EX-99.1 2 a4q2013exhibit991.htm EXHIBIT 99.1 4Q 2013 Exhibit 99.1


333 North Central Avenue Phoenix, AZ 85004
Financial Contacts:
 
 
 
Media Contact:
 
Kathleen L. Quirk (602) 366-8016
 
David P. Joint
(504) 582-4203
 
Eric E. Kinneberg (602) 366-7994
Freeport-McMoRan Copper & Gold Inc.
Reports Fourth-Quarter and Year Ended December 31, 2013 Results
 
 
 
 
 
Net income attributable to common stock for fourth-quarter 2013 totaled $707 million, $0.68 per share, compared with net income of $743 million, $0.78 per share, for fourth-quarter 2012. Net income attributable to common stock for the year 2013 totaled $2.7 billion, $2.64 per share, compared with $3.0 billion, $3.19 per share, for the year 2012.
Consolidated sales for fourth-quarter 2013 totaled 1.14 billion pounds of copper, 512 thousand ounces of gold, 22 million pounds of molybdenum and 16.6 million barrels of oil equivalents (MMBOE), compared with 972 million pounds of copper, 254 thousand ounces of gold and 21 million pounds of molybdenum for fourth-quarter 2012. Consolidated sales for the year 2013 totaled 4.1 billion pounds of copper, 1.2 million ounces of gold, 93 million pounds of molybdenum, and 38.1 MMBOE (for the seven-month period from June 1, 2013, to December 31, 2013), compared with 3.65 billion pounds of copper, 1.0 million ounces of gold and 83 million pounds of molybdenum for the year 2012.
Consolidated sales for the year 2014 are expected to approximate 4.4 billion pounds of copper, 1.7 million ounces of gold, 95 million pounds of molybdenum and 60.7 MMBOE, including 1.0 billion pounds of copper, 325 thousand ounces of gold, 25 million pounds of molybdenum and 15.3 MMBOE for first-quarter 2014.
Average realized prices for fourth-quarter 2013 were $3.31 per pound for copper (compared with $3.60 per pound in fourth-quarter 2012), $1,220 per ounce for gold (compared with $1,681 per ounce in fourth-quarter 2012) and $92.68 per barrel for oil (excluding impacts of unrealized losses on oil and gas derivative contracts).
Operating cash flows totaled $2.3 billion for fourth-quarter 2013 and $6.1 billion (net of $436 million in working capital uses and changes in other tax payments) for the year 2013, compared with $1.3 billion for fourth-quarter 2012 and $3.8 billion (net of $1.4 billion in working capital uses and changes in other tax payments) for the year 2012. Based on current sales volume and cost estimates and assuming average prices of $3.25 per pound for copper, $1,200 per ounce for gold, $9.50 per pound for molybdenum and $105 per barrel for Brent crude oil, operating cash flows are estimated to approximate $9 billion for the year 2014 (including $0.8 billion of working capital sources and changes in other tax payments).
Capital expenditures totaled $1.7 billion for fourth-quarter 2013 and $5.3 billion for the year 2013, reflecting $2.3 billion for major projects at mining operations and $1.45 billion for oil and gas operations (for the seven-month period from June 1, 2013, to December 31, 2013). Capital expenditures are expected to approximate $7 billion for the year 2014, including $3 billion for major projects at mining operations and $3 billion for oil and gas operations.
At December 31, 2013, consolidated cash totaled $2.0 billion and consolidated debt totaled $20.7 billion. During 2013, FCX paid $2.3 billion in common stock dividends, including $1.0 billion for a supplemental dividend of $1 per share paid on July 1, 2013.

 
 
 
Freeport-McMoRan Copper & Gold                             1


PHOENIX, AZ, January 22, 2014 - Freeport-McMoRan Copper & Gold Inc. (NYSE: FCX) reported net income attributable to common stock of $707 million, $0.68 per share for fourth-quarter 2013 and $2.7 billion, $2.64 per share, for the year 2013, compared with $743 million, $0.78 per share, for fourth-quarter 2012 and $3.0 billion, $3.19 per share, for the year 2012. FCX’s net income attributable to common stock for fourth-quarter 2013 included net charges of $166 million ($0.16 per share), comprised of $73 million ($0.07 per share) for unrealized losses on oil and gas derivative contracts and other items described in the summary financial data below.

James R. Moffett, Chairman of the Board; Richard C. Adkerson, Vice Chairman, and FCX President and Chief Executive Officer; and James C. Flores, Vice Chairman, and FM O&G President and Chief Executive Officer, said, "Our fourth-quarter results reflect strong operating performance in our global mining and oil and gas businesses.  As we enter 2014, we are positive about our large and diverse portfolio of assets and resources, which provide attractive near-term and longer term growth opportunities.  We remain focused on building value for shareholders through strong operations, investing prudently in our financially attractive projects, achievement of our debt reduction initiatives and providing cash returns to shareholders."

SUMMARY FINANCIAL DATA
 
Three Months Ended
 
Years Ended
 
 
December 31,
 
December 31,
 
 
2013
 
2012
 
2013
a 
2012
 
 
(in millions, except per share amounts)
 
Revenuesb
$
5,885

c 
$
4,513

 
$
20,921

c 
$
18,010

 
Operating income
$
1,650

c,d,e,f 
$
1,358

e,f,g,h 
$
5,351

c,d,e,f,g 
$
5,814

e,f,g,h 
Net income attributable to common stocki
$
707

c,d,e,f,j 
$
743

e,f,g,h 
$
2,658

c,d,e,f,g,j,k 
$
3,041

e,f,g,h,k,l 
Diluted net income per share of common stock
$
0.68

c,d,e,f,j 
$
0.78

e,f,g,h 
$
2.64

c,d,e,f,g,j,k 
$
3.19

e,f,g,h,k,l 
Diluted weighted-average common shares outstanding
1,044

 
954

 
1,006

 
954

 
Operating cash flowsm
$
2,337

 
$
1,265

 
$
6,080

 
$
3,774

 
Capital expenditures
$
1,663

 
$
976

 
$
5,286

 
$
3,494

 
At December 31:
 
 
 
 
 
 
 
 
Cash and cash equivalents
$
1,985

 
$
3,705

 
$
1,985

 
$
3,705

 
Total debt, including current portion
$
20,706

 
$
3,527

 
$
20,706

 
$
3,527

 
 
 
 
 
 
 
 
 
 
a.
Includes the results of Freeport-McMoRan Oil & Gas (FM O&G) beginning June 1, 2013.
b.
Revenues include adjustments to provisionally priced concentrate and cathode copper sales recognized in prior periods. For further discussion, refer to the supplemental schedule, "Derivative Instruments" on page IX, which is available on FCX's website, "www.fcx.com."
c.
Revenues include charges for unrealized losses on oil and gas derivative contracts totaling $118 million ($73 million to net income attributable to common stock or $0.07 per share) in fourth-quarter 2013 and $312 million ($194 million to net income attributable to common stock or $0.19 per share) for the year 2013 (reflecting the seven-month period from June 1, 2013, to December 31, 2013). For further discussion, refer to the supplemental schedule, "Derivative Instruments" on page IX, which is available on FCX's website, "www.fcx.com."
d.
The 2013 periods include charges of (i) $76 million ($49 million to net income attributable to common stock or $0.05 per share) associated with updated mine plans at Morenci that resulted in a loss in recoverable copper in leach stockpiles and (ii) $37 million ($23 million to net income attributable to common stock or $0.02 per share) for restructuring an executive employment arrangement.
e.
Includes charges associated with new labor agreements totaling $36 million ($13 million to net income attributable to common stock or $0.01 per share) at Cerro Verde for the 2013 periods and $16 million ($8 million to net income attributable to common stock or $0.01 per share) at Candelaria for the 2012 periods.
f.
Includes net charges (credits) for adjustments to environmental obligations and related litigation reserves totaling $33 million ($24 million to net income attributable to common stock or $0.02 per share) in fourth-quarter 2013, $(42) million ($(24) million to net income attributable to common stock or $(0.03) per share) in fourth-quarter 2012, $19 million ($17 million to net income attributable to common stock or $0.02 per share) for the year 2013 and $(62) million ($(40) million to net income attributable to common stock or $(0.04) per share) for the year 2012.

