Item 1. Financial Statements
Item 1.
Financial Statements .
Freeport-McMoRan Inc.
CONSOLIDATED BALANCE SHEETS (Unaudited)
June 30,
2020
December 31,
2019
(In millions)
ASSETS
Current assets:
Cash and cash equivalents
$
1,465
$
2,020
Trade accounts receivable
717
741
Income and other tax receivables
646
426
Inventories:
Materials and supplies, net
1,604
1,649
Mill and leach stockpiles
1,030
1,143
Product
1,176
1,281
Other current assets
517
655
Total current assets
7,155
7,915
Property, plant, equipment and mine development costs, net
29,936
29,584
Long-term mill and leach stockpiles
1,446
1,425
Other assets
1,693
1,885
Total assets
$
40,230
$
40,809
LIABILITIES AND EQUITY
Current liabilities:
Accounts payable and accrued liabilities
$
2,471
$
2,576
Current portion of environmental and asset retirement obligations
298
436
Current portion of debt
90
5
Accrued income taxes
47
119
Dividends payable
—
73
Total current liabilities
2,906
3,209
Long-term debt, less current portion
9,824
9,821
Deferred income taxes
4,180
4,210
Environmental and asset retirement obligations, less current portion
3,767
3,630
Other liabilities
2,398
2,491
Total liabilities
23,075
23,361
Equity:
Stockholders’ equity:
Common stock
158
158
Capital in excess of par value
25,905
25,830
Accumulated deficit
( 12,718
)
( 12,280
)
Accumulated other comprehensive loss
( 652
)
( 676
)
Common stock held in treasury
( 3,739
)
( 3,734
)
Total stockholders’ equity
8,954
9,298
Noncontrolling interests
8,201
8,150
Total equity
17,155
17,448
Total liabilities and equity
$
40,230
$
40,809
The accompanying notes are an integral part of these consolidated financial statements.
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Freeport-McMoRan Inc.
CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited)
Three Months Ended
Six Months Ended
June 30,
June 30,
2020
2019
2020
2019
(In millions, except per share amounts)
Revenues
$
3,054
$
3,546
$
5,852
$
7,338
Cost of sales:
Production and delivery
2,394
3,005
4,939
5,929
Depreciation, depletion and amortization
358
352
699
699
Metals inventory adjustments
( 139
)
2
83
59
Total cost of sales
2,613
3,359
5,721
6,687
Selling, general and administrative expenses
91
92
201
199
Mining exploration and research expenses
18
31
34
58
Environmental obligations and shutdown costs
11
23
37
65
Net loss (gain) on sales of assets
—
8
11
( 25
)
Total costs and expenses
2,733
3,513
6,004
6,984
Operating income (loss)
321
33
( 152
)
354
Interest expense, net
( 115
)
( 132
)
( 242
)
( 278
)
Net loss on early extinguishment of debt
( 9
)
—
( 41
)
( 6
)
Other income, net
20
5
40
19
Income (loss) from continuing operations before income taxes and equity in affiliated companies’ net earnings
217
( 94
)
( 395
)
89
(Provision for) benefit from income taxes
( 96
)
15
( 36
)
( 90
)
Equity in affiliated companies’ net earnings
3
5
6
2
Net income (loss) from continuing operations
124
( 74
)
( 425
)
1
Net gain from discontinued operations
—
—
—
1
Net income (loss)
124
( 74
)
( 425
)
2
Net (income) loss attributable to noncontrolling interests
( 71
)
2
( 13
)
( 43
)
Net income (loss) attributable to common stockholders
$
53
$
( 72
)
$
( 438
)
$
( 41
)
Basic and diluted net income (loss) per share attributable to common stockholders:
Continuing operations
$
0.03
$
( 0.05
)
$
( 0.30
)
$
( 0.03
)
Discontinued operations
—
—
—
—
$
0.03
$
( 0.05
)
$
( 0.30
)
$
( 0.03
)
Weighted-average common shares outstanding:
Basic
1,453
1,451
1,453
1,451
Diluted
1,458
1,451
1,453
1,451
Dividends declared per share of common stock
$
—
$
0.05
$
—
$
0.10
The accompanying notes are an integral part of these consolidated financial statements.
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Freeport-McMoRan Inc.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS) (Unaudited)
Three Months Ended
Six Months Ended
June 30,
June 30,
2020
2019
2020
2019
(In millions)
Net income (loss)
$
124
$
( 74
)
$
( 425
)
$
2
Other comprehensive income, net of taxes:
Defined benefit plans:
Amortization of unrecognized amounts included in net periodic benefit costs
12
13
24
24
Foreign exchange gains (losses)
4
—
( 1
)
—
Other comprehensive income
16
13
23
24
Total comprehensive income (loss)
140
( 61
)
( 402
)
26
Total comprehensive (income) loss attributable to noncontrolling interests
( 71
)
1
( 12
)
( 44
)
Total comprehensive income (loss) attributable to common stockholders
$
69
$
( 60
)
$
( 414
)
$
( 18
)
The accompanying notes are an integral part of these consolidated financial statements.
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Freeport-McMoRan Inc.
CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
Six Months Ended
June 30,
2020
2019
(In millions)
Cash flow from operating activities:
Net (loss) income
$
( 425
)
$
2
Adjustments to reconcile net (loss) income to net cash provided by operating activities:
Depreciation, depletion and amortization
699
699
Metals inventory adjustments
83
59
Net loss (gain) on sales of assets
11
( 25
)
Stock-based compensation
43
40
Net charges for environmental and asset retirement obligations, including accretion
112
109
Payments for environmental and asset retirement obligations
( 119
)
( 100
)
Net charges for defined pension and postretirement plans
45
53
Pension plan contributions
( 29
)
( 33
)
Net loss on early extinguishment of debt
41
6
Deferred income taxes
( 28
)
20
PT Freeport Indonesia (PT-FI) surface water tax settlement
—
28
Charges for Cerro Verde royalty dispute
15
28
Payments for Cerro Verde royalty dispute
( 90
)
( 86
)
Other, net
( 46
)
40
Changes in working capital and other:
Accounts receivable
83
256
Inventories
168
254
Other current assets
( 4
)
( 26
)
Accounts payable and accrued liabilities
( 73
)
9
Accrued income taxes and timing of other tax payments
( 33
)
( 245
)
Net cash provided by operating activities
453
1,088
Cash flow from investing activities:
Capital expenditures:
North America copper mines
( 332
)
( 417
)
South America
( 125
)
( 108
)
Indonesia
( 634
)
( 658
)
Molybdenum mines
( 11
)
( 6
)
Other
( 35
)
( 62
)
Proceeds from sales of assets
116
94
Other, net
( 5
)
( 10
)
Net cash used in investing activities
( 1,026
)
( 1,167
)
Cash flow from financing activities:
Proceeds from debt
1,585
328
Repayments of debt
( 1,527
)
( 1,563
)
Cash dividends and distributions paid:
Common stock
( 73
)
( 146
)
Noncontrolling interests
—
( 79
)
Contributions from noncontrolling interests
74
100
Stock-based awards net payments
( 4
)
( 6
)
Debt financing costs and other, net
( 31
)
( 4
)
Net cash provided by (used in) financing activities
24
( 1,370
)
Net decrease in cash, cash equivalents, restricted cash and restricted cash equivalents
( 549
)
( 1,449
)
Cash, cash equivalents, restricted cash and restricted cash equivalents at beginning of year
2,278
4,455
Cash, cash equivalents, restricted cash and restricted cash equivalents at end of period
$
1,729
$
3,006
The accompanying notes are an integral part of these consolidated financial statements.
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Freeport-McMoRan Inc.
