Item 1. Financial Statements
Item 1. Financial Statements .
Freeport-McMoRan Inc.
CONSOLIDATED BALANCE SHEETS (Unaudited)
March 31,
2022 December 31,
2021
(In millions)
ASSETS
Current assets:
Cash and cash equivalents $ 8,338 $ 8,068
Trade accounts receivable 1,537 1,168
Income and other tax receivables 444 574
Inventories:
Materials and supplies, net 1,741 1,669
Mill and leach stockpiles 1,227 1,170
Product 1,486 1,658
Other current assets 529 523
Total current assets 15,302 14,830
Property, plant, equipment and mine development costs, net 30,708 30,345
Long-term mill and leach stockpiles 1,377 1,387
Other assets 1,445 1,460
Total assets $ 48,832 $ 48,022
LIABILITIES AND EQUITY
Current liabilities:
Accounts payable and accrued liabilities $ 3,163 $ 3,495
Accrued income taxes 1,392 1,541
Current portion of debt 1,365 372
Current portion of environmental and asset retirement obligations 316 264
Dividends payable 218 220
Total current liabilities 6,454 5,892
Long-term debt, less current portion 8,256 9,078
Deferred income taxes 4,282 4,234
Environmental and asset retirement obligations, less current portion 4,145 4,116
Other liabilities 1,653 1,683
Total liabilities 24,790 25,003
Equity:
Stockholders’ equity:
Common stock 161 160
Capital in excess of par value 25,835 25,875
Accumulated deficit ( 5,848 ) ( 7,375 )
Accumulated other comprehensive loss ( 387 ) ( 388 )
Common stock held in treasury ( 4,895 ) ( 4,292 )
Total stockholders’ equity 14,866 13,980
Noncontrolling interests 9,176 9,039
Total equity 24,042 23,019
Total liabilities and equity $ 48,832 $ 48,022
The accompanying notes are an integral part of these consolidated financial statements.
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Freeport-McMoRan Inc.
CONSOLIDATED STATEMENTS OF INCOME (Unaudited)
Three Months Ended
March 31,
2022 2021
(In millions, except per share amounts)
Revenues $ 6,603 $ 4,850
Cost of sales:
Production and delivery 3,150 2,787
Depreciation, depletion and amortization 489 419
Total cost of sales 3,639 3,206
Selling, general and administrative expenses 115 100
Mining exploration and research expenses 24 7
Environmental obligations and shutdown costs
16 5
Total costs and expenses 3,794 3,318
Operating income 2,809 1,532
Interest expense, net ( 127 ) ( 145 )
Other income, net 31 11
Income before income taxes and equity in affiliated companies’ net earnings (losses) 2,713 1,398
Provision for income taxes ( 824 ) ( 443 )
Equity in affiliated companies’ net earnings (losses) 15 ( 2 )
Net income 1,904 953
Net income attributable to noncontrolling interests ( 377 ) ( 235 )
Net income attributable to common stockholders $ 1,527 $ 718
Net income per share attributable to common stockholders:
Basic
$ 1.05 $ 0.49
Diluted
$ 1.04 $ 0.48
Weighted-average common shares outstanding:
Basic
1,455 1,462
Diluted
1,469 1,477
Dividends declared per share of common stock $ 0.15 $ 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 (Unaudited)
Three Months Ended
March 31,
2022 2021
(In millions)
Net income $ 1,904 $ 953
Other comprehensive income, net of taxes:
Defined benefit plans:
Actuarial losses arising during the period — ( 1 )
Prior service costs arising during the period ( 1 ) —
Amortization of unrecognized amounts included in net periodic benefit costs 2 4
Foreign exchange losses — ( 1 )
Other comprehensive income 1 2
Total comprehensive income 1,905 955
Total comprehensive income attributable to noncontrolling interests ( 377 ) ( 234 )
Total comprehensive income attributable to common stockholders $ 1,528 $ 721
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,
2022 2021
(In millions)
Cash flow from operating activities:
Net income $ 1,904 $ 953
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation, depletion and amortization 489 419
