
2

a.
FCX had paid $12 million to brokers at March 31, 2012, and $31 million at December 31, 2011, for margin requirements (recorded in other current assets). In addition, FCX held $3 million in margin funding from customers at December 31, 2011, associated with margin requirements (recorded in accounts payable and accrued liabilities).
b.
Amounts recorded in other current assets. 
c.
Amounts recorded in accounts payable and accrued liabilities. 
d.
Amounts recorded either as a net accounts receivable or a net accounts payable.

Foreign Currency Exchange Contracts.  As a global company, FCX transacts business in many countries and in many currencies. Foreign currency transactions of FCX’s international subsidiaries increase its risks because exchange rates can change between the time agreements are made and the time foreign currency transactions are settled. FCX may hedge or protect its international subsidiaries’ foreign currency transactions from time to time by entering into forward exchange contracts to lock in or minimize the effects of fluctuations in exchange rates. FCX had no outstanding foreign currency exchange contracts at March 31, 2012.


12

Table of Contents    

Interest Rate Swap Contracts.  From time to time, FCX or its subsidiaries may enter into interest rate swaps to manage its exposure to interest rate changes and to achieve a desired proportion of fixed-rate versus floating-rate debt based on current and projected market conditions. FCX may enter into fixed-to-floating interest rate swap contracts to protect against changes in the fair value of the underlying fixed-rate debt that result from market interest rate changes and to take advantage of lower interest rates. FCX had no outstanding interest rate swap contracts at March 31, 2012.

Credit Risk.  FCX is exposed to credit loss when financial institutions with which FCX has entered into derivative transactions (commodity, foreign exchange and interest rate swaps) are unable to pay. To minimize the risk of such losses, FCX uses counterparties that meet certain credit requirements and periodically reviews the creditworthiness of these counterparties. FCX does not anticipate that any of the counterparties it deals with will default on their obligations. As of March 31, 2012, FCX did not have any significant credit exposure associated with derivative transactions.

Other Financial Instruments.  Other financial instruments include cash and cash equivalents, accounts receivable, trust assets, available-for-sale securities, accounts payable and accrued liabilities, dividends payable and long-term debt. Refer to Note 7 for the fair values of these financial instruments.

Cash and Cash Equivalents, Accounts Receivable, Accounts Payable and Accrued Liabilities, and Dividends Payable. The financial statement amount is a reasonable estimate of the fair value because of the short maturity of these instruments and generally negligible credit losses.

Trust Assets and Available-for-Sale Securities. The financial statement amount represents the fair value of trust assets and available-for-sale securities.

Long-Term Debt. The financial statement amount represents cost except for long-term debt acquired in the FMC (formerly Phelps Dodge Corporation) acquisition, which was recorded at fair value at the acquisition date.

7.
FAIR VALUE MEASUREMENT
Fair value accounting guidance includes a hierarchy that prioritizes the inputs to valuation techniques used to measure fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 inputs) and the lowest priority to unobservable inputs (Level 3 inputs). FCX did not have any significant transfers in or out of Levels 1, 2 or 3 for the first quarter of 2012.


13

Table of Contents    

The carrying value for certain FCX financial instruments (i.e., cash, accounts receivable, accounts payable and accrued liabilities, and dividends payable) approximate fair value because of their short-term nature and generally negligible credit losses. A summary of the carrying amount and fair value of FCX’s other financial instruments follows (in millions):
 
At March 31, 2012
 
Carrying
 
Fair Value
 
Amount
 
Total
 
Level 1
 
Level 2
 
Level 3
Assets
 
 
 
 
 
 
 
 
 
Cash equivalents:a
 
 
 
 
 
 
 
 
 
Money market funds
$
4,221

 
$
4,221

 
$
4,221

 
$

 
$

 
 
 
 
 
 
 
 
 
 
McMoRan Exploration Co. investmentb
468

 
379

 

 
379

 

 
 
 
 
 
 
 
 
 
 
Trust assets (long-term):a, c
 
 
 
 
 
 
 
 
 
U.S. core fixed income fund
47

 
47

 

 
47

 

Government mortgage-backed securities
39

 
39

 

 
39

 

Corporate bonds
24

 
24

 

 
24

 

Government bonds and notes
21

 
21

 

 
21

 

Asset-backed securities
10

 
10

 

 
10

 

Money market funds
8

 
8

 
8

 

 

Municipal bonds
1

 
1

 

 
1

 

Total trust assets
150

 
150

 
8

 
142

 

 
 
 
 
 
 
 
 
 
 
Available-for-sale securities (current and long-term):a, c, d
 
 
 
 
 
 
 
 
 
Equity securities
8

 
8

 
8

 

 

 
 
 
 
 
 
 
 
 
 
Derivatives:a
 
 
 
 
 
 
 
 
 
Embedded derivatives in provisional sales/purchase
 
 
 
 
 
 
 
 
 
contracts in an asset positione
46

 
46

 

 
46

 

Copper futures and swap contractsf
10

 
10

 
9

 
1

 

Copper forward contractsf
1

 
1

 

 
1

 

Total derivative assets
57

 
57

 
9

 
48

 

 
 
 
 
 
 
 
 
 
 
Total assets
 
 
$
4,815

 
$
4,246

 
$
569

 
$

 
 
 
 
 
 
 
 
 
 
Liabilities
 
 
 
 
 
 
 
 
 
Derivatives:a
 
 
 
 
 
 
 
 
 
Embedded derivatives in provisional sales/purchase
 
 
 
 
 
 
 
 
 
contracts in a liability positione
$
(29
)
 
$
(29
)
 
$

 
$
(29
)
 
$

Copper futures and swap contractsg
(3
)
 
(3
)
 
(2
)
 
(1
)
 

Total derivative liabilities
(32
)
 
(32
)
 
(2
)
 
(30
)
 

 
 
 
 
 
 
 
 
 
 
Long-term debt, including current portionh
(3,521
)
 
(3,502
)
 

 
(3,502
)
 

 
 
 
 
 
 
 
 
 
 
Total liabilities
 
 
$
(3,534
)
 
$
(2
)
 
$
(3,532
)
 
$



14

Table of Contents    

 
At December 31, 2011
 
Carrying
 
Fair Value
 
Amount
 
Total
 
Level 1
 
Level 2
 
Level 3
Assets
 
 
 
 
 
 
 
 
 
Cash equivalents:a
 
 
 
 
 
 
 
 
 
Money market funds
$
4,007

 
$
4,007

 
$
4,007

 
$

 
$

 
McMoRan Exploration Co. investmentb
475

 
507

 

 
507

 

 
 
 
 
 
 
 
 
 
 
Trust assets (long-term):a, c
 
 
 
 
 
 
 
 
 
Government mortgage-backed securities
47

 
47

 

 
47

 

U.S. core fixed income fund
46

 
46

 

 
46

 

Government bonds and notes
21

 
21

 

 
21

 

Corporate bonds
19

 
19

 

 
19

 

Money market funds
9

 
9

 
9

 

 

Asset-backed securities
9

 
9

 

 
9

 

Municipal bonds
1

 
1

 

 
1

 

Total trust assets
152

 
152

 
9

 
143

 

 
 
 
 
 
 
 
 
 
 
Available-for-sale securities (current and long-term):a, c
 
 
 
 
 
 
 
 
 
Equity securities
9

 
9

 
9

 

 

Money market funds
2

 
2

 
2

 

 

Total available-for-sale securities
11

 
11

 
11

 

 

 
 
 
 
 
 
 
 
 
 
Derivatives:a
 
 
 
 
 
 
 
 
 
Embedded derivatives in provisional sales/purchase
 
 
 
 
 
 
 
 
 
contracts in an asset positione
72

 
72

 

 
72

 

Copper futures and swaps contractsf
3

 
3

 
3

 

 

Copper forward contractsf
2

 
2

 
1

 
1

 

Total derivative assets
77

 
77

 
4

 
73

 

 
 
 
 
 
 
 
 
 
 
Total assets
 
 
$
4,754

 
$
4,031

 
$
723

 
$

 
 
 
 
 
 
 
 
 
 
Liabilities
 
 
 
 
 
 
 
 
 
Derivatives:a
 
 
 
 
 
 
 
 
 
Embedded derivatives in provisional sales/purchase
 
 
 
 
 
 
 
 
 
contracts in a liability positione
$
(82
)
 
$
(82
)
 
$

 
$
(82
)
 
$

Copper futures and swap contractsg
(13
)
 
(13
)
 
(11
)
 
(2
)
 

Total derivative liabilities
(95
)
 
(95
)
 
(11
)
 
(84
)
 

 
 
 
 
 
 
 
 
 
 
Long-term debt, including current portionh
(3,537
)
 
(3,797
)
 

 
(3,797
)
 

 
 
 
 
 
 
 
 
 
 
Total liabilities
 
 
$
(3,892
)
 
$
(11
)
 
$
(3,881
)
 
$

a.
Recorded at fair value. 
b.
Recorded at cost and included in other assets.
c.
Current portion included in other current assets and long-term portion included in other assets. 
d.
Excluded were$17 million of time deposits at March 31, 2012.
e.
Embedded derivatives are recorded in accounts receivable and/or accounts payable and accrued liabilities.
f.
Included in other current assets.
g.
Included in accounts payable and accrued liabilities.
h.
Recorded at cost.


15

Table of Contents    

Valuation Techniques

Money market funds are classified within Level 1 of the fair value hierarchy because they are valued using quoted market prices in active markets.

McMoRan Exploration Co.'s (MMR) 5¾% Convertible Perpetual Preferred Stock is not actively traded; therefore, FCX's investment in the MMR 5¾% Convertible Perpetual Preferred Stock is valued based on a pricing simulation model that uses MMR's publicly traded common stock as the most significant observable input. Therefore, this investment is classified within Level 2 of the fair value hierarchy.

Fixed income securities (government and agency securities, U.S. core fixed income funds, corporate bonds and asset-backed securities) are valued using a bid evaluation or a mid evaluation. A bid evaluation is an estimated price at which a dealer would pay for a security. A mid evaluation is the average of the estimated price at which a
dealer would sell a security and the estimated price at which a dealer would pay for a security. These evaluations are based on quoted prices, if available, or models that use observable inputs and, as such, are classified within Level 2 of the fair value hierarchy.

Equity securities are valued at the closing price reported on the active market on which the individual securities are traded and, as such, are classified within Level 1 of the fair value hierarchy.

FCX’s embedded derivatives on provisional copper concentrate, copper cathode and gold purchases and sales have critical inputs of quoted monthly LME or COMEX forward prices (copper) and the London PM forward price (gold) at each reporting date based on the month of maturity; however, FCX's contracts themselves are not traded on an exchange. Likewise, FCX’s embedded derivatives on provisional molybdenum purchases have critical inputs based on the latest average weekly Metals Week Molybdenum Dealer Oxide prices; however, FCX's contracts themselves are not traded on an exchange. As a result, both of these derivatives are classified within Level 2 of the fair value hierarchy.

FCX’s derivative financial instruments for copper futures and swap contracts and 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 forward prices at each reporting date based on the month of maturity (refer to
Note 6 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.

Long-term debt, including current portion, is not actively traded and is valued using prices obtained from a readily available pricing source and, as such, is classified within Level 2 of the fair value hierarchy.

The techniques described above may produce a fair value calculation that may not be indicative of net realizable value or reflective of future fair values. Furthermore, while FCX believes its valuation techniques are appropriate and consistent with other market participants, the use of different techniques or assumptions to determine fair value of certain financial instruments could result in a different fair value measured at the reporting date. There have been no changes in the techniques used at March 31, 2012.
 
8.
CONTINGENCIES AND COMMITMENTS
Litigation. The following information includes a discussion of updates to a previously reported legal proceeding and a new legal proceeding since the information included in Note 13 and incorporated by reference into Part I, Item 3. “Legal Proceedings” of FCX's annual report on Form 10-K for the year ended December 31, 2011.

Blackwell. Coffey, et al., v. Freeport-McMoRan Copper & Gold, Inc., et al., Kay County, Oklahoma District Court, Case No. CJ-2008-68. Information regarding this legal proceeding is incorporated by reference to Note 13 and Part I, Item 3. “Legal Proceedings” of FCX's annual report on Form 10-K for the year ended December 31, 2011. On March 22, 2012, the court approved a settlement with the plaintiffs, which was filed and entered on March 26, 2012, to resolve this pending class action in Blackwell, Oklahoma. A number of potential class members opted out of the settlement, and a smaller number formally objected to the settlement terms. Because no objector filed an appeal by the April 25, 2012 deadline, the settlement is now final.

One Point Street. One Point Street, Inc. v. Freeport-McMoRan Corporation, et al., United States District Court, Southern District of New York, Case No. 2011 CIV 6315, filed September 9, 2011, and amended on March 1, 2012.


16

Table of Contents    

From 1932 until 1984, FMC owned and operated a cable manufacturing facility on the Hudson River in Yonkers, New York. FMC sold that operation in 1984, and it was subsequently sold to BICC Cables Corporation (BICC). BICC closed the facility in 1996. One Point Street, Inc. (OPS), a real estate developer, has current title to the site.

On September 9, 2011, OPS filed a complaint in federal court in New York, which it amended on March 1, 2012. The amended complaint alleges that FMC, BICC and other third parties have failed to timely and diligently complete remediation of the site in breach of alleged obligations under federal and state law and under the contractual agreements among the parties. Due to the early stage of the proceeding, an estimate of the possible loss or range of loss cannot be made. FMC believes it has met its obligations under the contractual agreements and intends to continue doing so, and it will vigorously defend against this litigation.

Other Contingencies. The Indonesian tax authorities issued assessments for various audit exceptions on PT Freeport Indonesia's income tax returns as follows (in millions):
Date of assessment
 
Tax return year
 
Tax assessment
 
Interest assessment
 
Total
October 2010
 
2005
 
$
106

 
$
52

 
$
158

November 2011
 
2006
 
22

 
10

 
32

March 2012
 
2007
 
91

 
44

 
135

Total
 
 
 
$
219

 
$
106

 
$
325

 
PT Freeport Indonesia has filed objections to the 2005 and 2006 assessments, and also intends to file objections to the 2007 assessments. During first-quarter 2012, PT Freeport Indonesia's objections to the assessments related to 2005 were substantially all rejected by the Indonesian tax authorities, and PT Freeport Indonesia is preparing to file appeals with the Indonesian Tax Court. As of March 31, 2012, PT Freeport Indonesia has paid $158 million (of which $124 million is included in long-term receivables) for the disputed tax assessments related to 2005, 2006 and 2007.

Mining contracts. Africa. Effective March 26, 2012, the Democratic Republic of Congo (DRC) government issued a Presidential Decree approving the modifications to Tenke Fungurume Mining S.A.R.L's (TFM) bylaws. As a result, FCX's effective ownership interest in the Tenke Fungurume minerals district was reduced from 57.75 percent to 56.0 percent (prospectively) and $50 million of TFM's intercompany loans were converted to equity.

9.
NEW ACCOUNTING STANDARDS
In May 2011, the Financial Accounting Standards Board (FASB) issued an Accounting Standards Update (ASU) in connection with guidance for fair value measurements and disclosures. This ASU clarifies the FASB's intent on current guidance, modifies and changes certain guidance and principles, and expands disclosures concerning Level 3 fair value measurements in the fair value hierarchy (including quantitative information about significant unobservable inputs within Level 3 of the fair value hierarchy). In addition, this ASU requires disclosure of the fair value hierarchy for assets and liabilities not measured at fair value in the statement of financial position, but whose fair value is required to be disclosed. This ASU is effective for interim and annual reporting periods beginning after December 15, 2011, and early application is not permitted. FCX adopted this guidance effective January 1, 2012.