CONSOLIDATED STATEMENTS OF EQUITY (Unaudited)
THREE MONTHS ENDED JUNE 30
Stockholders’ Equity
Common Stock
Accum-ulated Deficit
Accumu-
lated
Other Compre-
hensive
Loss
Common Stock
Held in Treasury
Total
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 March 31, 2020
1,583
$
158
$
25,875
$
( 12,771
)
$
( 668
)
131
$
( 3,739
)
$
8,855
$
8,108
$
16,963
Stock-based compensation, including the tender of shares
—
—
9
—
—
—
—
9
1
10
Contributions from noncontrolling interests
—
—
21
—
—
—
—
21
21
42
Net income attributable to common stockholders
—
—
—
53
—
—
—
53
—
53
Net income attributable to noncontrolling interests
—
—
—
—
—
—
—
—
71
71
Other comprehensive income
—
—
—
—
16
—
—
16
—
16
Balance at June 30, 2020
1,583
$
158
$
25,905
$
( 12,718
)
$
( 652
)
131
$
( 3,739
)
$
8,954
$
8,201
$
17,155
Stockholders’ Equity
Common Stock
Accum-ulated Deficit
Accumu-
lated
Other Compre-
hensive
Loss
Common Stock
Held in Treasury
Total
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 March 31, 2019
1,582
$
158
$
25,963
$
( 12,010
)
$
( 594
)
131
$
( 3,734
)
$
9,783
$
8,058
$
17,841
Stock-based compensation, including the tender of shares
—
—
10
—
—
—
—
10
—
10
Dividends
—
—
( 73
)
—
—
—
—
( 73
)
—
( 73
)
Contributions from noncontrolling interests
—
—
49
—
—
—
—
49
51
100
Net loss attributable to common stockholders
—
—
—
( 72
)
—
—
—
( 72
)
—
( 72
)
Net loss attributable to noncontrolling interests
—
—
—
—
—
—
—
—
( 2
)
( 2
)
Other comprehensive income
—
—
—
—
12
—
—
12
1
13
Balance at June 30, 2019
1,582
$
158
$
25,949
$
( 12,082
)
$
( 582
)
131
$
( 3,734
)
$
9,709
$
8,108
$
17,817
The accompanying notes are an integral part of these consolidated financial statements.
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Freeport-McMoRan Inc.
CONSOLIDATED STATEMENTS OF EQUITY (Unaudited)
SIX MONTHS ENDED JUNE 30
Stockholders’ Equity
Common Stock
Accum-ulated Deficit
Accumu-
lated
Other Compre-
hensive
Loss
Common Stock
Held in Treasury
Total
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, 2019
1,582
$
158
$
25,830
$
( 12,280
)
$
( 676
)
131
$
( 3,734
)
$
9,298
$
8,150
$
17,448
Exercised and issued stock-based awards
1
—
1
—
—
—
—
1
—
1
Stock-based compensation, including the tender of shares
—
—
38
—
—
—
( 5
)
33
1
34
Contributions from noncontrolling interests
—
—
36
—
—
—
—
36
38
74
Net loss attributable to common stockholders
—
—
—
( 438
)
—
—
—
( 438
)
—
( 438
)
Net income attributable to noncontrolling interests
—
—
—
—
—
—
—
—
13
13
Other comprehensive income (loss)
—
—
—
—
24
—
—
24
( 1
)
23
Balance at June 30, 2020
1,583
$
158
$
25,905
$
( 12,718
)
$
( 652
)
131
$
( 3,739
)
$
8,954
$
8,201
$
17,155
Stockholders’ Equity
Common Stock
Accum-ulated Deficit
Accumu-
lated
Other Compre-
hensive
Loss
Common Stock
Held in Treasury
Total
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, 2018
1,579
$
158
$
26,013
$
( 12,041
)
$
( 605
)
130
$
( 3,727
)
$
9,798
$
8,094
$
17,892
Exercised and issued stock-based awards
3
—
1
—
—
—
—
1
—
1
Stock-based compensation, including the tender of shares
—
—
33
—
—
1
( 7
)
26
—
26
Dividends
—
—
( 146
)
—
—
—
—
( 146
)
( 70
)
( 216
)
Change in ownership interests
—
—
( 1
)
—
—
—
—
( 1
)
( 11
)
( 12
)
Contributions from noncontrolling interests
—
—
49
—
—
—
—
49
51
100
Net loss attributable to common stockholders
—
—
—
( 41
)
—
—
—
( 41
)
—
( 41
)
Net income attributable to noncontrolling interests
—
—
—
—
—
—
—
—
43
43
Other comprehensive income
—
—
—
—
23
—
—
23
1
24
Balance at June 30, 2019
1,582
$
158
$
25,949
$
( 12,082
)
$
( 582
)
131
$
( 3,734
)
$
9,709
$
8,108
$
17,817
The accompanying notes are an integral part of these consolidated financial statements.
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Freeport-McMoRan Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
NOTE 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 Inc.’s (FCX) consolidated financial statements and notes contained in its annual report on Form 10-K for the year ended December 31, 2019 (2019 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 six -month period ended June 30, 2020 , are not necessarily indicative of the results that may be expected for the year ending December 31, 2020 .
Operations Update. In April 2020, FCX announced revised operating plans in response to the global COVID-19 pandemic and resulting negative impact on the global economy. FCX proactively implemented operating protocols at each of its operating sites to contain and mitigate the risk of spread of COVID-19. FCX also continues to work closely with communities where it operates across the globe and has provided monetary support and in-kind contributions of medical supplies, equipment and food.
FCX achieved significant progress at Cerro Verde during second-quarter 2020 to restore operations following COVID-19 restrictions imposed by the Peruvian government in March 2020. Strict health protocols have been implemented and a plan for Cerro Verde to restore operations was approved by the Peruvian government in second-quarter 2020. FCX is currently assessing options and future timing of restart of the Chino mine in New Mexico, which will take into account public health and market conditions.
During second-quarter 2020, FCX implemented a series of actions to reduce administrative and centralized support costs in conjunction with its April 2020 revised operating plans. Cost savings initiatives included a temporary reduction in certain employee benefits, the initiation of furloughs and an employee separation program, and reductions in third party service costs, facilities costs, travel and other expenses.
FCX recognized charges totaling $ 196 million in second-quarter 2020 and $ 224 million for the first six months of 2020 associated with the COVID-19 pandemic and revised operating plans, including employee separation charges. These charges, none of which were capitalized into inventory, were recorded to production and delivery ( $ 153 million in second-quarter 2020 and $ 173 million for the first six months of 2020); depreciation, depletion and amortization ( $ 21 million in second-quarter 2020 and $ 29 million for the first six months of 2020); selling, general and administrative ( $ 15 million for each of the second quarter and first six months of 2020) and mining exploration and research expense ( $ 7 million for each of the second quarter and first six months of 2020).
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NOTE 2. EARNINGS PER SHARE
FCX calculates its basic net income (loss) per share of common stock under the two-class method and calculates its diluted net income (loss) per share of common stock using the more dilutive of the two-class method or the treasury-stock method. Basic net income (loss) per share of common stock was computed by dividing net income (loss) attributable to common stockholders (after deducting accumulated dividends and undistributed earnings to participating securities) by the weighted-average shares of common stock outstanding during the period. Diluted net income (loss) per share of common stock was calculated by including the basic weighted-average shares of common stock outstanding adjusted for the effects of all potential dilutive shares of common stock, unless their effect would be anti-dilutive.
Reconciliations of net income (loss) and weighted-average shares of common stock outstanding for purposes of calculating basic and diluted net income (loss) per share follow (in millions, except per share amounts):
Three Months Ended
Six Months Ended
June 30,
June 30,
2020
2019
2020
2019
Net income (loss) from continuing operations
$
124
$
( 74
)
$
( 425
)
$
1
Net (income) loss from continuing operations attributable to noncontrolling interests
( 71
)
2
( 13
)
( 43
)
Undistributed earnings allocated to participating securities
( 3
)
( 3
)
( 3
)
( 3
)
Net income (loss) from continuing operations attributable to common stockholders
50
( 75
)
( 441
)
( 45
)
Net income from discontinued operations attributable to common stockholders
—
—
—
1
Net income (loss) attributable to common stockholders
$
50
$
( 75
)
$
( 441
)
$
( 44
)
Basic weighted-average shares of common stock outstanding
1,453
1,451
1,453
1,451
Add shares issuable upon exercise or vesting of dilutive stock options and restricted stock units (RSUs)
5
—
a
—
a
—
a
Diluted weighted-average shares of common stock outstanding
1,458
1,451
1,453
1,451
Basic and diluted net income (loss) per share attributable to common stockholders:
Continuing operations
$
0.03
$
( 0.05
)
$
( 0.30
)
$
( 0.03
)
Discontinued operations
—
—
—
—
$
0.03
$
( 0.05
)
$
( 0.30
)
$
( 0.03
)
a.