 
 
 
Freeport-McMoRan Copper & Gold                             2


g.
Includes transaction and related costs principally associated with the oil and gas acquisitions totaling $80 million ($50 million to net income attributable to common stock or $0.05 per share) for the year 2013 and $9 million ($7 million to net income attributable to common stock or $0.01 per share) for the fourth-quarter and year 2012.
h.
The 2012 periods include a gain of $59 million ($31 million to net income attributable to common stock or $0.03 per share) for the settlement of the insurance claim for business interruption and property damage relating to the 2011 incidents affecting PT Freeport Indonesia's concentrate pipelines.
i.
FCX defers recognizing profits on intercompany sales until final sales to third parties occur. Refer to the "Consolidated Statements of Income" on page V for a summary of net impacts from changes in these deferrals.
j.
Includes gains associated with FCX's oil and gas acquisitions, including (i) $16 million to net income attributable to common stock ($0.01 per share) in fourth-quarter 2013 and $199 million to net income attributable to common stock ($0.20 per share) for the year 2013 associated with net reductions in FCX's deferred tax liabilities and deferred tax asset valuation allowances, and (ii) $128 million to net income attributable to common stock ($0.13 per share) for the year 2013 primarily related to FCX's preferred stock investment in and the subsequent acquisition of McMoRan Exploration Co. (MMR).
k.
Includes net losses on early extinguishment of debt totaling $28 million to net income attributable to common stock ($0.03 per share) for the year 2013 primarily related to the termination of the acquisition bridge loan facilities, partly offset by a net gain for the redemption of MMR's 11.875% senior notes, and $149 million to net income attributable to common stock ($0.16 per share) for the year 2012 associated with the redemption of FCX's remaining 8.375% senior notes.
l.
The year 2012 includes a net credit of $98 million, net of noncontrolling interests, ($0.11 per share) associated with adjustments to Cerro Verde's deferred income taxes.
m.
Includes net working capital sources (uses) and changes in other tax payments of $53 million for fourth-quarter 2013, $122 million for fourth-quarter 2012, $(436) million for the year 2013 and $(1.4) billion for the year 2012.

For FCX's segment financial results, refer to the supplemental schedules, "Business Segments," beginning on page X, which are available on FCX's website, "www.fcx.com."

SUMMARY OPERATING DATA
 
 
Three Months Ended
 
Years Ended
 
 
 
December 31,
 
December 31,
 
 
 
2013
 
2012
 
2013
a 
2012
 
Copper (millions of recoverable pounds)
 
 
 
 
 
 
 
 
 
Production
 
1,179

 
1,005

 
4,131

 
3,663

 
Sales, excluding purchases
 
1,140

 
972

 
4,086

 
3,648

 
Average realized price per pound
 
$
3.31

 
$
3.60

 
$
3.30

 
$
3.60

 
Site production and delivery costs per poundb
 
$
1.68

 
$
2.01

 
$
1.88

 
$
2.00

 
Unit net cash costs per poundb
 
$
1.16

 
$
1.54

 
$
1.49

 
$
1.48

 
Gold (thousands of recoverable ounces)
 
 
 
 
 
 
 
 
 
Production
 
537

 
251

 
1,250

 
958

 
Sales, excluding purchases
 
512

 
254

 
1,204

 
1,010

 
Average realized price per ounce
 
$
1,220

 
$
1,681

 
$
1,315

 
$
1,665

 
Molybdenum (millions of recoverable pounds)
 
 
 
 
 
 
 
 
 
Production
 
23

 
24

 
94

 
85

 
Sales, excluding purchases
 
22

 
21

 
93

 
83

 
Average realized price per pound
 
$
11.00

 
$
12.62

 
$
11.85

 
$
14.26

 
Oil Equivalents
 
 
 
 
 
 
 
 
 
Sales volumes:
 
 
 
 
 
 
 
 
 
MMBOE
 
16.6

 
 
 
38.1

 
 
 
MBOE per day
 
181

 
 
 
178

 
 
 
Cash operating margin per BOEc:
 
 
 
 
 
 
 
 
 
Realized revenues
 
$
73.58

 
 
 
$
76.87

 
 
 
Less: Cash production costs
 
17.63

 
 
 
17.14

 
 
 
Cash operating margin
 
$
55.95

 
 
 
$
59.73

 
 
 
 
 
 
 
 
 
 
 
 
 
a.
Reflects the operating results of FM O&G beginning June 1, 2013.

 
 
 
Freeport-McMoRan Copper & Gold                             3


b.
Reflects per pound weighted-average site production and delivery costs and unit net cash costs (net of by-product credits) for all copper mines, excluding net noncash and other costs. For reconciliations of per pound unit costs by operating division to production and delivery costs applicable to sales reported in FCX's consolidated financial statements, refer to the supplemental schedule, "Product Revenues and Production Costs," beginning on page XIII, which is available on FCX's website, "www.fcx.com."
c.
Cash operating margin for oil and gas operations reflects realized revenues less cash production costs. Realized revenues exclude unrealized gains (losses) on derivative contracts and cash production costs exclude accretion and other costs. For reconciliations of realized revenues and cash production costs per BOE to revenues and production and delivery costs reported in FCX's consolidated financial statements, refer to the supplemental schedule, “Product Revenues and Production Costs” beginning on page XIII, which is available on FCX's website, “www.fcx.com.”
Consolidated Sales Volumes
Fourth-quarter 2013 consolidated copper sales of 1.14 billion pounds were higher than fourth-quarter 2012 sales of 972 million pounds reflecting improved volumes throughout FCX's global mining operations. Higher fourth-quarter 2013 sales, compared to the October 2013 estimate of 1.1 billion pounds, primarily reflected higher volumes from South America and Indonesia. Fourth-quarter 2013 consolidated gold sales of 512 thousand ounces were higher than fourth-quarter 2012 sales of 254 thousand ounces and the October 2013 estimate of 390 thousand ounces reflecting higher ore grades and improved operating performance in Indonesia. Fourth-quarter 2013 consolidated molybdenum sales of 22 million pounds were higher than fourth-quarter 2012 sales of 21 million pounds and the October 2013 estimate of 21 million pounds.
Fourth-quarter 2013 sales from oil and gas operations of 16.6 MMBOE, including 11.7 million barrels (MMBbls) of crude oil, 22.9 billion cubic feet (Bcf) of natural gas and 1.1 MMBbls of natural gas liquids (NGLs), were higher than the October 2013 estimate of 16 MMBOE primarily reflecting higher Eagle Ford production.
Consolidated sales for the year 2014 are expected to approximate 4.4 billion pounds of copper, 1.7 million ounces of gold, 95 million pounds of molybdenum and 60.7 MMBOE, including 1.0 billion pounds of copper, 325 thousand ounces of gold, 25 million pounds of molybdenum and 15.3 MMBOE in first-quarter 2014.
In January 2014, the Indonesian government published regulations regarding exports of minerals, including copper concentrates. The regulations provide that holders of contracts of work with existing processing facilities in Indonesia may continue to export product through January 12, 2017, but establish new requirements, including new export duties, for the continued export of copper concentrates. The regulations conflict with PT Freeport Indonesia's (PT-FI) Contract of Work (COW) and PT-FI is working with the Indonesian government to clarify the situation and to defend its rights under the COW. Refer to Indonesia Mining beginning on page 7 for further discussion.
FCX’s 2014 copper and gold sales estimates presented above assume no changes to PT-FI’s planned 2014 concentrate shipments. As a result of the delay in obtaining administrative approvals for 2014 exports, associated with the new regulations, PT-FI is implementing near-term changes to its operations to coordinate its concentrate production with PT Smelting's operating plans. These changes will result in the deferral of an estimated 40 million pounds of copper and 80 thousand ounces of gold per month pending resolution of these matters. FCX will update its 2014 outlook as export approvals are obtained.
Consolidated Unit Costs
Mining Unit Net Cash Costs. Consolidated average unit net cash costs (net of by-product credits) for FCX's copper mines of $1.16 per pound of copper in fourth-quarter 2013 were significantly lower than unit net cash costs of $1.54 per pound in fourth-quarter 2012 and the previous estimate of $1.46 per pound primarily reflecting higher copper and gold sales volumes and ongoing cost control efforts. For the year 2013, consolidated unit net cash costs (net of by-product credits) averaged $1.49 per pound of copper compared with the year 2012 average of $1.48 per pound.
Assuming average prices of $1,200 per ounce of gold and $9.50 per pound of molybdenum and achievement of current sales volume and cost estimates, consolidated unit net cash costs (net of by-product credits) for FCX's copper mining operations are expected to average $1.45 per pound of copper for the year 2014. Quarterly unit net cash costs vary with fluctuations in sales volumes and average realized prices (primarily gold and molybdenum prices). Unit net cash costs are expected to decline in 2014, compared to the 2013 average, as FCX gains access to higher grade ore in Indonesia. The impact of price changes on 2014 consolidated unit net cash costs would approximate $0.02 per pound for each $50 per ounce change in the average price of gold and $0.02 per pound for each $2 per pound change in the average price of molybdenum.

 
 
 
Freeport-McMoRan Copper & Gold                             4


Oil and Gas Cash Production Costs per BOE. Cash production costs for oil and gas operations were $17.63 per BOE in fourth-quarter 2013 and $17.14 per BOE for the seven month period in 2013 following the acquisition date. Based on current sales volume and cost estimates, cash production costs per BOE are expected to approximate $20 per BOE for the year 2014.