Stock-based compensation 49 41
Net charges for environmental and asset retirement obligations, including accretion 55 39
Payments for environmental and asset retirement obligations ( 55 ) ( 54 )
Net charges for defined pension and postretirement plans 10 —
Pension plan contributions ( 25 ) ( 21 )
Deferred income taxes 48 38
Charges for Cerro Verde royalty dispute
— 5
Payments for Cerro Verde royalty dispute — ( 38 )
Other, net 27 29
Changes in working capital and other:
Accounts receivable ( 222 ) ( 361 )
Inventories 47 ( 225 )
Other current assets 19 6
Accounts payable and accrued liabilities ( 519 ) ( 42 )
Accrued income taxes and timing of other tax payments ( 136 ) 286
Net cash provided by operating activities 1,691 1,075
Cash flow from investing activities:
Capital expenditures:
North America copper mines ( 130 ) ( 26 )
South America ( 56 ) ( 21 )
Indonesia mining ( 379 ) ( 290 )
Indonesia smelter projects ( 130 ) ( 20 )
Molybdenum mines ( 1 ) ( 1 )
Other ( 27 ) ( 12 )
Proceeds from sales of assets 20 5
Loans to PT Smelting for expansion ( 9 ) —
Other, net ( 2 ) ( 3 )
Net cash used in investing activities ( 714 ) ( 368 )
Cash flow from financing activities:
Proceeds from debt 604 130
Repayments of debt ( 434 ) ( 32 )
Cash dividends and distributions paid:
Common stock ( 220 ) —
Noncontrolling interests ( 204 ) —
Treasury stock purchases ( 541 ) —
Contributions from noncontrolling interests 47 41
Proceeds from exercised stock options 101 106
Payments for withholding of employee taxes related to stock-based awards ( 55 ) ( 19 )
Debt financing costs and other, net ( 1 ) ( 1 )
Net cash (used in) provided by financing activities ( 703 ) 225
Net increase in cash, cash equivalents, restricted cash and restricted cash equivalents 274 932
Cash, cash equivalents, restricted cash and restricted cash equivalents at beginning of year 8,314 3,903
Cash, cash equivalents, restricted cash and restricted cash equivalents at end of period $ 8,588 $ 4,835
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, 2021 1,603 $ 160 $ 25,875 $ ( 7,375 ) $ ( 388 ) 146 $ ( 4,292 ) $ 13,980 $ 9,039 $ 23,019
Exercised and issued stock-based awards 9 1 107 — — — — 108 — 108
Stock-based compensation, including the tender of shares — — 48 — — 2 ( 62 ) ( 14 ) ( 10 ) ( 24 )
Treasury stock purchases — — — — — 12 ( 541 ) ( 541 ) — ( 541 )
Dividends — — ( 218 ) — — — — ( 218 ) ( 254 ) ( 472 )
Contributions from noncontrolling interests — — 23 — — — — 23 24 47
Net income attributable to common stockholders — — — 1,527 — — — 1,527 — 1,527
Net income attributable to noncontrolling interests
— — — — — — — — 377 377
Other comprehensive income — — — — 1 — — 1 — 1
Balance at March 31, 2022 1,612 $ 161 $ 25,835 $ ( 5,848 ) $ ( 387 ) 160 $ ( 4,895 ) $ 14,866 $ 9,176 $ 24,042
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
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 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, 2021 (2021 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, 2022, are not necessarily indicative of the results that may be expected for the year ending December 31, 2022.
Subsequent Events. FCX evaluated events after March 31, 2022, and through the date the consolidated financial statements were issued, and determined any events and 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 per share of common stock under the two-class method and calculates its diluted net income per share of common stock using the more dilutive of the two-class method or the treasury-stock method. Basic net income per share of common stock was computed by dividing net income 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 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 antidilutive.