17

Table of Contents    

In June 2011, FASB issued an ASU in connection with guidance on the presentation of comprehensive income. The objective of this ASU is to improve the comparability, consistency and transparency of financial reporting and to increase the prominence of items reported in other comprehensive income. This ASU requires an entity to present the components of net income and other comprehensive income and total comprehensive income (includes net income) either in a single continuous statement of comprehensive income or in two separate but consecutive statements. This ASU eliminates the option to present the components of other comprehensive income as part of the statement of equity, but does not change the items that must be reported in other comprehensive income. This ASU is effective for interim and annual reporting periods beginning after December 15, 2011, and early adoption is permitted. Effective January 1, 2012, FCX adopted this ASU and presented total comprehensive income in a separate statement. Additionally, in December 2011, FASB deferred the effective date in this ASU for presenting reclassification adjustments for each component of accumulated other comprehensive income in both net income and other comprehensive income on the face of the financial statements.
 
10.
SUBSEQUENT EVENTS
FCX evaluated events after March 31, 2012, and through the date the consolidated financial statements were issued, and determined any events or transactions occurring during this period that would require recognition or disclosure are appropriately addressed in these consolidated financial statements.

11.
BUSINESS SEGMENTS
FCX has organized its operations into five primary divisions – North America copper mines, South America mining, Indonesia mining, Africa mining and Molybdenum operations. Notwithstanding this structure, FCX internally reports information on a mine-by-mine basis. Therefore, FCX concluded that its operating segments include individual mines or operations. Operating segments that meet certain thresholds are reportable segments.

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

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





18

Table of Contents    

Business Segments
(In millions)
North America Copper Mines
 
South America
 
Indonesia
 
Africa
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Atlantic
 
Corporate,
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Copper
 
Other &
 
 
 
 
 
Other
 
 
 
Cerro
 
Other
 
 
 
 
 
 
 
Molyb-
 
Rod &
 
Smelting
 
Elimi-
 
FCX
 
Morenci
 
Mines
 
Total
 
Verde
 
Mines
 
Total
 
Grasberg
 
Tenke
 
denum
 
Refining
 
& Refining
 
nations
 
Total
Three Months Ended March 31, 2012
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Revenues:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Unaffiliated customers
$
13

 
$
17

 
$
30

 
$
449

 
$
526

 
$
975

 
$
953

a 
$
303

 
$
340

 
$
1,298

 
$
704

 
$
2

 
$
4,605

Intersegment
513

 
913

 
1,426

 
127

 
152

 
279

 
(3
)
 
2

 

 
6

 
8

 
(1,718
)
 

Production and delivery
256

 
451

 
707

 
193

 
270

 
463

 
495

 
132

 
262

 
1,297

 
695

 
(1,623
)
 
2,428

Depreciation, depletion and amortization
31

 
62

 
93

 
30

 
32

 
62

 
46

 
32

 
15

 
2

 
10

 
7

 
267

Selling, general and administrative expenses

 
1

 
1

 
1

 
1

 
2

 
33

 
2

 
3

 

 
5

 
58

 
104

Exploration and research expenses

 

 

 

 

 

 

 

 
1

 

 

 
61

 
62

Environmental obligations and shutdown costs

 

 

 

 

 

 

 

 

 

 

 
10

 
10

Operating income (loss)
239

 
416

 
655

 
352

 
375

 
727

 
376

 
139

 
59

 
5

 
2

 
(229
)
 
1,734

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Interest expense, net

 
1

 
1

 
5

 

 
5

 

 

 

 

 
3

 
54

 
63

Provision for income taxes

 

 

 
123

 
117

 
240

 
150

 
29

 

 

 

 
72

 
491

Total assets at March 31, 2012
2,146

 
5,255

 
7,401

 
5,300

 
4,127

 
9,427

 
5,613

 
4,138

 
2,543

 
328

 
1,033

 
2,422

 
32,905

Capital expenditures
44

 
99

 
143

 
69

 
83

 
152

 
182

 
127

 
95

 
3

 
3

 
2

 
707

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Three Months Ended March 31, 2011
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Revenues:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Unaffiliated customers
$
136

 
$
16

 
$
152

 
$
668

 
$
595

 
$
1,263

 
$
1,372

a 
$
309

 
$
374

 
$
1,481

 
$
756

 
$
2

 
$
5,709

Intersegment
386

 
823

 
1,209

 
60

 
79

 
139

 
358

 

 

 
6

 
6

 
(1,718
)
 

Production and delivery
210

 
378

 
588

 
175

 
236

 
411

 
526

 
124

 
240

 
1,481

 
763

 
(1,756
)
 
2,377

Depreciation, depletion and amortization
28

 
30

 
58

 
34

 
23

 
57

 
57

 
28

 
14

 
2

 
10

 
6

 
232

Selling, general and administrative expenses

 
1

 
1

 
1

 
1

 
2

 
43

 
2

 
4

 

 
8

 
54

 
114

Exploration and research expenses

 

 

 

 

 

 

 

 
1

 

 

 
49

 
50

Operating income (loss)
284

 
430

 
714

 
518

 
414

 
932

 
1,104

 
155

 
115

 
4

 
(19
)
 
(69
)
 
2,936

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Interest expense, net
1

 
1

 
2

 

 

 

 
1

 
2

 

 

 
4

 
89

 
98

Provision for income taxes

 

 

 
163

 
143

 
306

 
496

 
40

 

 

 

 
142

 
984

Total assets at March 31, 2011
1,991

 
4,623

 
6,614

 
4,573

 
3,427

 
8,000

 
5,440

 
3,630

 
2,068

 
384

 
1,437

 
3,435

 
31,008

Capital expenditures
29

 
90

 
119

 
24

 
116

 
140

 
125

 
11

 
71

 
3

 
8

 
28

 
505

a.
Includes PT Freeport Indonesia’s sales to PT Smelting totaling $589 million in first-quarter 2012 and $680 million in first-quarter 2011.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 


19

Table of Contents    

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

TO THE BOARD OF DIRECTORS AND STOCKHOLDERS OF
FREEPORT-McMoRan COPPER & GOLD INC.

We have reviewed the condensed consolidated balance sheet of Freeport-McMoRan Copper & Gold Inc. as of March 31, 2012, and the related consolidated statements of income, comprehensive income and cash flows for the three-month periods ended March 31, 2012 and 2011, and the consolidated statement of equity for the three-month period ended March 31, 2012. These financial statements are the responsibility of the Company’s management.

We conducted our review in accordance with the standards of the Public Company Accounting Oversight Board (United States). A review of interim financial information consists principally of applying analytical procedures and making inquiries of persons responsible for financial and accounting matters. It is substantially less in scope than an audit conducted in accordance with the standards of the Public Company Accounting Oversight Board, the objective of which is the expression of an opinion regarding the financial statements taken as a whole. Accordingly, we do not express such an opinion.

Based on our review, we are not aware of any material modifications that should be made to the condensed consolidated financial statements referred to above for them to be in conformity with U.S. generally accepted accounting principles.

We have previously audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated balance sheet of Freeport-McMoRan Copper & Gold Inc. as of December 31, 2011, and the related consolidated statements of income, cash flows, and equity for the year then ended (not presented herein), and in our report dated February 27, 2012, we expressed an unqualified opinion on those consolidated financial statements. In our opinion, the information set forth in the accompanying condensed consolidated balance sheet as of December 31, 2011, is fairly stated, in all material respects, in relation to the consolidated balance sheet from which it has been derived.

/s/ ERNST & YOUNG LLP

Phoenix, Arizona
May 4, 2012

20

Table of Contents    

Item 2.
 Management's Discussion and Analysis of Financial Condition and Results of Operations.

OVERVIEW

In Management’s Discussion and Analysis of Financial Condition and Results of Operations, “we,” “us” and “our” refer to Freeport-McMoRan Copper & Gold Inc. (FCX) and its consolidated subsidiaries. You should read this discussion in conjunction with our financial statements, the related Management’s Discussion and Analysis of Financial Condition and Results of Operations and the discussion of our Business and Properties in our annual report on Form 10-K for the year ended December 31, 2011, filed with the United States (U.S.) Securities and Exchange Commission (SEC). The results of operations reported and summarized below are not necessarily indicative of future operating results (refer to "Cautionary Statement" for further discussion). References to “Notes” are Notes included in our Notes to Consolidated Financial Statements. Throughout Management's Discussion and Analysis of Financial Condition and Results of Operations all references to earnings or losses per share are on a diluted basis, unless otherwise noted.

We are one of the world’s largest copper, gold and molybdenum mining companies in terms of reserves and production. Our portfolio of assets includes the Grasberg minerals district in Indonesia, significant mining operations in North and South America, and the Tenke Fungurume (Tenke) minerals district in the Democratic Republic of Congo (DRC). The Grasberg minerals district contains the largest single recoverable copper reserve and the largest single gold reserve of any mine in the world based on the latest available reserve data provided by third-party industry consultants. We also operate Atlantic Copper, our wholly owned copper smelting and refining unit in Spain.

Our results for first-quarter 2012, compared with first-quarter 2011, primarily reflected lower copper and gold sales volumes and lower realized copper prices. First-quarter 2012 results also included losses on early extinguishment of debt of $168 million ($149 million to net income attributable to common stock or $0.16 per share). Refer to “Consolidated Results” for further discussion of our consolidated financial results for the first quarters
of 2012 and 2011.

Our first-quarter 2012 results also reflected the impact of labor-related work interruptions and the related temporary suspension of operations at PT Freeport Indonesia. Operations and productivity at PT Freeport Indonesia have improved, and full operations, which are dependent on maintaining security and productivity in the workplace, are expected to be restored during second-quarter 2012. Refer to "Consolidated Results" and "Operations - Indonesia Mining" for further discussion of the impacts from the work interruptions and temporary suspension of operations in first-quarter 2012.

At March 31, 2012, we had $4.5 billion in consolidated cash and cash equivalents and $3.5 billion in total debt. During first-quarter 2012, we sold $3.0 billion of senior notes in three tranches with a weighted average interest rate of approximately three percent. We used the proceeds from this offering, plus cash on hand, to redeem the remaining $3.0 billion of our 8.375% Senior Notes. Refer to Note 5 “Capital Resources and Liquidity – Financing Activities” for further discussion.

In February 2012, our Board of Directors authorized an increase in the cash dividend on our common stock to an annual rate of $1.25 per share ($0.3125 per share quarterly). Refer to "Capital Resources and Liquidity - Financing Activities" for further discussion.

At current copper prices we expect to produce substantial operating cash flows in 2012, and plan to focus on using our cash to invest in our development projects and return cash to shareholders through common stock dividends and/or share repurchases.

21

Table of Contents    

OUTLOOK
 
We view the long-term outlook for our business positively, supported by limitations on supplies of copper and by the requirements for copper in the world’s economy. We will continue to adjust our operating strategy as market conditions change. Our financial results vary with fluctuations in market prices for copper, gold and molybdenum and other factors. World market prices for these commodities have fluctuated historically and are affected by numerous factors beyond our control. Because we cannot control the price of our products, the key measures that management focuses on in operating our business are sales volumes, unit net cash costs and operating cash flow. Discussion of the outlook for each of these measures follows.

Sales Volumes. Consolidated sales from mines for the year 2012 are expected to approximate 3.7 billion pounds of copper, 1.1 million ounces of gold and 81 million pounds of molybdenum, including 895 million pounds of copper, 235 thousand ounces of gold and 20 million pounds of molybdenum for second-quarter 2012. Sales estimates for the year 2012 have been revised from the estimates provided in our annual report on Form 10-K for the year ended December 31, 2011, by approximately 100 million pounds of copper and 100 thousand ounces of gold because of reduced operations at PT Freeport Indonesia. The achievement of projected 2012 sales volumes is dependent on a number of factors, including returning to normal operations at Grasberg during second-quarter 2012, achievement of targeted mining rates, the successful operation of production facilities, the impact of weather conditions and other factors.

Unit Net Cash Costs. Assuming average prices of $1,600 per ounce of gold and $14 per pound of molybdenum for the remainder of 2012, and achievement of current sales volume and cost estimates, consolidated unit net cash costs (net of by-product credits) for our copper mining operations are expected to average approximately $1.43 per pound of copper for the year 2012. Quarterly unit net cash costs vary with fluctuations in sales volumes and average realized prices for gold and molybdenum. Second-quarter 2012 unit net cash costs are expected to be higher than first-quarter 2012 and the average for the year primarily reflecting lower gold volumes in Indonesia. The impact of price changes on consolidated unit net cash costs would approximate $0.01 per pound for each $50 per ounce change in the average price of gold during the remainder of 2012, and $0.015 per pound for each $2 per pound change in the average price of molybdenum during the remainder of 2012. Refer to “Consolidated Results – Production and Delivery Costs” for further discussion of consolidated production and delivery costs.

Operating Cash Flows. Our operating cash flows vary with prices realized from copper, gold and molybdenum sales, our sales volumes, production costs, income taxes and other working capital changes and other factors. Based on projected consolidated sales volumes and unit net cash costs for 2012, and assuming average prices of $3.50 per pound of copper, $1,600 per ounce of gold and $14 per pound of molybdenum for the remainder of 2012, consolidated operating cash flows are estimated to approximate $4.2 billion for the year 2012 (net of an estimated $1.1 billion in working capital uses). Projected operating cash flows for the year 2012 also reflect estimated taxes of $1.9 billion (refer to “Consolidated Results – Provision for Income Taxes” for further discussion of our projected consolidated effective annual tax rate for 2012). The impact of price changes for the remainder of 2012 on operating cash flows would approximate $110 million for each $0.05 per pound change in the average price of copper, $35 million for each $50 per ounce change in the average price of gold and $70 million for each $2 per pound change in the average price of molybdenum.

22

Table of Contents    

COPPER, GOLD AND MOLYBDENUM MARKETS

World prices for copper, gold and molybdenum can fluctuate significantly. During the period from January 2002 through April 2012, the London Metal Exchange (LME) spot copper price varied from a low of $0.64 per pound in 2002 to a record high of $4.60 per pound in February 2011, the London Bullion Market Association (London) gold price fluctuated from a low of $278 per ounce in 2002 to a record high of $1,895 per ounce in September 2011, and the Metals Week Molybdenum Dealer Oxide weekly average price ranged from a low of $2.43 per pound in 2002 to a record high of $39.25 per pound in 2005. Copper, gold and molybdenum prices are affected by numerous factors beyond our control as described further in our “Risk Factors” contained in Part I, Item 1A of our annual report on Form 10-K for the year ended December 31, 2011.
*  Excludes Shanghai stocks, producer, consumer and merchant stocks.

This graph presents LME spot copper prices and the combined reported stocks of copper at the LME and the New York Mercantile Exchange (COMEX) from January 2002 through April 2012. From 2006 through most of 2008, limited supplies, combined with growing demand from China and other emerging economies, resulted in high copper prices and low levels of inventories. In late 2008, slowing consumption, turmoil in the U.S. financial markets and concerns about the global economy led to a sharp decline in copper prices, which reached a low of $1.26 per pound in December 2008. Copper prices have since improved from 2008 lows, attributable to a combination of strong demand from emerging markets and limitations on available supply. During first-quarter 2012, LME spot copper prices ranged from $3.39 per pound to $3.93 per pound, averaged $3.77 per pound and closed at $3.85 per pound on March 30, 2012. Combined LME and COMEX inventories have fallen somewhat in 2012, compared to year-end 2011 levels, primarily as a result of increased Chinese imports.

We believe the underlying fundamentals of the copper business remain positive, supported by the significant role of copper in the global economy and limited supplies. Future copper prices are expected to be volatile and are likely to be influenced by demand from China and emerging markets, economic activity in the U.S. and other industrialized countries, the timing of the development of new supplies of copper and production levels of mines and copper smelters. The LME spot copper price closed at $3.87 per pound on April 30, 2012.



23

Table of Contents    

This graph presents London p.m. gold prices from January 2002 through April 2012. During first-quarter 2012, gold prices ranged from $1,598 per ounce to $1,781 per ounce, averaged $1,691 per ounce and closed at $1,663 per ounce on March 30, 2012. We believe the outlook for gold remains positive, supported by continued macroeconomic uncertainty and elevated sovereign debt levels. Gold prices closed at $1,651 per ounce on April 30, 2012.