MINING OPERATIONS
North America Copper Mines. FCX operates seven open-pit copper mines in North America - Morenci, Bagdad, Safford, Sierrita and Miami in Arizona, and Chino and Tyrone in New Mexico. All of the North America mining operations are wholly owned, except for Morenci. FCX records its 85 percent joint venture interest in Morenci using the proportionate consolidation method. In addition to copper, the Sierrita, Bagdad, Morenci and Chino mines also produce molybdenum concentrates.    
Operating and Development Activities. FCX has increased production from its North America copper mines in recent years and continues to evaluate a number of opportunities to invest in additional production capacity following positive exploration results. Future investments will be undertaken based on the results of economic and technical feasibility studies and market conditions.
At Morenci, FCX is expanding mining and milling capacity to process additional sulfide ores identified through exploratory drilling. The project is targeting incremental annual production of approximately 225 million pounds of copper in 2014 (an approximate 40 percent increase from 2013) through an increase in milling rates from 50,000 metric tons of ore per day to approximately 115,000 metric tons of ore per day. At full rates, Morenci's copper production is expected to approach 1 billion pounds in 2015 compared with 564 million pounds in 2013. Construction is more than 60 percent complete and the project is on track for completion in the first half of 2014. At December 31, 2013, approximately $1.0 billion had been incurred for this project, with approximately $0.6 billion remaining to be incurred.
Operating Data. Following is summary consolidated operating data for the North America copper mines for the fourth quarters and years ended 2013 and 2012:
 
 
Three Months Ended
 
Years Ended
 
 
 
December 31,
 
December 31,
 
 
 
2013
 
2012
 
2013
 
2012
 
Copper (millions of recoverable pounds)
 
 
 
 
 
 
 
 
 
Production
 
385

 
358

 
1,431

 
1,363

 
Sales, excluding purchases
 
334

 
321

 
1,422

 
1,351

 
Average realized price per pound
 
$
3.31

 
$
3.63

 
$
3.36

 
$
3.64

 
 
 
 
 
 
 
 
 
 
 
Molybdenum (millions of recoverable pounds)
 
 
 
 
 
 
 
 
 
Productiona
 
6

 
9

 
32

 
36

 
 
 
 
 
 
 
 
 
 
 
Unit net cash costs per pound of copperb:
 
 
 
 
 
 
 
 
 
Site production and delivery, excluding adjustments
 
$
1.89

 
$
2.00

 
$
2.00

 
$
1.91

 
By-product credits
 
(0.20
)
 
(0.35
)
 
(0.24
)
 
(0.36
)
 
Treatment charges
 
0.13

 
0.13

 
0.11

 
0.12

 
Unit net cash costs
 
$
1.82

 
$
1.78

 
$
1.87

 
$
1.67

 
 
 
 
 
 
 
 
 
 
 
a.
Refer to summary operating data on page 3 for FCX's consolidated molybdenum sales, which includes sales of molybdenum produced at the North America copper mines.
b.
For a reconciliation of unit net cash costs per pound to production and delivery costs applicable to sales reported in FCX's consolidated financial statements, refer to the supplemental schedule, "Product Revenues and Production Costs," beginning on page XIII, which is available on FCX's website, "www.fcx.com."
North America's consolidated copper sales volumes of 334 million pounds in fourth-quarter 2013 were higher than fourth-quarter 2012 sales of 321 million pounds primarily reflecting higher ore grades and recovery rates. Sales from the North America copper mines are expected to approximate 1.73 billion pounds of copper for the year 2014, compared with 1.42 billion pounds of copper in 2013, primarily reflecting higher production from Morenci following the completion of the mill expansion project.

 
 
 
Freeport-McMoRan Copper & Gold                             5


Average unit net cash costs (net of by-product credits) for the North America copper mines of $1.82 per pound of copper in fourth-quarter 2013 were higher than unit net cash costs of $1.78 per pound in fourth-quarter 2012, primarily reflecting lower molybdenum credits, partly offset by higher copper sales volumes. Average unit net cash costs (net of by-product credits) for the North America copper mines are expected to approximate $1.76 per pound of copper for the year 2014, based on current sales volume and cost estimates and assuming an average molybdenum price of $9.50 per pound. North America's average unit net cash costs for 2014 would change by approximately $0.04 per pound for each $2 per pound change in the average price of molybdenum.

South America Mining. FCX operates four copper mines in South America - Cerro Verde in Peru and El Abra, Candelaria and Ojos del Salado in Chile. FCX owns a 53.56 percent interest in Cerro Verde, a 51 percent interest in El Abra, and an 80 percent interest in the Candelaria and Ojos del Salado mining complex. All operations in South America are consolidated in FCX's financial statements. In addition to copper, the Candelaria and Ojos del Salado mines produce gold and silver, and the Cerro Verde mine produces molybdenum concentrates.    
Development Activities. Construction activities associated with a large-scale expansion at Cerro Verde are in progress. Engineering is more than 90 percent complete and construction progress is advancing on schedule. The project will expand the concentrator facilities from 120,000 metric tons of ore per day to 360,000 metric tons of ore per day and provide incremental annual production of approximately 600 million pounds of copper and 15 million pounds of molybdenum beginning in 2016. At December 31, 2013, approximately $1.5 billion had been incurred for this project, with approximately $3.1 billion remaining to be incurred.
FCX continues to evaluate a potential large-scale milling operation at El Abra to process additional sulfide material and to achieve higher recoveries. Exploration results in recent years at El Abra indicate a significant sulfide resource, which could potentially support a major mill project. Future investments will be dependent on technical studies, economic factors and global copper market conditions.
Operating Data. Following is summary consolidated operating data for the South America mining operations for the fourth quarters and years ended 2013 and 2012:
 
 
Three Months Ended
 
Years Ended
 
 
 
December 31,
 
December 31,
 
 
 
2013
 
2012
 
2013
 
2012
 
Copper (millions of recoverable pounds)
 
 
 
 
 
 
 
 
 
Production
 
379

 
349

 
1,323

 
1,257

 
Sales
 
402

 
350

 
1,325

 
1,245

 
Average realized price per pound
 
$
3.32

 
$
3.60

 
$
3.30

 
$
3.58

 
 
 
 
 
 
 
 
 
 
 
Gold (thousands of recoverable ounces)
 
 
 
 
 
 
 
 
 
Production
 
31

 
26

 
101

 
83

 
Sales
 
34

 
26

 
102

 
82

 
Average realized price per ounce
 
$
1,238

 
$
1,686

 
$
1,350

 
$
1,673

 
 
 
 
 
 
 
 
 
 
 
Molybdenum (millions of recoverable pounds)
 
 
 
 
 
 
 
 
 
Productiona
 
5

 
2

 
13

 
8

 
 
 
 
 
 
 
 
 
 
 
Unit net cash costs per pound of copperb:
 
 
 
 
 
 
 
 
 
Site production and delivery, excluding adjustments
 
$
1.42

c 
$
1.67

c 
$
1.53

c 
$
1.60

c 
By-product credits
 
(0.30
)
 
(0.29
)
 
(0.27
)
 
(0.26
)
 
Treatment charges
 
0.18

 
0.16

 
0.17

 
0.16

 
Unit net cash costs
 
$
1.30

 
$
1.54

 
$
1.43

 
$
1.50

 
 
 
 
 
 
 
 
 
 
 
a.
Refer to summary operating data on page 3 for FCX's consolidated molybdenum sales, which includes sales of molybdenum produced at Cerro Verde.
b.
For a reconciliation of unit net cash costs per pound to production and delivery costs applicable to sales reported in FCX's consolidated financial statements, refer to the supplemental schedule, "Product Revenues and Production Costs," beginning on page XIII, which is available on FCX's website, "www.fcx.com."

 
 
 
Freeport-McMoRan Copper & Gold                             6


c.
The 2013 periods includes charges of $36 million ($0.09 per pound of copper for fourth-quarter and $0.03 per pound for the year) associated with new labor agreements at Cerro Verde, and the 2012 periods includes charges of $16 million ($0.04 per pound of copper for fourth-quarter and $0.01 per pound for the year) associated with new labor agreements at Candelaria.
South America's consolidated copper sales volumes of 402 million pounds in fourth-quarter 2013 were higher than fourth-quarter 2012 sales of 350 million pounds primarily reflecting higher ore grades at Candelaria and timing of shipments. Sales from South America mining are expected to approximate 1.2 billion pounds of copper for the year 2014, compared with sales of 1.33 billion pounds of copper in 2013, primarily reflecting lower ore grades at Candelaria and Cerro Verde.
Average unit net cash costs (net of by-product credits) for South America mining of $1.30 per pound of copper in fourth-quarter 2013 were lower than unit net cash costs of $1.54 per pound in fourth-quarter 2012, primarily reflecting higher volumes and lower energy costs. Average unit net cash costs (net of by-product credits) for South America mining are expected to approximate $1.61 per pound of copper for the year 2014, based on current sales volume and cost estimates and assuming average prices of $1,200 per ounce of gold and $9.50 per pound of molybdenum. Higher average unit net cash costs in 2014 are primarily related to lower volumes.
During fourth-quarter 2013, Cerro Verde signed a new four-year Collective Labor Agreement, which is effective beginning September 1, 2014, upon the expiration of the current agreement.