Reconciliations of net income and weighted-average shares of common stock outstanding for purposes of calculating basic and diluted net income per share follow (in millions, except per share amounts):
Three Months Ended
March 31,
2022 2021
Net income $ 1,904 $ 953
Net income attributable to noncontrolling interests ( 377 ) ( 235 )
Undistributed earnings allocated to participating securities ( 5 ) ( 4 )
Net income attributable to common stockholders $ 1,522 $ 714
Basic weighted-average shares of common stock outstanding
1,455 1,462
Add shares issuable upon exercise or vesting of dilutive stock options and restricted stock units (RSUs) 14 15
Diluted weighted-average shares of common stock outstanding
1,469 1,477
Basic net income per share attributable to common stockholders $ 1.05 $ 0.49
Diluted net income per share attributable to common stockholders $ 1.04 $ 0.48
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 per share of common stock. Stock options for 2 million shares of common stock in first-quarter 2022 and 10 million shares of common stock in first-quarter 2021, were excluded.
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NOTE 3. INVENTORIES, INCLUDING LONG-TERM MILL AND LEACH STOCKPILES
The components of inventories follow (in millions):
March 31, 2022 December 31, 2021
Current inventories:
Total materials and supplies, net a
$ 1,741 $ 1,669
Mill stockpiles $ 175 $ 193
Leach stockpiles 1,052 977
Total current mill and leach stockpiles $ 1,227 $ 1,170
Raw materials (primarily concentrate) $ 280 $ 536
Work-in-process 275 195
Finished goods 931 927
Total product $ 1,486 $ 1,658
Long-term inventories:
Mill stockpiles $ 227 $ 226
Leach stockpiles 1,150 1,161
Total long-term mill and leach stockpiles b
$ 1,377 $ 1,387
a. Materials and supplies inventory was net of obsolescence reserves totaling $ 39 million at March 31, 2022, and $ 36 million at December 31, 2021.
b. Estimated metals in stockpiles not expected to be recovered within the next 12 months.
NOTE 4. INCOME TAXES
Geographic sources of FCX’s provision for income taxes follow (in millions):
Three Months Ended
March 31,
2022 2021
U.S. operations $ ( 3 )
$ —
International operations ( 821 ) ( 443 )
Total $ ( 824 ) $ ( 443 )
FCX’s consolidated effective income tax rate was 30 percent for first-quarter 2022 and 32 percent for first-quarter 2021. Variations in the relative proportions of jurisdictional income result in fluctuations to FCX’s consolidated effective income tax rate.
NOTE 5. DEBT AND EQUITY
The components of debt follow (in millions):
March 31,
2022 December 31, 2021
Senior notes and debentures:
Issued by FCX $ 8,270 $ 8,268
Issued by Freeport Minerals Corporation 355 355
PT-FI Term Loan 603 432
Cerro Verde Term Loan 325 325
Other 68 70
Total debt 9,621 9,450
Less current portion of debt ( 1,365 ) a ( 372 )
Long-term debt $ 8,256 $ 9,078
a. Includes $ 325 million for the Cerro Verde Term Loan due June 2022 and $ 995 million for the FCX 3.875% Senior Notes due March 2023.
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Revolving Credit Facility. At March 31, 2022, FCX had no borrowings outstanding and $ 8 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. At March 31, 2022, FCX was in compliance with its revolving credit facility covenants.
PT-FI Credit Facility. In July 2021, PT-FI entered into a $ 1.0 billion, five-year , unsecured credit facility (consisting of a $ 667 million term loan and a $ 333 million revolving credit facility) to fund project costs in connection with the PT Smelting expansion and construction of a precious metals refinery (PMR), and for PT-FI’s general corporate purposes. At March 31, 2022, $ 614 million ($ 603 million net of debt issuance costs) was drawn under the term loan, no amounts were drawn under the revolving credit facility and PT-FI was in compliance with its credit facility covenants.