Excludes approximately 10 million shares in second-quarter 2019 , 10 million shares for the first six months of 2020 and 12 million shares for the first six months of 2019 associated with outstanding stock options with exercise prices less than the average market price of FCX’s common stock and RSUs that were anti-dilutive.
Outstanding stock options with exercise prices greater than the average market price of FCX’s common stock during the period are excluded from the computation of diluted net income (loss) per share of common stock. Stock options for 38 million shares of common stock in second-quarter 2020 , 43 million shares of common stock in second-quarter 2019 , 39 million shares of common stock for first six months of 2020 and 41 million shares of common stock for the first six months of 2019 were excluded.
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NOTE 3. INVENTORIES, INCLUDING LONG-TERM MILL AND LEACH STOCKPILES
The components of inventories follow (in millions):
June 30,
2020
December 31, 2019
Current inventories:
Total materials and supplies, net a
$
1,604
$
1,649
Mill stockpiles
$
166
$
220
Leach stockpiles
864
923
Total current mill and leach stockpiles
$
1,030
$
1,143
Raw materials (primarily concentrate)
$
287
$
318
Work-in-process
110
124
Finished goods
779
839
Total product
$
1,176
$
1,281
Long-term inventories:
Mill stockpiles
$
207
$
181
Leach stockpiles
1,239
1,244
Total long-term mill and leach stockpiles b
$
1,446
$
1,425
a.
Materials and supplies inventory was net of obsolescence reserves totaling $ 31 million at June 30, 2020 , and $ 24 million at December 31, 2019 .
b.
Estimated metals in stockpiles not expected to be recovered within the next 12 months.
During second-quarter 2020, FCX recorded net favorable adjustments to increase long-term metals inventory carrying values by $ 139 million , including an increase to long-term copper inventories ( $ 144 million ), primarily related to the reversal of net realizable value adjustments recorded on long-term copper inventories in first-quarter 2020 because of higher copper market prices at June 30, 2020 , and a decrease to long-term molybdenum inventories ( $ 5 million ) because of lower molybdenum market prices at June 30, 2020 . Net realizable value inventory adjustments to decrease metals inventory carrying values totaled $ 83 million for the first six months of 2020 associated with lower market prices for copper ( $ 61 million ) and molybdenum ( $ 22 million ). Net realizable value inventory adjustments to decrease metals inventory carrying values totaled $ 2 million in second-quarter 2019 and $ 59 million for the first six months of 2019, primarily for cobalt inventories because of lower cobalt market prices (refer to Note 9 for metals inventory adjustments by business segment).
NOTE 4. INCOME TAXES
G eographic sources of FCX’s benefit from (provision for) income taxes follow (in millions):
Six Months Ended
June 30,
2020
2019
U.S. operations
$
58
a
$
20
b
International operations
( 94
)
( 110
)
Total
$
( 36
)
$
( 90
)
a.
Includes a tax credit of $53 million associated with the reversal of a year-end 2019 tax charge related to the sale of FCX’s interest in the lower zone of the Timok exploration project in Serbia.
b.
Includes a tax credit of $18 million primarily associated with state law changes.
FCX’s consolidated effective income tax rate was ( 9 ) percent for the first six months of 2020 and 101 percent for the first six months of 2019 . Because FCX's U.S. jurisdiction generated net losses in the first six months of 2020 and 2019 that will not result in a realized tax benefit, applicable accounting rules require FCX to adjust its estimated annual effective tax rate to exclude the impact of U.S. net losses. Variations in the relative proportions of jurisdictional income result in fluctuations to FCX’s consolidated effective income tax rate.
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In connection with the negative impacts of the COVID-19 pandemic on the global economy, governments throughout the world are announcing measures that are intended to provide tax and other financial relief. Such measures include the Coronavirus Aid, Relief, and Economic Security Act (CARES Act), signed into law by President Trump on March 27, 2020. None of these measures, including the CARES Act, resulted in material impacts to FCX’s provision for income taxes for the six months ended June 30, 2020. Some of these measures will provide FCX with the opportunity to accelerate the timing of cash collections, primarily those associated with the U.S. alternative minimum tax credit refunds. FCX collected $ 221 million of U.S. alternative minimum tax credit refunds in July 2020, and expects to collect the outstanding balance ( $ 47 million ) within the next 12 months. FCX continues to evaluate income tax accounting considerations of additional measures as they develop, including any impact on its measurement of existing deferred tax assets and deferred tax liabilities. FCX will recognize any impact from COVID-19 related changes to tax laws in the period in which the new legislation is enacted.
NOTE 5. DEBT AND EQUITY
The components of debt follow (in millions):
June 30,
2020
December 31, 2019
Senior notes and debentures:
Issued by FCX
$
8,621
$
8,602
Issued by Freeport Minerals Corporation (FMC)
357
357
Cerro Verde credit facility
827
826
Other
109
41
Total debt
9,914
9,826
Less current portion of debt
( 90
)
( 5
)
Long-term debt
$
9,824
$
9,821
Revolving Credit Facility. At June 30, 2020 , FCX had no borrowings outstanding and $ 13 million in letters of credit issued under its revolving credit facility, resulting in availability of approximately $ 3.5 billion , of which approximately $ 1.5 billion could be used for additional letters of credit. Availability under FCX’s revolving credit facility consists of $ 3.28 billion maturing April 2024 and $ 220 million maturing April 2023.
In June 2020 , FCX, PT-FI and Freeport-McMoRan Oil & Gas LLC (FM O&G LLC) amended the $ 3.5 billion unsecured revolving credit facility. The key changes under the amendment include (i) a suspension of the total leverage ratio through June 30, 2021 , followed by a limit of 5.25 x beginning with the quarter ending September 30, 2021 , and stepping down to 3.75 x beginning January 1, 2022 ; and (ii) a reduction in the interest expense coverage ratio to a minimum of 2.00 x through December 31, 2021 , reverting to 2.25 x beginning January 1, 2022 . FCX also agreed to a minimum liquidity covenant of $ 1 billion (consisting of consolidated unrestricted cash and availability under the revolving credit facility) applicable to each quarter through June 30, 2021 , and additional restrictions on priority debt and liens, and the payment of common stock dividends through December 31, 2021 . FCX retained the option to revert to the previous covenant requirements if it is determined additional flexibility is no longer needed. At June 30, 2020 , FCX was in compliance with its revolving credit facility covenants.
Senior Notes. On March 4, 2020, FCX completed the sale of $ 700 million of 4.125 % Senior Notes due 2028 and $ 600 million of 4.25 % Senior Notes due 2030 for proceeds, net of underwriting fees, totaling $ 1.29 billion . Interest on these senior notes is payable semiannually on March 1 and September 1 of each year. These senior notes rank equally with FCX’s other existing and future unsecured and unsubordinated indebtedness. FCX used a portion of the net proceeds from this offering to purchase a portion of its 4.00 % Senior Notes due 2021 and its 3.55 % Senior Notes due 2022 and the payment of accrued and unpaid interest, premiums, fees and expenses in connection with these transactions. On April 3, 2020, FCX used the remaining net proceeds to fund the make-whole redemption of all of its remaining 4.00 % Senior Notes due 2021 and the payment of accrued and unpaid interest, premiums, fees and expenses in connection with the transaction.