Indonesia Mining. Through its 90.64 percent owned and consolidated subsidiary PT-FI, FCX's assets include one of the world's largest copper and gold deposits at the Grasberg minerals district in Papua, Indonesia. PT-FI operates a proportionately consolidated joint venture, which produces copper concentrates that contain significant quantities of gold and silver.    
Development Activities. FCX has several projects in progress in the Grasberg minerals district related to the development of large-scale, long-lived, high-grade underground ore bodies. In aggregate, these underground ore bodies are expected to ramp up over several years to produce approximately 240,000 metric tons of ore per day following the transition from the Grasberg open pit, currently anticipated to occur in 2017. Development of the Grasberg Block Cave and Deep Mill Level Zone (DMLZ) mines is advancing to enable DMLZ to commence production in 2015 and the Grasberg Block Cave mine to commence production in 2017. Over the next five years, estimated aggregate capital spending on these projects is currently expected to average $0.9 billion per year ($0.7 billion per year net to PT-FI).
Regulatory Matters. In January 2014, the Indonesian government published regulations regarding exports of minerals, including copper concentrates. The regulations provide that holders of contracts of work with existing processing facilities in Indonesia may continue to export product through January 12, 2017, but establish new requirements for the continued export of copper concentrates, including the imposition of a new progressive export duty on copper concentrates in the amount of 25 percent in 2014, rising to 60 percent by mid-2016.
PT-FI’s COW, which has a primary term through 2021 and allows for two 10-year extensions through 2041 (subject to approval by the Indonesian government, which cannot be withheld or delayed unreasonably), authorizes it to export concentrates and sets forth the taxes and other fiscal terms applicable to its operations. The COW states that PT-FI shall not be subject to taxes, duties or fees subsequently imposed or approved by the Indonesian government except as expressly provided in the COW.
The January 2014 regulations conflict with PT-FI’s contractual rights, and FCX and PT-FI are working with the Indonesian government to clarify the situation and to defend PT-FI's rights under the COW.  PT-FI is also seeking to obtain its administrative permits for 2014 exports, which are currently pending and have been delayed as a result of the new regulations.
PT-FI has complied with the Indonesian government’s requirements on local processing in its COW, which enabled the construction and commissioning in 1998 of the first copper smelter in Indonesia, PT Smelting, an affiliate of PT-FI. During 2014, approximately 40 percent of PT-FI’s production is expected to be shipped to PT Smelting, with the balance of its concentrates expected to be sold pursuant to long-term contracts with other international smelters.
PT-FI's 2014 copper and gold sales estimates presented below assume no changes to planned 2014 concentrate shipments. As a result of the delay in obtaining its administrative approval for 2014 exports, associated with the new regulations, PT-FI is implementing near-term changes to its operations to coordinate its concentrate

 
 
 
Freeport-McMoRan Copper & Gold                             7


production with PT Smelting’s operating plans. These changes will result in the deferral of an estimated 40 million pounds of copper and 80 thousand ounces of gold per month pending resolution of these matters. FCX will update its 2014 outlook as export approvals are obtained.
Operating Data. Following is summary consolidated operating data for the Indonesia mining operations for the fourth quarters and years ended 2013 and 2012:
 
 
Three Months Ended
 
Years Ended
 
 
 
December 31,
 
December 31,
 
 
 
2013
 
2012
 
2013
 
2012
 
Copper (millions of recoverable pounds)
 
 
 
 
 
 
 
 
 
Production
 
304

 
200

 
915

 
695

 
Sales
 
292

 
204

 
885

 
716

 
Average realized price per pound
 
$
3.33

 
$
3.59

 
$
3.28

 
$
3.58

 
 
 
 
 
 
 
 
 
 
 
Gold (thousands of recoverable ounces)
 
 
 
 
 
 
 
 
 
Production
 
502

 
221

 
1,142

 
862

 
Sales
 
476

 
224

 
1,096

 
915

 
Average realized price per ounce
 
$
1,219

 
$
1,680

 
$
1,312

 
$
1,664

 
 
 
 
 
 
 
 
 
 
 
Unit net cash costs per pound of coppera:
 
 
 
 
 
 
 
 
 
Site production and delivery, excluding adjustments
 
$
1.89

 
$
2.91

 
$
2.46

 
$
3.12

 
Gold and silver credits
 
(2.04
)
 
(1.93
)
 
(1.69
)
 
(2.22
)
 
Treatment charges
 
0.24

 
0.22

 
0.23

 
0.21

 
Royalty on metals
 
0.12

 
0.13

 
0.12

 
0.13

 
Unit net cash costs
 
$
0.21

 
$
1.33

 
$
1.12

 
$
1.24

 
 
 
 
 
 
 
 
 
 
 
a.
For a reconciliation of unit net cash costs per pound to production and delivery costs applicable to sales reported in FCX's consolidated financial statements, refer to the supplemental schedule, "Product Revenues and Production Costs," beginning on page XIII, which is available on FCX's website, "www.fcx.com."

Indonesia's fourth-quarter 2013 copper sales of 292 million pounds and gold sales of 476 thousand ounces were significantly higher than fourth-quarter 2012 copper sales of 204 million pounds and gold sales of 224 thousand ounces and above October 2013 estimates resulting primarily from higher ore grades and increased mill rates and recoveries. Results benefited from strong productivity throughout the open pit and underground mining operations and milling operations. During fourth-quarter 2013, the Deep Ore Zone underground mine's rates averaged 59,900 metric tons of ore per day and are expected to reach 80,000 metric tons of ore per day by mid-2014.
At the Grasberg mine, the sequencing of mining areas with varying ore grades causes fluctuations in quarterly and annual production of copper and gold. Sales from Indonesia mining are expected to approximate 1.1 billion pounds of copper and 1.6 million ounces of gold for the year 2014, compared with 885 million pounds of copper and 1.1 million ounces of gold for the year 2013. Sales from Indonesia mining are expected to increase in 2014 through 2016 as PT-FI gains access to higher grade ore. PT-FI's estimated sales volumes are subject to change depending on timing of resolution of export matters as described above.
A significant portion of PT-FI's costs are fixed and unit costs vary depending on production volumes. Indonesia's unit net cash costs (including gold and silver credits) of $0.21 per pound of copper in fourth-quarter 2013 were lower than unit net cash costs of $1.33 per pound in fourth-quarter 2012 reflecting significantly higher volumes and lower operating costs.
Unit net cash costs (net of gold and silver credits) for Indonesia mining are expected to approximate $0.81 per pound of copper for the year 2014, based on current sales volume and cost estimates and assuming an average gold price of $1,200 per ounce. Indonesia mining's projected unit net cash costs would change by approximately $0.075 per pound for each $50 per ounce change in the average price of gold. Because of the fixed nature of a large portion of Indonesia's costs, unit costs vary from quarter to quarter depending on copper and gold volumes.

 
 
 
Freeport-McMoRan Copper & Gold                             8


Africa Mining. Through its 56 percent owned and consolidated subsidiary Tenke Fungurume Mining S.A.R.L. (TFM), FCX operates in the Tenke Fungurume (Tenke) minerals district in the Katanga province of the Democratic Republic of Congo (DRC). In addition to copper, the Tenke mine produces cobalt hydroxide.
Operating and Development Activities. TFM completed its second phase expansion project in early 2013, which included optimizing the current plant and increasing mine, mill and processing capacity. The expanded mill facility is performing well, with throughput rates averaging 14,900 metric tons of ore per day during 2013, compared with original design capacity of 14,000 metric tons of ore per day, enabling an increase in Tenke's copper production to over 430 million pounds per year. The addition of a second sulphuric acid plant is expected to be completed in 2016.
FCX continues to engage in exploration activities and metallurgical testing to evaluate the potential of the highly prospective minerals district at Tenke. These analyses are being incorporated in future plans for potential expansions of production capacity. Future expansions are subject to a number of factors, including economic and market conditions, and the business and investment climate in the DRC.
Operating Data. Following is summary consolidated operating data for TFM's operations for the fourth quarters and years ended 2013 and 2012:
 
 
Three Months Ended
 
Years Ended
 
 
 
December 31,
 
December 31,
 
 
 
2013
 
2012
 
2013
 
2012
 
Copper (millions of recoverable pounds)
 
 
 
 
 
 
 
 
 
Production
 
111

 
98

 
462

 
348

 
Sales
 
112

 
97

 
454

 
336

 
Average realized price per pounda
 
$
3.19

 
$
3.50

 
$
3.21

 
$
3.51

 
 
 
 
 
 
 
 
 
 
 
Cobalt (millions of contained pounds)
 
 
 
 
 
 
 
 
 
Production
 
9

 
6

 
28

 
26

 
Sales
 
8

 
6

 
25

 
25

 
Average realized price per pound
 
$
8.02

 
$
6.95

 
$
8.02

 
$
7.83

 
 
 
 
 
 
 
 
 
 
 
Unit net cash costs per pound of copperb:
 
 
 
 
 
 
 
 
 
Site production and delivery, excluding adjustments
 
$
1.43

 
$
1.38

 
$
1.43

 
$
1.49

 
Cobalt creditsc
 
(0.36
)
 
(0.21
)
 
(0.29
)
 
(0.33
)
 
Royalty on metals
 
0.07

 
0.07

 
0.07

 
0.07

 
Unit net cash costs
 
$
1.14

 
$
1.24

 
$
1.21

 
$
1.23

 
 
 
 
 
 