Senior Notes issued by PT-FI. In April 2022, PT-FI completed the sale of $ 3.0 billion of unsecured senior notes, consisting of $ 750 million of 4.763% Senior Notes due 2027, $ 1.5 billion of 5.315% Senior Notes due 2032 and $ 750 million of 6.200% Senior Notes due 2052. PT-FI intends to use the proceeds, net of underwriting fees, of $ 2.99 billion to finance its smelter projects, to refinance the PT-FI Term Loan and for general corporate purposes.
Interest Expense, Net. Consolidated interest costs (before capitalization) totaled $ 153 million in first-quarter 2022 and $ 160 million in first-quarter 2021. Capitalized interest added to property, plant, equipment and mine development costs, net, totaled $ 26 million in first-quarter 2022 and $ 15 million in first-quarter 2021. The increase in capitalized interest costs for the 2022 period resulted from increased construction and development projects in process.
Share Repurchase Program. In first-quarter 2022, FCX acquired 12.3 million shares of its common stock under the share repurchase program for a total cost of $ 541 million ($ 44.02 average cost per share). Through May 5, 2022, FCX acquired 28.7 million shares of its common stock for a total cost of $ 1.2 billion ($ 41.64 average cost per share) and $ 1.8 billion remains available for repurchases under the program.
Dividends. On March 23, 2022, FCX declared quarterly cash dividends totaling $ 0.15 per share ($ 0.075 per share base dividend and $ 0.075 per share variable dividend) on its common stock, which were paid on May 2, 2022, to common stockholders of record as of April 14, 2022.
The declaration and payment of dividends (base or variable) and timing and amount of any share repurchases is at
the discretion of FCX’s Board of Directors (Board) and management, respectively, and is subject to a number of factors, including maintaining FCX’s net debt target, capital availability, FCX’s financial results, cash requirements, business prospects, global economic conditions, changes in laws, contractual restrictions and other factors deemed relevant by FCX’s Board or management, as applicable. FCX’s share repurchase program may be modified, increased, suspended or terminated at any time at the Board’s discretion.
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.
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A discussion of FCX’s 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, 2022 and 2021. At March 31, 2022, FCX held copper futures and swap contracts that qualified for hedge accounting for 84 million pounds at an average contract price of $ 4.47 per pound, with maturities through February 2024.
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 on the related hedged item follows (in millions):
Three Months Ended
March 31,
2022 2021
Copper futures and swap contracts:
Unrealized gains (losses):
Derivative financial instruments $ 12 $ 3
Hedged item – firm sales commitments ( 12 ) ( 3 )
Realized gains:
Matured derivative financial instruments 14 24
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, 2022, follows:
Open Positions Average Price
Per Unit Maturities Through
Contract Market
Embedded derivatives in provisional sales contracts:
Copper (millions of pounds) 753 $ 4.49 $ 4.71 August 2022
Gold (thousands of ounces) 206 1,925 1,936 June 2022
Embedded derivatives in provisional purchase contracts:
Copper (millions of pounds) 65 4.43 4.71 July 2022
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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, 2022, Atlantic Copper held net copper forward purchase contracts for 4 million pounds at an average contract price of $ 4.60 per pound, with maturities through May 2022.
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,
2022 2021
Embedded derivatives in provisional sales contracts: a
Copper $ 218 $ 207
Gold and other metals 22 ( 28 )
Copper forward contracts b
4 ( 8 )
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):
March 31,
2022 December 31, 2021
Commodity Derivative Assets:
Derivatives designated as hedging instruments :
Copper futures and swap contracts $ 24 $ 12
Derivatives not designated as hedging instruments :
Embedded derivatives in provisional sales/purchase contracts 169 64
Copper forward contracts 2 1
Total derivative assets $ 195 $ 77
Commodity Derivative Liabilities:
Derivatives not designated as hedging instruments :
Embedded derivatives in provisional sales/purchase contracts $ 20 $ 27
Copper forward contracts 2 1
Total derivative liabilities $ 22 $ 28
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.