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As a result of these transactions, FCX recorded a loss on early extinguishment of debt of $ 9 million in second-quarter 2020 and $ 41 million for the six months ended June 30, 2020.
On July 27, 2020, FCX completed the sale of $ 650 million of 4.375 % Senior Notes due 2028 and $ 850 million of 4.625 % Senior Notes due 2030 for proceeds, net of underwriting fees, totaling $ 1.49 billion . Interest on these senior notes is payable semiannually on February 1 and August 1 of each year. These senior notes rank equally with FCX’s other existing and future unsecured and unsubordinated indebtedness. FCX used $ 1.3 billion of the net proceeds from this offering to purchase a portion of its 3.55 % Senior Notes due 2022, 3.875 % Senior Notes due 2023 and 4.55 % Senior Notes due 2024, in connection with the early settlement of its previously announced tender offers, and the payment of accrued and unpaid interest, premiums, fees and expenses in connection with these transactions. Depending on the final tender results, FCX may use all or a portion of the remaining net proceeds from this offering to purchase more of certain existing senior notes in the tender offers and expects the final settlement of the tender offers, if any, to occur on August 11, 2020. Any net proceeds not used for the tender offers will be used for general corporate purposes, which may include repurchases or redemptions of FCX’s notes. FCX expects to record a loss on early extinguishment of debt of approximately $ 60 million in third-quarter 2020 related to the early settlement of the tender offers.
Interest Expense, Net. Consolidated interest costs (before capitalization) totaled $ 159 million in second-quarter 2020 , $ 167 million in second-quarter 2019 , $ 330 million for the first six months of 2020 and $ 345 million for the first six months of 2019 . Capitalized interest added to property, plant, equipment and mine development costs, net, totaled $ 44 million in second-quarter 2020 , $ 35 million in second-quarter 2019 , $ 88 million for the first six months of 2020 and $ 67 million for the first six months of 2019 .
Common Stock. In March 2020, in response to the COVID-19 pandemic and resulting global economic uncertainties, the FCX Board of Directors (the Board) suspended FCX’s quarterly cash dividend of $ 0.05 per share previously planned for May 1, 2020. Under current market and economic conditions, the Board does not expect to declare common stock dividends during 2020. The declaration and payment of future dividends is at the discretion of the Board and will be assessed on an ongoing basis, taking into account FCX’s financial results, cash requirements, future prospects, global economic conditions and other factors deemed relevant by the Board. As noted above, in accordance with the June 2020 amendment to the revolving credit facility, FCX is restricted from declaring or paying common stock dividends through December 31, 2021, unless FCX, at its option, reverts to the previous covenant requirements which would also eliminate the restriction on the declaration or payment of common stock dividends.
NOTE 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, which FCX intends to offset or mitigate. FCX does not enter into any derivative financial instruments for speculative purposes, but has entered into derivative financial instruments in limited instances to achieve specific objectives. These objectives principally relate to managing risks associated with commodity price changes, foreign currency exchange rates and interest rates.
Commodity Contracts. From time to time, FCX has entered into derivative contracts to hedge the market risk associated with fluctuations in the prices of commodities it purchases and sells. Derivative financial instruments used by FCX to manage its risks do not contain credit risk-related contingent provisions.
In April 2020, FCX entered into forward sales contracts for 150 million pounds of copper for settlement in May and June of 2020. The forward sales provided for fixed pricing of $ 2.34 per pound of copper on approximately 60 percent of North America's sales volumes for May and June 2020. These contracts resulted in hedging losses totaling $ 24 million in second-quarter 2020 and for the six months ended June 30, 2020. There were no remaining forward sales contracts as of June 30, 2020.
A discussion of FCX’s other derivative contracts and programs follow.
Derivatives Designated as Hedging Instruments – Fair Value Hedges
Copper Futures and Swap Contracts. Some of FCX’s U.S. copper rod customers request a fixed market price instead of the Commodity Exchange Inc. (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
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the customers pay the fixed price they requested. FCX accomplishes this by entering into copper futures or swap contracts. Hedging gains or losses from these copper futures and swap contracts are recorded in revenues. FCX did not have any significant gains or losses resulting from hedge ineffectiveness during the six -month periods ended June 30, 2020 and 2019 . At June 30, 2020 , FCX held copper futures and swap contracts that qualified for hedge accounting for 54 million pounds at an average contract price of $ 2.50 per pound, with maturities through December 2021 .
A summary of gains (losses) recognized in revenues for derivative financial instruments related to commodity contracts that are designated and qualify as fair value hedge transactions, including the unrealized gains (losses) on the related hedged item follows (in millions):
Three Months Ended
Six Months Ended
June 30,
June 30,
2020
2019
2020
2019
Copper futures and swap contracts:
Unrealized gains (losses):
Derivative financial instruments
$
40
$
( 13
)
$
7
$
5
Hedged item – firm sales commitments
( 40
)
13
( 7
)
( 5
)
Realized losses:
Matured derivative financial instruments
( 8
)
( 3
)
( 17
)
( 1
)
Derivatives Not Designated as Hedging Instruments
Embedded Derivatives. Certain FCX concentrate, copper cathode and gold sales contracts provide for provisional pricing primarily based on the London Metal Exchange (LME) copper price or the COMEX copper price and the London Bullion Market Association (LBMA) gold price at the time of shipment as specified in the contract. FCX receives market prices based on prices in the specified future month, which results in price fluctuations recorded in revenues until the date of settlement. FCX records revenues and invoices customers at the time of shipment based on then-current LME or COMEX copper prices and the LBMA gold prices as specified in the contracts, which results in an embedded derivative ( i.e. , a pricing mechanism that is finalized after the time of delivery) that is required to be bifurcated from the host contract. The host contract is the sale of the metals contained in the concentrate or cathode at the then-current LME or COMEX copper price, and the LBMA gold price. FCX applies the normal purchases and normal sales scope exception in accordance with derivatives and hedge accounting guidance to the host contract in its concentrate or cathode sales agreements since these contracts do not allow for net settlement and always result in physical delivery. The embedded derivative does not qualify for hedge accounting and is adjusted to fair value through earnings each period, using the period-end LME or COMEX copper forward prices and the adjusted LBMA gold prices, until the date of final pricing. Similarly, FCX purchases copper under contracts that provide for provisional pricing. Mark-to-market price fluctuations from these embedded derivatives are recorded through the settlement date and are reflected in revenues for sales contracts and in inventory for purchase contracts.
A summary of FCX’s embedded derivatives at June 30, 2020 , follows:
Open Positions
Average Price
Per Unit
Maturities Through
Contract
Market
Embedded derivatives in provisional sales contracts:
Copper (millions of pounds)
314
$
2.50
$
2.73
November 2020
Gold (thousands of ounces)
87
1,725
1,779
August 2020
Embedded derivatives in provisional purchase contracts:
Copper (millions of pounds)
116
2.48
2.73
September 2020
Copper Forward Contracts. Atlantic Copper, FCX’s wholly owned smelting and refining unit in Spain, enters into copper forward contracts designed to hedge its copper price risk whenever its physical purchases and sales pricing periods do not match. These economic hedge transactions are intended to hedge against changes in copper prices, with the mark-to-market hedging gains or losses recorded in cost of sales. At June 30, 2020 , Atlantic Copper held net copper forward purchase contracts for 16 million pounds at an average contract price of $ 2.62 per pound, with maturities through August 2020 .
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Summary of Gains (Losses). A summary of the realized and unrealized gains (losses) recognized in operating income for commodity contracts that do not qualify as hedge transactions, including embedded derivatives, follows (in millions):
Three Months Ended
Six Months Ended
June 30,
June 30,
2020
2019
2020
2019
Embedded derivatives in provisional sales contracts: a
Copper
$
162
$
( 122
)
$
( 76
)
$
—
Gold and other metals
17
13
24
11
Copper forward contracts b
( 4
)
( 4
)
19
( 3
)
a.
