Item 1. Financial Statements
Item 1. Financial Statements .
Freeport-McMoRan Inc.
CONSOLIDATED BALANCE SHEETS (Unaudited)
March 31,
2021 December 31,
2020
(In millions)
ASSETS
Current assets:
Cash and cash equivalents $ 4,580 $ 3,657
Trade accounts receivable 1,248 892
Income and other tax receivables 522 520
Inventories:
Materials and supplies, net 1,596 1,594
Mill and leach stockpiles 1,007 1,014
Product 1,542 1,285
Other current assets 361 341
Total current assets 10,856 9,303
Property, plant, equipment and mine development costs, net 29,775 29,818
Long-term mill and leach stockpiles 1,475 1,463
Other assets 1,537 1,560
Total assets $ 43,643 $ 42,144
LIABILITIES AND EQUITY
Current liabilities:
Accounts payable and accrued liabilities $ 2,866 $ 2,708
Current portion of debt 656 34
Accrued income taxes 647 324
Current portion of environmental and asset retirement obligations 331 351
Dividends payable 111 —
Total current liabilities 4,611 3,417
Long-term debt, less current portion 9,153 9,677
Deferred income taxes 4,446 4,408
Environmental and asset retirement obligations, less current portion 3,720 3,705
Other liabilities 2,140 2,269
Total liabilities 24,070 23,476
Equity:
Stockholders’ equity:
Common stock 160 159
Capital in excess of par value 26,080 26,037
Accumulated deficit ( 10,963 ) ( 11,681 )
Accumulated other comprehensive loss ( 580 ) ( 583 )
Common stock held in treasury ( 3,777 ) ( 3,758 )
Total stockholders’ equity 10,920 10,174
Noncontrolling interests 8,653 8,494
Total equity 19,573 18,668
Total liabilities and equity $ 43,643 $ 42,144
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
March 31,
2021 2020
(In millions, except per share amounts)
Revenues $ 4,850 $ 2,798
Cost of sales:
Production and delivery 2,786 2,545
Depreciation, depletion and amortization 419 341
Metals inventory adjustments 1 222
Total cost of sales 3,206 3,108
Selling, general and administrative expenses 100 110
Mining exploration and research expenses 7 16
Environmental obligations and shutdown costs
5 26
Net loss on sales of assets — 11
Total costs and expenses 3,318 3,271
Operating income (loss) 1,532 ( 473 )
Interest expense, net ( 145 ) ( 127 )
Net loss on early extinguishment of debt
— ( 32 )
Other income, net 11 20
Income (loss) before income taxes and equity in affiliated companies’ net (losses) earnings 1,398 ( 612 )
(Provision for) benefit from income taxes ( 443 ) 60
Equity in affiliated companies’ net (losses) earnings ( 2 ) 3
Net income (loss) 953 ( 549 )
Net (income) loss attributable to noncontrolling interests
( 235 ) 58
Net income (loss) attributable to common stockholders $ 718 $ ( 491 )
Net income (loss) per share attributable to common stockholders:
Basic
$ 0.49 $ ( 0.34 )
Diluted
$ 0.48 $ ( 0.34 )
Weighted-average common shares outstanding:
Basic
1,462 1,452
Diluted
1,477 1,452
Dividends declared per share of common stock $ 0.075 $ —
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
March 31,
2021 2020
(In millions)
Net income (loss) $ 953 $ ( 549 )
Other comprehensive income, net of taxes:
Defined benefit plans:
Actuarial losses arising during the period ( 1 ) —
Amortization of unrecognized amounts included in net periodic benefit costs 4 12
Foreign exchange losses ( 1 ) ( 5 )
Other comprehensive income 2 7
Total comprehensive income (loss) 955 ( 542 )
Total comprehensive (income) loss attributable to noncontrolling interests
( 234 ) 59
Total comprehensive income (loss) attributable to common stockholders
$ 721 $ ( 483 )
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)
Three Months Ended
March 31,
2021 2020
(In millions)
Cash flow from operating activities:
Net income (loss) $ 953 $ ( 549 )
Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities:
Depreciation, depletion and amortization 419 341
Metals inventory adjustments 1 222
Net loss on sales of assets — 11
Stock-based compensation 41 27
Net charges for environmental and asset retirement obligations, including accretion 39 60
Payments for environmental and asset retirement obligations ( 54 ) ( 71 )
Net charges for defined pension and postretirement plans — 18
Pension plan contributions ( 21 ) ( 26 )