 
 
 
 
 
a.
Includes point-of-sale transportation costs as negotiated in customer contracts.
b.
For a reconciliation of unit net cash costs per pound to production and delivery costs applicable to sales reported in FCX's consolidated financial statements, refer to the supplemental schedule, "Product Revenues and Production Costs," beginning on page XIII, which is available on FCX's website, "www.fcx.com."
c.
Net of cobalt downstream processing and freight costs.
TFM's copper sales of 112 million pounds in fourth-quarter 2013 were higher than fourth-quarter 2012 copper sales of 97 million pounds, primarily reflecting increased mining and milling rates and higher ore grades. TFM's sales are expected to approximate 445 million pounds of copper and 30 million pounds of cobalt for the year 2014, compared with 454 million pounds of copper and 25 million pounds of cobalt for the year 2013.
During the second half of 2013, TFM experienced power interruptions, which impacted operating rates. Power availability improved during the fourth quarter. TFM continues to work with its power provider and DRC authorities to establish more consistent and reliable power availability.
TFM's unit net cash costs (net of cobalt credits) of $1.14 per pound of copper in fourth-quarter 2013 were lower than unit net cash costs of $1.24 per pound in fourth-quarter 2012 primarily reflecting higher cobalt credits. Unit net cash costs (net of cobalt credits) for TFM are expected to approximate $1.28 per pound of copper for the year 2014, based on current sales volume and cost estimates and assuming an average cobalt price of $12 per

 
 
 
Freeport-McMoRan Copper & Gold                             9


pound. TFM's projected unit net cash costs for 2014 would change by approximately $0.08 per pound for each $2 per pound change in the average price of cobalt.

Molybdenum Mines. FCX has two wholly owned molybdenum mines in North America - the Henderson underground mine and the Climax open-pit mine, both in Colorado. The Henderson and Climax mines produce high-purity, chemical-grade molybdenum concentrates, which are typically further processed into value-added molybdenum chemical products.
Operating Data. Following is summary consolidated operating data for the molybdenum mines for the fourth quarters and years ended 2013 and 2012:
 
 
Three Months Ended
 
Years Ended
 
 
 
December 31,
 
December 31,
 
 
 
2013
 
2012
 
2013
 
2012
 
Molybdenum production (millions of recoverable pounds)a
 
12

 
13

 
49

 
41

b 
 
 
 
 
 
 
 
 
 
 
Unit net cash cost per pound of molybdenumc
 
$
7.36

 
$
7.53

 
$
7.15

 
$
7.07

 
 
 
 
 
 
 
 
 
 
 
a.
Refer to summary operating data on page 3 for FCX's consolidated molybdenum sales, which includes sales of molybdenum produced at the molybdenum mines, and from the North and South America copper mines.
b.
Includes molybdenum production from the Climax mine since the start of commercial operations in May 2012.
c.
Unit net cash costs per pound of molybdenum for the 2013 periods reflect the results of the Henderson and Climax mines, and the 2012 periods reflect the results of only the Henderson mine as startup activities were still underway for the Climax mine. For a reconciliation of unit net cash costs per pound to production and delivery costs applicable to sales reported in FCX's consolidated financial statements, refer to the supplemental schedule, "Product Revenues and Production Costs," beginning on page XIII, which is available on FCX's website, "www.fcx.com."
Market conditions for molybdenum declined in 2013 resulting from weak demand in the metallurgical sector and increased supply. FCX continues to monitor market conditions and adjusts its primary molybdenum production as market conditions warrant.
Based on current sales volume and cost estimates, unit net cash costs for the molybdenum mines are expected to average approximately $7.25 per pound of molybdenum for the year 2014.

Mining Exploration Activities.    FCX is actively conducting exploration activities near its existing mines with a focus on opportunities to expand reserves and resources to support development of additional future production capacity in the large minerals districts where it currently operates. Exploration results indicate opportunities for significant future reserve additions in North and South America and in the Tenke Fungurume minerals district. The drilling data in North America continue to indicate the potential for significantly expanded sulfide production.
Exploration spending associated with mining operations is expected to approximate $120 million for the year 2014, compared to $182 million in 2013.

Preliminary Recoverable Proven and Probable Mineral Reserves. FCX has significant reserves, resources and future development opportunities within its portfolio of mining assets. FCX's preliminary estimated consolidated recoverable proven and probable reserves from its mines at December 31, 2013, include 111.2 billion pounds of copper, 31.3 million ounces of gold and 3.26 billion pounds of molybdenum, which were determined using long-term average prices of $2.00 per pound for copper (consistent with the long-term average copper price used since December 31, 2010), $1,000 per ounce for gold and $10.00 per pound for molybdenum. The preliminary recoverable proven and probable mining reserves presented in the table below represent the estimated metal quantities from which FCX expects to be paid after application of estimated metallurgical recovery rates and smelter recovery rates, where applicable. Recoverable reserve volumes are those which FCX estimates can be economically and legally extracted or produced at the time of the reserve determination.

 
 
 
Freeport-McMoRan Copper & Gold                             10


 
Preliminary Recoverable Proven and Probable Mineral Reserves
 
 
at December 31, 2013
 
 
Copper
 
Gold
 
Molybdenum
 
 
(billions of lbs)
 
(millions of ozs)
 
(billions of lbs)
 
North America
36.2

 
0.4

 
2.55

 
South America
37.0

 
1.1

 
0.71

 
Indonesia
30.0

 
29.8

 

 
Africa
8.0

 

 

 
Consolidated basisa
111.2

 
31.3

 
3.26

 
 
 
 
 
 
 
 
Net equity interestb
88.6

 
28.3

 
2.93

 
 
 
 
 
 
 
 
a.
Consolidated reserves represent estimated metal quantities after reduction for joint venture partner interests at the Morenci mine in North America and the Grasberg minerals district in Indonesia. Excluded from the table above are FCX's consolidated reserves of 0.87 billion pounds for cobalt in Africa and 308.5 million ounces for silver in Indonesia, South America and North America.
b.
Net equity interest reserves represent estimated consolidated metal quantities reduced for noncontrolling interest ownership. Excluded from the table above are FCX's net equity interest reserves totaling 0.48 billion pounds for cobalt in Africa and 252.9 million ounces for silver in Indonesia, South America and North America.
The following table summarizes changes in FCX's estimated consolidated recoverable proven and probable copper, gold and molybdenum reserves during 2013:
 
Copper
 
Gold
 
Molybdenum
 
 
(billions of lbs)
 
(millions of ozs)
 
(billions of lbs)
 
Reserves at December 31, 2012
116.5

 
32.5

 
3.42

 
Net additions/revisions
(1.2
)
 

 
(0.07
)
 
Production
(4.1
)
 
(1.2
)
 
(0.09
)
 
Reserves at December 31, 2013
111.2

 
31.3

 
3.26

 
 
 
 
 
 
 
 
At December 31, 2013, in addition to preliminary consolidated recoverable proven and probable reserves, FCX's preliminary estimated mineralized material (assessed using a long-term average copper price of $2.20 per pound for copper) totals 115 billion pounds of incremental contained copper. FCX continues to pursue opportunities to convert this mineralized material into reserves, future production volumes and cash flow.

OIL & GAS OPERATIONS
During second-quarter 2013, FCX consummated acquisitions of Plains Exploration & Production Company (PXP) and McMoRan Exploration Co. (MMR), collectively FM O&G, adding an attractive oil and gas portfolio to its global mining business. FCX's oil and gas operations provide exposure to energy markets with positive fundamentals, strong margins and cash flows and a large resource base with financially attractive exploration and development investment opportunities. The portfolio of assets includes significant oil production facilities and growth potential in the Deepwater Gulf of Mexico (GOM), strong oil production from the onshore Eagle Ford shale play in Texas, established oil production facilities onshore and offshore California, large onshore resources in the Haynesville shale play in Louisiana, and an industry leading position in the emerging shallow water, Inboard Lower Tertiary/Cretaceous gas trend on the Shelf of the GOM and onshore in South Louisiana (previously referred to as the Ultra-deep trend). More than 90 percent of FCX's oil and gas revenues are from oil and NGLs.
For the seven month period following the acquisition date, FM O&G generated operating cash flows of $1.8 billion, which exceeded its capital expenditures of $1.45 billion.
FM O&G follows the full cost method of accounting whereby all costs associated with oil and gas acquisition, exploration and development activities are capitalized. Capitalized costs, along with estimated future costs to develop proved reserves, are amortized to expense under the unit-of-production method using estimates of proved oil and natural gas reserves. The costs of unproved oil and gas properties are excluded from depletion until the properties are evaluated, at which time the related costs are subject to depletion. Under the full cost accounting

 
 
 
Freeport-McMoRan Copper & Gold                             11


rules, a "ceiling test" is conducted each quarter to review the carrying value of the oil and gas properties for impairment.    
Financial and Operating Data. Following is summary financial and operating data for the oil and gas operations for fourth-quarter 2013 and the seven-month period from June 1, 2013, to December 31, 2013:
 
 
 
 
Seven Months From
 
 
 
Three Months Ended
 
June 1, 2013 to
 
 
 