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A summary of these unsettled commodity contracts that are offset in the balance sheets follows (in millions):
Assets Liabilities
March 31,
2022 December 31, 2021 March 31,
2022 December 31, 2021
Gross amounts recognized:
Embedded derivatives in provisional
sales/purchase contracts $ 169 $ 64 $ 20 $ 27
Copper derivatives 26 13 2 1
195 77 22 28
Less gross amounts of offset:
Embedded derivatives in provisional
sales/purchase contracts 2 3 2 3
Copper derivatives 2 1 2 1
4 4 4 4
Net amounts presented in balance sheet:
Embedded derivatives in provisional
sales/purchase contracts 167 61 18 24
Copper derivatives 24 12 — —
$ 191 $ 73 $ 18 $ 24
Balance sheet classification:
Trade accounts receivable $ 165 $ 51 $ 8 $ 14
Other current assets 23 12 — —
Other assets 1 — — —
Accounts payable and accrued liabilities 2 10 10 10
$ 191 $ 73 $ 18 $ 24
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, 2022, the maximum amount of credit exposure associated with derivative transactions was $ 195 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, accrued income taxes, dividends payable and debt. The carrying value for these financial instruments classified as current assets or liabilities 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 debt.
In addition, as of March 31, 2022, 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,
2022 December 31, 2021
Balance sheet components:
Cash and cash equivalents a
$ 8,338 $ 8,068
Restricted cash and restricted cash equivalents included in:
Other current assets 117 114
Other assets 133 132
Total cash, cash equivalents, restricted cash and restricted cash equivalents presented in the consolidated statements of cash flows $ 8,588 $ 8,314
a. Includes time deposits of $ 0.2 billion at each of March 31, 2022, and December 31, 2021.
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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 2022.
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, accrued income taxes and dividends payable (refer to Note 6) follows (in millions):
At March 31, 2022
Carrying Fair Value
Amount Total NAV Level 1 Level 2 Level 3
Assets
Investment securities: a,b
Equity securities $ 70 $ 70 $ — $ 70 $ — $ —
U.S. core fixed income fund 28 28 28 — — —
Total 98 98 28 70 — —
Legally restricted funds: a
U.S. core fixed income fund 62 62 62 — — —
Government bonds and notes 49 49 — — 49 —
Corporate bonds 40 40 — — 40 —
Government mortgage-backed securities 23 23 — — 23 —
Asset-backed securities 13 13 — — 13 —
Money market funds 8 8 — 8 — —
Collateralized mortgage-backed securities 3 3 — — 3 —
Total 198 198 62 8 128 —
Derivatives:
Embedded derivatives in provisional sales/purchase contracts in a gross asset position c
169 169 — — 169 —
Copper futures and swap contracts c
24 24 — 18 6 —
Copper forward contracts c
2 2 — 1 1 —
Total 195 195 — 19 176 —
Contingent consideration for the sale of the
Deepwater GOM oil and gas properties a
84 74 — — — 74
Liabilities
Derivatives: c
Embedded derivatives in provisional sales/purchase contracts in a gross liability position 20 20 — — 20 —
Copper forward contracts 2 2 — 1 1 —
Total 22 22 — 1 21 —
Long-term debt, including current portion d
9,621 10,190 — — 10,190 —
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At December 31, 2021
Carrying Fair Value
Amount Total NAV Level 1 Level 2 Level 3
Assets
Investment securities: a,b
Equity securities $ 50 $ 50 $ — $ 50 $ — $ —
U.S. core fixed income fund 29 29 29 — — —
Total 79 79 29 50 — —
Legally restricted funds: a
U.S. core fixed income fund 64 64 64 — — —
Government bonds and notes 53 53 — — 53 —
Corporate bonds 45 45 — — 45 —
Government mortgage-backed securities 20 20 — — 20 —
Asset-backed securities 18 18 — — 18 —
Money market funds 8 8 — 8 — —
Municipal bonds 1 1 — — 1 —
Total 209 209 64 8 137 —
Derivatives:
Embedded derivatives in provisional sales/purchase contracts in a gross asset position c
64 64 — — 64 —
Copper futures and swap contracts c
12 12 — 9 3 —
Copper forward contracts c
1 1 — 1 — —
Total 77 77 — 10 67 —
Contingent consideration for the sale of the
Deepwater GOM oil and gas properties a
90 81 — — — 81
Liabilities
Derivatives: c
Embedded derivatives in provisional sales/purchase contracts in a gross liability position 27 27 — — 27 —