Net loss on early extinguishment of debt — 32
Deferred income taxes 38 ( 118 )
Charges for Cerro Verde royalty dispute
5 9
Payments for Cerro Verde royalty dispute ( 38 ) ( 57 )
Other, net 28 ( 56 )
Changes in working capital and other:
Accounts receivable ( 361 ) 205
Inventories ( 225 ) 154
Other current assets 6 ( 89 )
Accounts payable and accrued liabilities ( 42 ) ( 149 )
Accrued income taxes and timing of other tax payments 286 ( 2 )
Net cash provided by (used in) operating activities 1,075 ( 38 )
Cash flow from investing activities:
Capital expenditures:
North America copper mines ( 26 ) ( 184 )
South America ( 21 ) ( 74 )
Indonesia ( 310 ) ( 326 )
Molybdenum mines ( 1 ) ( 7 )
Other ( 12 ) ( 19 )
Proceeds from sales of assets 5 66
Other, net ( 3 ) ( 2 )
Net cash used in investing activities ( 368 ) ( 546 )
Cash flow from financing activities:
Proceeds from debt 130 1,478
Repayments of debt ( 32 ) ( 1,242 )
Cash dividends paid on common stock — ( 73 )
Contributions from noncontrolling interests 41 32
Proceeds from exercised stock options 106 1
Payments for withholding of employee taxes related to stock-based awards ( 19 ) ( 5 )
Debt financing costs and other, net ( 1 ) ( 18 )
Net cash provided by financing activities 225 173
Net increase (decrease) in cash, cash equivalents, restricted cash and restricted cash equivalents 932 ( 411 )
Cash, cash equivalents, restricted cash and restricted cash equivalents at beginning of year 3,903 2,278
Cash, cash equivalents, restricted cash and restricted cash equivalents at end of period $ 4,835 $ 1,867
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 MARCH 31
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, 2020 1,590 $ 159 $ 26,037 $ ( 11,681 ) $ ( 583 ) 132 $ ( 3,758 ) $ 10,174 $ 8,494 $ 18,668
Exercised and issued stock-based awards 7 1 105 — — — — 106 — 106
Stock-based compensation, including the tender of shares — — 29 — — 1 ( 19 ) 10 ( 3 ) 7
Dividends — — ( 111 ) — — — — ( 111 ) ( 93 ) ( 204 )
Contributions from noncontrolling interests — — 20 — — — — 20 21 41
Net income attributable to common stockholders — — — 718 — — — 718 — 718
Net income attributable to noncontrolling interests
— — — — — — — — 235 235
Other comprehensive income (loss) — — — — 3 — — 3 ( 1 ) 2
Balance at March 31, 2021 1,597 $ 160 $ 26,080 $ ( 10,963 ) $ ( 580 ) 133 $ ( 3,777 ) $ 10,920 $ 8,653 $ 19,573
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 — — 29 — — — ( 5 ) 24 — 24
Contributions from noncontrolling interests — — 15 — — — — 15 17 32
Net loss attributable to common stockholders — — — ( 491 ) — — — ( 491 ) — ( 491 )
Net loss attributable to noncontrolling interests
— — — — — — — — ( 58 ) ( 58 )
Other comprehensive income (loss) — — — — 8 — — 8 ( 1 ) 7
Balance at March 31, 2020 1,583 $ 158 $ 25,875 $ ( 12,771 ) $ ( 668 ) 131 $ ( 3,739 ) $ 8,855 $ 8,108 $ 16,963
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, 2020 (2020 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, 2021, are not necessarily indicative of the results that may be expected for the year ending December 31, 2021.
Trade Accounts Receivable Agreements. In first-quarter 2021, PT Freeport Indonesia (PT-FI) entered into agreements to sell certain trade accounts receivables to unrelated third-party financial institutions. The agreements were entered into in the normal course of business to fund the working capital for the additional quantity of copper to be supplied by PT-FI to PT Smelting (a smelter in Gresik, Indonesia owned 25 percent by PT-FI through April 30, 2020, and 39.5 percent thereafter. See “Acquisition of Minority Interest in PT Smelting” below) beginning January 1, 2021. The balances sold under the agreements were excluded from trade accounts receivable on the consolidated balance sheet at March 31, 2021. Receivables are considered sold when (i) they are transferred beyond the reach of PT-FI and its creditors, (ii) the purchaser has the right to pledge or exchange the receivables, and (iii) PT-FI has no continuing involvement in the transferred receivables. In addition, PT-FI provides no other forms of continued financial support to the purchaser of the receivables once the receivables are sold.