December 31, 2013
 
December 31, 2013
 
Financial Summary (in millions):
 
 
 
 
 
Realized revenuesa
 
$
1,222

 
$
2,927

 
Less: Cash production costsa
 
293

 
653

 
Cash operating margin
 
$
929

 
$
2,274

 
Capital expenditures
 
$
523

 
$
1,451

 
Sales Volumes:
 
 
 
 
 
Oil (MMBbls)
 
11.7

 
26.6

 
Natural gas (Bcf)
 
22.9

 
54.2

 
NGLs (MMBbls)
 
1.1

 
2.4

 
MMBOE
 
16.6

 
38.1

 
Average Realizationsa:
 
 
 
 
 
Oil (per barrel)
 
$
92.68

 
$
98.32

 
Natural gas (per MMBtu)
 
$
4.06

 
$
3.99

 
NGLs (per barrel)
 
$
40.08

 
$
38.20

 
Cash Operating Margin per BOEa:
 
 
 
 
 
Realized revenues
 
$
73.58

 
$
76.87

 
Less: Cash production costs
 
17.63

 
17.14

 
Cash operating margin
 
$
55.95

 
$
59.73

 
 
 
 
 
 
 
a.
Cash operating margin for FCX's oil and gas operations reflects realized revenues less cash production costs. Realized revenues exclude unrealized gains (losses) on derivative contracts and cash production costs exclude accretion and other costs. For reconciliations of realized revenues and cash production costs to revenues and production and delivery costs reported in FCX's consolidated financial statements, refer to the supplemental schedule, “Product Revenues and Production Costs,” beginning on page XIII, which is available on FCX's website, “www.fcx.com.”
Fourth-quarter 2013 realized revenues for oil and gas operations totaled $1.2 billion ($73.58 per BOE) and cash production costs totaled $293 million ($17.63 per BOE). For the seven month period following the acquisition date, realized revenues for oil and gas operations totaled $2.9 billion ($76.87 per BOE) and cash production costs totaled $653 million ($17.14 per BOE).
The fourth-quarter 2013 average realized price for crude oil was $92.68 per barrel. Excluding the impact of derivative contracts, the fourth-quarter 2013 average realized price for crude oil was $94.23 per barrel, or 86 percent of the average Brent crude oil price of $109.33 per barrel. For the seven month period following the acquisition date, excluding the impact of derivative contracts, the average realized price for crude oil of $99.67 per barrel was 92 percent of the average Brent crude oil price of $108.66 per barrel.
The fourth-quarter 2013 average realized price for natural gas was $4.06 per million British thermal units (MMBtu), compared to the New York Mercantile Exchange (NYMEX) gas price for the December 2013 contract of $3.60 per MMBtu. Excluding the impact of derivative contracts, the fourth-quarter 2013 average realized price for natural gas was $3.77 per MMBtu.

 
 
 
Freeport-McMoRan Copper & Gold                             12


Following is a summary of average sales volumes per day by region for oil and gas operations for fourth-quarter 2013 and the seven-month period from June 1, 2013, to December 31, 2013:
 
 
 
Seven Months From
 
 
Three Months Ended
 
June 1, 2013 to
 
 
December 31, 2013
 
December 31, 2013
 
Sales Volumes (MBOE per day):
 
 
 
 
GOMa
73

 
72

 
Eagle Ford
48

 
46

 
California
39

 
39

 
Haynesville/Madden/Other
21

 
21

 
Total oil and gas operations
181

 
178

 
 
 
 
 
 
a.
Includes sales from properties on the GOM Shelf and in the Deepwater GOM. Production from the GOM Shelf totaled 12 MBOE per day (17 percent of the GOM total) for fourth-quarter 2013 and 13 MBOE per day (18 percent of the GOM total) for the seven-month period from June 1, 2013, to December 31, 2013.
Fourth-quarter 2013 daily sales volumes averaged 181 MBOE, including 127 MBbls of crude oil per day, 249 MMcf of natural gas per day and 11 MBbls of NGLs per day. Fourth-quarter 2013 production volumes were higher than the October 2013 estimate of 175 MBOE per day reflecting higher Eagle Ford production, continued strong performance in the GOM and stable production from California.
Sales volumes from oil and gas operations are expected to average 170 MBOE per day for first-quarter 2014 and 166 MBOE per day for the year 2014, comprised of approximately 70 percent oil, 24 percent natural gas and 6 percent NGLs. Sales volumes for the year 2014 include the impacts of planned platform maintenance and subsea tie-back upgrades on the Marlin facility in the GOM during third-quarter 2014.
Cash production costs were $17.63 per BOE in fourth-quarter 2013 and $17.14 per BOE for the seven month period following the acquisition date. Based on current sales volume and cost estimates, cash production costs are expected to approximate $20 per BOE for the year 2014, primarily reflecting the impact of lower estimated volumes.

Exploration, Operating and Development Activities. FCX's oil and gas business has significant proved, probable and possible reserves, with financially attractive organic growth opportunities. The portfolio includes a broad range of relatively low-risk development opportunities and high-potential exploration prospects. The business is being managed to reinvest its cash flows in projects with attractive rates of returns and risk profiles.
Capital expenditures for oil and gas operations approximated $523 million for fourth-quarter 2013, including $204 million incurred for Eagle Ford, $136 million for the GOM (principally Deepwater), $61 million for California and $93 million for the Inboard Lower Tertiary/Cretaceous gas trend. Capital expenditures for oil and gas operations, which are expected to be funded by its operating cash flows, are projected to approximate $3 billion for the year 2014, including $1.5 billion incurred for the Deepwater GOM, $0.4 billion for Eagle Ford and $0.3 billion for the Inboard Lower Tertiary/Cretaceous gas trend.
Gulf of Mexico. Multiple development and exploration opportunities have been identified in the Deepwater GOM that are expected to benefit from tie-back opportunities to available production capacity at the FM O&G operated large-scale Holstein, Marlin and Horn Mountain deepwater production platforms.
Holstein, in which FM O&G has a 100 percent working interest, is located in Green Canyon and has production facilities capable of producing in excess of 100 MBOE per day. The Holstein rig refurbishment program was conducted in the second half of 2013 in preparation for drilling activity, which commenced in first-quarter 2014. Over the 2014 to 2016 period, FM O&G expects to drill seven sidetrack wells from the Holstein platform and five subsea tie-back wells from contracted drill ships to enhance production volumes from the spar. Near-term tie-back prospects in the Holstein area include Holstein Deep and Copper.
The Holstein Deep development, in which FM O&G has a 100 percent working interest, is located four miles west of the Holstein platform. FM O&G acquired the acreage associated with this development in the 2013 lease sale. Two successful wells had previously been drilled and encountered approximately 500 net feet of oil pay in recent years. FM O&G plans to delineate this prospect during 2014.

 
 
 
Freeport-McMoRan Copper & Gold                             13


The Copper exploration prospect, in which FM O&G has a 100 percent working interest, is located southeast of the Holstein field in 4,400 feet of water and is a subsea tie-back opportunity to the Holstein facility. The prospect is a Holstein analog play with Pliocene objectives and has a proposed total depth of 14,500 feet.
Development of the Lucius field in Keathley Canyon, in which FM O&G has a 23.33 percent working interest, is progressing with first production anticipated in the second half of 2014. The geologic results from the six wells drilled since 2009 confirm a significant oil resource. Subsea infrastructure is currently being installed, and topside facilities are more than 90 percent complete and on schedule to be delivered and lifted into place during first-quarter 2014. The sanctioned development of Lucius is a subsea development consisting of a truss spar hull located in 7,200 feet of water with a topside capacity of 80 MBbls of oil per day and 450 MMcf of gas per day.
During 2014, FM O&G also plans to commence drilling at the Tara exploration prospect, in which FM O&G has a 100 percent working interest, located northwest of the Lucius discovery in Keathley Canyon in 8,700 feet of water. Tara is a Lucius analog prospect with Pliocene/Miocene objectives and has a proposed total depth of 23,000 feet.
Eagle Ford. FM O&G has an attractive position in an oil and NGLs rich section of the Eagle Ford shale play in South Texas. Production from the field has grown significantly in recent years and sales averaged 48 MBOE per day in fourth-quarter 2013. As part of its capital reduction initiatives, FM O&G has reduced drilling activity at Eagle Ford from eight rigs in mid-2013. At December 31, 2013, there were three drilling rigs operating, which FM O&G expects to reduce to two during 2014. At December 31, 2013, 32 wells have been drilled and are waiting on completion or connection to pipelines.
California. Development plans are principally focused on maintaining stable production levels in the long established producing fields onshore California. Sales averaged 39 MBOE per day in fourth-quarter 2013, with 96 percent from oil.
Haynesville. FM O&G has rights to a substantial natural gas resource, located in the Haynesville shale play in north Louisiana. Drilling activities in recent years have been significantly reduced to maximize cash flows in a low natural gas price environment and to benefit from potentially higher future natural gas prices.
Inboard Lower Tertiary/Cretaceous (previously referred to as the Ultra-deep). FM O&G has an industry leading position in the emerging Inboard Lower Tertiary/Cretaceous gas trend, located in the shallow waters of the GOM and onshore South Louisiana. FM O&G has a significant onshore and offshore lease acreage position with high-quality prospects and the potential to develop a significant long-term, low-cost source of natural gas. Data from eight wells drilled to date indicate the presence of geologic formations that are analogous to productive formations in the Deepwater GOM and onshore in the Gulf Coast region. The near-term focus is on defining the trend onshore. FM O&G currently is drilling one onshore Inboard Lower Tertiary/Cretaceous exploration prospect and plans to complete and perform production tests on three wells in 2014, including one onshore well.
The Lomond North exploratory well in the Highlander area, in which FM O&G is the operator and has a 72 percent working interest, located in St. Martin Parish, Louisiana, is currently drilling and has encountered gas pay in several Wilcox and Cretaceous aged sands between 24,000 feet and 29,000 feet. The wireline log and core data obtained from the Wilcox and Cretaceous sand packages evaluated to date indicate favorable reservoir characteristics with approximately 150 feet of net pay. FM O&G will continue drilling the Lomond North well in the Cretaceous to test deeper prospective targets. FM O&G plans to commence completion operations in mid-2014 followed by a flow test. FM O&G has identified multiple exploratory prospects in the Highlander area where it controls rights to approximately 56,000 gross acres.
In fourth-quarter 2013, FM O&G commenced completion operations at Davy Jones No. 2, in which FM O&G has a 75 percent working interest, located on South Marsh Island Block 234. Flow testing is anticipated in the first half of 2014. During 2014, FM O&G also plans to complete the Blackbeard West No.2 well, in which FM O&G has a 92 percent working interest, located on Ship Shoal Block 188. The Lineham Creek exploration well, in which FM O&G has a 36 percent working interest, located in Cameron Parish has been suspended while future plans are being developed.