Copper forward contracts 1 1 — 1 — —
Total 28 28 — 1 27 —
Long-term debt, including current portion d
9,450 10,630 — — 10,630 —
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 $ 117 million at March 31, 2022, and $ 114 million at December 31, 2021, and (ii) other assets of $ 133 million at March 31, 2022, and $ 132 million at December 31, 2021, primarily associated with an assurance bond to support PT-FI’s commitment for additional domestic smelter development 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. 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.
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).
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 $ 20 million at March 31, 2022, and December 31, 2021, and (ii) other assets totaled $ 64 million at March 31, 2022, and $ 70 million at December 31, 2021. 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, 2022, as compared with those techniques used at December 31, 2021.
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 2022 follows (in millions):
Fair value at January 1, 2022 $ 81
Net unrealized loss related to assets still held at the end of the period ( 1 )
Settlements
( 6 )
Fair value at March 31, 2022 $ 74
NOTE 8. CONTINGENCIES AND COMMITMENTS
Asset Retirement Obligations (ARO)
Arizona Environmental and Reclamation Programs. FCX’s Arizona operations are subject to regulatory oversight by the Arizona Department of Environmental Quality (ADEQ). ADEQ has adopted regulations for its aquifer protection permit (APP) program that require permits for, among other things, certain facilities, activities and structures used for mining, leaching, concentrating and smelting, and require compliance with aquifer water quality standards during operations and closure. An application for an APP requires a proposed closure strategy that will meet applicable groundwater protection requirements following cessation of operations and an estimate of the implementation cost, with a more detailed closure plan required at the time operations cease. A permit applicant must demonstrate its financial ability to meet the closure costs approved by ADEQ. Closure costs for facilities covered by APPs are required to be updated every six years and financial assurance mechanisms are required to be updated every two years . During first-quarter 2022, Bagdad increased its ARO liability and asset retirement cost asset by $ 45 million associated with an updated closure strategy that Bagdad submitted to ADEQ for approval. Morenci is also preparing an update to its closure strategy for submission to ADEQ, which is expected to result in increased costs that could be significant. FCX will continue updating its closure strategy and closure cost estimates at other Arizona sites, and any such updates may also result in increased costs that could be significant.
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Litigation
There were no significant updates to previously reported legal proceedings included in Note 12 of FCX’s 2021 Form 10-K.
Other Matters
Smelter Development Progress . 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, on PT-FI for failing to achieve physical development progress on its greenfield smelter as of July 31, 2020. On January 13, 2021, PT-FI responded to the Indonesia government objecting to the fine because of events outside of its control causing a delay of the greenfield smelter’s development progress. PT-FI believes that its communications during 2020 with the Indonesia government were not properly considered before the administrative fine was levied.
In June 2021, the Indonesia government issued a ministerial decree for the calculation of an administrative fine for lack of smelter development in light of the COVID-19 pandemic. During 2021, PT-FI recorded charges totaling $ 16 million for a potential settlement of the administrative fine. On January 25, 2022, the Indonesia government submitted a new estimate of the administrative fine totaling $ 57 million. In March 2022, PT-FI paid the administrative fine and recorded a charge of $ 41 million in first-quarter 2022. Based on PT-FI’s revised smelter construction schedule, PT-FI does not believe any additional fines should be applied and will dispute any attempts by the Indonesia government to levy additional fines, which could be significant.