For the three-month period ended March 31, 2021, gross amounts sold under these arrangements totaled $ 52.5 million ($ 52.4 million net of discount).
Acquisition of Minority Interest in PT Smelting. On April 30, 2021, PT-FI acquired 14.5 percent of the outstanding common stock of PT Smelting for $ 33 million, increasing its ownership interest from 25 percent to 39.5 percent. The remaining shares of PT Smelting continue to be owned by Mitsubishi Materials Corporation. PT-FI will continue to account for its investment in PT Smelting using the equity method since it does not have control over PT Smelting.
Subsequent Events. FCX evaluated events after March 31, 2021, 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.
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.
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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
March 31,
2021 2020
Net income (loss) $ 953 $ ( 549 )
Net (income) loss attributable to noncontrolling interests ( 235 ) 58
Undistributed earnings allocated to participating securities ( 4 ) ( 3 )
Net income (loss) attributable to common stockholders $ 714 $ ( 494 )
Basic weighted-average shares of common stock outstanding
1,462 1,452
Add shares issuable upon exercise or vesting of dilutive stock options and restricted stock units (RSUs) 15 — a
Diluted weighted-average shares of common stock outstanding
1,477 1,452
Basic net income (loss) per share attributable to common stockholders: $ 0.49 $ ( 0.34 )
Diluted net income (loss) per share attributable to common stockholders: $ 0.48 $ ( 0.34 )
a. Excludes approximately 10 million shares 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 10 million shares of common stock in first-quarter 2021 and 40 million shares of common stock in first-quarter 2020, were excluded.
NOTE 3. INVENTORIES, INCLUDING LONG-TERM MILL AND LEACH STOCKPILES
The components of inventories follow (in millions):
March 31, 2021 December 31, 2020
Current inventories:
Total materials and supplies, net a
$ 1,596 $ 1,594
Mill stockpiles $ 177 $ 205
Leach stockpiles 830 809
Total current mill and leach stockpiles $ 1,007 $ 1,014
Raw materials (primarily concentrate) $ 419 $ 366
Work-in-process 165 174
Finished goods 958 745
Total product $ 1,542 $ 1,285
Long-term inventories:
Mill stockpiles $ 245 $ 223
Leach stockpiles 1,230 1,240
Total long-term mill and leach stockpiles b
$ 1,475 $ 1,463
a. Materials and supplies inventory was net of obsolescence reserves totaling $ 35 million at March 31, 2021, and $ 32 million at December 31, 2020.
b. Estimated metals in stockpiles not expected to be recovered within the next 12 months.
FCX recorded net realizable value inventory adjustments to decrease long-term metals inventory carrying values totaling $ 1 million in first-quarter 2021, associated with lower market prices for molybdenum, and $ 222 million in first-quarter 2020, associated with lower market prices for copper ($ 205 million) and molybdenum ($ 17 million) (refer to Note 9 for metals inventory adjustments by business segment).
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NOTE 4. INCOME TAXES
Geographic sources of FCX’s (provision for) benefit from income taxes follow (in millions):
Three Months Ended
March 31,
2021 2020
U.S. operations $ —
$ 5
International operations ( 443 )
55
Total $ ( 443 ) $ 60
FCX’s consolidated effective income tax rate was 32 percent for first-quarter 2021 and 10 percent for first-quarter 2020. Because FCX's U.S. jurisdiction generated pre-tax losses in the first three months of 2020 that did not result in a realized tax benefit, applicable accounting rules required FCX to adjust its estimated annual effective tax rate to exclude the impact of U.S. pre-tax losses. Variations in the relative proportions of jurisdictional income result in fluctuations to FCX’s consolidated effective income tax rate.