 
 
 
Freeport-McMoRan Copper & Gold                             14


Preliminary Proved Oil and Gas Reserves. FCX's preliminary estimated proved oil and gas reserves at December 31, 2013, included 464 MMBOE. The preliminary proved oil and gas reserves presented in the table below were determined using the methods prescribed by the U.S. Securities and Exchange Commission, which require the use of an average price, calculated as the twelve-month historical average of the first-day-of-the-month West Texas Intermediate spot oil price of $96.94 per barrel and Henry Hub spot natural gas price of $3.67 per million British thermal units, as adjusted for location and quality differentials by area, and were held constant throughout the lives of the properties unless prices are defined by contractual arrangements, excluding escalations based upon future conditions.
Preliminary Proved Oil and Gas Reserves
 
MMBOE
Acquisitions of PXP and MMR
 
472

Extensions and discoveries
 
24

Revisions
 
7

Divestments
 
(1
)
Production
 
(38
)
Balance at December 31, 2013
 
464


CASH FLOWS, CASH and DEBT
Operating Cash Flows. FCX generated operating cash flows of $2.3 billion in fourth-quarter 2013 (including $53 million of net working capital sources and changes in other tax payments) and $6.1 billion for the year 2013 (net of $436 million of working capital uses and changes in other tax payments).
Based on current sales volume and cost estimates and assuming average prices of $3.25 per pound of copper, $1,200 per ounce of gold, $9.50 per pound of molybdenum, and $105 per barrel of Brent crude oil, FCX's consolidated operating cash flows are estimated to approximate $9 billion for the year 2014 (including $0.8 billion of working capital sources and changes in other tax payments). The impact of price changes on operating cash flows would approximate $370 million for each $0.10 per pound change in the average price of copper, $85 million for each $50 per ounce change in the average price of gold, $120 million for each $2 per pound change in the average price of molybdenum and $125 million for each $5 per barrel change in the price of Brent crude oil above $100 per barrel.
Capital Expenditures. Capital expenditures totaled $1.7 billion for fourth-quarter 2013 and $5.3 billion for the year 2013, including capital expenditures for oil and gas operations totaling $523 million for the fourth-quarter and $1.45 billion for the seven-month period from June 1, 2013, to December 31, 2013.
Capital expenditures are currently expected to approximate $7 billion for the year 2014, including $3 billion for major projects at mining operations and $3 billion for oil and gas operations. Major projects at mining operations for the year 2014 primarily include the expansions at Cerro Verde and Morenci and underground development activities at Grasberg.
During 2013, FCX took steps to reduce or defer capital expenditures in response to market conditions and debt reduction objectives. Capital spending plans remain under review and will be revised as market conditions warrant.
Cash. Following is a summary of cash available to the parent company, net of noncontrolling interests' share, taxes and other costs at December 31, 2013 (in billions):
Cash at domestic companies
$
0.4

Cash at international operations
1.6

Total consolidated cash and cash equivalents
2.0

Less: Noncontrolling interests' share
(0.6
)
Cash, net of noncontrolling interests' share
1.4

Less: Withholding taxes and other
(0.1
)
Net cash available
$
1.3

 
 
    

 
 
 
Freeport-McMoRan Copper & Gold                             15


Debt. Following is a summary of total debt and related weighted-average interest rates at December 31, 2013 (in billions, except percentages):
 
 
 
Weighted-
 
 
 
 
Average
 
 
 
 
Interest Rate
 
Acquisition-related debt
$
10.5

a 
3.0%
 
Assumed debt of PXP
6.7

 
6.8%
 
FCX's previously existing debt
3.5

 
3.4%
 
 
$
20.7

 
4.2%
 
 
 
 
 
 
a. FCX used the proceeds from the issuance of $6.5 billion of senior notes and a $4.0 billion bank term loan to finance the acquisitions of PXP and MMR and repay certain PXP debt.
FCX is targeting reductions in total debt to $12 billion by year-end 2016. FCX will continue to review its portfolio of assets and will consider opportunities to accelerate its deleveraging plans through potential asset sales, joint venture transactions or further adjustments to capital spending plans.
At December 31, 2013, FCX had no borrowings outstanding and $46 million of letters of credit issued under its $3.0 billion revolving credit facility.

FINANCIAL POLICY
FCX has a long-standing tradition of seeking to build shareholder value through investing in projects with attractive rates of return and returning cash to shareholders through common stock dividends and share purchases. FCX paid common stock dividends of $2.3 billion during 2013, which included $1.0 billion for a supplemental dividend of $1.00 per share paid on July 1, 2013.
FCX's current annual dividend rate for its common stock is $1.25 per share. On December 20, 2013, FCX's Board of Directors (the Board) declared a regular quarterly dividend of $0.3125 per share, which will be paid on February 3, 2014. The declaration of dividends is at the discretion of the Board and will depend upon FCX's financial results, cash requirements, future prospects and other factors deemed relevant by the Board.
FCX intends to continue to maintain a strong financial position, with a focus on reducing debt while continuing to invest in attractive growth projects and providing cash returns to shareholders. The Board will continue to review FCX's financial policy on an ongoing basis.

WEBCAST INFORMATION
A conference call with securities analysts to discuss FCX's fourth-quarter 2013 results is scheduled for today at 10:00 a.m. Eastern Time. The conference call will be broadcast on the Internet along with slides. Interested parties may listen to the conference call live and view the slides by accessing “www.fcx.com.” A replay of the webcast will be available through Friday, February 21, 2014.
-----------------------------------------------------------------------------------------------------------
    
FCX is a premier U.S.-based natural resource company with an industry leading global portfolio of mineral assets, significant oil and gas resources and a growing production profile. FCX is the world's largest publicly traded copper producer.
FCX's portfolio of assets includes the Grasberg minerals district in Indonesia, one of the world's largest copper and gold deposits; significant mining operations in the Americas, including the large-scale Morenci minerals district in North America and the Cerro Verde and El Abra operations in South America; the Tenke Fungurume minerals district in the DRC; and significant oil and natural gas assets in North America, including reserves in the Deepwater GOM, onshore and offshore California and in the Eagle Ford and Haynesville shale plays, and an industry leading position in the emerging shallow water, Inboard Lower Tertiary/Cretaceous gas trend on the Shelf of the GOM and onshore in South Louisiana. Additional information about FCX is available on FCX's website at "www.fcx.com."