This graph presents the Metals Week Molybdenum Dealer Oxide weekly average prices from January 2002 through April 2012. In late 2008, molybdenum prices declined significantly as a result of the financial market turmoil and a decline in demand; however, molybdenum prices have increased from the 2008 lows, and we believe prices are being supported by improved economic conditions and resulting demand increases. During first-quarter 2012, the weekly average price of molybdenum ranged from $13.45 per pound to $14.80 per pound, averaged $14.17 per pound and closed at $14.00 per pound on March 30, 2012. The Metals Week Molybdenum Dealer Oxide weekly average price was $14.18 per pound on April 30, 2012.

24

Table of Contents    

CONSOLIDATED RESULTS
 
Three Months Ended
 
 
March 31,
 
 
2012
 
2011
 
Financial Data (in millions, except per share amounts)
 
 
 
 
Revenuesa,b
$
4,605

 
$
5,709

 
Operating incomeb,c
$
1,734

 
$
2,936

 
Net income attributable to FCX common stockholders
$
764

d 
$
1,499

d 
Diluted net income per share attributable to FCX common stockholders
$
0.80

d 
$
1.57

d 
Diluted weighted-average common shares outstanding
955

 
955

 
 
 
 
 
 
Mining Operating Data
 
 
 
 
Copper (millions of recoverable pounds)
 
 
 
 
Production
833

 
950

 
Sales, excluding purchases
827

 
926

 
Average realized price per pound
$
3.82

 
$
4.31

 
Site production and delivery costs per pounde
$
1.96

 
$
1.61

 
Unit net cash costs per pounde
$
1.26

 
$
0.79

 
Gold (thousands of recoverable ounces)
 
 
 
 
Production
252

 
466

 
Sales, excluding purchases
288

 
480

 
Average realized price per ounce
$
1,694

 
$
1,399

 
Molybdenum (millions of recoverable pounds)
 
 
 
 
Production
21

 
20

 
Sales, excluding purchases
21

 
20

 
Average realized price per pound
$
15.34

 
$
18.10

 
a.
Includes the impact of adjustments to provisionally priced concentrate and cathode sales recognized in prior years (refer to “Revenues” below for further discussion). 
b.
Refer to Note 11 for a summary of revenues and operating income by business segment.
c.
We defer recognizing profits on intercompany sales until final sales to third parties occur. Refer to "Operations - Atlantic Copper Smelting & Refining" for a summary of net impacts from changes in these deferrals.
d.
Includes losses on early extinguishment of debt totaling $149 million ($0.16 per share) for first-quarter 2012 associated with the redemption of our 8.375% Senior Notes and $6 million ($0.01 per share) for first-quarter 2011 associated with the revolving credit facilities that were replaced in March 2011 (Refer to Note 5 for further discussion).
e.
Reflects per pound weighted-average production and delivery costs and unit net cash costs (net of by-product credits) for all copper mines, excluding net noncash and other costs. For reconciliations of the per pound costs by operating division to production and delivery costs applicable to sales reported in our consolidated financial statements, refer to “Operations – Unit Net Cash Costs” and to “Product Revenues and Production Costs.”

Revenues
Consolidated revenues totaled $4.6 billion in first-quarter 2012, compared with $5.7 billion in first-quarter 2011. Consolidated revenues include the sale of copper concentrates, copper cathodes, copper rod, gold, molybdenum and other metals by our North and South America mines, the sale of copper concentrates (which also contain significant quantities of gold and also silver) by our Indonesia mining operations, the sale of copper cathodes and cobalt hydroxide by our Africa mining operations, the sale of molybdenum in various forms by our Molybdenum operations, and the sale of copper cathodes, copper anodes, and gold in anodes and slimes by Atlantic Copper.

25

Table of Contents    


Following is a summary of changes in our consolidated revenues between periods (in millions):
First-quarter 2011 consolidated revenues
$
5,709

(Lower) higher price realizations from mining operations:
 
Copper
(405
)
Gold
85

Molybdenum
(58
)
Silver
(6
)
Cobalt
(13
)
(Lower) higher sales volumes from mining operations:
 
Copper
(427
)
Gold
(269
)
Molybdenum
23

Silver
(16
)
Cobalt
(9
)
Favorable impact of net adjustments to prior year provisionally priced sales
139

Lower purchased copper
(239
)
Other, including intercompany eliminations
91

First-quarter 2012 consolidated revenues
$
4,605


Price Realizations
Our consolidated revenues vary as a result of fluctuations in the market prices of copper, gold, molybdenum, silver and cobalt. Consolidated revenues in first-quarter 2012, compared with first-quarter 2011, reflected lower price realizations primarily associated with copper and molybdenum, partly offset by higher gold realizations. Realized copper prices averaged $3.82 per pound in first-quarter 2012, compared with $4.31 per pound in first-quarter 2011. Realized gold prices averaged $1,694 per ounce in first-quarter 2012, compared with $1,399 per ounce in first-quarter 2011. Realized molybdenum prices averaged $15.34 per pound in first-quarter 2012, compared with $18.10 per pound in first-quarter 2011.

Sales Volumes
Consolidated copper sales volumes totaled 827 million pounds of copper, 288 thousand ounces of gold and 21 million pounds of molybdenum in first-quarter 2012, compared with 926 million pounds of copper, 480 thousand ounces of gold and 20 million pounds of molybdenum in first-quarter 2011. Lower consolidated copper and gold sales volumes in first-quarter 2012 primarily reflect lower volumes in Indonesia reflecting lower anticipated ore grades combined with work interruptions and the related temporary suspension of operations. Lower copper sales volumes in Indonesia were partly offset by higher sales volumes in North America. The estimated impact of the work interruptions and the related temporary suspension of operations at PT Freeport Indonesia during first-quarter 2012 totaled approximately 80 million pounds of copper and 125 thousand ounces of gold. Refer to “Operations” for further discussion of sales volumes at our operating divisions.

Provisionally Priced Copper Sales
During first-quarter 2012, 41 percent of our mined copper was sold in concentrate, 31 percent as rod (from our North America operations) and 28 percent as cathode. 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 spot copper 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 the date of final pricing. To the extent final prices are higher or lower than what was recorded on a provisional basis, an increase or decrease to revenues is recorded each reporting period until the date of final pricing. Accordingly, in times of rising copper prices, our revenues benefit from 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.


26

Table of Contents    

At December 31, 2011, we had provisionally priced copper sales at our copper mining operations, primarily South America and Indonesia, totaling 252 million pounds of copper (net of intercompany sales and noncontrolling interests) recorded at an average of $3.44 per pound. Higher prices during first-quarter 2012 resulted in adjustments to these provisionally priced copper sales and favorably impacted consolidated revenues by $109 million ($47 million to net income attributable to common stockholders or $0.05 per share) in first-quarter 2012, compared with adjustments to the December 31, 2010, provisionally priced copper sales that unfavorably impacted first-quarter 2011 consolidated revenues by $10 million ($4 million to net income attributable to common stockholders or less than $0.01 per share).

At March 31, 2012, we had provisionally priced copper sales at our copper mining operations, primarily South America and Indonesia, totaling 214 million pounds of copper (net of intercompany sales and noncontrolling interests) recorded at an average of $3.83 per pound, subject to final pricing over the next several months. We estimate that each $0.05 change in the price realized from the March 31, 2012, provisional price recorded would have a net impact on our 2012 consolidated revenues of approximately $15 million ($8 million to net income attributable to common stockholders). The LME spot copper price closed at $3.87 per pound on April 30, 2012.

Purchased Copper and Molybdenum
From time to time we purchase copper cathode to be processed by our Rod & Refining operations when production from our North America copper mines does not meet customer demand. The decrease in purchased copper resulted from higher production at our North America copper mines in first-quarter 2012, compared with first-quarter 2011.

We also purchase molybdenum concentrates when customer demand requires it.

Production and Delivery Costs
Consolidated production and delivery costs totaled $2.4 billion in the first quarters of 2012 and 2011. Production and delivery costs for first-quarter 2012, compared with first-quarter 2011, reflected higher input costs at our North and South America mining operations, offset by lower costs of copper cathode purchases in North America and lower costs of concentrate purchases at Atlantic Copper, both associated with lower copper prices.

Consolidated unit site production and delivery costs for our copper mining operations averaged $1.96 per pound of copper in first-quarter 2012, compared with $1.61 per pound of copper in first-quarter 2011. Higher site production and delivery costs in first-quarter 2012 primarily reflected lower copper sales volumes in Indonesia and increased mining and input costs in North and South America. 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 energy, principally diesel, electricity, coal and natural gas. For the year 2012, energy costs are expected to approximate 22 percent of our consolidated copper production costs, which reflects projected purchases of approximately 260 million gallons of diesel fuel; 7,085 gigawatt hours of electricity at our North America, South America and Africa copper mining operations (we generate all of our power at our Indonesia mining operation); 750 thousand metric tons of coal for our coal power plant in Indonesia; and 1 million MMBTU (million british thermal units) of natural gas at certain of our North America mines. Energy costs for 2011 approximated 21 percent of our consolidated copper production costs.

Depreciation, Depletion and Amortization
Consolidated depreciation, depletion and amortization expense totaled $267 million in first-quarter 2012, compared with $232 million in first-quarter 2011. Depreciation will vary under the unit of production (UOP) method as a result of increases and decreases in sales volumes and the related UOP rates at our mining operations. Higher depreciation, depletion and amortization expense for first-quarter 2012, compared with first-quarter 2011, primarily reflects the ramp up of production and asset additions in North America, partly offset by lower depreciation in Indonesia associated with lower volumes.

Selling, General and Administrative Expenses
Consolidated selling, general and administrative expenses totaled $104 million in first-quarter 2012, compared with $114 million in first-quarter 2011, primarily reflecting lower incentive compensation costs.


27

Table of Contents    

Exploration and Research Expenses
Consolidated exploration and research expenses totaled $62 million in first-quarter 2012 and $50 million in first-quarter 2011. We are actively conducting exploration activities near our existing mines with a focus on opportunities to expand reserves that will support additional future production capacity in the large mineral districts where we currently operate. Favorable exploration results indicate opportunities for what we believe could be significant future potential reserve additions in North and South America and in the Tenke minerals district. The drilling data in North America continues to indicate the potential for expanded sulfide production.

For the year 2012, exploration and research expenditures are expected to total approximately $330 million, including approximately $275 million for exploration. Exploration activities will continue to focus primarily on the potential for future reserve additions in our existing mineral districts.

Environmental Obligations and Shutdown Costs
Environmental obligation costs reflect net revisions to our long-term environmental obligations, which will vary from period to period because of changes to environmental laws and regulations and/or circumstances affecting our operations that could result in significant changes in our estimates. Shutdown costs include care and maintenance costs and any litigation, remediation or related expenditures associated with closed facilities or operations.

During first-quarter 2012, there were no revisions to our environmental obligations, and shutdown costs totaled $10 million. See "Contingencies" for further discussion of environmental obligations and litigation matters associated with closed facilities or operations.

Interest Expense, Net
Consolidated interest expense (before capitalization) totaled $99 million in first-quarter 2012, compared with $123 million in first-quarter 2011. Lower interest expense in first-quarter 2012 primarily reflected the impact of debt repayments during 2011.

Capitalized interest is primarily related to our development projects and totaled $36 million in first-quarter 2012, compared with $25 million in first-quarter 2011. Refer to “Operations” for further discussion of current development projects.

Losses on Early Extinguishment of Debt
We recorded losses on early extinguishment of debt of $168 million ($149 million to net income attributable to common stockholders or $0.16 per share) for first-quarter 2012 associated with the redemption of our remaining 8.375% Senior Notes.

We recorded losses on early extinguishment of debt totaling $7 million ($6 million to net income attributable to common stockholders or $0.01 per share) for first-quarter 2011 related to the revolving credit facilities that were replaced in March 2011 by a new senior unsecured revolving credit facility.

Refer to Note 5 for further discussion of these transactions.

28

Table of Contents    


Provision for Income Taxes
Following is a summary of the approximate amounts in the calculation of our consolidated provision for income taxes for the first quarters of 2012 and 2011 (in millions, except percentages):
 
Three Months Ended
 
Three Months Ended
 
March 31, 2012
 
March 31, 2011
 
Incomea
 
Effective
Tax Rate
 
Income Tax
(Provision) Benefit
 
Incomea
 
Effective
Tax Rate
 
Income Tax
(Provision) Benefit
U.S.
$
339

 
24%
 
$
(83
)
 
$
647

 
21%
 
$
(138
)
South America
691

 
35%
 
(240
)
 
914

 
33%
 
(306
)
Indonesia
351

 
43%
 
(150
)
 
1,161

 
43%
 
(496
)
Africa
89

 
33%
 
(29
)
 
104

 
38%
 
(40
)
Eliminations and other
20

 
N/A
 
9

 
15

 
N/A
 
(11
)
Annualized rate adjustmentb
N/A

 
N/A
 
2

 
N/A

 
N/A
 
7

Consolidated FCX
$
1,490

 
33%
c 
$
(491
)
 
$
2,841

 
35%
 
$
(984
)
a.
Represents income by geographic location before income taxes and equity in affiliated companies’ net earnings.
b.
In accordance with applicable accounting rules, we adjust our interim provision for income taxes equal to our estimated annualized tax rate.
c.
Our consolidated effective income tax rate is a function of the combined effective tax rates for the jurisdictions in which we operate. Accordingly, variations in the relative proportions of jurisdictional income can result in fluctuations to our consolidated effective income tax rate. Assuming average prices of $3.50 per pound for copper, $1,600 per ounce for gold and $14 per pound for molybdenum for the remainder of 2012 and achievement of current sales volume and cost estimates, we estimate our annual consolidated effective tax rate will approximate 33 percent.
 
OPERATIONS

North America Copper Mines
We currently operate seven copper mines in North America – Morenci, Bagdad, Safford, Sierrita and Miami in Arizona, and Tyrone and Chino in New Mexico. All of these mining operations are wholly owned, except for Morenci, an unincorporated joint venture in which we own an 85 percent undivided interest.

The North America copper mines include open-pit mining, sulfide ore concentrating, leaching and solution extraction/electrowinning (SX/EW) operations. Molybdenum concentrate is also produced by certain of our North America copper mines (primarily Sierrita, Bagdad and Morenci). A majority of the copper produced at our North America copper mines is cast into copper rod by our Rod & Refining operations. The remainder of our North America copper sales is in the form of copper cathode or copper concentrate.

Operating and Development Activities. During 2011 and 2010, we increased production at our North America copper mines. The projects included restarting milling operations and increasing mining rates at Morenci and Chino and restarting the Miami mine. We continue to evaluate a number of opportunities to invest in additional production capacity at several of our North America copper mines. Exploration results in recent years indicate the potential for significant additional sulfide development in North America. Further discussion of current development projects at our North America copper mines is presented below.

Morenci Mill Expansion. We recently completed a feasibility study to expand mining and milling capacity at Morenci to process additional sulfide ores identified through exploratory drilling. The approximate $1.4 billion project would increase milling rates from the current level of 50,000 metric tons of ore per day to approximately 115,000 metric tons of ore per day, and mining rates from the current level of 700,000 short tons per day to 900,000 short tons per day and target incremental annual production of approximately 225 million pounds of copper in 2014. We expect to commence engineering, procurement and initial construction activities during 2012.


29

Table of Contents    

Chino Restart. During 2011, mining and milling activities were restarted at the Chino mine. Production at Chino totaled 69 million pounds of copper for 2011 and is expected to increase to approximately 250 million pounds of copper per year in 2014. Costs for the project associated with equipment and mill refurbishment are expected to approximate $175 million. Project costs of $109 million have been incurred as of March 31, 2012 ($4 million during first-quarter 2012).