PT-FI Export License. Export licenses are valid for a one-year period, subject to review and approval by the Indonesia government every six months, depending on smelter construction progress. In March 2022, PT-FI obtained a one-year extension of its concentrate export license through March 19, 2023, for two million metric tons of concentrate, the approval of which was based on PT-FI’s revised smelter construction schedule as modified to reflect impacts of the ongoing COVID-19 pandemic.
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 and Cerro Verde copper mines, the Grasberg minerals district (Indonesia Mining), 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 on 39.5 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.
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 2022 and 2021 follow (in millions):
Three Months Ended
March 31,
2022 2021
Copper:
Concentrate $ 2,691 $ 1,709
Cathode 1,435 1,234
Rod and other refined copper products 1,116 684
Purchased copper a
70 218
Gold 811 518
Molybdenum 378 244
Other 188 253
Adjustments to revenues:
Treatment charges ( 133 ) ( 97 )
Royalty expense b
( 95 ) ( 63 )
Export duties c
( 98 ) ( 29 )
Revenues from contracts with customers 6,363 4,671
Embedded derivatives d
240 179
Total consolidated revenues $ 6,603 $ 4,850
a. FCX purchases copper cathode primarily for processing by its Rod & Refining operations.
b. Reflects royalties on sales from PT-FI and Cerro Verde that will vary with the volume of metal sold and prices.
c. Reflects PT-FI export duties, including a first-quarter 2022 charge of $ 18 million associated with an adjustment to prior-period export duties.
d. 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, 2022
Revenues:
Unaffiliated customers $ 90 $ 55 $ 145 $ 1,106 $ 160 $ 1,266 $ 2,326 a
$ — $ 1,743 $ 718 $ 405 b
$ 6,603
Intersegment 711 1,095 1,806 108 — 108 78 128 9 — ( 2,129 ) —
Production and delivery 363 655 1,018 558 112 670 626 75 1,754 722 ( 1,715 ) 3,150
Depreciation, depletion and amortization
44 61 105 87 10 97 248 16 1 6 16 489
Selling, general and administrative expenses
— 1 1 2 — 2 27 — — 8 77 115
Mining exploration and research expenses — — — — — — — — — — 24 24
Environmental obligations and shutdown costs
— — — — — — — — — — 16 16
Operating income (loss) 394 433 827 567 38 605 1,503 37 ( 3 ) ( 18 ) ( 142 ) 2,809
Interest expense, net — — — 3 — 3 2 — — 2 120 127
Provision for (benefit from) income taxes — — — 227 14 241 586 — — — ( 3 ) 824
Total assets at March 31, 2022 2,773 5,284 8,057 8,678 1,925 10,603 19,338 1,702 299 1,045 7,788 48,832
Capital expenditures 73 57 130 33 23 56 379 1 2 11 144 c
723
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 58 1,316 673 ( 1,003 ) d
2,787
Depreciation, depletion and amortization
34 46 80 89 12 101 199 15 1 7 16 419
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 17,273 1,753 235 997 5,012 43,643
Capital expenditures 10 16 26 20 1 21 290 1 1 6 25 c
370
a. Includes PT-FI's sales to PT Smelting totaling $ 917 million in first-quarter 2022 and $ 792 million in first-quarter 2021.
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 capital expenditures for the greenfield smelter and PMR.
d. 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, 2022, the related consolidated statements of income, comprehensive income, equity and cash flows for the three-month periods ended March 31, 2022 and 2021, 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, 2021, the related consolidated statements of operations, comprehensive income (loss), equity and cash flows for the year then ended, and the related notes (not presented herein); and in our report dated February 15, 2022, 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, 2021, 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, 2022
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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.