FREEPORT-MCMORAN INC 10-Q

Item 1A. Risk Factors. There have been no material changes to our risk factors previously disclosed in Part I, Item 1A. “Risk Factors” of our 2019 Form 10-K, except for the updated risk factors included below, which should be read in conjunction with the risk factors set forth in our 2019 Form 10-K. However, the risks and uncertainties that we face are not limited to those described in our 2019 Form 10-K or as updated below. Additional risks and uncertainties related to the impact of and attempts to contain the COVID-19 pandemic, but currently unknown or believed not to be material by us, may also adversely affect our business and the trading price of our securities. 69 Table of Contents The ongoing COVID-19 pandemic and resulting negative impact on the global economy and financial markets has had and will likely continue to have an adverse impact on our business and results of operations, the duration and extent of which is highly uncertain and could be material. The ongoing COVID-19 pandemic continues to have an adverse impact on the global economy and is creating significant volatility in the financial markets, including the copper markets. The duration and scope of, and uncertainties associated with, the ongoing COVID-19 pandemic and the related impact on commodity prices, our business and the global economy are evolving and beyond our control. The extent and duration of adverse impacts that the COVID-19 pandemic may have on supply, demand and prices of the commodities we produce, on our suppliers, vendors, customers and employees and on global financial markets is unknown at this time, but could be both material and prolonged. Prolonged unfavorable economic conditions, and any resulting slowed global economic growth, including the current U.S. recession, may result in lower demand for the commodities we produce, as well as the inability of various customers, contractors, suppliers and other business partners to fulfill their obligations, which could have a material adverse effect on our business and results of operations. On April 24, 2020, we announced revised operating plans in response to the global COVID-19 pandemic and resulting negative impact on the global economy. Our April 2020 revised operating plans continue to focus on safeguarding our business in an uncertain public health and economic environment, advancing the ramp-up of underground production at Grasberg to establish large-scale, low-cost copper and gold production, and advancing initiatives in North America and South America to position us for significant increases in cash flows in 2021 and beyond. For additional information, refer to Part 1, Item 2. herein and Note 1 to our financial statements included herein. Our business and results of operations could be adversely affected if significant portions of our workforce are unable to work effectively, including because of illness, quarantines, government actions or other restrictions in connection with the COVID-19 pandemic. We have proactively implemented operating protocols at each of our operating sites to contain and mitigate the risk of spread of COVID-19, including but not limited to, physical distancing, travel restrictions, sanitizing, and frequent health screening and monitoring. A limited number of COVID-19 cases have been confirmed through testing at our operating sites, including PT-FI’s remote operating site in Papua, Indonesia. Despite our efforts to manage these impacts, there can be no assurance that our actions will be effective in containing and mitigating the risk of spread or a major outbreak of COVID-19 at our operating sites. A major outbreak of COVID-19 at any of our operating sites, and particularly at PT-FI’s remote operating site, could have a material adverse effect on our business and results of operations. Actions taken by governmental authorities and third parties to contain and mitigate the risk of spread of COVID-19 have had and will likely continue to have an adverse impact on our business. For example, in mid-March 2020, the Peruvian government issued a Supreme Decree and declaration of a National Emergency in its efforts to contain the outbreak of COVID-19, and subsequently extended the order through May 10, 2020. The Peruvian government also extended the quarantine measures instituted in mid-March 2020 through August 31, 2020, for certain cities in Peru (including Arequipa). To comply with the government’s requirements, we temporarily transitioned our Cerro Verde mine to care and maintenance status and adjusted operations to prioritize critical activities. 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. Cerro Verde continued to make progress toward restoring operations during third-quarter 2020, with operating rates averaging 351,000 metric tons of ore per day (approximately 90 percent of the 2019 annual average). These and other impacts of COVID-19 or other global or regional health pandemics, epidemics or similar public health threats could also have the effect of heightening many of the other risks described in Part I, Item 1A. “Risk Factors” of our 2019 Form 10-K. The ultimate impact of COVID-19 on our business is difficult to predict and depends on factors that are evolving and beyond our control, including the scope and duration of the outbreak and recovery as well as actions taken by governmental authorities and third parties to contain its spread and mitigate its public health effects. Any of these disruptions could continue to adversely impact our business and results of operations, and such adverse impacts could be material. 