Operating Data. Following is summary operating data for the North America copper mines for the first quarters of 2012 and 2011:
 
Three Months Ended
 
March 31,
 
2012
 
2011
Operating Data, Net of Joint Venture Interest
 
 
 
Copper (millions of recoverable pounds)
 
 
 
Production
337

 
282

Sales, excluding purchases
338

 
276

Average realized price per pound
$
3.82

 
$
4.40

 
 
 
 
Molybdenum (millions of recoverable pounds)
 
 
 
Productiona
10

 
7

 
 
 
 
100% Operating Data
 
 
 
SX/EW operations
 
 
 
Leach ore placed in stockpiles (metric tons per day)
1,032,900

 
811,700

Average copper ore grade (percent)
0.23

 
0.24

Copper production (millions of recoverable pounds)
218

 
182

 
 
 
 
Mill operations
 
 
 
Ore milled (metric tons per day)
236,000

 
213,400

Average ore grade (percent):
 
 
 
Copper
0.37

 
0.36

Molybdenum
0.03

 
0.03

Copper recovery rate (percent)
80.0

 
81.8

Copper production (millions of recoverable pounds)
142

 
122

a.
Reflects molybdenum production from certain of the North America copper mines. Sales of molybdenum are reflected in the Molybdenum division.

Copper sales volumes from our North America copper mines increased to 338 million pounds in first-quarter 2012, compared with 276 million pounds in first-quarter 2011, primarily reflecting increased production associated with the ramp up of mining and milling activities.

For the year 2012, copper sales volumes from our North America copper mines are expected to approximate 1.3 billion pounds, compared with 1.2 billion pounds of copper in 2011. Molybdenum production from our North America copper mines is expected to approximate 31 million pounds for the year 2012, compared with 35 million pounds in 2011.


30

Table of Contents    

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 generally accepted accounting principles (GAAP) in the U.S. and should not be considered in isolation or as a substitute for measures of performance determined in accordance with U.S. GAAP. This measure is presented by other metals mining companies, although our measure may not be comparable to similarly titled measures reported by other companies.

Gross Profit per Pound of Copper and Molybdenum

The following tables summarize unit net cash costs and gross profit per pound at our North America copper mines for the first quarters of 2012 and 2011. 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.
 
Three Months Ended
 
Three Months Ended
 
March 31, 2012
 
March 31, 2011
 
By- Product Method
 
Co-Product Method
 
By- Product Method
 
Co-Product Method
 
 
Copper
 
Molyb-
denuma
 
 
Copper
 
Molyb-
denuma
Revenues, excluding adjustments
$
3.82

 
$
3.82

 
$
14.16

 
$
4.40

 
$
4.40

 
$
16.87

 
 
 
 
 
 
 
 
 
 
 
 
Site production and delivery, before net noncash and other costs shown below
1.80

 
1.74

 
3.04

 
1.75

 
1.57

 
7.08

By-product creditsa
(0.41
)
 

 

 
(0.49
)
 

 

Treatment charges
0.12

 
0.11

 

 
0.11

 
0.10

 

Unit net cash costs
1.51

 
1.85

 
3.04

 
1.37

 
1.67

 
7.08

Depreciation, depletion and amortization
0.27

 
0.26

 
0.18

 
0.20

 
0.19

 
0.43

Noncash and other costs, net
0.06

 
0.06

 
0.01

 
0.18

 
0.18

 
0.14

Total unit costs
1.84

 
2.17

 
3.23

 
1.75

 
2.04

 
7.65

Revenue adjustments, primarily for pricing on prior period open sales
0.03

 
0.03

 

 

 

 

Gross profit per pound
$
2.01

 
$
1.68

 
$
10.93

 
$
2.65

 
$
2.36

 
$
9.22

 
 
 
 
 
 
 
 
 
 
 
 
Copper sales (millions of recoverable pounds)
337

 
337

 
 
 
275

 
275

 
 
Molybdenum sales (millions of recoverable pounds)b
 
 
 
 
10

 
 
 
 
 
7

 
 
 
 
 
 
 
 
 
 
 
 
a.
Molybdenum credits and revenues reflect volumes produced at market-based pricing and also include tolling revenues at Sierrita. 
b.
Reflects molybdenum produced by certain of our North America copper mines.

Our operating North America copper mines have varying cost structures because of differences in ore grades and characteristics, processing costs, by-products and other factors. Unit net cash costs (net of by-product credits) for our North America copper mines averaged $1.51 per pound of copper in first-quarter 2012, compared with $1.37 per pound of copper in first-quarter 2011, primarily reflecting increased mining and milling activities, partly offset by higher copper sales volumes. North America copper mines' average unit net cash costs also reflected lower molybdenum credits in first-quarter 2012.

Assuming achievement of current sales volume and cost estimates and an average price of $14 per pound of molybdenum for the remainder of 2012, we estimate that average unit net cash costs (net of by-product credits) for our North America copper mines would approximate $1.68 per pound of copper for the year 2012, compared with $1.41 per pound of copper in 2011. North America's average unit net cash costs for 2012 would change by approximately $0.03 per pound for each $2 per pound change in the average price of molybdenum during the remainder of 2012.


31

Table of Contents    

South America Mining
We operate four copper mines in South America – Cerro Verde in Peru, and El Abra, Candelaria and Ojos del Salado in Chile. We own a 53.56 percent interest in Cerro Verde, a 51 percent interest in El Abra, and an 80 percent interest in both Candelaria and Ojos del Salado.

South America mining includes open-pit and underground mining, sulfide ore concentrating, leaching and SX/EW operations. Production from our South America mines is sold as copper concentrate or copper cathode under long-term contracts. Our South America mines ship a portion of their copper concentrate and cathode inventories to Atlantic Copper, an affiliated smelter. In addition to copper, the Cerro Verde mine produces molybdenum concentrates, and the Candelaria and Ojos del Salado mines produce gold and silver.

Operating and Development Activities.
El Abra Sulfide. During 2011, we commenced production from El Abra’s sulfide ores. Production from the sulfide ore is expected to approximate 300 million pounds of copper per year, replacing the currently depleting oxide copper production. The aggregate capital investment for this project is expected to approximate $800 million through 2015, which includes approximately $580 million for the nearly completed initial phase of the project. Project costs of $531 million have been incurred as of March 31, 2012 ($18 million during first-quarter 2012).

We are also engaged in pre-feasibility studies for a potential large-scale milling operation at El Abra to process additional sulfide material and to achieve higher recoveries. Positive exploration results at El Abra indicate the potential for a significant sulfide resource. Exploration activities are continuing.

Cerro Verde Expansion. At Cerro Verde, plans for a large-scale concentrator expansion continue to be advanced. The approximate $4 billion project would expand the concentrator facilities from 120,000 metric tons of ore per day to 360,000 metric tons of ore per day and provide incremental annual production of approximately 600 million pounds of copper and 15 million pounds of molybdenum beginning in 2016. An environmental impact assessment was filed in fourth-quarter 2011, permitting is being advanced and engineering and procurement of long-lead items are in progress.

An agreement has been reached with the Regional Government of Arequipa, the National Government, Servicio de Agua Potable y Alcantarillado de Arequipa S.A. (SEDAPAR) and other local institutions to allow Cerro Verde to finance the engineering and construction of a wastewater treatment plant for Arequipa, should Cerro Verde proceed with the expansion. Once Cerro Verde obtains a license for the treated water it would be used to supplement its existing water supplies to support the potential concentrator expansion.  

Candelaria Water. As part of our overall strategy to supply water to the Candelaria mine, we completed construction of a pipeline to bring water from a nearby water treatment facility. In addition, we have completed engineering and began construction for a desalination plant and pipeline that will supply Candelaria’s longer term water needs. The plant is expected to be completed in early 2013 at a capital investment of approximately $300 million. Project costs of $180 million have been incurred as of March 31, 2012 ($54 million during first-quarter 2012).



32

Table of Contents    

Operating Data. Following is summary operating data for our South America mining operations for the first quarters of 2012 and 2011:
 
Three Months Ended
 
March 31,
 
2012
 
2011
Copper (millions of recoverable pounds)
 
 
 
Production
293

 
317

Sales
286

 
312

Average realized price per pound
$
3.83

 
$
4.31

 
 
 
 
Gold (thousands of recoverable ounces)
 
 
 
Production
19

 
24

Sales
19

 
24

Average realized price per ounce
$
1,680

 
$
1,394

 
 
 
 
Molybdenum (millions of recoverable pounds)
 
 
 
Productiona
2

 
3

 
 
 
 
SX/EW operations
 
 
 
Leach ore placed in stockpiles (metric tons per day)
196,300

 
262,200

Average copper ore grade (percent)
0.55

 
0.43

Copper production (millions of recoverable pounds)
118

 
90

 
 
 
 
Mill operations
 
 
 
Ore milled (metric tons per day)
186,000

 
191,800

Average ore grade:
 
 
 
Copper (percent)
0.55

 
0.68

Gold (grams per metric ton)
0.09

 
0.12

Molybdenum (percent)
0.02

 
0.02

Copper recovery rate (percent)
89.2

 
91.4

Copper production (millions of recoverable pounds)
175

 
227

a.
Reflects molybdenum production from Cerro Verde. Sales of molybdenum are reflected in the Molybdenum division.

Copper sales from our South America mining operations declined to 286 million pounds in first-quarter 2012, compared with 312 million pounds in first-quarter 2011, primarily reflecting anticipated lower ore grades at Cerro Verde and Candelaria, partly offset by higher production at El Abra.

For the year 2012, consolidated sales volumes from South America mining are expected to approximate 1.3 billion pounds of copper and 100 thousand ounces of gold, similar to 2011 sales of 1.3 billion pounds of copper and 101 thousand ounces of gold. Molybdenum production from Cerro Verde is expected to approximate 9 million pounds for the year 2012, compared with 10 million pounds in 2011.

Unit Net Cash Costs. Unit net cash costs per pound of copper is a measure intended to provide investors with information about the cash-generating capacity of our mining operations expressed on a basis relating to the primary metal product for our respective operations. We use this measure for the same purpose and for monitoring operating performance by our mining operations. This information differs from measures of performance determined in accordance with U.S. GAAP and should not be considered in isolation or as a substitute for measures of performance determined in accordance with U.S. GAAP. This measure is presented by other metals mining companies, although our measure may not be comparable to similarly titled measures reported by other companies.

33

Table of Contents    


Gross Profit per Pound of Copper

The following tables summarize unit net cash costs and gross profit per pound at the South America mining operations for the first quarters of 2012 and 2011. 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 small amounts of molybdenum, gold and silver sales. Refer to “Product Revenues and Production Costs” for an explanation of the “by-product” and “co-product” methods and a reconciliation of unit net cash costs per pound to production and delivery costs applicable to sales reported in our consolidated financial statements.
 
Three Months Ended
 
Three Months Ended
 
March 31, 2012
 
March 31, 2011
 
By-Product
Method
 
Co-Product
Method
 
By-Product
Method
 
Co-Product
Method
Revenues, excluding adjustments
$
3.83

 
$
3.83

 
$
4.31

 
$
4.31

 
 
 
 
 
 
 
 
Site production and delivery, before net noncash and other costs shown below
1.53

 
1.42

 
1.30

 
1.20

By-product credits
(0.29
)
 

 
(0.36
)
 

Treatment charges
0.16

 
0.16

 
0.19

 
0.19

Unit net cash costs
1.40

 
1.58

 
1.13

 
1.39

Depreciation, depletion and amortization
0.22

 
0.21

 
0.18

 
0.17

Noncash and other costs, net
0.07

 
0.04

 
0.06

 
0.05

Total unit costs
1.69

 
1.83

 
1.37

 
1.61

Revenue adjustments, primarily for pricing on prior period open sales
0.38

 
0.38

 
0.03

 
(0.03
)
Gross profit per pound
$
2.52

 
$
2.38

 
$
2.97

 
$
2.67

 
 
 
 
 
 
 
 
Copper sales (millions of recoverable pounds)
286

 
286

 
312

 
312

 
 
 
 
 
 
 
 
Our South America mines have varying cost structures because of differences in ore grades and characteristics, processing costs, by-products and other factors. Average unit net cash costs (net of by-product credits) for our South America mining operations averaged $1.40 per pound of copper in first-quarter 2012, compared with $1.13 per pound in first-quarter 2011. Higher average unit net cash costs in first-quarter 2012 primarily reflected higher site production and delivery costs associated with increased input costs and lower copper sales volumes, and also reflected lower molybdenum credits.

Revenue adjustments primarily result from changes in prices on provisionally priced copper sales recognized in prior periods. To the extent 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, higher copper prices during first-quarter 2012 resulted in favorable revenue adjustments to December 31, 2011, provisionally priced copper sales, whereas, decreasing prices in first-quarter 2011 resulted in unfavorable revenue adjustments to December 31, 2010, provisionally priced copper sales. Refer to “Consolidated Results - Revenues” for further discussion.

Assuming achievement of current sales volume and cost estimates and average prices of $1,600 per ounce of gold and $14 per pound of molybdenum for the remainder of 2012, we estimate that average unit net cash costs (net of by-product credits) for our South America mining operations would approximate $1.44 per pound of copper for the year 2012, compared with $1.20 per pound in 2011.

Indonesia Mining
Indonesia mining includes PT Freeport Indonesia’s Grasberg minerals district. We own 90.64 percent of PT Freeport Indonesia, including 9.36 percent owned through our wholly owned subsidiary, PT Indocopper Investama.

PT Freeport Indonesia produces copper concentrates, which contain significant quantities of gold and also silver. Substantially all of PT Freeport Indonesia’s copper concentrates are sold under long-term contracts, of which approximately one-half is sold to affiliated smelters, Atlantic Copper and PT Smelting (PT Freeport Indonesia’s 25-percent owned copper smelter and refinery in Indonesia) and the remainder to other customers.


34

Table of Contents    

We have established certain unincorporated joint ventures with Rio Tinto plc (Rio Tinto), under which Rio Tinto has a 40 percent interest in certain assets and future production exceeding specified annual amounts of copper, gold and silver. Refer to Note 2 in our annual report on Form 10-K for the year ended December 31, 2011, for discussion of our joint ventures with Rio Tinto plc.

Development Activities. We have several projects in progress in the Grasberg minerals district, primarily related to the development of the large-scale, high-grade underground ore bodies located beneath and nearby the Grasberg open pit. In aggregate, these underground ore bodies are expected to ramp up to approximately 240,000 metric tons of ore per day following the currently anticipated transition from the Grasberg open pit in 2016. Over the next five years, aggregate capital spending on these projects is expected to average $700 million per year ($550 million per year net to PT Freeport Indonesia). Considering the long-term nature and large size of these projects, actual costs could differ materially from these estimates.

The following provides additional information on these projects, including the continued development of the Common Infrastructure project, the Grasberg Block Cave and Big Gossan underground mines and development of the Deep Mill Level Zone (DMLZ) ore body, that lies below the Deep Ore Zone (DOZ) underground mine.

Common Infrastructure and Grasberg Block Cave. In 2004, PT Freeport Indonesia commenced its Common Infrastructure project to provide access to its large undeveloped underground ore bodies located in the Grasberg minerals district through a tunnel system located approximately 400 meters deeper than its existing underground tunnel system. In addition to providing access to our underground ore bodies, the tunnel system will enable PT Freeport Indonesia to conduct future exploration in prospective areas associated with currently identified ore bodies. The tunnel system was completed to the Big Gossan terminal and the Big Gossan mine was brought into production in fourth-quarter 2010. We have also advanced development of both the DMLZ and Grasberg spurs, and have completed the tunneling required to reach these underground ore bodies.

The Grasberg Block Cave underground mine accounts for over one-third of our reserves in Indonesia. Production at the Grasberg Block Cave mine is currently scheduled to commence at the end of mining the Grasberg open pit, which is currently expected to continue until 2016. The timing of the transition to underground Grasberg Block Cave mine will continue to be assessed. Targeted production rates once the Grasberg Block Cave mining operation reaches full capacity are expected to approximate 160,000 metric tons of ore per day.

Aggregate mine development capital for the Grasberg Block Cave mine and associated Common Infrastructure is expected to approximate $4.2 billion (incurred between 2008 and 2021), with PT Freeport Indonesia’s share totaling approximately $3.8 billion. Aggregate project costs totaling $634 million have been incurred through March 31, 2012 ($65 million during first-quarter 2012).