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 American Rescue Plan Act of 2021 (ARPA), enacted on March 11, 2021, and the Coronavirus Aid, Relief, and Economic Security Act (CARES Act), enacted on March 27, 2020. None of these measures resulted in material impacts to FCX’s provision for income taxes for the three months ended March 31, 2021 and 2020. However, certain provisions of the CARES Act provided FCX with the opportunity to accelerate collections of tax refunds, primarily those associated with the U.S. alternative minimum tax. FCX collected U.S. alternative minimum tax credit refunds of $ 221 million in July 2020 and $ 24 million in October 2020. FCX collected the remaining U.S. alternative minimum tax credit refund of $ 23 million in March 2021. FCX continues to evaluate income tax accounting considerations of COVID-19 measures as they develop, including any impact on its measurement of existing deferred tax assets and deferred tax liabilities. FCX will recognize any impact from COVID-19 related changes to tax laws in the period in which the new legislation is enacted.
NOTE 5. DEBT AND EQUITY
The components of debt follow (in millions):
March 31,
2021 December 31, 2020
Senior notes and debentures:
Issued by FCX $ 8,785 $ 8,783
Issued by Freeport Minerals Corporation (FMC) 356 356
Cerro Verde Term Loan 524 523
Other 144 49
Total debt 9,809 9,711
Less current portion of debt ( 656 ) ( 34 )
Long-term debt $ 9,153 $ 9,677
Revolving Credit Facility. At March 31, 2021, FCX had no borrowings outstanding and approximately $ 10 million in letters of credit issued under its revolving credit facility, resulting in availability of approximately $ 3.5 billion, of which approximately $ 1.5 billion could be used for additional letters of credit. Availability under FCX’s revolving credit facility consists of $ 3.28 billion maturing April 2024 and $ 220 million maturing April 2023.
In March 2021, FCX delivered a Covenant Reversion Notice (as defined in the third amendment to the revolving credit facility dated June 3, 2020), which provided notification of its election to end the Covenant Increase Period (as defined in the third amendment to the revolving credit facility dated June 3, 2020). As a result, the leverage ratio limit reverted to 5.25 x through the quarter ending June 30, 2021 (stepping down to 3.75 x beginning with the quarter ending September 30, 2021), and the interest expense coverage ratio minimum reverted to 2.25 x. Additionally, following FCX’s election to end the Covenant Increase Period, the additional limits on priority debt and liens, and the provisions related to minimum liquidity and restricted payments (which included restrictions on the payment of common stock dividends) are no longer applicable. At March 31, 2021, FCX was in compliance with its revolving credit facility covenants.
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Interest Expense, Net. Consolidated interest costs (before capitalization) totaled $ 160 million in first-quarter 2021 and $ 171 million in first-quarter 2020. Capitalized interest added to property, plant, equipment and mine development costs, net, totaled $ 15 million in first-quarter 2021 and $ 44 million in first-quarter 2020. The decrease in capitalized interest in first-quarter 2021, compared with first-quarter 2020, is primarily related to significant assets at PT-FI’s underground mines being placed in service.
Common Stock. In February 2021, FCX’s Board of Directors (the Board) reinstated a cash dividend on FCX’s common stock. On March 24, 2021, FCX declared a quarterly cash dividend of $ 0.075 per share on its common stock, which was paid on May 3, 2021, to common stockholders of record as of April 15, 2021.
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.
A discussion of FCX’s other derivative contracts and programs follows.
Derivatives Designated as Hedging Instruments – Fair Value Hedges
Copper Futures and Swap Contracts. Some of FCX’s U.S. copper rod and cathode 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 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 three-month periods ended March 31, 2021 and 2020. At March 31, 2021, FCX held copper futures and swap contracts that qualified for hedge accounting for 66 million pounds at an average contract price of $ 3.73 per pound, with maturities through March 2023.