70 Table of Contents The following risk factors which were previously disclosed in Part I, Item 1A. “Risk Factors” of our 2019 Form 10-K, are amended and restated as follows: Fluctuations in the market prices of the commodities we produce, primarily copper, gold and molybdenum, have caused and may continue to cause significant volatility in our financial performance and in the trading prices of our common stock and debt. Extended declines in the market prices of copper, gold and, to a lesser extent, molybdenum could have, an adverse effect on our earnings, cash flows and asset values and, if sustained, may adversely affect our ability to repay debt. Our financial results vary with fluctuations in the market prices of the commodities we produce, primarily copper and gold, and to a lesser extent molybdenum. The COVID-19 pandemic and resulting negative impact on the global economy has created significant volatility in the financial markets, including the copper market. In third-quarter 2020, copper prices continued to recover from the sharp decline that occurred during first-quarter 2020. However, with the ongoing COVID-19 pandemic, any extended decline in market prices of these commodities could have a material adverse effect on our financial results and the value of our assets and may depress the price of our common stock and may have a material adverse effect on our ability to comply with financial and other covenants in our debt agreements, repay our debt and meet our other obligations. On April 24, 2020, we announced revised operating plans in response to the global COVID-19 pandemic and resulting negative impact on the global economy. Our April 2020 revised operating plans included reductions in (i) estimated operating costs, (ii) estimated capital expenditures, (iii) estimated exploration and administrative costs, and (iv) estimated sales volumes in our North America and South America operations, as well as a reduction in production of molybdenum by approximately 50 percent at our Climax open-pit mine in North America and discontinuing certain exploration and development programs. If market prices for our primary commodities decline again and remain low for a sustained period of time, we may have to further revise our operating plans. We may be unable to decrease our costs in an amount sufficient to offset reductions in revenues, in which case we may incur losses, and those losses may be material. Fluctuations in commodities prices are caused by varied and complex factors beyond our control, including global supply, demand balances and inventory levels; global economic and political conditions; international regulatory, trade and tax policies, including national tariffs; commodities investment activity and speculation; interest rates; the strength of the U.S. dollar compared to foreign currencies; the price and availability of substitute products; and changes in technology. Volatility in global economic growth, particularly in developing economies, has the potential to adversely affect future demand and prices for commodities. Geopolitical uncertainty, including the United Kingdom’s recent exit from the European Union (commonly referred to as Brexit), and protectionism, have the potential to inhibit international trade and negatively impact business confidence, which creates the risk of constraints on our ability to trade in certain markets and has the potential to increase price volatility. Copper prices may be affected by demand from China, which has become the largest consumer of refined copper in the world, and by changes in demand for industrial, commercial and residential products containing copper. China had a major economic shutdown during the first quarter of 2020 in connection with its efforts to contain and mitigate the spread of COVID-19, which resulted in the country’s first reported economic contraction in over 40 years. However, during third-quarter 2020, China continued to recover from the major economic shutdown and reported economic growth. Although our sales to date have not been significantly affected, a slowing in China’s economic growth, another widespread COVID-19 outbreak in China, the adoption and expansion of trade restrictions, changes in China-U.S. relations, or other governmental action related to tariffs or trade agreements or policies are difficult to predict and could adversely affect copper prices, demand for our products, our costs, our customers, our suppliers, and the U.S. economy, which in turn could have a material adverse effect on our business, results of operations, or financial condition. Copper prices have fluctuated historically, with London Metal Exchange (LME) copper settlement prices ranging from $2.48 per pound to $3.29 per pound during the three years ended December 31, 2019. During the first nine months of 2020, LME copper settlement prices ranged from a low of $2.09 per pound to a high of $3.10 per pound. The LME copper settlement price was $3.00 per pound on September 30, 2020, and $3.04 per pound on October 30, 2020. Factors affecting gold prices may include the relative strength of the U.S. dollar to other currencies, inflation and interest rate expectations, purchases and sales of gold by governments and central banks, demand from China and India, two of the world’s largest consumers of gold, and global demand for jewelry containing gold. The London PM 71 Table of Contents gold price was $1,515 per ounce on December 30, 2019 (there was no London PM gold price quote on December 31, 2019), and $1,887 per ounce on September 30, 2020. During the first nine months of 2020, London PM gold prices ranged from a low of $1,474 per ounce to a high of $2,067 per ounce. The London PM gold price was $1,882 per ounce on October 30, 2020. During the first nine months of 2020, the weekly average price of molybdenum ranged from a low of $7.01 per pound to a high of $10.79 per pound. The Metals Week Molybdenum Dealer Oxide weekly average price of $7.68 per pound on September 30, 2020, was 17 percent lower than the December 31, 2019, weekly average price of $9.23 per pound. The Metals Week Molybdenum Dealer Oxide weekly average price was $8.73 per pound on October 30, 2020. Declines in prices of commodities we sell could result in metals inventory adjustments and impairment charges for our long-lived assets. During the first nine months of 2020, we recorded unfavorable metals inventory adjustments totaling $92 million associated with lower market prices for copper and molybdenum. Refer to Note 3 for additional information regarding metals inventory adjustments. Other events that could result in impairment of our long-lived assets include, but are not limited to, decreases in estimated proven and probable mineral reserves and any event that might have a material adverse effect on current and future expected mine production costs. Violence, including shooting incidents, civil and religious strife, activism and labor unrest could result in loss of life and/or disrupt our operations