Amounts recorded in revenues.
b.
Amounts recorded in cost of sales as production and delivery costs.
Unsettled Derivative Financial Instruments
A summary of the fair values of unsettled commodity derivative financial instruments follows (in millions):
June 30,
2020
December 31, 2019
Commodity Derivative Assets:
Derivatives designated as hedging instruments :
Copper futures and swap contracts
$
17
$
6
Derivatives not designated as hedging instruments :
Embedded derivatives in provisional
sales/purchase contracts
77
68
Total derivative assets
$
94
$
74
Commodity Derivative Liabilities:
Derivatives designated as hedging instruments :
Copper futures and swap contracts
$
6
$
—
Derivatives not designated as hedging instruments :
Embedded derivatives in provisional
sales/purchase contracts
28
20
Copper forward contracts
—
1
Total derivative liabilities
$
34
$
21
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FCX’s commodity contracts have netting arrangements with counterparties with which the right of offset exists, and it is FCX’s policy to generally offset balances by contract on its balance sheet. FCX’s embedded derivatives on provisional sales/purchase contracts are netted with the corresponding outstanding receivable/payable balances.
A summary of these unsettled commodity contracts that are offset in the balance sheets follows (in millions):
Assets
Liabilities
June 30,
2020
December 31, 2019
June 30,
2020
December 31, 2019
Gross amounts recognized:
Embedded derivatives in provisional
sales/purchase contracts
$
77
$
68
$
28
$
20
Copper derivatives
17
6
6
1
94
74
34
21
Less gross amounts of offset:
Copper derivatives
4
—
4
—
4
—
4
—
Net amounts presented in balance sheet:
Embedded derivatives in provisional
sales/purchase contracts
77
68
28
20
Copper derivatives
13
6
2
1
$
90
$
74
$
30
$
21
Balance sheet classification:
Trade accounts receivable
$
76
$
66
$
2
$
—
Other current assets
13
6
—
—
Accounts payable and accrued liabilities
1
2
28
21
$
90
$
74
$
30
$
21
Credit Risk. FCX is exposed to credit loss when financial institutions with which it has entered into derivative transactions (commodity, foreign exchange and interest rate swaps) are unable to pay. To minimize the risk of such losses, FCX uses counterparties that meet certain credit requirements and periodically reviews the creditworthiness of these counterparties. FCX does not anticipate that any of the counterparties it deals with will default on their obligations. As of June 30, 2020 , the maximum amount of credit exposure associated with derivative transactions was $ 88 million .
Other Financial Instruments. Other financial instruments include cash and cash equivalents, restricted cash, restricted cash equivalents, accounts receivable, investment securities, legally restricted funds, accounts payable and accrued liabilities, dividends payable and long-term debt. The carrying value for cash and cash equivalents (which included time deposits of $ 0.3 billion at June 30, 2020 , and $ 1.3 billion at December 31, 2019 ), restricted cash, restricted cash equivalents, accounts receivable, accounts payable and accrued liabilities, and dividends payable approximates fair value because of their short-term nature and generally negligible credit losses (refer to Note 7 for the fair values of investment securities, legally restricted funds and long-term debt).
In addition, as of June 30, 2020, FCX has contingent consideration assets related to the sales of certain oil and gas properties (refer to Note 7 for the related fair values).
Cash, Cash Equivalents, Restricted Cash and Restricted Cash Equivalents. The following table provides a reconciliation of total cash, cash equivalents, restricted cash and restricted cash equivalents presented in the consolidated statements of cash flows (in millions):
June 30,
2020
December 31, 2019
Balance sheet components:
Cash and cash equivalents
$
1,465
$
2,020
Restricted cash and restricted cash equivalents included in:
Other current assets
132
100
Other assets
132
158
Total cash, cash equivalents, restricted cash and restricted cash equivalents presented in the consolidated statements of cash flows
$
1,729
$
2,278
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NOTE 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) and the lowest priority to unobservable inputs (Level 3). FCX did not have any significant transfers in or out of Level 3 during second-quarter 2020 .
FCX’s financial instruments are recorded on the consolidated balance sheets at fair value except for contingent consideration associated with the sale of the Deepwater Gulf of Mexico (GOM) oil and gas properties (which was recorded under the loss recovery approach) and debt. A summary of the carrying amount and fair value of FCX’s financial instruments (including those measured at net asset value (NAV) as a practical expedient), other than cash and cash equivalents, restricted cash, restricted cash equivalents, accounts receivable, accounts payable and accrued liabilities, and dividends payable (refer to Note 6) follows (in millions):
At June 30, 2020
Carrying
Fair Value
Amount
Total
NAV
Level 1
Level 2
Level 3
Assets
Investment securities: a,b
U.S. core fixed income fund
$
29
$
29
$
29
$
—
$
—
$
—
Equity securities
5
5
—
5
—
—
Total
34
34
29
5
—
—
Legally restricted funds: a
U.S. core fixed income fund
63
63
63
—
—
—
Corporate bonds
45
45
—
—
45
—
Government mortgage-backed securities
40
40
—
—
40
—
Government bonds and notes
32
32
—
—
32
—
Asset-backed securities
14
14
—
—
14
—
Money market funds
9
9
—
9
—
—
Collateralized mortgage-backed securities
4
4
—
—
4
—
Municipal bonds
1
1
—
—
1
—
Total
208
208
63
9
136
—
Derivatives:
Embedded derivatives in provisional sales/purchase contracts in a gross asset position c
77
77
—
—
77
—
Copper futures and swap contracts c
13
13
—
11
2
—
Copper forward contracts c
4
4
—
2
2
—
Total
94
94
—
13
81
—
Contingent consideration for the sale of the
Deepwater GOM oil and gas properties a
115
78
—
—
—
78
Liabilities
Derivatives: c
Embedded derivatives in provisional sales/purchase contracts in a gross liability position
28
28
—
—
28
—
Copper forward contracts
6
6
—
2
4
—
Total
34
34
—
2
32
—
Long-term debt, including current portion d
9,914
10,013
—
—
10,013
—
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At December 31, 2019
Carrying
Fair Value
Amount
Total
NAV
Level 1
Level 2
Level 3
Assets
Investment securities: a,b
U.S. core fixed income fund
$
27
$
27
$
27
$
—
$
—
$
—
Equity securities
4
4
—
4
—
—
Total
31
31
27
4
—
—
Legally restricted funds: a
U.S. core fixed income fund
59
59
59
—
—
—
Government mortgage-backed securities
43
43
—
—
43
—
Government bonds and notes
36
36
—
—
36
—
Corporate bonds
33
33
—
—
33
—
Asset-backed securities
14
14
—
—
14
—
Collateralized mortgage-backed securities
7
7
—
—
7
—
Money market funds
3
3
—
3
—
—
Municipal bonds
1
1
—
—
1
—
Total
196
196
59
3
134
—
Derivatives:
Embedded derivatives in provisional sales/purchase contracts in a gross asset position c
68
68
—
—
68
—
Copper futures and swap contracts c
6
6
—
5
1
—
Contingent consideration for the sale of onshore
California oil and gas properties a
11
11
—
—
11
—
Total
85
85
—
5
80
—
Contingent consideration for the sale of the
Deepwater GOM oil and gas properties a
122
108
—
—
—
108
Liabilities
Derivatives: c
Embedded derivatives in provisional sales/purchase contracts in a gross liability position
20
20
—
—
20
—
Copper forward contracts
1
1
—
—
1
—
Total
21
21
—
—
21
—
Long-term debt, including current portion d
9,826
10,239
—
—
10,239
—
a.
Current portion included in other current assets and long-term portion included in other assets.
b.
Excludes time deposits (which approximated fair value) included in (i) other current assets of $ 132 million at June 30, 2020 , and $ 100 million at December 31, 2019 , and (ii) other assets of $ 131 million at June 30, 2020 , and $ 157 million at December 31, 2019 , primarily associated with an assurance bond to support PT-FI’s commitment for the development of a new smelter in Indonesia and PT-FI’s closure and reclamation guarantees.
c.