A summary of gains (losses) recognized in revenues for derivative financial instruments related to commodity contracts that are designated and qualify as fair value hedge transactions, including the unrealized gains (losses) on the related hedged item follows (in millions):
Three Months Ended
March 31,
2021 2020
Copper futures and swap contracts:
Unrealized gains (losses):
Derivative financial instruments $ 3 $ ( 33 )
Hedged item – firm sales commitments ( 3 ) 33
Realized gains (losses):
Matured derivative financial instruments 24 ( 9 )
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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 (London) gold price at the time of shipment as specified in the contract. FCX receives market prices based on prices in the specified future month, which results in price fluctuations recorded in revenues until the date of settlement. FCX records revenues and invoices customers at the time of shipment based on then-current LME or COMEX copper prices and the London gold prices as specified in the contracts, which results in an embedded derivative ( i.e. , a pricing mechanism that is finalized after the time of delivery) that is required to be bifurcated from the host contract. The host contract is the sale of the metals contained in the concentrate or cathode at the then-current LME or COMEX copper price, and the London gold price. FCX applies the normal purchases and normal sales scope exception in accordance with derivatives and hedge accounting guidance to the host contract in its concentrate or cathode sales agreements since these contracts do not allow for net settlement and always result in physical delivery. The embedded derivative does not qualify for hedge accounting and is adjusted to fair value through earnings each period, using the period-end LME or COMEX copper forward prices and the adjusted London gold 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 March 31, 2021, follows:
Open Positions Average Price
Per Unit Maturities Through
Contract Market
Embedded derivatives in provisional sales contracts:
Copper (millions of pounds) 486 $ 3.83 $ 3.99 August 2021
Gold (thousands of ounces) 151 1,755 1,689 June 2021
Embedded derivatives in provisional purchase contracts:
Copper (millions of pounds) 123 3.77 3.99 July 2021
Copper Forward Contracts. Atlantic Copper, FCX’s wholly owned smelting and refining unit in Spain, enters into copper forward contracts designed to hedge its copper price risk whenever its physical purchases and sales pricing periods do not match. These economic hedge transactions are intended to hedge against changes in copper prices, with the mark-to-market hedging gains or losses recorded in production and delivery costs. At March 31, 2021, Atlantic Copper held net copper forward purchase contracts for 23 million pounds at an average contract price of $ 4.09 per pound, with maturities through May 2021.
Summary of Gains (Losses). A summary of the realized and unrealized gains (losses) recognized in operating income for commodity contracts that do not qualify as hedge transactions, including embedded derivatives, follows (in millions):
Three Months Ended
March 31,
2021 2020
Embedded derivatives in provisional sales contracts: a
Copper $ 207 $ ( 238 )
Gold and other metals ( 28 ) 7
Copper forward contracts b
( 8 ) 24
a. Amounts recorded in revenues.
b. Amounts recorded in cost of sales as production and delivery costs.
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Unsettled Derivative Financial Instruments
A summary of the fair values of unsettled commodity derivative financial instruments follows (in millions):
March 31,
2021 December 31, 2020
Commodity Derivative Assets:
Derivatives designated as hedging instruments :
Copper futures and swap contracts $ 18 $ 15
Derivatives not designated as hedging instruments :
Embedded derivatives in provisional sales/purchase contracts 105 169
Copper forward contracts 3 —
Total derivative assets $ 126 $ 184
Commodity Derivative Liabilities:
Derivatives not designated as hedging instruments :
Embedded derivatives in provisional sales/purchase contracts 67 21
Copper forward contracts 1 —
Total derivative liabilities $ 68 $ 21
FCX’s commodity contracts have netting arrangements with counterparties with which the right of offset exists, and it is FCX’s policy to generally offset balances by contract on its balance sheet. FCX’s embedded derivatives on provisional sales/purchase contracts are netted with the corresponding outstanding receivable/payable balances.
A summary of these unsettled commodity contracts that are offset in the balance sheets follows (in millions):
Assets Liabilities
March 31,
2021 December 31, 2020 March 31,
2021 December 31, 2020
Gross amounts recognized:
Embedded derivatives in provisional
sales/purchase contracts $ 105 $ 169 $ 67 $ 21
Copper derivatives 21 15 1 —
126 184 68 21
Less gross amounts of offset:
Embedded derivatives in provisional
sales/purchase contracts 7 1 7 1
Copper derivatives 1 — 1 —
8 1 8 1
Net amounts presented in balance sheet:
Embedded derivatives in provisional
sales/purchase contracts 98 168 60 20
Copper derivatives 20 15 — —
$ 118 $ 183 $ 60 $ 20
Balance sheet classification:
Trade accounts receivable $ 92 $ 168 $ 23 $ —
Other current assets 19 15 — —
Other assets 1 — — —
Accounts payable and accrued liabilities 6 — 37 20
$ 118 $ 183 $ 60 $ 20
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Credit Risk. FCX is exposed to credit loss when financial institutions with which it has entered into derivative transactions (commodity, foreign exchange and interest rate swaps) are unable to pay. To minimize the risk of such losses, FCX uses counterparties that meet certain credit requirements and periodically reviews the creditworthiness of these counterparties. As of March 31, 2021, the maximum amount of credit exposure associated with derivative transactions was $ 128 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 March 31, 2021, and December 31, 2020), 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 March 31, 2021, 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):
March 31,
2021 December 31, 2020
Balance sheet components:
Cash and cash equivalents $ 4,580 $ 3,657
Restricted cash and restricted cash equivalents included in:
Other current assets 106 97
Other assets 149 149
Total cash, cash equivalents, restricted cash and restricted cash equivalents presented in the consolidated statements of cash flows $ 4,835 $ 3,903
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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 first-quarter 2021.