Big Gossan. The Big Gossan underground mine is a high-grade deposit located near PT Freeport Indonesia’s existing milling complex. The Big Gossan mine is being developed as an open-stope mine with backfill consisting of mill tailings and cement, an established mining methodology. Production, which began in fourth-quarter 2010, is designed to ramp up to 7,000 metric tons of ore per day in 2013 (equal to average annual aggregate incremental production of 125 million pounds of copper and 65,000 ounces of gold). The aggregate capital investment for this project is currently estimated at approximately $550 million, with PT Freeport Indonesia’s share totaling approximately $518 million. Aggregate project costs of $501 million have been incurred through March 31, 2012 ($7 million during first-quarter 2012).

DMLZ. The DMLZ ore body lies below the DOZ mine at the 2,590-meter elevation and represents the downward continuation of mineralization in the Ertsberg East Skarn system and neighboring Ertsberg porphyry. We plan to mine the ore body using a block-cave method with production beginning in 2015, near completion of mining at the DOZ mine. Drilling efforts continue to determine the extent of this ore body. Aggregate mine development capital costs for the DMLZ mine are expected to approximate $2.2 billion (incurred from 2009 to 2020), with PT Freeport Indonesia’s share totaling approximately $1.3 billion. Aggregate project costs totaling $321 million have been incurred through March 31, 2012 ($52 million during first-quarter 2012). Targeted production rates once the DMLZ mining operation reaches full capacity are expected to approximate 80,000 metric tons of ore per day.


35

Table of Contents    

Other Matters. Between July 2009 and April 2012, there were 33 shooting incidents in and around the Grasberg minerals district, including along the road leading to our mining and milling operations, which resulted in 15 fatalities and 56 injuries. The investigation of these matters is continuing. We have taken precautionary measures, including limiting use of the road to secured convoys. The Indonesian government has responded with additional security forces and expressed a commitment to protect the safety of the community and our operations. Prolonged limitations on access to the road could adversely affect operations at the mine. The safety of our workforce is a critical concern, and PT Freeport Indonesia is working cooperatively with the Government of Indonesia to address security issues. Refer to "Risk Factors" contained in Part I, Item 1A of our annual report on Form 10-K for the year ended December 31, 2011, for further discussion.

Operating Data. Following is summary operating data for our Indonesia mining operations for the first quarters of 2012 and 2011:
 
Three Months Ended
 
March 31,
 
2012
 
2011
Operating Data, Net of Joint Venture Interest
 
 
 
Copper (millions of recoverable pounds)
 
 
 
Production
123

 
284

Sales
134

 
278

Average realized price per pound
$
3.81

 
$
4.26

 
 
 
 
Gold (thousands of recoverable ounces)
 
 
 
Production
229

 
441

Sales
266

 
454

Average realized price per ounce
$
1,695

 
$
1,400

 
 
 
 
100% Operating Data
 
 
 
Ore milled (metric tons per day):a
 
 
 
Grasberg open pit
80,500

 
140,300

DOZ underground mine
33,100

 
80,100

Big Gossan underground mine
1,200

 
1,800

Total
114,800

 
222,200

Average ore grade:
 
 
 
Copper (percent)
0.64

 
0.77

Gold (grams per metric ton)
0.84

 
0.89

Recovery rates (percent):
 
 
 
Copper
89.6

 
87.3

Gold
82.1

 
82.0

Production (recoverable):
 
 
 
Copper (millions of pounds)
123

 
284

Gold (thousands of ounces)
229

 
459

a.
Amounts represent the approximate average daily throughput processed at PT Freeport Indonesia’s mill facilities from each producing mine.

Sales volumes from our Indonesia mining operations declined to 134 million pounds of copper and 266 thousand ounces of gold in first-quarter 2012, compared with 278 million pounds of copper and 454 thousand ounces of gold in first-quarter 2011, primarily reflecting anticipated lower ore grades combined with work interruptions and the related temporary suspension of operations during first-quarter 2012.

The terms of a new two-year labor agreement for PT Freeport Indonesia's employees were reached in mid-December 2011 and production began ramping up following repairs to damaged concentrate and fuel pipelines, which resulted from civil unrest that occurred during the course of the approximate three-month strike. During first-quarter 2012, PT Freeport Indonesia experienced work interruptions in connection with its efforts to resume normal operations, and temporarily suspended operations, which had an estimated impact of approximately 80 million pounds of copper and 125 thousand ounces of gold. Operations and productivity at PT Freeport Indonesia have improved recently. For the month of April 2012, mill throughput rates averaged approximately 194,000 metric tons of ore per day, compared with the first-quarter 2012 average of 114,800 metric tons of ore per day and the projected

36

Table of Contents    

average for the year 2012 of 184,000 metric tons of ore per day. Full operations, which are dependent on maintaining security and productivity in the workplace, are expected to be restored during second-quarter 2012.

At the Grasberg mine, the sequencing in mining areas with varying ore grades causes fluctuations in the timing of ore production resulting in varying quarterly sales of copper and gold. Consolidated sales volumes from our Indonesia mining operations are expected to approximate 800 million pounds of copper and 1.0 million ounces of gold for 2012, compared with 846 million pounds of copper and 1.3 million ounces of gold in 2011. These estimates reflect the work interruptions experienced during first-quarter 2012 and returning to normal operations at Grasberg during second-quarter 2012. Gold sales in 2012 also reflect mining in a lower grade section of the Grasberg open pit in 2012, compared with 2011.

Unit Net Cash Costs. Unit net cash costs per pound of copper is a measure intended to provide investors with information about the cash-generating capacity of our mining operations expressed on a basis relating to the primary metal product for our respective operations. We use this measure for the same purpose and for monitoring operating performance by our mining operations. This information differs from measures of performance determined in accordance with U.S. GAAP and should not be considered in isolation or as a substitute for measures of performance determined in accordance with U.S. GAAP. This measure is presented by other metals mining companies, although our measure may not be comparable to similarly titled measures reported by other companies.

Gross Profit per Pound of Copper and per Ounce of Gold

The following tables summarize the unit net cash costs and gross profit per pound of copper and per ounce of gold at our Indonesia mining operations for the first quarters of 2012 and 2011. Refer to “Production Revenues and Production Costs” for an explanation of “by-product” and “co-product” methods and a reconciliation of unit net cash costs per pound to production and delivery costs applicable to sales reported in our consolidated financial statements.
 
Three Months Ended
 
Three Months Ended
 
March 31, 2012
 
March 31, 2011
 
By-Product Method
 
Co-Product Method
 
By-Product Method
 
Co-Product Method
 
 
Copper
 
Gold
 
 
Copper
 
Gold
Revenues, excluding adjustments
$
3.81

 
$
3.81

 
$
1,695

 
$
4.26

 
$
4.26

 
$
1,400

 
 
 
 
 
 
 
 
 
 
 
 
Site production and delivery, before net noncash and other costs shown below
3.51

 
1.83

 
814

 
1.84

 
1.18

 
386

Gold and silver credits
(3.51
)
 

 

 
(2.34
)
 

 

Treatment charges
0.19

 
0.10

 
44

 
0.18

 
0.11

 
37

Royalty on metals
0.14

 
0.07

 
32

 
0.16

 
0.10

 
34

Unit net cash costs (credits)
0.33

 
2.00

 
890

 
(0.16
)
 
1.39

 
457

Depreciation and amortization
0.34

 
0.18

 
80

 
0.21

 
0.13

 
43

Noncash and other costs, net
0.18

 
0.10

 
43

 
0.05

 
0.04

 
12

Total unit costs
0.85

 
2.28

 
1,013

 
0.10

 
1.56

 
512

Revenue adjustments, primarily for pricing on prior period open sales
0.10

 
0.10

 
10

 
(0.03
)
 
(0.03
)
 
(38
)
Gross profit per pound/ounce
$
3.06

 
$
1.63

 
$
692

 
$
4.13

 
$
2.67

 
$
850

 
 
 
 
 
 
 
 
 
 
 
 
Copper sales (millions of recoverable pounds)
134

 
134

 
 
 
278

 
278

 
 
Gold sales (thousands of recoverable ounces)
 
 
 
 
266

 
 
 
 
 
454

 
 
 
 
 
 
 
 
 
 
 
 
Because of the fixed nature of a large portion of PT Freeport Indonesia’s costs, unit costs vary significantly from period to period depending on volumes of copper and gold sold during the period, and realized gold prices. Unit net cash costs (net of gold and silver credits) for our Indonesia mining operations totaled $0.33 per pound of copper in first-quarter 2012, compared with a net credit of $0.16 per pound of copper in first-quarter 2011. Higher unit net cash costs primarily reflected lower sales volumes.

Treatment charges vary with the volume of metals sold and the price of copper, and royalties vary with the volume of metals sold and the prices of copper and gold.

Because certain assets are depreciated on a straight-line basis, PT Freeport Indonesia’s unit depreciation rate

37

Table of Contents    

varies with the level of copper production and sales.

Revenue adjustments primarily result from changes in prices on provisionally priced copper sales recognized in prior periods. To the extent 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, higher copper prices at the end of first-quarter 2012 resulted in favorable revenue adjustments to December 31, 2011, provisionally priced copper sales, whereas, decreasing prices in first-quarter 2011 resulted in unfavorable revenue adjustments to December 31, 2010, provisionally priced copper sales. Refer to “Consolidated Results - Revenues” for further discussion.

Assuming achievement of current sales volume and cost estimates, and an average gold price of $1,600 per ounce for the remainder of 2012, we estimate that average unit net cash costs for Indonesia (net of gold and silver credits) would approximate $1.11 per pound of copper for the year 2012, compared with $0.09 per pound in 2011. Indonesia's unit net cash costs for 2012 would change by $0.05 per pound for each $50 per ounce change in the average price of gold during the remainder of 2012. Compared with first-quarter 2012, unit site production and delivery costs are expected to decline for the remainder of 2012 because of higher projected copper volumes. However, unit net cash costs are expected to be higher for the remainder of 2012 because of lower gold credits. Quarterly unit net cash costs are expected to vary significantly with variations in quarterly metal sales volumes, as well as average realized gold prices during the period. Indonesia's unit net cash costs are expected to decline significantly in future years, compared with the year 2012, because of higher projected copper and gold volumes.

Africa Mining
Africa mining includes the Tenke copper and cobalt mining concessions in the Katanga province of the DRC. The Tenke mine includes surface mining, leaching and SX/EW operations. Copper production from the Tenke mine is sold as copper cathode. In addition to copper, the Tenke mine produces cobalt hydroxide. All Africa mining operations are conducted by Tenke Fungurume Mining S.A.R.L. (TFM).

We hold an effective 56 percent interest in the Tenke copper and cobalt mining concessions and are the operator of Tenke. Effective March 26, 2012, the DRC government issued a Presidential Decree approving modifications to TFM's bylaws. As a result, we and Lundin Mining Corporation's ownership interest in Tenke totals 80 percent (previously 82.5 percent) and Gecamines' ownership interest totals 20 percent (previously 17.5 percent).

Operating and Development Activities. Our investment in the initial project approximated $2 billion, and we have received loan repayments, including interest, of approximately $840 million through March 31, 2012.

The milling facilities at Tenke, which were designed to process ore at a rate of 8,000 metric tons per day, continue to perform above capacity, with throughput averaging 12,200 metric tons of ore per day in first-quarter 2012. Mining rates have been increased to enable additional copper production from the initial project capacity of 250 million pounds of copper per year to approximately 290 million pounds of copper per year.

We are constructing a second phase of the project, which would include optimizing the current plant and increasing capacity. We plan to expand the mill rate to 14,000 metric tons of ore per day and are constructing related processing facilities that would target the addition of approximately 150 million pounds of copper per year in 2013. The approximate $850 million project includes mill upgrades, additional mining equipment, a new tank house and sulphuric acid plant expansion. The second phase of the project will be funded with cash generated from operations, and should additional funds be required, we will fund 70 percent and Lundin Mining Corporation will fund 30 percent.

We continue to engage in drilling activities, exploration analyses and metallurgical testing to evaluate the potential of the highly prospective minerals district at Tenke. These analyses are being incorporated in future plans to evaluate opportunities for expansion. Future expansions are subject to a number of factors, including economic and market conditions and the business and investment climate in the DRC.

38

Table of Contents    

Operating Data. Following is summary operating data for our Africa mining operations for the first quarters of 2012 and 2011:
 
Three Months Ended
 
March 31,
 
2012
 
2011
Copper (millions of recoverable pounds)
 
 
 
Production
80

 
67

Sales
69

 
60

Average realized price per pounda
$
3.74

 
$
4.19

 
 
 
 
Cobalt (millions of contained pounds)
 
 
 
Production
6

 
6

Sales
5

 
6

Average realized price per pound
$
8.46

 
$
10.99

 
 
 
 
Ore milled (metric tons per day)
12,200

 
10,800

Average ore grade (percent):
 
 
 
Copper
3.61

 
3.42

Cobalt
0.38

 
0.38

Copper recovery rate (percent)
91.2

 
91.7

a.
Includes adjustments for point-of-sale transportation costs as negotiated in customer contracts.
 
Copper sales volumes from our Africa mining operations totaled 69 million pounds of copper in first-quarter 2012, compared with 60 million pounds in first-quarter 2011, primarily reflecting higher mining and milling rates.

For the year 2012, we expect sales volumes from our Africa mining operations to approximate 300 million pounds of copper and 25 million pounds of cobalt, compared with 283 million pounds of copper and 25 million pounds of cobalt in 2011.
 
Unit Net Cash Costs. Unit net cash costs per pound of copper is a measure intended to provide investors with information about the cash-generating capacity of our mining operations expressed on a basis relating to the primary metal product for our respective operations. We use this measure for the same purpose and for monitoring operating performance by our mining operations. This information differs from measures of performance determined in accordance with U.S. GAAP and should not be considered in isolation or as a substitute for measures of performance determined in accordance with U.S. GAAP. This measure is presented by other metals mining companies, although our measure may not be comparable to similarly titled measures reported by other companies.


39

Table of Contents    

Gross Profit per Pound of Copper and Cobalt

The following tables summarize the unit net cash costs and gross profit per pound of copper and cobalt at our Africa mining operations for the first quarters of 2012 and 2011. Refer to “Production Revenues and Production Costs” for an explanation of “by-product” and “co-product” methods and a reconciliation of unit net cash costs per pound to production and delivery costs applicable to sales reported in our consolidated financial statements.
 
Three Months Ended
 
Three Months Ended
 
March 31, 2012
 
March 31, 2011
 
By-Product Method
 
Co-Product Method
 
By-Product Method
 
Co-Product Method
 
 
Copper
 
Cobalt
 
 
Copper
 
Cobalt
Revenues, excluding adjustmentsa
$
3.74

 
$
3.74

 
$
8.46

 
$
4.19

 
$
4.19

 
$
10.99

 
 
 
 
 
 
 
 
 
 
 
 
Site production and delivery, before net noncash and other costs shown below
1.50

 
1.44

 
5.14

 
1.51

 
1.35

 
5.45

Cobalt creditsb
(0.33
)
 

 

 
(0.75
)


 

Royalty on metals
0.08

 
0.07

 
0.13

 
0.10

 
0.07

 
0.19

Unit net cash costs
1.25

 
1.51

 
5.27

 
0.86

 
1.42

 
5.64

Depreciation and amortization
0.46

 
0.42

 
0.66

 
0.47

 
0.40

 
0.78

Noncash and other costs, net
0.11

 
0.10

 
0.15

 
0.21

 
0.17

 
0.34

Total unit costs
1.82

 
2.03

 
6.08

 
1.54

 
1.99

 
6.76

Revenue adjustments, primarily for pricing on prior period open sales
0.12

 
0.12

 
0.46

 
(0.01
)
 
(0.01
)
 
0.39

Gross profit per pound
$
2.04

 
$
1.83

 
$
2.84

 
$
2.64

 
$
2.19

 
$
4.62

 
 
 
 
 
 
 
 
 
 
 
 
Copper sales (millions of recoverable pounds)
69

 
69

 
 
 
60

 
60

 
 
Cobalt sales (millions of contained pounds)
 
 
 
 
5

 
 
 
 
 
6

 
 
 
 
 
 
 
 
 
 
 
 
a.
Includes adjustments for point-of-sale transportation costs as negotiated in customer contracts. 
b.
Net of cobalt downstream processing and freight costs.