Refer to Note 6 for further discussion and balance sheet classifications.
d.
Recorded at cost except for debt assumed in acquisitions, which are recorded at fair value at the respective acquisition dates.
Valuation Techniques. The U.S. core fixed income fund is valued at NAV. The fund strategy seeks total return consisting of income and capital appreciation primarily by investing in a broad range of investment-grade debt securities, including U.S. government obligations, corporate bonds, mortgage-backed securities, asset-backed securities and money market instruments. There are no restrictions on redemptions (which are usually within one business day of notice).
Equity securities are valued at the closing price reported on the active market on which the individual securities are traded and, as such, are classified within Level 1 of the fair value hierarchy.
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Fixed income securities (government securities, corporate bonds, asset-backed securities, collateralized mortgage-backed securities and municipal bonds) are valued using a bid-evaluation price or a mid-evaluation price. These evaluations are based on quoted prices, if available, or models that use observable inputs and, as such, are classified within Level 2 of the fair value hierarchy.
Money market funds are classified within Level 1 of the fair value hierarchy because they are valued using quoted market prices in active markets.
FCX’s embedded derivatives on provisional copper concentrate, copper cathode and gold purchases and sales are valued using quoted monthly LME or COMEX copper forward prices and the adjusted LBMA gold prices at each reporting date based on the month of maturity (refer to Note 6 for further discussion); however, FCX’s contracts themselves are not traded on an exchange. As a result, these derivatives are classified within Level 2 of the fair value hierarchy.
FCX’s derivative financial instruments for copper futures and swap contracts and copper forward contracts that are traded on the respective exchanges are classified within Level 1 of the fair value hierarchy because they are valued using quoted monthly COMEX or LME prices at each reporting date based on the month of maturity (refer to Note 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 based on COMEX and LME forward prices.
In 2016, FCX completed the sale of its onshore California oil and gas properties, which included contingent consideration of up to $ 150 million , consisting of $ 50 million per year for 2018, 2019 and 2020 if the price of Brent crude oil averages over $ 70 per barrel in each of these calendar years. Based on current and forecasted oil prices for the remainder of 2020, FCX has concluded the fair value of the last tranche of this contingent consideration derivative approximates zero at June 30, 2020 . The fair value of the contingent consideration derivative was $ 11 million (included in other assets in the consolidated balance sheets) at December 31, 2019 . Future changes in the fair value of this contingent consideration derivative will continue to be recorded in operating income. Also, contingent consideration of $ 50 million was realized in 2018 and collected in first-quarter 2019 (included in proceeds from sales of assets in the consolidated statements of cash flows) because the average Brent crude oil price exceeded $ 70 per barrel for 2018. Contingent consideration of $50 million was not realized in 2019 because the average Brent crude oil price did not exceed $70 per barrel for 2019. The fair value at December 31, 2019, was calculated based on average commodity price forecasts through the applicable maturity date using a Monte-Carlo simulation model. The model used various observable inputs, including Brent crude oil forward prices, volatilities and discount rates. As a result, this contingent consideration asset was classified within Level 2 of the fair value hierarchy.
In December 2016, FCX’s sale of its Deepwater GOM oil and gas properties included up to $ 150 million in contingent consideration that was recorded at the total amount under the loss recovery approach. The contingent consideration will be received over time as future cash flows are realized from a third-party production handling agreement for an offshore platform, with the related payments commencing in third-quarter 2018. The contingent consideration included in (i) other current assets totaled $ 12 million at June 30, 2020 , and $ 18 million at December 31, 2019 , and (ii) other assets totaled $ 103 million at June 30, 2020 , and $ 104 million at December 31, 2019 . The fair value of this contingent consideration was calculated based on a discounted cash flow model using inputs that include third-party estimates for reserves, production rates and production timing, and discount rates. Because significant inputs are not observable in the market, the contingent consideration is classified within Level 3 of the fair value hierarchy.
Long-term debt, including current portion, is primarily valued using available market quotes and, as such, is classified within Level 2 of the fair value hierarchy.
The techniques described above may produce a fair value that may not be indicative of 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 measurement at the reporting date. There have been no changes in the techniques used at June 30, 2020 , as compared with those techniques used at December 31, 2019 .
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A summary of the changes in the fair value of FCX’s Level 3 instrument, contingent consideration for the sale of the Deepwater GOM oil and gas properties, during the first six months of 2020 follows (in millions):
Fair value at January 1, 2020
$
108
Net unrealized loss related to assets still held at the end of the period
( 22
)
Settlements
( 8
)
Fair value at June 30, 2020
$
78
NOTE 8. CONTINGENCIES AND COMMITMENTS
Litigation
There were no significant updates to previously reported legal proceedings included in Note 12 of FCX’s 2019 Form 10-K, other than the matters below, which were updated in Note 8 of FCX’s quarterly report on Form 10-Q for the quarter ended March 31, 2020.
Louisiana Parishes Coastal Erosion Cases. As previously disclosed, in September 2019, affiliates of FCX reached an agreement in principle to settle all 13 cases filed in Louisiana state courts by six south Louisiana parishes (Cameron, Jefferson, Plaquemines, St. Bernard, St. John the Baptist and Vermilion) and the parties that intervened in the litigation in support of the parishes’ claims, including the state of Louisiana, alleging that certain oil and gas exploration and production operations and sulphur mining and production operations of the FCX affiliates damaged coastal wetlands and caused significant land loss along the Louisiana coast.
The agreement in principle does not include any admission of liability by FCX or its affiliates. FCX recorded a charge in third-quarter 2019 for the initial payment of $ 15 million , which will be paid upon execution of the settlement agreement. The settlement agreement has been executed by the FCX affiliates and several of the Louisiana parishes. FCX expects the agreement to be executed by all parties; however, execution has been delayed by the ongoing COVID-19 pandemic. Upon execution of the settlement agreement by all parties, the FCX affiliates will be fully released and dismissed from all 13 pending cases.
Asbestos and Talc Claims . As previously disclosed, there has been a significant increase in the number of cases alleging the presence of asbestos contamination in talc-based personal care products and in cases alleging exposure to talc products that are not alleged to be contaminated with asbestos. The primary targets have been the producers of those products, but defendants in many of these cases also include talc miners. Cyprus Amax Minerals Company (CAMC), an indirect wholly owned subsidiary of FCX, and Cyprus Mines Corporation (Cyprus Mines), a wholly owned subsidiary of CAMC, are among those targets. Cyprus Mines was engaged in talc mining from 1964 until 1992 when it exited its talc business by conveying it to a third party in two related transactions. Those transactions involved (i) a transfer by Cyprus Mines of the assets of its talc business to a newly formed subsidiary that assumed all pre-sale and post-sale talc liabilities, subject to limited reservations, and (ii) a sale of the stock of that subsidiary to the third party. In 2011, the third party sold that subsidiary to Imerys Talc America (Imerys), an affiliate of Imerys S.A.
Cyprus Mines has contractual indemnification rights, subject to limited reservations, against Imerys, which has historically acknowledged those indemnification obligations, and had taken responsibility for all cases tendered to it. However, on February 13, 2019, Imerys filed for Chapter 11 bankruptcy protection, which triggered an immediate automatic stay under the federal bankruptcy code prohibiting any party from continuing or initiating litigation or asserting new claims against Imerys. As a result, Imerys is no longer defending the talc lawsuits against Cyprus Mines and CAMC. In addition, Imerys has taken the position that it alone owns, and has the sole right to access, the proceeds of the legacy insurance coverage of Cyprus Mines and CAMC for talc liabilities. In late March 2019, Cyprus Mines and CAMC challenged this position and obtained emergency relief from the bankruptcy court to gain access to the insurance until the question of ownership and contractual access can be decided in an adversary proceeding before the bankruptcy court, which was previously scheduled for March 2020, but has been put on hold.