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 March 31, 2021
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 6 6 — 6 — —
Total 35 35 29 6 — —
Legally restricted funds: a
U.S. core fixed income fund 63 63 63 — — —
Government bonds and notes 46 46 — — 46 —
Corporate bonds 40 40 — — 40 —
Government mortgage-backed securities 28 28 — — 28 —
Asset-backed securities 12 12 — — 12 —
Money market funds 12 12 — 12 — —
Collateralized mortgage-backed securities 4 4 — — 4 —
Municipal bonds 1 1 — — 1 —
Total 206 206 63 12 131 —
Derivatives:
Embedded derivatives in provisional sales/purchase contracts in a gross asset position c
105 105 — — 105 —
Copper futures and swap contracts c
18 18 — 15 3 —
Copper forward contracts c
3 3 — 1 2 —
Total 126 126 — 16 110 —
Contingent consideration for the sale of the
Deepwater GOM oil and gas properties a
104 88 — — — 88
Liabilities
Derivatives: c
Embedded derivatives in provisional sales/purchase contracts in a gross liability position 67 67 — — 67 —
Copper forward contracts 1 1 — — 1 —
Total 68 68 — — 68 —
Long-term debt, including current portion d
9,809 10,891 — — 10,891 —
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At December 31, 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 7 7 — 7 — —
Total 36 36 29 7 — —
Legally restricted funds: a
U.S. core fixed income fund 65 65 65 — — —
Government bonds and notes 49 49 — — 49 —
Corporate bonds 43 43 — — 43 —
Government mortgage-backed securities 30 30 — — 30 —
Asset-backed securities 16 16 — — 16 —
Money market funds 5 5 — 5 — —
Collateralized mortgage-backed securities 4 4 — — 4 —
Municipal bonds 1 1 — — 1 —
Total 213 213 65 5 143 —
Derivatives:
Embedded derivatives in provisional sales/purchase contracts in a gross asset position c
169 169 — — 169 —
Copper futures and swap contracts c
15 15 — 13 2 —
Total 184 184 — 13 171 —
Contingent consideration for the sale of the
Deepwater GOM oil and gas properties a
108 88 — — — 88
Liabilities
Derivatives: c
Embedded derivatives in provisional sales/purchase contracts in a gross liability position 21 21 — — 21 —
Long-term debt, including current portion d
9,711 10,994 — — 10,994 —
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 $ 106 million at March 31, 2021, and $ 97 million at December 31, 2020, and (ii) other assets of $ 148 million at both March 31, 2021 and December 31, 2020, primarily associated with an assurance bond to support PT-FI’s commitment for the development of a greenfield 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.
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.
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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 London 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 December 2016, FCX’s sale of its Deepwater GOM oil and gas properties included up to $ 150 million in contingent consideration that was recorded at the total amount under the loss recovery approach. The contingent consideration is being received over time as 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 $ 18 million at March 31, 2021, and $ 12 million at December 31, 2020, and (ii) other assets totaled $ 86 million at March 31, 2021, and $ 96 million at December 31, 2020. 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 March 31, 2021, as compared with those techniques used at December 31, 2020.
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 three months of 2021 follows (in millions):
Fair value at January 1, 2021 $ 88
Net unrealized gain related to assets still held at the end of the period 5
Settlements
( 5 )
Fair value at March 31, 2021 $ 88
NOTE 8. CONTINGENCIES AND COMMITMENTS
Litigation
There were no significant updates to previously reported legal proceedings included in Note 12 of FCX’s 2020 Form 10-K, other than the matters discussed below.