Unit net cash costs (net of cobalt credits) for our Africa mining operations averaged $1.25 per pound of copper in first-quarter 2012, compared with $0.86 per pound of copper in first-quarter 2011. Higher unit net cash costs in first-quarter 2012 primarily reflected higher input costs from higher mining and milling rates and lower cobalt credits, partly offset by higher copper sales volumes.

Assuming achievement of current sales volumes and cost estimates and an average market cobalt price of $12 per pound for the remainder of 2012, we estimate that average unit net cash costs (net of cobalt credits) would approximate $1.13 per pound of copper for the year 2012, compared with $1.07 per pound in 2011. Africa's unit net cash costs for 2012 would change by $0.08 per pound for each $2 per pound change in the average price of cobalt during the remainder of 2012.

Molybdenum
We are an integrated producer of molybdenum, with mining, sulfide ore concentrating, roasting and processing facilities that produce high-purity, molybdenum-based chemicals, molybdenum metal powder and metallurgical products, which are sold to customers around the world. Our molybdenum operations include the wholly owned Henderson underground mine and Climax open-pit mine in Colorado and related conversion facilities. The Henderson underground mine produces high-purity, chemical-grade molybdenum concentrates, which are typically further processed into value-added molybdenum chemical products. The Molybdenum operations also include a sales company that purchases and sells molybdenum from our Henderson mine and from certain of our North and South America mines that produce molybdenum; and related conversion facilities that, at times, roast and/or process material on a toll basis for third-parties. Toll arrangements require the tolling customer to deliver appropriate molybdenum-bearing material to our facilities for processing into a product that is returned to the customer, who pays us for processing their material into the specified products.

40

Table of Contents    


Development Activities. During first-quarter 2012, we commenced operations at our newly constructed Climax molybdenum mine. Construction activities from the first phase of the project are substantially complete. First production from the Climax mine is expected in second-quarter 2012 and is expected to ramp up to a rate of 20 million pounds of molybdenum per year during 2013, and depending on market conditions, may be increased to 30 million pounds of molybdenum per year. We intend to operate our Climax and Henderson molybdenum mines in a flexible manner to meet market requirements. The cost of the initial phase of the project approximates $760 million.

Operating Data. Following is summary operating data for the Molybdenum operations for the first quarters of 2012 and 2011:
 
Three Months Ended
 
March 31,
 
2012
 
2011
Molybdenum (millions of recoverable pounds)
 
 
 
Productiona
9

 
10

Sales, excluding purchasesb
21

 
20

Average realized price per pound
$
15.34

 
$
18.10

 
 
 
 
Henderson molybdenum mine
 
 
 
Ore milled (metric tons per day)
19,900

 
23,400

Average molybdenum ore grade (percent)
0.25

 
0.24

Molybdenum production (millions of recoverable pounds)
9

 
10

a.
Reflects production at the Henderson molybdenum mine. 
b.
Includes sales of molybdenum produced at our North and South America copper mines.

Consolidated molybdenum sales volumes totaled 21 million pounds in first-quarter 2012, compared with 20 million pounds in first-quarter 2011. For the year 2012, we expect molybdenum sales volumes to approximate 81 million pounds (of which approximately 40 million pounds represents molybdenum production from our North and South America copper mines), compared with 79 million pounds in 2011 (of which 45 million pounds represented molybdenum production from our North and South America copper mines).

Unit Net Cash Costs. Unit net cash costs per pound of molybdenum is a measure intended to provide investors with information about the cash-generating capacity of our mining operations expressed on a basis relating to the primary metal product for our respective operations. We use this measure for the same purpose and for monitoring operating performance by our mining operations. This information differs from measures of performance determined in accordance with U.S. GAAP and should not be considered in isolation or as a substitute for measures of performance determined in accordance with U.S. GAAP. This measure is presented by other metals mining companies, although our measure may not be comparable to similarly titled measures reported by other companies.


41

Table of Contents    

Gross Profit per Pound of Molybdenum

The following table summarizes the unit net cash costs and gross profit per pound of molybdenum at our Henderson molybdenum mine for the first quarters of 2012 and 2011. Refer to “Product Revenues and Production Costs” for a reconciliation of unit net cash costs per pound to production and delivery costs applicable to sales reported in our consolidated financial statements.
 
Three Months Ended
 
March 31,
 
2012
 
2011
Revenues, excluding adjustments
$
15.03

 
$
17.37

 
 
 
 
Site production and delivery, before net noncash and other costs shown below
6.00

 
5.25

Treatment charges and other
0.88

 
0.88

Unit net cash costs
6.88

 
6.13

Depreciation, depletion and amortization
0.90

 
0.88

Noncash and other costs, net
0.05

 
0.03

Total unit costs
7.83

 
7.04

Gross profita
$
7.20

 
$
10.33

 
 
 
 
Molybdenum sales (millions of recoverable pounds)b
9

 
10

a.
Gross profit reflects sales of Henderson production based on volumes produced at market-based pricing. On a consolidated basis, the Molybdenum division includes profits on sales as they are made to third parties and realizations based on actual contract terms. As a result, the actual gross profit realized will differ from the amounts reported in this table.
b.
Reflects production at the Henderson molybdenum mine.

Henderson’s unit net cash costs were $6.88 per pound of molybdenum in first-quarter 2012, compared with $6.13 per pound of molybdenum in first-quarter 2011, primarily reflecting higher input costs, including labor and materials.

Assuming achievement of current 2012 sales volume and cost estimates, we estimate that unit net cash costs for Henderson to approximate $7.00 per pound of molybdenum for the year 2012, compared with $6.34 per pound in 2011.

Atlantic Copper Smelting & Refining
Atlantic Copper, our wholly owned subsidiary located in Spain, smelts and refines copper concentrates and markets refined copper and precious metals in slimes. During first-quarter 2012, Atlantic Copper purchased approximately 41 percent of its concentrate requirements from our South America mining operations and approximately 21 percent from our North America copper mining operations. Through this form of downstream integration, we are assured placement of a significant portion of our concentrate production.

Smelting and refining charges consist of a base rate and, in certain contracts, price participation based on copper prices. Treatment charges for smelting and refining copper concentrates represent a cost to our Indonesia, South America and North America mining operations, and income to Atlantic Copper and PT Smelting, PT Freeport Indonesia's 25 percent owned smelter and refinery. Thus, higher treatment and refining charges benefit our smelter operations and adversely affect our mining operations in Indonesia, South America and North America. Our North America copper mines are less significantly affected by changes in treatment and refining charges because these operations are largely integrated with our wholly owned Miami smelter located in Arizona.

Atlantic Copper had operating income of $2 million in first-quarter 2012, compared with an operating loss of $19 million in first-quarter 2011. Atlantic Copper’s improved operating results primarily reflects higher production and higher gold credits in first-quarter 2012. Atlantic Copper's first-quarter 2011 operating results also included additional operating costs associated with accelerated costs for the April 2011 scheduled shutdown.

We defer recognizing profits on sales from our Indonesia, South America and North America mining operations to Atlantic Copper and on 25 percent of Indonesia mining sales to PT Smelting until final sales to third parties occur. Our net deferred profits on our Indonesia, South America and North America concentrate inventories at Atlantic Copper and PT Smelting to be recognized in future periods’ net income after taxes and noncontrolling interests totaled $87 million at March 31, 2012. Changes in these deferrals attributable to variability in intercompany volumes resulted in net reductions to net income attributable to common stockholders totaling $32 million ($0.03 per share)

42

Table of Contents    

in first-quarter 2012, compared with net additions of $1 million (less than $0.01 per share) in first-quarter 2011. 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. Additionally, as PT Freeport Indonesia's operations return to full operating rates, we expect to defer a significant amount of PT Freeport Indonesia's profit on intercompany sales until sales to third parties occur.

CAPITAL RESOURCES AND LIQUIDITY

Our operating cash flows vary with prices realized from copper, gold and molybdenum sales, our sales volumes, production costs, income taxes, other working capital changes and other factors. Strong operating performance and favorable copper and gold prices have enabled us to enhance our financial and liquidity position, reduce debt and pay cash dividends to shareholders, while pursuing future growth opportunities. We view the long-term outlook for our business positively, supported by limitations on supplies of copper and by the requirements for copper in the world’s economy, and will continue to adjust our operating strategy as market conditions change.

Cash and Cash Equivalents
At March 31, 2012, we had consolidated cash and cash equivalents of $4.5 billion. The following table reflects the U.S. and international components of consolidated cash and cash equivalents at March 31, 2012, and December 31, 2011 (in billions):
 
March 31, 2012
 
December 31, 2011
Cash at domestic companiesa
$
1.9

 
$
2.4

Cash at international operations
2.6

 
2.4

Total consolidated cash and cash equivalents
4.5

 
4.8

Less: Noncontrolling interests’ share
(0.9
)
 
(0.8
)
Cash, net of noncontrolling interests’ share
3.6

 
4.0

Less: Withholding taxes and other
(0.2
)
 
(0.1
)
Net cash available to FCX
$
3.4

 
$
3.9

a.
Includes cash at our parent company and other North America operations.

Cash held at our international operations is generally used to support our foreign operations' capital expenditures, operating expenses, working capital or other cash needs. At March 31, 2012, management believed that sufficient liquidity was available in the U.S. With the exception of Tenke Fungurume, we have not elected to permanently reinvest earnings from our foreign subsidiaries, and we have recorded deferred tax liabilities for foreign earnings that are available to be repatriated to the U.S. From time to time, our foreign subsidiaries distribute earnings to the U.S. through dividends, which are subject to applicable withholding taxes and noncontrolling interests' share.

Operating Activities
Our operating cash flows vary with prices realized from copper, gold and molybdenum sales, our sales volumes, production costs, income taxes, other working capital changes and other factors. We generated operating cash flows totaling $801 million for first-quarter 2012, net of $720 million for working capital uses, compared with operating cash flows totaling $2.4 billion for first-quarter 2011, including $114 million from working capital sources. Lower operating cash flows for first-quarter 2012, compared with first-quarter 2011, primarily reflected lower copper and gold sales volumes and lower copper price realizations.

Based on current mine plans and subject to future copper, gold and molybdenum prices, we expect estimated operating cash flows for the year 2012 plus available cash to be sufficient to fund our budgeted capital expenditures, dividends, noncontrolling interest distributions and other cash requirements for the year. Refer to “Outlook” for further discussion of projected operating cash flows for the year 2012.

Investing Activities
Capital expenditures, including capitalized interest, totaled $707 million for first-quarter 2012, compared with $505 million for first-quarter 2011, primarily reflecting higher capital spending in first-quarter 2012 associated with the underground development projects at Grasberg and the expansion projects at Tenke, Cerro Verde and Morenci. Refer to “Operations” for further discussion.

43

Table of Contents    


Capital expenditures for the year 2012 are expected to approximate $4.3 billion, including $2.7 billion for major projects. Major projects for 2012 primarily include underground development activities at Grasberg and the expansion projects at Tenke, Cerro Verde and Morenci. We are also considering additional investments at several of our sites. Capital spending plans will continue to be reviewed and adjusted in response to changes in market conditions and other factors.

Financing Activities
Debt and Equity Transactions. At March 31, 2012, total debt approximated $3.5 billion, and we have no significant debt maturities through 2014.

During first-quarter 2012, we sold $3.0 billion of senior notes in three tranches with a weighted-average interest rate of approximately three percent. Proceeds from this offering, plus cash on hand, were used to redeem the remaining $3.0 billion of our 8.375% Senior Notes. Refer to Note 5 for further discussion. Annual interest savings associated with this refinancing approximates $160 million. The annual interest cost savings associated with this transaction and debt repayments since January 1, 2009, approximate $420 million per year, based on current interest rates.

At March 31, 2012, we had no borrowings and $44 million in letters of credit issued under our revolving credit facility, resulting in availability of approximately $1.5 billion ($956 million of which could be used for additional letters of credit).

We have an open-market share purchase program for up to 30 million shares, of which 23.7 million shares remain available. There have been no purchases since 2008. The timing of future purchases of our common stock is dependent on many factors, including our operating results; cash flows and financial position; copper, gold and molybdenum prices; the price of our common shares; and general economic and market conditions.

Dividends. Common stock dividends paid totaled $238 million in both the first quarters of 2012 and 2011.

In February 2012, the Board authorized an increase in the cash dividend on our common stock from an annual rate of $1.00 per share to $1.25 per share ($0.3125 per share quarterly), with the first quarterly dividend of $0.3125 per share, paid on May 1, 2012. The declaration of dividends is at the discretion of the Board and will depend upon our financial results, cash requirements, future prospects and other factors deemed relevant by the Board. The Board will continue to review our financial policy on an ongoing basis.

Cash dividends paid to noncontrolling interests include dividends paid primarily to the noncontrolling interest owners of PT Freeport Indonesia and our South America mines, which totaled $1 million for first-quarter 2012 and $133 million for first-quarter 2011.

CONTRACTUAL OBLIGATIONS

There have been no material changes in our contractual obligations since year-end 2011. Refer to Item 7 in our annual report on Form 10-K for the year ended December 31, 2011, for further information regarding our contractual obligations.


44

Table of Contents    

CONTINGENCIES

Environmental and Reclamation Matters
Our mining, exploration, production and historical operating activities are subject to stringent laws and regulations governing the protection of the environment. We review changes in facts and circumstances associated with our environmental and reclamation obligations at least quarterly. There have been no material changes to our environmental and reclamation obligations since year-end 2011. However, updated cost assumptions, including increases and decreases to cost estimates and changes in the anticipated scope and timing of remediation activities, could result in future revisions to certain of our environmental obligations.

Refer to Note 13 in our annual report on Form 10-K for the year ended December 31, 2011, for further information regarding our environmental and reclamation obligations.

Litigation and Other Contingencies
Other than as disclosed in Note 8 and Part II, Item 1. "Legal Proceedings" of this quarterly report on Form 10-Q for the period ended March 31, 2012, there have been no material changes to our contingencies associated with legal proceedings and other matters since year-end 2011. Refer to Note 13 in our annual report on Form 10-K for the year ended December 31, 2011, for further information regarding legal proceedings and other matters.

NEW ACCOUNTING STANDARDS

We do not expect the impact of recently issued accounting standards to have a significant impact on our future financial statements and disclosures.

PRODUCT REVENUES AND PRODUCTION COSTS

Unit net cash costs per pound of copper and molybdenum are measures intended to provide investors with information about the cash-generating capacity of our mining operations expressed on a basis relating to the primary metal product for the respective operations. We use this measure for the same purpose and for monitoring operating performance by our mining operations. This information differs from measures of performance determined in accordance with U.S. GAAP and should not be considered in isolation or as a substitute for measures of performance determined in accordance with U.S. GAAP. This measure is presented by other 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. In the co-product method presentation below, 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.

We show adjustments for prior period open sales as separate line items. Because these adjustments do not result from current period sales, we have reflected these separately from revenues on current period sales. Noncash and other costs consist of items such as stock-based compensation costs, write-offs of equipment and/or unusual charges. They are removed from site production and delivery costs in the calculation of unit net cash costs. As discussed above, gold, molybdenum and other metal revenues at copper mines are reflected as credits against site production and delivery costs in the by-product method. Following are presentations under both the by-product and co-product methods together with reconciliations to amounts reported in our consolidated financial statements.