and may adversely affect our business, financial condition, results of operations and prospects. Indonesia has long faced separatist movements and civil and religious strife in a number of provinces. Several separatist groups have sought increased political independence for the province of Papua, where our Grasberg minerals district is located. In Papua, there have been sporadic attacks on civilians by separatists and sporadic but highly publicized conflicts between separatists and the Indonesia military and police. In addition, illegal miners have periodically clashed with police who have attempted for years to move them away from our facilities. Social, economic and political instability in Papua could materially and adversely affect us if it results in damage to our property or interruption of our Indonesia operations. Beginning in 2009, a series of shooting incidents occurred within the PT-FI project area, including along the road leading to our mining and milling operations. The shooting incidents continued on a sporadic basis through January 2015. During this time, there were 20 fatalities and more than 50 injuries to our employees, contractor employees, government security personnel and civilians. The next shooting incident occurred in August 2017, and a series of shooting incidents continued on a sporadic basis within the PT-FI project area and in nearby areas through January 2020, resulting in 2 fatalities and 25 injuries. In addition, in December 2018, a mass shooting incident targeting a highway construction crew occurred in a remote mountain area approximately 100 miles east of the PT-FI project area, resulting in at least 19 fatalities and several reported as missing. During first-quarter 2020 and April 2020, there was an escalation in shooting incidents in PT-FI’s area of operations. In late March 2020, a shooting incident occurred near PT-FI’s administrative offices in the lowlands in Papua, Indonesia, resulting in the death of one PT-FI employee and injuries to two other workers. Separatist security incidents, including shootings, continue to be sporadically reported, and PT-FI continues to monitor the occurrence of incidents in the region. The safety of our workforce is a critical concern, and PT-FI continues to work with the Indonesia government to enhance security and address security issues within the PT-FI project area and in nearby areas. We continue to limit the use of the road leading to our mining and milling operations to secured convoys, including transport of personnel by armored vehicles in designated areas. We cannot predict whether additional incidents will occur that could result in loss of life, disrupt or suspend our operations. If other disruptive incidents occur, they could adversely affect our results of operations and financial condition in ways that we cannot predict at this time. South American countries have historically experienced uneven periods of economic growth, as well as recession, periods of high inflation and general economic and political instability. During 2019, both Peru and Chile experienced significant and prolonged civil unrest unrelated to our operations. Production and sales for the third quarter and first nine months of 2019 were impacted by protests associated with an unaffiliated copper development project in Peru that blocked access to the shipping ports and main transportation routes. While the civil unrest did not significantly impact our results for 2019, if it continues, our South America operations could be materially 72 Table of Contents impacted, and as a result, we may not be able to meet our production and sales targets. We cannot predict whether similar or more significant incidents of civil unrest will occur in the future in Peru or Chile. As of December 31, 2019, approximately 37 percent of our global labor force was covered by collective bargaining agreements and approximately 21 percent of our global labor force was covered by agreements that have expired and are currently being negotiated or will expire during 2020. Labor agreements are negotiated on a periodic basis, and may not be renewed on reasonably satisfactory terms to us or at all. If we do not successfully negotiate new collective bargaining agreements with our union workers, we may incur prolonged strikes and other work stoppages at our mining operations, which could adversely affect our financial condition and results of operations. Additionally, if we enter into a new labor agreement with any union that significantly increases our labor costs relative to our competitors, our ability to compete may be materially and adversely affected. Refer to Items 1. and 2. “Business and Properties” of our 2019 Form 10-K for additional information regarding labor matters, and expiration dates of such agreements. We could experience labor disruptions such as work stoppages, work slowdowns, union organizing campaigns, strikes, or lockouts that could adversely affect our operations. For example, during third-quarter 2016, PT-FI experienced labor productivity issues and a 10-day work stoppage that began in late September 2016. These labor productivity issues continued during fourth-quarter 2016 and the first half of 2017. Beginning in mid-April 2017, PT-FI experienced a high level of worker absenteeism, which unfavorably impacted mining and milling rates. A significant number of employees and contractors elected to participate in an illegal strike action beginning in May 2017, and were subsequently deemed to have voluntarily resigned under existing Indonesia laws and regulations resulting in increased costs associated with employee severance. In late August 2020 and early September 2020, a group of PT-FI workers staged protests and a blockade restricting access to the main road to the mining operations area related to COVID-19 travel restrictions. Material operations at PT-FI were suspended for several days prior to resuming operations after a five-day outage. We cannot predict whether additional labor disruptions will occur. Significant reductions in productivity or protracted work stoppages at one or more of our operations could significantly reduce our production and sales volumes or disrupt operations, which could adversely affect our cash flow, results of operations and financial condition.