Asbestos and Talc Claims . As previously disclosed, since approximately 1990, various FCX affiliates have been named as defendants in a large number of lawsuits alleging personal injury from, among other things, exposure to asbestos or talc allegedly contained in industrial products, and more recently alleging the presence of asbestos contamination in talc-based cosmetic and personal care products. 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 the targets of such lawsuits. Cyprus Mines and subsidiaries were engaged in talc mining and processing from 1964 until 1992 when Cyprus Mines exited its talc business. On February 13, 2019, Imerys Talc America (Imerys), the current owner of the talc business assets and liabilities previously owned by Cyprus Mines, filed for Chapter 11 bankruptcy protection. On December 22, 2020, Imerys filed an amended bankruptcy plan disclosing a global settlement with Cyprus Mines and CAMC, which provides a framework for a full and comprehensive resolution of all current and future potential liabilities arising out of the Cyprus Mines talc business,
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including claims against FCX, its affiliates, Cyprus Mines, and CAMC. On January 21, 2021, in connection with the proposed global settlement, Imerys sought an injunction temporarily staying up to approximately 950 talc-related lawsuits against CAMC and Cyprus Mines. On February 22, 2021, the bankruptcy court granted the requested preliminary injunction, which is currently in place until June 30, 2021. The global settlement is subject to, among other things, bankruptcy court approvals of both the Imerys bankruptcy plan and the Cyprus Mines bankruptcy plan, and there can be no assurance that the global settlement will be successfully implemented.
Other Matters
PT-FI and PT Smelting Export Licenses. In March 2021, PT-FI received a one-year extension of its export license through March 15, 2022, and in January 2021, PT Smelting received a six-month extension of its anodes slimes export license, which currently expires July 18, 2021.
Development Progress of Greenfield Smelter at East Java . On January 7, 2021, the Indonesia government levied an administrative fine of $ 149 million for the period from March 30, 2020, through September 30, 2020 (additional fines could be levied on exports after September 30, 2020), on PT-FI for failing to achieve physical development progress on the greenfield smelter as of July 31, 2020. PT-FI responded to the Indonesia government objecting to the fine because of events outside of its control that caused a delay in development progress for the greenfield smelter at East Java. PT-FI believes that its communications during 2020 with the Indonesia government were not properly considered before the administrative fine was levied. PT-FI is continuing to discuss this matter with the Indonesia government as well as provide additional documentation to support its position on the cause of delays in development progress on the greenfield smelter. During first-quarter 2021, PT-FI recorded a $ 13 million charge for a potential settlement of the administrative fine which is expected to include a revised construction schedule for the greenfield smelter. The final settlement could differ from the amount recorded in first-quarter 2021.
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, Cerro Verde and Grasberg (Indonesia Mining) copper mines, the Rod & Refining operations and Atlantic Copper Smelting & Refining.
Intersegment sales between FCX’s business segments are based on terms similar to 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 until April 30, 2021 on 25 percent of PT-FI’s sales to PT Smelting, until final sales to third parties occur. See Note 1 regarding PT-FI’s increased ownership in PT Smelting as of April 30, 2021. Quarterly variations in ore grades, the timing of intercompany shipments and changes in product prices result in variability in FCX’s net deferred profits and quarterly earnings.
FCX allocates certain operating costs, expenses and capital expenditures to its operating divisions and individual segments. However, not all costs and expenses applicable to an operation are allocated. U.S. federal and state income taxes are recorded and managed at the corporate level (included in Corporate, Other & Eliminations), whereas foreign income taxes are recorded and managed at the applicable country level. In addition, most mining exploration and research activities are managed on a consolidated basis, and those costs, along with some selling, general and administrative costs, are not allocated to the operating divisions or individual segments. Accordingly, the following Financial Information by Business Segment reflects management determinations that may not be indicative of what the actual financial performance of each operating division or segment would be if it was an independent entity.