45

Table of Contents    

North America Copper Mines Product Revenues and Production Costs

Three Months Ended March 31, 2012
 
 
 
(In millions)
By-Product
 
Co-Product Method
 
Method
 
Copper
 
Molybdenuma
 
Otherb
 
Total
Revenues, excluding adjustments
$
1,287

 
$
1,287

 
$
136

 
$
21

 
$
1,444

 
 
 
 
 
 
 
 
 
 
Site production and delivery, before net noncash and other costs shown below
607

 
584

 
29

 
12

 
625

By-product creditsa
(139
)
 

 

 

 

Treatment charges
41

 
39

 

 
2

 
41

Net cash costs
509

 
623

 
29

 
14

 
666

Depreciation, depletion and amortization
89

 
86

 
2

 
1

 
89

Noncash and other costs, net
21

 
21

 

 

 
21

Total costs
619

 
730

 
31

 
15

 
776

Revenue adjustments, primarily for pricing on prior period open sales
9

 
9

 

 

 
9

Gross profit
$
677

 
$
566

 
$
105

 
$
6

 
$
677

 
 
 
 
 
 
 
 
 
 
Reconciliation to Amounts Reported
 
 
 
 
 
 
 
 
 
 
Revenues
 
Production and Delivery
 
Depreciation, Depletion and Amortization
 
 
 
 
Totals presented above
$
1,444

 
$
625

 
$
89

 
 
 
 
Treatment charges
N/A

 
41

 
N/A

 
 
 
 
Net noncash and other costs
N/A

 
21

 
N/A

 
 
 
 
Revenue adjustments, primarily for pricing on prior period open sales
9

 
N/A

 
N/A

 
 
 
 
Eliminations and other
3

 
20

 
4

 
 
 
 
North America copper mines
1,456

 
707

 
93

 
 
 
 
South America mining
1,254

 
463

 
62

 
 
 
 
Indonesia mining
950

 
495

 
46

 
 
 
 
Africa mining
305

 
132

 
32

 
 
 
 
Molybdenum
340

 
262

 
15

 
 
 
 
Rod & Refining
1,304

 
1,297

 
2

 
 
 
 
Atlantic Copper Smelting & Refining
712

 
695

 
10

 
 
 
 
Corporate, other & eliminations
(1,716
)
 
(1,623
)
 
7

 
 
 
 
As reported in FCX’s consolidated financial statements
$
4,605

 
$
2,428

 
$
267

 
 
 
 
a.
Molybdenum credits and revenues reflect volumes produced at market-based pricing and also include tolling revenues at Sierrita. 
b.
Includes gold and silver product revenues and production costs.

46

Table of Contents    

North America Copper Mines Product Revenues and Production Costs (continued)

Three Months Ended March 31, 2011
 
 
 
(In millions)
By-Product
 
Co-Product Method
 
Method
 
Copper
 
Molybdenuma
 
Otherb
 
Total
Revenues, excluding adjustments
$
1,211

 
$
1,211

 
$
124

 
$
21

 
$
1,356

 
 
 
 
 
 
 
 
 
 
Site production and delivery, before net noncash and other costs shown below
481

 
432

 
52

 
8

 
492

By-product creditsa
(134
)
 

 

 

 

Treatment charges
29

 
28

 

 
1

 
29

Net cash costs
376

 
460

 
52

 
9

 
521

Depreciation, depletion and amortization
56

 
52

 
3

 
1

 
56

Noncash and other costs, net
52

 
51

 
1

 

 
52

Total costs
484

 
563

 
56

 
10

 
629

Revenue adjustments, primarily for pricing on prior period open sales
1

 
1

 

 

 
1

Gross profit
$
728

 
$
649

 
$
68

 
$
11

 
$
728

 
 
 
 
 
 
 
 
 
 
Reconciliation to Amounts Reported
 
 
 
 
 
 
 
 
 
 
Revenues
 
Production and Delivery
 
Depreciation, Depletion and Amortization
 
 
 
 
Totals presented above
$
1,356

 
$
492

 
$
56

 
 
 
 
Treatment charges
N/A

 
29

 
N/A

 
 
 
 
Net noncash and other costs
N/A

 
52

 
N/A

 
 
 
 
Revenue adjustments, primarily for pricing on prior period open sales
1

 
N/A

 
N/A

 
 
 
 
Eliminations and other
4

 
15

 
2

 
 
 
 
North America copper mines
1,361

 
588

 
58

 
 
 
 
South America mining
1,402

 
411

 
57

 
 
 
 
Indonesia mining
1,730

 
526

 
57

 
 
 
 
Africa mining
309

 
124

 
28

 
 
 
 
Molybdenum
374

 
240

 
14

 
 
 
 
Rod & Refining
1,487

 
1,481

 
2

 
 
 
 
Atlantic Copper Smelting & Refining
762

 
763

 
10

 
 
 
 
Corporate, other & eliminations
(1,716
)
 
(1,756
)
 
6

 
 
 
 
As reported in FCX’s consolidated financial statements
$
5,709

 
$
2,377

 
$
232

 
 
 
 
 
a.
Molybdenum credits and revenues reflect volumes produced at market-based pricing and also include tolling revenues at Sierrita. 
b.
Includes gold and silver product revenues and production costs.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 


47

Table of Contents    

South America Mining Product Revenues and Production Costs

Three Months Ended March 31, 2012
 
 
 
 
 
 
 
(In millions)
By-Product
 
Co-Product Method
 
Method
 
Copper
 
Other
 
Total
Revenues, excluding adjustments
$
1,098

 
$
1,098

 
$
90

a 
$
1,188

 
 
 
 
 
 
 
 
Site production and delivery, before net noncash and other costs shown below
439

 
405

 
40

 
445

By-product credits
(84
)
 

 

 

Treatment charges
47

 
47

 

 
47

Net cash costs
402

 
452

 
40

 
492

Depreciation, depletion and amortization
62

 
59

 
3

 
62

Noncash and other costs, net
21

 
13

 
8

 
21

Total costs
485

 
524

 
51

 
575

Revenue adjustments, primarily for pricing on prior period open sales
110

 
109

 
1

 
110

Gross profit
$
723

 
$
683

 
$
40

 
$
723

 
 
 
 
 
 
 
 
Reconciliation to Amounts Reported
 
 
 
 
 
 
 
 
Revenues
 
Production and Delivery
 
Depreciation, Depletion and Amortization
 
 
Totals presented above
$
1,188

 
$
445

 
$
62

 
 
Treatment charges
(47
)
 
N/A

 
N/A

 
 
Net noncash and other costs
N/A

 
21

 
N/A

 
 
Revenue adjustments, primarily for pricing on prior period open sales
110

 
N/A

 
N/A

 
 
Eliminations and other
3

 
(3
)
 

 
 
South America mining
1,254

 
463

 
62

 
 
North America copper mines
1,456

 
707

 
93

 
 
Indonesia mining
950

 
495

 
46

 
 
Africa mining
305

 
132

 
32

 
 
Molybdenum
340

 
262

 
15

 
 
Rod & Refining
1,304

 
1,297

 
2

 
 
Atlantic Copper Smelting & Refining
712

 
695

 
10

 
 
Corporate, other & eliminations
(1,716
)
 
(1,623
)
 
7

 
 
As reported in FCX’s consolidated financial statements
$
4,605

 
$
2,428

 
$
267

 
 
 
a.
Includes gold sales of 19 thousand ounces ($1,680 per ounce average realized price), silver sales of 698 thousand ounces ($30.32 per ounce average realized price) and molybdenum sales of 2 million pounds ($12.35 per pound average realized price), which reflects molybdenum produced by Cerro Verde at market-based pricing.


48

Table of Contents    

South America Mining Product Revenues and Production Costs (continued)

Three Months Ended March 31, 2011
 
 
 
 
 
 
 
(In millions)
By-Product
 
Co-Product Method
 
Method
 
Copper
 
Other
 
Total
Revenues, excluding adjustments
$
1,345

 
$
1,345

 
$
119

a 
$
1,464

 
 
 
 
 
 
 
 
Site production and delivery, before net noncash and other costs shown below
406

 
375

 
37

 
412

By-product credits
(113
)
 

 

 

Treatment charges
59

 
59

 

 
59

Net cash costs
352

 
434

 
37

 
471

Depreciation, depletion and amortization
57

 
53

 
4

 
57

Noncash and other costs, net
19

 
18

 
1

 
19

Total costs
428

 
505

 
42

 
547

Revenue adjustments, primarily for pricing on prior period open sales
11

 
(8
)
 
19

 
11

Gross profit
$
928

 
$
832

 
$
96

 
$
928

 
 
 
 
 
 
 
 
Reconciliation to Amounts Reported
 
 
 
 
 
 
 
 
Revenues
 
Production and Delivery
 
Depreciation, Depletion and Amortization
 
 
Totals presented above
$
1,464

 
$
412

 
$
57

 
 
Treatment charges
(59
)
 
N/A

 
N/A

 
 
Net noncash and other costs
N/A

 
19

 
N/A

 
 
Revenue adjustments, primarily for pricing on prior period open sales
11

 
N/A

 
N/A

 
 
Eliminations and other
(14
)
 
(20
)
 

 
 
South America mining
1,402

 
411

 
57

 
 
North America copper mines
1,361

 
588

 
58

 
 
Indonesia mining
1,730

 
526

 
57

 
 
Africa mining
309

 
124

 
28

 
 
Molybdenum
374

 
240

 
14

 
 
Rod & Refining
1,487

 
1,481

 
2

 
 
Atlantic Copper Smelting & Refining
762

 
763

 
10

 
 
Corporate, other & eliminations
(1,716
)
 
(1,756
)
 
6

 
 
As reported in FCX’s consolidated financial statements
$
5,709

 
$
2,377

 
$
232

 
 
 
a.
Includes gold sales of 24 thousand ounces ($1,394 per ounce average realized price), silver sales of 708 thousand ounces ($33.78 per ounce average realized price) and includes molybdenum sales of 3 million pounds ($15.65 per pound average realized price), which reflects molybdenum produced by Cerro Verde at market-based pricing.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 


49

Table of Contents    

Indonesia Mining Product Revenues and Production Costs

Three Months Ended March 31, 2012
 
 
 
(In millions)
By-Product
 
Co-Product Method
 
Method
 
Copper
 
Gold
 
Silver
 
Total
Revenues, excluding adjustments
$
511

 
$
511

 
$
451

 
$
15

a 
$
977

 
 
 
 
 
 
 
 
 
 
Site production and delivery, before net noncash and other costs shown below
470

 
245

 
217

 
8

 
470

Gold and silver credits
(469
)
 

 

 

 

Treatment charges
25

 
13

 
12

 

 
25

Royalty on metals
18

 
10

 
8

 

 
18

Net cash costs
44

 
268

 
237

 
8

 
513

Depreciation and amortization
46

 
24

 
21

 
1

 
46

Noncash and other costs, net
25

 
13

 
12

 

 
25

Total costs
115

 
305

 
270

 
9

 
584

Revenue adjustments, primarily for pricing on prior period open sales
13

 
13

 
3

 

 
16

Gross profit
$
409

 
$
219

 
$
184

 
$
6

 
$
409

 
 
 
 
 
 
 
 
 
 
Reconciliation to Amounts Reported
 
 
 
 
 
 
 
 
 
 
Revenues
 
Production and Delivery
 
Depreciation, Depletion and Amortization
 
 
 
 
Totals presented above
$
977

 
$
470

 
$
46

 
 
 
 
Treatment charges
(25
)
 
N/A

 
N/A

 
 
 
 
Royalty on metals
(18
)
 
N/A

 
N/A

 
 
 
 
Net noncash and other costs
N/A

 
25

 
N/A

 
 
 
 
Revenue adjustments, primarily for pricing on prior period open sales
16

 
N/A

 
N/A

 
 
 
 
Indonesia mining
950

 
495

 
46

 
 
 
 
North America copper mines
1,456

 
707

 
93

 
 
 
 
South America mining
1,254

 
463

 
62

 
 
 
 
Africa mining
305

 
132

 
32

 
 
 
 
Molybdenum
340

 
262

 
15

 
 
 
 
Rod & Refining
1,304

 
1,297

 
2

 
 
 
 
Atlantic Copper Smelting & Refining
712

 
695

 
10

 
 
 
 
Corporate, other & eliminations
(1,716
)
 
(1,623
)
 
7

 
 
 
 
As reported in FCX’s consolidated financial statements
$
4,605

 
$
2,428

 
$
267

 
 
 
 

a.
Includes silver sales of 449 thousand ounces ($33.08 per ounce average realized price).

50

Table of Contents    

Indonesia Mining Product Revenues and Production Costs (continued)

Three Months Ended March 31, 2011
 
 
 
(In millions)
By-Product
 
Co-Product Method
 
Method
 
Copper
 
Gold
 
Silver
 
Total
Revenues, excluding adjustments
$
1,184

 
$
1,184

 
$
636

 
$
32

a 
$
1,852

 
 
 
 
 
 
 
 
 
 
Site production and delivery, before net noncash and other costs shown below
511

 
327

 
175

 
9

 
511

Gold and silver credits
(650
)
 

 

 

 

Treatment charges
49

 
31

 
17

 
1

 
49

Royalty on metals
45

 
29

 
16

 

 
45

Net cash (credits) costs
(45
)
 
387

 
208

 
10

 
605

Depreciation and amortization
57

 
36

 
20

 
1

 
57

Noncash and other costs, net
15

 
10

 
4

 
1

 
15

Total costs
27

 
433

 
232

 
12

 
677

Revenue adjustments, primarily for pricing on prior period open sales
(10
)
 
(10
)
 
(17
)
 
(1
)
 
(28
)
Gross profit
$
1,147

 
$
741

 
$
387

 
$
19

 
$
1,147

 
 
 
 
 
 
 
 
 
 
Reconciliation to Amounts Reported
 
 
 
 
 
 
 
 
 
 
Revenues
 
Production and Delivery
 
Depreciation, Depletion and Amortization
 
 
 
 
Totals presented above
$
1,852

 
$
511

 
$
57

 
 
 
 
Treatment charges
(49
)
 
N/A

 
N/A

 
 
 
 
Royalty on metals
(45
)
 
N/A

 
N/A

 
 
 
 
Net noncash and other costs
N/A

 
15

 
N/A

 
 
 
 
Revenue adjustments, primarily for pricing on prior period open sales
(28
)
 
N/A

 
N/A

 
 
 
 
Indonesia mining
1,730

 
526

 
57

 
 
 
 
North America copper mines
1,361

 
588

 
58

 
 
 
 
South America mining
1,402

 
411

 
57

 
 
 
 
Africa mining
309

 
124

 
28

 
 
 
 
Molybdenum
374

 
240

 
14

 
 
 
 
Rod & Refining
1,487

 
1,481

 
2

 
 
 
 
Atlantic Copper Smelting & Refining
762

 
763

 
10

 
 
 
 
Corporate, other & eliminations
(1,716
)
 
(1,756
)
 
6

 
 
 
 
As reported in FCX’s consolidated financial statements
$
5,709

 
$
2,377

 
$
232

 
 
 
 

a.
Includes silver sales of 897 thousand ounces ($35.98 per ounce average realized price).
 