During first-quarter 2019, in a case pending at the time Imerys filed bankruptcy, a California jury entered a $ 29 million verdict against Johnson & Johnson (J&J) and Cyprus Mines, of which approximately $ 2 million was attributed to Cyprus Mines. Taking advantage of the temporary access to the insurance authorized by the bankruptcy court, Cyprus Mines used the insurance to fully resolve the case. Cyprus Mines and the insurers also settled several other cases and secured delays or dismissals in other cases. Multiple trials previously scheduled over the first half of 2020 have been postponed because of the ongoing COVID-19 pandemic. Other cases remain
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scheduled for trial in the second half of 2020, and postponed cases may be reset prior to the adversary proceeding regarding the legacy insurance, which is currently on hold.
Cyprus Mines and CAMC also have contractual indemnification rights against J&J, which J&J disputes. In June 2020, Cyprus Mines and CAMC filed a complaint in the Imerys bankruptcy case asserting that J&J was required to indemnify Cyprus Mines and CAMC for liabilities related to J&J products.
FCX believes that Cyprus Mines and CAMC each has strong defenses to legal liability and that both should have access to the legacy insurance to cover defense costs, settlements and judgments, at least until the bankruptcy court decides otherwise or the insurance is exhausted. At this time, FCX cannot estimate the range of possible loss associated with these proceedings, but it does not currently believe the amount of any such losses are material to its consolidated financial statements. However, there can be no assurance that future developments will not alter this conclusion.
Environmental
On August 5, 2020, the co-conveners of the Global Tailings Review, which included the International Council on Mining and Metals (ICMM), an industry group of which FCX is a founding member, published the first Global Industry Standard on Tailings Management (the Standard). The Standard includes 77 requirements across six key areas including the design, construction, operation and monitoring of tailings facilities, management and governance, emergency response and long-term recovery, and public disclosure. As a member of ICMM, which has endorsed the Standard, FCX will move toward implementing it and will begin undertaking an extensive, multi-year analysis of its tailings facilities to ensure conformance with the Standard. Compliance with the new Standard will require incremental future costs.
Other Matters
PT-FI and PT Smelting Export Licenses. In March 2020, PT-FI received a one-year extension of its export license through March 15, 2021, and PT Smelting (PT-FI’s 25 percent -owned smelter and refinery in Indonesia) received an extension of its anode slimes export license through March 10, 2021.
Cerro Verde Royalty Dispute. In November 2019, Cerro Verde filed a notice of intent to initiate international arbitration against the Peruvian government, which triggered a period for mandatory good faith settlement discussions. The parties were unable to find an amicable resolution and, on February 28, 2020, FCX and Cerro Verde filed international arbitration proceedings against the Peruvian government. In April 2020, SMM Cerro Verde Netherlands B.V. (SMM), another shareholder of Cerro Verde, filed a parallel arbitration proceeding under a different investment treaty against the Peruvian government.
NOTE 9. BUSINESS SEGMENTS
FCX has organized its mining operations into four primary divisions – North America copper mines, South America mining, Indonesia mining and Molybdenum mines, and operating segments that meet certain thresholds are reportable segments. Separately disclosed in the following tables are FCX’s reportable segments, which include the Morenci, Bagdad, Cerro Verde and Grasberg (Indonesia Mining) copper mines, the Rod & Refining operations and Atlantic Copper Smelting & Refining.
Beginning in fourth-quarter 2019, the Bagdad copper mine became a reportable segment. As a result, FCX revised its segment disclosure for the three and six months ended June 30, 2019 , to conform with the current year presentation.
Intersegment sales between FCX’s business segments are based on terms similar to arms-length transactions with third parties at the time of the sale. Intersegment sales may not be reflective of the actual prices ultimately realized because of a variety of factors, including additional processing, timing of sales to unaffiliated customers and transportation premiums.
FCX defers recognizing profits on sales from its mines to other segments, including Atlantic Copper Smelting & Refining, and on 25 percent of PT-FI’s sales to PT Smelting, until final sales to third parties occur. Quarterly variations in ore grades, the timing of intercompany shipments and changes in product prices result in variability in FCX’s net deferred profits and quarterly earnings.
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FCX allocates certain operating costs, expenses and capital expenditures to its operating divisions and individual segments. However, not all costs and expenses applicable to an operation are allocated. U.S. federal and state income taxes are recorded and managed at the corporate level (included in Corporate, Other & Eliminations), whereas foreign income taxes are recorded and managed at the applicable country level. In addition, most mining exploration and research activities are managed on a consolidated basis, and those costs, along with some selling, general and administrative costs, are not allocated to the operating divisions or individual segments. Accordingly, the following Financial Information by Business Segment reflects management determinations that may not be indicative of what the actual financial performance of each operating division or segment would be if it was an independent entity.
Product Revenues. FCX’s revenues attributable to the products it sold for the second quarters and first six months of 2020 and 2019 follow (in millions):
Three Months Ended
Six Months Ended
June 30,
June 30,
2020
2019
2020
2019
Copper:
Cathode
$
1,124
$
959
$
1,961
$
1,818
Concentrate
749
1,134
1,598
2,299
Rod and other refined copper products
303
516
845
1,023
Purchased copper a
166
325
401
662
Gold
341
305
611
696
Molybdenum
194
327
437
615
Other b
115
218
272
495
Adjustments to revenues:
Treatment charges
( 75
)
( 100
)
( 155
)
( 205
)
Royalty expense c
( 26
)
( 19
)
( 46
)
( 49
)
Export duties d
( 16
)
( 10
)
( 20
)
( 27
)
Revenues from contracts with customers
2,875
3,655
5,904
7,327
Embedded derivatives e
179
( 109
)
( 52
)
11
Total consolidated revenues
$
3,054
$
3,546
$
5,852
$
7,338
a.
FCX purchases copper cathode primarily for processing by its Rod & Refining operations.
b.
Primarily includes revenues associated with cobalt and silver.
c.
Reflects royalties on sales from PT-FI and Cerro Verde that will vary with the volume of metal sold and prices.
d.
Reflects PT-FI export duties.
e.
Refer to Note 6 for discussion of embedded derivatives related to FCX’s provisionally priced concentrate and cathode sales contracts.