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Product Revenues. FCX’s revenues attributable to the products it sold for the first quarters of 2021 and 2020 follow (in millions):
Three Months Ended
March 31,
2021 2020
Copper:
Concentrate $ 1,709 $ 849
Cathode 1,234 837
Rod and other refined copper products 684 542
Purchased copper a
218 235
Gold 518 270
Molybdenum 244 243
Other b
253 157
Adjustments to revenues:
Treatment charges ( 97 ) ( 80 )
Royalty expense c
( 63 ) ( 20 )
Export duties d
( 29 ) ( 4 )
Revenues from contracts with customers 4,671 3,029
Embedded derivatives e
179 ( 231 )
Total consolidated revenues $ 4,850 $ 2,798
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 Other Total Verde Other Total Mining Mines Refining & Refining nations Total
Three Months Ended March 31, 2021
Revenues:
Unaffiliated customers $ 4 $ 28 $ 32 $ 917 $ 175 $ 1,092 $ 1,383 a
$ — $ 1,309 $ 687 $ 347 b
$ 4,850
Intersegment 564 742 1,306 45 — 45 52 70 7 — ( 1,480 ) —
Production and delivery 269 480 749 436 103 539 455 57 1,316 673 ( 1,003 ) c
2,786
Depreciation, depletion and amortization
34 46 80 89 12 101 199 15 1 7 16 419
Metals inventory adjustments
— — — — — — — 1 — — — 1
Selling, general and administrative expenses
— 1 1 2 — 2 26 — — 7 64 100
Mining exploration and research expenses — — — — — — — — — — 7 7
Environmental obligations and shutdown costs
— — — — — — — — — — 5 5
Operating income (loss) 265 243 508 435 60 495 755 ( 3 ) ( 1 ) — ( 222 ) 1,532
Interest expense, net — — — 13 — 13 1 — — 1 130 145
Provision for (benefit from) income taxes — — — 173 21 194 315 — — — ( 66 ) 443
Total assets at March 31, 2021 2,629 5,283 7,912 8,723 1,738 10,461 17,551 1,753 235 997 4,734 43,643
Capital expenditures 10 16 26 20 1 21 310 1 1 6 5 370
Three Months Ended March 31, 2020
Revenues:
Unaffiliated customers $ 2 $ 7 $ 9 $ 376 $ 98 $ 474 $ 445 a
$ — $ 1,115 $ 429 $ 326 b
$ 2,798
Intersegment 442 534 976 38 — 38 — 71 8 11 ( 1,104 ) —
Production and delivery 349 511 860 424 110 534 343 66 1,119 411 ( 788 ) 2,545
Depreciation, depletion and amortization
44 48 92 93 15 108 101 16 2 7 15 341
Metals inventory adjustments
4 141 145 — 60 60 — 4 — — 13 222
Selling, general and administrative expenses
1 — 1 2 — 2 28 — — 5 74 110
Mining exploration and research expenses — 1 1 — — — — — — — 15 16
Environmental obligations and shutdown costs
— — — — — — — — 1 — 25 26
Net loss on sales of assets — — — — — — — — — — 11 11
Operating income (loss) 46 ( 160 ) ( 114 ) ( 105 ) ( 87 ) ( 192 ) ( 27 ) ( 15 ) 1 17 ( 143 ) ( 473 )
Interest expense, net 1 — 1 28 — 28 1 — — 3 94 127
(Benefit from) provision for income taxes — — — ( 52 ) ( 26 ) ( 78 ) 12 — — — 6 ( 60 )
Total assets at March 31, 2020 2,814 5,093 7,907 8,471 1,655 10,126 16,711 1,788 231 635 2,821 40,219
Capital expenditures 44 140 184 59 15 74 326 7 2 6 11 610
a. Includes PT-FI's sales to PT Smelting totaling $ 792 million in first-quarter 2021 and $ 380 million in first-quarter 2020.
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 charges associated with the major maintenance turnaround at the Miami smelter totaling $ 68 million.
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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 March 31, 2021, the related consolidated statements of operations, comprehensive income (loss), equity and cash flows for the three-month periods ended March 31, 2021 and 2020, 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, 2020, the related consolidated statements of operations, comprehensive income (loss), cash flows and equity for the year then ended, and the related notes (not presented herein); and in our report dated February 16, 2021, 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, 2020, 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
May 5, 2021
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Text extracted from the filing as submitted to EDGAR. Formatting, tables and exhibits are simplified for reading; the original document is authoritative for anything you rely on.