 
 
 
 
 
 
 
 
 

 
 
 
 
 
 
 
 
 
 


51

Table of Contents    

Africa Mining Product Revenues and Production Costs

Three Months Ended March 31, 2012
 
 
 
 
 
 
 
(In millions)
By-Product
 
Co-Product Method
 
Method
 
Copper
 
Cobalt
 
Total
Revenues, excluding adjustmentsa
$
257

 
$
257

 
$
43

 
$
300

 
 
 
 
 
 
 
 
Site production and delivery, before net noncash and other costs shown below
103

 
99

 
26

 
125

Cobalt creditsb
(23
)
 

 

 

Royalty on metals
5

 
5

 

 
5

Net cash costs
85

 
104

 
26

 
130

Depreciation, depletion and amortization
32

 
29

 
3

 
32

Noncash and other costs, net
7

 
6

 
1

 
7

Total costs
124

 
139

 
30

 
169

Revenue adjustments, primarily for pricing on prior period open sales
8

 
8

 
2

 
10

Gross profit
$
141

 
$
126

 
$
15

 
$
141

 
 
 
 
 
 
 
 
Reconciliation to Amounts Reported
 
 
 
 
 
 
 
 
Revenues
 
Production and Delivery
 
Depreciation, Depletion and Amortization
 
 
Totals presented above
$
300

 
$
125

 
$
32

 
 
Royalty on metals
(5
)
 
N/A

 
N/A

 
 
Net noncash and other costs
N/A

 
7

 
N/A

 
 
Revenue adjustments, primarily for pricing on prior period open sales
10

 
N/A

 
N/A

 
 
Africa mining
305

 
132

 
32

 
 
North America copper mines
1,456

 
707

 
93

 
 
South America mining
1,254

 
463

 
62

 
 
Indonesia mining
950

 
495

 
46

 
 
Molybdenum
340

 
262

 
15

 
 
Rod & Refining
1,304

 
1,297

 
2

 
 
Atlantic Copper Smelting & Refining
712

 
695

 
10

 
 
Corporate, other & eliminations
(1,716
)
 
(1,623
)
 
7

 
 
As reported in FCX’s consolidated financial statements
$
4,605

 
$
2,428

 
$
267

 
 
a.
Includes adjustments for point-of-sale transportation costs as negotiated in customer contracts. 
b.
Net of cobalt downstream processing and freight costs.


52

Table of Contents    

Africa Mining Product Revenues and Production Costs (continued)

Three Months Ended March 31, 2011
 
 
 
 
 
 
 
(In millions)
By-Product
 
Co-Product Method
 
Method
 
Copper
 
Cobalt
 
Total
Revenues, excluding adjustmentsa
$
249

 
$
249

 
$
64

 
$
313

 
 
 
 
 
 
 
 
Site production and delivery, before net noncash and other costs shown below
90

 
80

 
32

 
112

Cobalt creditsb
(45
)
 

 

 

Royalty on metals
6

 
5

 
1

 
6

Net cash costs
51

 
85

 
33

 
118

Depreciation, depletion and amortization
28

 
23

 
5

 
28

Noncash and other costs, net
12

 
10

 
2

 
12

Total costs
91

 
118

 
40

 
158

Revenue adjustments, primarily for pricing on prior period open sales
(1
)
 
(1
)
 
3

 
2

Gross profit
$
157

 
$
130

 
$
27

 
$
157

 
 
 
 
 
 
 
 
Reconciliation to Amounts Reported
 
 
 
 
 
 
 
 
Revenues
 
Production and Delivery
 
Depreciation, Depletion and Amortization
 
 
Totals presented above
$
313

 
$
112

 
$
28

 
 
Royalty on metals
(6
)
 
N/A

 
N/A

 
 
Net noncash and other costs
N/A

 
12

 
N/A

 
 
Revenue adjustments, primarily for pricing on prior period open sales
2

 
N/A

 
N/A

 
 
Africa mining
309

 
124

 
28

 
 
North America copper mines
1,361

 
588

 
58

 
 
South America mining
1,402

 
411

 
57

 
 
Indonesia mining
1,730

 
526

 
57

 
 
Molybdenum
374

 
240

 
14

 
 
Rod & Refining
1,487

 
1,481

 
2

 
 
Atlantic Copper Smelting & Refining
762

 
763

 
10

 
 
Corporate, other & eliminations
(1,716
)
 
(1,756
)
 
6

 
 
As reported in FCX’s consolidated financial statements
$
5,709

 
$
2,377

 
$
232

 
 
a.
Includes adjustments for point-of-sale transportation costs as negotiated in customer contracts. 
b.
Net of cobalt downstream processing and freight costs.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 


53

Table of Contents    

Henderson Molybdenum Mine Product Revenues and Production Costs

 
Three Months Ended March 31,
 
 
(In millions)
2012
 
2011
 
 
Revenues, excluding adjustments
$
134

 
$
172

 
 
 
 
 
 
 
 
Site production and delivery, before net noncash and other costs shown below
53

 
52

 
 
Treatment charges and other
8

 
9

 
 
Net cash costs
61

 
61

 
 
Depreciation, depletion and amortization
8

 
9

 
 
Noncash and other costs, net
1

 

 
 
Total costs
70

 
70

 
 
Gross profita
$
64

 
$
102

 
 
 
 
 
 
 
 
Reconciliation to Amounts Reported
Revenues
 
Production and Delivery
 
Depreciation, Depletion and Amortization
Three Months Ended March 31, 2012
 
 
 
 
 
Totals presented above
$
134

 
$
53

 
$
8

Treatment charges and other
(8
)
 
N/A

 
N/A

Net noncash and other costs
N/A

 
1

 
N/A

Henderson mine
126

 
54

 
8

Other molybdenum operations and eliminationsb
214

 
208

 
7

Molybdenum
340

 
262

 
15

North America copper mines
1,456

 
707

 
93

South America mining
1,254

 
463

 
62

Indonesia mining
950

 
495

 
46

Africa mining
305

 
132

 
32

Rod & Refining
1,304

 
1,297

 
2

Atlantic Copper Smelting & Refining
712

 
695

 
10

Corporate, other & eliminations
(1,716
)
 
(1,623
)
 
7

As reported in FCX’s consolidated financial statements
$
4,605

 
$
2,428

 
$
267

 
 
 
 
 
 
Three Months Ended March 31, 2011
 
 
 
 
 
Totals presented above
$
172

 
$
52

 
$
9

Treatment charges and other
(9
)
 
N/A

 
N/A

Net noncash and other costs
N/A

 

 
N/A

Henderson mine
163

 
52

 
9

Other molybdenum operations and eliminationsb
211

 
188

 
5

Molybdenum
374

 
240

 
14

North America copper mines
1,361

 
588

 
58

South America mining
1,402

 
411

 
57

Indonesia mining
1,730

 
526

 
57

Africa mining
309

 
124

 
28

Rod & Refining
1,487

 
1,481

 
2

Atlantic Copper Smelting & Refining
762

 
763

 
10

Corporate, other & eliminations
(1,716
)
 
(1,756
)
 
6

As reported in FCX’s consolidated financial statements
$
5,709

 
$
2,377

 
$
232

a.
Gross profit reflects sales of Henderson production based on volumes produced at market-based pricing. On a consolidated basis, the Molybdenum division includes profits on sales as they are made to third parties and realizations based on actual contract terms. As a result, the actual gross profit realized will differ from the amounts reported in this table.
b.Primarily includes amounts associated with the molybdenum sales company, which includes sales of molybdenum produced by our North and South America copper mines.
 
 
 
 
 
 

54

Table of Contents    

CAUTIONARY STATEMENT

Our discussion and analysis contains forward-looking statements in which we discuss factors we believe may affect our future performance.  Forward-looking statements are all statements other than statements of historical facts, such as those statements regarding projected ore grades and milling rates, projected production and sales volumes, projected unit net cash costs, projected operating cash flows, projected capital expenditures, exploration efforts and results, mine production and development plans, the impact of deferred intercompany profits on earnings, liquidity, other financial commitments and tax rates, the impact of copper, gold, molybdenum and cobalt price changes, future dividend payments and potential share purchases.  The words “anticipates,” “may,” “can,” “plans,” “believes,” “estimates,” “expects,” “projects,” “intends,” “likely,” “will,” “should,” “to be,” and any similar expressions are intended to identify those assertions as forward-looking statements.  The declaration of dividends is at the discretion of our Board of Directors and will depend on our financial results, cash requirements, future prospects, and other factors deemed relevant by the Board.

We caution readers that forward-looking statements are not guarantees of future performance and our actual results may differ materially from those anticipated, 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 commodity prices, mine sequencing, production rates, industry risks, regulatory changes, political risks, the potential effects of violence in Indonesia, the resolution of administrative disputes in the DRC, weather- and climate-related risks, labor relations, environmental risks, litigation results, currency translation risks and other factors described in more detail under the heading “Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2011, filed with the SEC.

Investors are cautioned that many of the assumptions on which our forward-looking statements are based are likely to change after our forward-looking statements are made, including for example commodity prices, which we cannot control, and production volumes and costs, some aspects of which we may or may not be able to control. Further, we may make changes to our business plans that could or will affect our results. We caution investors that we do not intend to update our forward-looking statements more frequently than quarterly notwithstanding any changes in our assumptions, changes in our business plans, our actual experience, or other changes, and we undertake no obligation to update any forward-looking statements.


55

Table of Contents    

Item 3.
Quantitative and Qualitative Disclosures About Market Risk.

There have been no material changes in our market risks during the three-month period ended March 31, 2012. For additional information on market risks, refer to “Disclosures About Market Risks” included in Part II, Item 7A. of our annual report on Form 10-K for the year ended December 31, 2011. For projected sensitivities of our operating cash flow to changes in commodity prices, refer to “Outlook” in Part I, Item 2. of this quarterly report on Form 10-Q for the period ended March 31, 2012; for projected sensitivities of our provisionally priced copper sales to changes in commodity prices refer to “Consolidated Results – Revenues” in Part I, Item 2. of this quarterly report on Form 10-Q for the period ended March 31, 2012.

Item 4.
Controls and Procedures.

(a)
Evaluation of disclosure controls and procedures. Our chief executive officer and chief financial officer, with the participation of management, have evaluated the effectiveness of our “disclosure controls and procedures” (as defined in Rules 13a-15(e) and 15(d)-15(e) under the Securities Exchange Act of 1934) as of the end of the period covered by this quarterly report on Form 10-Q. Based on their evaluation, they have concluded that our disclosure controls and procedures are effective as of March 31, 2012.

(b)
Changes in internal control over financial reporting. During second-quarter 2011, we began a phased implementation of a new enterprise resource planning (ERP) information technology system to upgrade our information technology infrastructure and enhance operating efficiency and effectiveness.  Implementation has been completed at our North America and South America mining operations and is currently in progress at our Africa mining operations. We expect implementation of the ERP system to be completed at all of our operations over an approximate two-year period.  During each phase of the implementation, an appropriate level of training of employees, testing of the system and monitoring of the financial results recorded in the system is conducted. Management has updated our system of internal control over financial reporting for the impacted operating business units.

With the exception of the ERP implementation described above, there has been no change in our internal control over financial reporting that occurred during the quarter ended March 31, 2012, that materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

Part II.
OTHER INFORMATION

Item 1.
Legal Proceedings.

We are involved in numerous legal proceedings that arise in the ordinary course of our business or are associated with environmental issues arising from legacy operations conducted over the years by Freeport-McMoRan Corporation (FMC - formerly Phelps Dodge Corporation) and its affiliates. We are also involved from time to time in other reviews, investigations and proceedings by government agencies, some of which may result in adverse judgments, settlements, fines, penalties, injunctions or other relief.

Management does not believe, based on currently available information, that the outcome of any proceeding reported in Note 13 and incorporated by reference into Part I, Item 3. “Legal Proceedings” of our annual report on Form 10-K for the year ended December 31, 2011, as updated by this quarterly report on Form 10-Q for the period ended March 31, 2012, will have a material adverse effect on our financial condition; although individual outcomes could be material to our operating results for a particular period, depending on the nature and magnitude of the outcome and the operating results for the period.

Refer to Note 8 for further discussion of updates to a previously reported legal proceeding and a new legal proceeding since the information included in Note 13 and incorporated by reference into Part I, Item 3. “Legal Proceedings” of our annual report on Form 10-K for the year ended December 31, 2011.

Item 1A. Risk Factors.

There have been no material changes to our risk factors during the three-month period ended March 31, 2012. For additional information on risk factors, refer to Part I, Item 1A. “Risk Factors” of our annual report on Form 10-K for the year ended December 31, 2011.


56

Table of Contents    

Item 2.
Unregistered Sales of Equity Securities and Use of Proceeds.

(c)
The following table sets forth information with respect to shares of Freeport-McMoRan Copper & Gold Inc. (FCX) common stock purchased by us during the three months ended March 31, 2012:
 
Period
 
(a) Total Number
of Shares Purchased
 
(b) Average
Price Paid Per Share
 
(c) Total Number of
Shares Purchased as Part
of Publicly Announced Plans or Programsa
 
(d) Maximum Number
of Shares That May
Yet Be Purchased Under the Plans or Programsa
 
 
January 1-31, 2012
 

 
 

 
23,685,500

 
February 1-29, 2012
 
138,710

 
44.32
 

 
23,685,500

 
March 1-31, 2012
 

 
 

 
23,685,500

 
Total
 
138,710

 
44.32
 

 
23,685,500

a.
On July 21, 2008, our Board of Directors approved an increase in our open-market share purchase program for up to 30 million shares, of which 23.7 million shares remain available for purchase. There have been no purchases under this program since 2008. This program does not have an expiration date.
 
Item 4.
Mine Safety Disclosure.

The safety and health of all employees is our highest priority. Management believes that safety and health considerations are integral to, and compatible with, all other functions in the organization and that proper safety and health management will enhance production and reduce costs. Our approach towards the safety and health of our workforce is to continuously improve performance through implementing robust management systems and providing adequate training, safety incentive and occupational health programs. The information concerning mine safety violations or other regulatory matters required by Section 1503(a) of the Dodd-Frank Wall Street Reform and Consumer Protection Act and Item 104 of Regulation S-K is included in Exhibit 95.1 to this quarterly report on Form 10-Q.
 
Item 6.
Exhibits.

The exhibits to this report are listed in the Exhibit Index beginning on Page E-1 hereof.

57

Table of Contents    

FREEPORT-McMoRan COPPER & GOLD INC.

SIGNATURE

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.
 
FREEPORT-McMoRan COPPER & GOLD INC.
 
 
 
 
By:
/s/ C. Donald Whitmire, Jr.
 
 
C. Donald Whitmire, Jr.
 
 
Vice President and
 
 
Controller – Financial Reporting
 
 
(authorized signatory and
 
 
Principal Accounting Officer)



Date:  May 4, 2012

58

Table of Contents    

FREEPORT-McMoRan COPPER & GOLD INC.
EXHIBIT INDEX
 
 
Filed
 
Exhibit
 
with this
Incorporated by Reference
Number
Exhibit Title
Form 10-Q
Form
File No.
Date Filed
3.1
Composite Certificate of Incorporation of FCX.
 
10-Q
001-11307-01
8/6/2010
3.2
Amended and Restated By-Laws of FCX, as amended through February 2, 2010.
 
8-K
001-11307-01
2/5/2010
4.1
Indenture dated as of February 13, 2012, between FCX and U.S. Bank National Association, as trustee.
 
8-K
001-11307-01
2/13/2012
4.2
First Supplemental Indenture dated as of February 13, 2012, between FCX and U.S. Bank National Association, as trustee.
 
8-K
001-11307-01
2/13/2012
4.3
Second Supplemental Indenture dated as of February 13, 2012, between FCX and U.S. Bank National Association, as trustee.
 
8-K
001-11307-01
2/13/2012
4.4
Third Supplemental Indenture dated as of February 13, 2012, between FCX and U.S. Bank National Association, as trustee.
 
8-K
001-11307-01
2/13/2012
Letter from Ernst & Young LLP regarding unaudited interim financial statements.
X
 
 
 
Certification of Principal Executive Officer pursuant to Rule 13a-14(a)/15d – 14(a).
X
 
 
 
Certification of Principal Financial Officer pursuant to Rule 13a-14(a)/15d – 14(a).
X
 
 
 
Certification of Principal Executive Officer pursuant to 18 U.S.C. Section 1350.
X
 
 
 
Certification of Principal Financial Officer pursuant to 18 U.S.C Section 1350.
X
 
 
 
Mine Safety and Health Administration Safety Data.
X
 
 
 
101.INS
XBRL Instance Document.
X
 
 
 
101.SCH
XBRL Taxonomy Extension Schema.
X
 
 
 
101.CAL
XBRL Taxonomy Extension Calculation Linkbase.
X
 
 
 
101.DEF
XBRL Taxonomy Extension Definition Linkbase.
X
 
 
 
101.LAB
XBRL Taxonomy Extension Label Linkbase.
X
 
 
 
101.PRE
XBRL Taxonomy Extension Presentation Linkbase.
X
 
 
 


E-1