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Financial Information by Business Segment
(In millions)
Atlantic
Corporate,
North America Copper Mines
South America Mining
Copper
Other
Cerro
Indonesia
Molybdenum
Rod &
Smelting
& Elimi-
FCX
Morenci
Bagdad
Other
Total
Verde
Other
Total
Mining
Mines
Refining
& Refining
nations
Total
Three Months Ended June 30, 2020
Revenues:
Unaffiliated customers
$
20
$
—
$
16
$
36
$
471
$
106
$
577
$
683
a
$
—
$
1,106
$
464
$
188
b
$
3,054
Intersegment
447
166
339
952
c
52
—
52
35
58
8
2
( 1,107
)
—
Production and delivery
348
118
321
787
334
104
438
378
61
1,138
446
( 854
)
2,394
Depreciation, depletion and amortization
43
13
33
89
88
14
102
124
15
6
7
15
358
Metals inventory adjustments
—
—
( 89
)
( 89
)
—
( 57
)
( 57
)
—
1
1
—
5
( 139
)
Selling, general and administrative expenses
—
—
1
1
1
—
1
28
—
—
5
56
91
Mining exploration and research expenses
—
—
1
1
—
—
—
—
—
—
—
17
18
Environmental obligations and shutdown costs
—
—
—
—
—
—
—
—
—
—
—
11
11
Operating income (loss)
76
35
88
199
100
45
145
188
( 19
)
( 31
)
8
( 169
)
321
Interest expense, net
1
—
—
1
20
—
20
1
—
—
1
92
115
Provision for (benefit from) income taxes
—
—
—
—
29
16
45
78
—
—
1
( 28
)
96
Total assets at June 30, 2020
2,697
794
4,404
7,895
8,515
1,631
10,146
16,848
1,777
259
726
2,579
40,230
Capital expenditures
27
12
109
148
31
20
51
308
4
2
5
9
527
Three Months Ended June 30, 2019
Revenues:
Unaffiliated customers
$
16
$
—
$
69
$
85
$
562
$
128
$
690
$
583
a
$
—
$
1,171
$
546
$
471
b
$
3,546
Intersegment
491
204
340
1,035
71
—
71
( 1
)
109
4
—
( 1,218
)
—
Production and delivery
348
128
348
824
455
126
581
554
78
1,171
515
( 718
)
3,005
Depreciation, depletion and amortization
43
11
33
87
101
18
119
99
18
3
7
19
352
Metals inventory adjustments
—
—
1
1
—
—
—
—
—
—
—
1
2
Selling, general and administrative expenses
—
—
—
—
2
—
2
30
—
—
5
55
92
Mining exploration and research expenses
—
—
1
1
—
—
—
—
—
—
—
30
31
Environmental obligations and shutdown costs
—
—
—
—
—
—
—
—
—
—
—
23
23
Net loss on sales of assets
—
—
—
—
—
—
—
—
—
—
—
8
8
Operating income (loss)
116
65
26
207
75
( 16
)
59
( 101
)
13
1
19
( 165
)
33
Interest expense, net
1
—
—
1
25
—
25
1
—
—
6
99
132
Provision for (benefit from) income taxes
—
—
—
—
20
( 9
)
11
( 35
)
—
—
2
7
( 15
)
Total assets at June 30, 2019
2,917
742
4,179
7,838
8,571
1,699
10,270
16,261
1,792
250
764
3,911
41,086
Capital expenditures
49
33
125
207
43
4
47
339
2
1
5
28
629
a.
Includes PT-FI's sales to PT Smelting totaling $ 433 million in second-quarter 2020 and $ 470 million in second-quarter 2019 .
b.
Includes revenues from FCX's molybdenum sales company, which includes sales of molybdenum produced by the Molybdenum mines and by certain of the North America and South America copper mines.
c.
Includes hedging losses totaling $ 24 million related to forward sales contracts covering 150 million pounds of copper sales for May and June 2020 at a fixed price of $ 2.34 per pound.
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(In millions)
Atlantic
Corporate,
North America Copper Mines
South America Mining
Copper
Other
Other
Cerro
Other
Indonesia
Molybdenum
Rod &
Smelting
& Elimi-
FCX
Morenci
Bagdad
Mines
Total
Verde
Mines
Total
Mining
Mines
Refining
& Refining
nations
Total
Six Months Ended June 30, 2020
Revenues:
Unaffiliated customers
$
22
$
—
$
23
$
45
$
847
$
204
$
1,051
$
1,128
a
$
—
$
2,221
$
893
$
514
b
$
5,852
Intersegment
889
325
714
1,928
c
90
—
90
35
129
16
13
( 2,211
)
—
Production and delivery
697
244
706
1,647
758
214
972
721
127
2,257
857
( 1,642
)
4,939
Depreciation, depletion and amortization
87
27
67
181
181
29
210
225
31
8
14
30
699
Metals inventory adjustments
4
—
52
56
—
3
3
—
5
1
—
18
83
Selling, general and administrative expenses
1
—
1
2
3
—
3
56
—
—
10
130
201
Mining exploration and research expenses
—
—
2
2
—
—
—
—
—
—
—
32
34
Environmental obligations and shutdown costs
—
—
—
—
—
—
—
—
—
1
—
36
37
Net loss on sales of assets
—
—
—
—
—
—
—
—
—
—
—
11
11
Operating income (loss)
122
54
( 91
)
85
( 5
)
( 42
)
( 47
)
161
( 34
)
( 30
)
25
( 312
)
( 152
)
Interest expense, net
2
—
—
2
48
—
48
2
—
—
4
186
242
(Benefit from) provision for income taxes
—
—
—
—
( 23
)
( 10
)
( 33
)
90
—
—
1
( 22
)
36
Capital expenditures
71
37
224
332
90
35
125
634
11
4
11
20
1,137
Six Months Ended June 30, 2019
Revenues:
Unaffiliated customers
$
28
$
—
$
164
$
192
$
1,289
$
226
$
1,515
$
1,288
a
$
—
$
2,299
$
1,117
$
927
b
$
7,338
Intersegment
949
382
631
1,962
197
—
197
57
200
10
5
( 2,431
)
—
Production and delivery
643
248
676
1,567
894
226
1,120
1,110
149
2,304
1,067
( 1,388
)
5,929
Depreciation, depletion and amortization
83
21
66
170
201
32
233
204
34
5
14
39
699
Metals inventory adjustments
—
—
1
1
—
—
—
—
—
—
—
58
59
Selling, general and administrative expenses
1
—
1
2
4
—
4
60
—
—
10
123
199
Mining exploration and research expenses
—
—
1
1
—
—
—
—
—
—
—
57
58
Environmental obligations and shutdown costs
—
—
—
—
—
—
—
—
—
—
—
65
65
Net gain on sales of assets
—
—
—
—
—
—
—
—
—
—
—
( 25
)
( 25
)
Operating income (loss)
250
113
50
413
387
( 32
)
355
( 29
)
17
—
31
( 433
)
354
Interest expense, net
2
—
—
2
54
—
54
1
—
—
12
209
278
Provision for (benefit from) income taxes
—
—
—
—
130
( 14
)
116
( 9
)
—
—
3
( 20
)
90
Capital expenditures
111
58
248
417
99
9
108
658
6
2
9
51
1,251
a.
Includes PT-FI's sales to PT Smelting totaling $ 813 million for the first six months of 2020 and $ 879 million for the first six months of 2019 .
b.
Includes revenues from FCX's molybdenum sales company, which includes sales of molybdenum produced by the Molybdenum mines and by certain of the North America and South America copper mines.
c.
Includes hedging losses totaling $ 24 million related to forward sales contracts covering 150 million pounds of copper sales for May and June 2020 at a fixed price of $ 2.34 per pound.
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NOTE 10. NEW ACCOUNTING STANDARD
Financial Instruments. In June 2016, the Financial Accounting Standards Board issued an Accounting Standards Update (ASU) that requires entities to estimate all expected credit losses for most financial assets held at the reporting date based on an expected loss model, which requires consideration of historical experience, current conditions, and reasonable and supportable forecasts. FCX adopted this ASU effective January 1, 2020, and the adoption of this ASU did not have a material impact on its consolidated financial statements.
NOTE 11. SUBSEQUENT EVENTS
FCX evaluated events after June 30, 2020 , 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.
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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Stockholders of
Freeport-McMoRan Inc.
Results of Review of Interim Financial Statements
We have reviewed the accompanying consolidated balance sheet of Freeport-McMoRan Inc. (the Company) as of June 30, 2020 , the related consolidated statements of operations, comprehensive income (loss), and equity for the three- and six-month periods ended June 30, 2020 and 2019 , the consolidated statements of cash flows for the six -month periods ended June 30, 2020 and 2019 , and the related notes (collectively referred to as the “consolidated interim financial statements”). Based on our reviews, we are not aware of any material modifications that should be made to the consolidated interim financial statements 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) (PCAOB), the consolidated balance sheet of the Company as of December 31, 2019 , the related consolidated statements of operations, comprehensive (loss) income, cash flows and equity for the year then ended, and the related notes (not presented herein); and in our report dated February 14, 2020, we expressed an unqualified audit opinion on those consolidated financial statements. In our opinion, the information set forth in the accompanying consolidated balance sheet as of December 31, 2019 , is fairly stated, in all material respects, in relation to the consolidated balance sheet from which it has been derived.
Basis for Review Results
These financial statements are the responsibility of the Company's management. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our review in accordance with the standards of the PCAOB. A review of interim financial statements 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 PCAOB, 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.
/s/ Ernst & Young LLP
Phoenix, Arizona
August 7, 2020
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