 
 
 
Freeport-McMoRan Copper & Gold                             16


Cautionary Statement and Regulation G Disclosure: This press release contains forward-looking statements in which FCX discusses its potential future performance. Forward-looking statements are all statements other than statements of historical facts, such as projections or expectations relating to ore grades and milling rates, production and sales volumes, unit net cash costs, cash production costs per barrel of oil equivalent (BOE), operating cash flows, capital expenditures, exploration efforts and results, development and production activities and costs, liquidity, tax rates, the impact of copper, gold, molybdenum, cobalt, oil and gas price changes, the impact of derivative positions, the impact of deferred intercompany profits on earnings, reserve estimates, and future dividend payments, debt reduction and share purchases. The words “anticipates,” “may,” “can,” “plans,” “believes,” "potential," “estimates,” “expects,” “projects”, "targets," “intends,” “likely,” “will,” “should,” “to be,” and any similar expressions are intended to identify those assertions as forward-looking statements. The declaration of dividends is at the discretion of FCX's Board and will depend on FCX's financial results, cash requirements, future prospects, and other factors deemed relevant by the Board.
This press release also includes forward-looking statements regarding mineralized material not included in proven and probable mineral reserves. The mineralized material described in this press release will not qualify as reserves until comprehensive engineering studies establish their economic feasibility. Accordingly, no assurance can be given that the estimated mineralized material not included in reserves will become proven and probable reserves.
FCX cautions readers that forward-looking statements are not guarantees of future performance and its actual results may differ materially from those anticipated, projected or assumed in the forward-looking statements. Important factors that can cause FCX's actual results to differ materially from those anticipated in the forward-looking statements include commodity prices, mine sequencing, production rates, industry risks, regulatory changes, political risks, the outcome of ongoing discussions with the Indonesian government regarding PT-FI's Contract of Work and the impact of the January 2014 regulations on PT-FI's exports and export duties, the potential effects of violence in Indonesia, the resolution of administrative disputes in the Democratic Republic of Congo, weather- and climate-related risks, labor relations, environmental risks, litigation results, currency translation risks, and other factors described in more detail under the heading “Risk Factors” in FCX's Annual Report on Form 10-K for the year ended December 31, 2012, filed with the U.S. Securities and Exchange Commission (SEC) as updated by FCX's subsequent filings with the SEC.
Investors are cautioned that many of the assumptions on which FCX's forward-looking statements are based are likely to change after its forward-looking statements are made, including for example commodity prices, which FCX cannot control, and production volumes and costs, some aspects of which FCX may or may not be able to control. Further, FCX may make changes to its business plans that could or will affect its results. FCX cautions investors that it does not intend to update forward-looking statements more frequently than quarterly notwithstanding any changes in FCX's assumptions, changes in business plans, actual experience or other changes, and FCX undertakes no obligation to update any forward-looking statements.
This press release also contains certain financial measures such as unit net cash costs per pound of copper and per pound of molybdenum, oil and gas realized revenues, cash production costs and cash operating margin, which are not recognized under generally accepted accounting principles in the U.S. As required by SEC Regulation G, reconciliations of these measures to amounts reported in FCX's consolidated financial statements are in the supplemental schedules of this press release, which are also available on FCX's website, “www.fcx.com.”

# # #

 
 
 
Freeport-McMoRan Copper & Gold                             17


FREEPORT-McMoRan COPPER & GOLD INC.
SELECTED MINING OPERATING DATA
 
 
 
 
 
 
 
 
 
 
Three Months Ended December 31,
 
 
Production
 
Sales
 
COPPER (millions of recoverable pounds)
2013
 
2012
 
2013
 
2012
 
(FCX's net interest in %)
 
 
 
 
 
 
 
 
North America
 
 
 
 
 
 
 
 
Morenci (85%)a
153

 
142

 
132

 
127

 
Bagdad (100%)
59

 
50

 
51

 
46

 
Safford (100%)
35

 
46

 
32

 
40

 
Sierrita (100%)
41

 
37

 
38

 
35

 
Miami (100%)
18

 
15

 
15

 
14

 
Chino (100%)
52

 
45

 
42

 
38

 
Tyrone (100%)
25

 
22

 
22

 
20

 
Other (100%)
2

 
1

 
2

 
1

 
Total North America
385

 
358

 
334

 
321

 
 
 
 
 
 
 
 
 
 
South America
 
 
 
 
 
 
 
 
Cerro Verde (53.56%)
153

 
152

 
169

 
149

 
El Abra (51%)
88

 
89

 
85

 
98

 
Candelaria/Ojos del Salado (80%)
138

 
108

 
148

 
103

 
Total South America
379

 
349

 
402

 
350

 
 
 
 
 
 
 
 
 
 
Indonesia
 
 
 
 
 
 
 
 
Grasberg (90.64%)b
304

 
200

 
292

 
204

 
 
 
 
 
 
 
 
 
 
Africa
 
 
 
 
 
 
 
 
Tenke Fungurume (56%)
111

 
98

 
112

 
97

 
 
 
 
 
 
 
 
 
 
Consolidated
1,179

 
1,005

 
1,140

 
972

 
Less noncontrolling interests
220

 
197

 
227

 
200

 
Net
959

 
808

 
913

 
772

 
 
 
 
 
 
 
 
 
 
Consolidated sales from mines
 
 
 
 
1,140

 
972

 
Purchased copper
 
 
 
 
41

 
28

 
Total copper sales, including purchases
 
 
 
 
1,181

 
1,000

 
 
 
 
 
 
 
 
 
 
Average realized price per pound
 
 
 
 
$
3.31

 
$
3.60

 
 
 
 
 
 
 
 
 
 
GOLD (thousands of recoverable ounces)
 
 
 
 
 
 
 
 
(FCX's net interest in %)
 
 
 
 
 
 
 
 
North America (100%)
4

 
4

 
2

 
4

 
South America (80%)
31

 
26

 
34

 
26

 
Indonesia (90.64%)b
502

 
221

 
476

 
224

 
Consolidated
537

 
251

 
512

 
254

 
Less noncontrolling interests
53

 
27

 
52

 
26

 
Net
484

 
224

 
460

 
228

 
 
 
 
 
 
 
 
 
 
Average realized price per ounce
 
 
 
 
$
1,220

 
$
1,681

 
 
 
 
 
 
 
 
 
 
MOLYBDENUM (millions of recoverable pounds)
 
 
 
 
 
 
 
 
(FCX's net interest in %)
 
 
 
 
 
 
 
 
Henderson (100%)
8

 
8

 
N/A

 
N/A

 
Climax (100%)
4

 
5

 
N/A

 
N/A

 
North America copper mines (100%)a
6

 
9

 
N/A

 
N/A

 
Cerro Verde (53.56%)
5

 
2

 
N/A

 
N/A

 
Consolidated
23

 
24

 
22

 
21

 
Less noncontrolling interests
2

 
1

 
2

 
1

 
Net
21

 
23

 
20

 
20

 
 
 
 
 
 
 
 
 
 
Average realized price per pound
 
 
 
 
$
11.00

 
$
12.62

 
 
 
 
 
 
 
 
 
 
COBALT (millions of contained pounds)
 
 
 
 
 
 
 
 
(FCX's net interest in %)
 
 
 
 
 
 
 
 
Consolidated - Tenke Fungurume (56%)
9

 
6

 
8

 
6

 
Less noncontrolling interests
4

 
2

 
3

 
3

 
Net
5

 
4

 
5

 
3

 
 
 
 
 
 
 
 
 
 
Average realized price per pound
 
 
 
 
$
8.02

 
$
6.95

 
 
 
 
 
 
 
 
 
 
a. Amounts are net of Morenci's 15 percent joint venture partner's interest.
b. Amounts are net of Grasberg's joint venture partner's interest, which varies in accordance with the terms of the joint venture agreement.

I


FREEPORT-McMoRan COPPER & GOLD INC.
SELECTED MINING OPERATING DATA (continued)
 
 
 
 
 
 
 
 
 
 
Years Ended December 31,
 
 
Production
 
Sales
 
COPPER (millions of recoverable pounds)
2013
 
2012
 
2013
 
2012
 
(FCX's net interest in %)
 
 
 
 
 
 
 
 
North America
 
 
 
 
 
 
 
 
Morenci (85%)a
564

 
537

 
561

 
532

 
Bagdad (100%)
216

 
197

 
212

 
196

 
Safford (100%)
146

 
175

 
151

 
175

 
Sierrita (100%)
171

 
157

 
170

 
162

 
Miami (100%)
61

 
66

 
60

 
68

 
Chino (100%)
171

 
144

 
168

 
132

 
Tyrone (100%)
96

 
83

 
94

 
82

 
Other (100%)
6

 
4

 
6

 
4

 
Total North America
1,431

 
1,363

 
1,422

 
1,351

 
 
 
 
 
 
 
 
 
 
South America
 
 
 
 
 
 
 
 
Cerro Verde (53.56%)
558

 
595

 
560

 
589

 
El Abra (51%)
343

 
338

 
341

 
338

 
Candelaria/Ojos del Salado (80%)
422

 
324

 
424

 
318

 
Total South America
1,323

 
1,257

 
1,325

 
1,245

 
 
 
 
 
 
 
 
 
 
Indonesia
 
 
 
 
 
 
 
 
Grasberg (90.64%)b
915

 
695

 
885

 
716

 
 
 
 
 
 
 
 
 
 
Africa
 
 
 
 
 
 
 
 
Tenke Fungurume (56%)
462

 
348

 
454

 
336

 
 
 
 
 
 
 
 
 
 
Consolidated
4,131

 
3,663

 
4,086

 
3,648

 
Less noncontrolling interests
801

 
723

 
795

 
717

 
Net
3,330

 
2,940

 
3,291

 
2,931

 
 
 
 
 
 
 
 
 
 
Consolidated sales from mines
 
 
 
 
4,086

 
3,648

 
Purchased copper
 
 
 
 
223

 
125

 
Total copper sales, including purchases
 
 
 
 
4,309

 
3,773

 
 
 
 
 
 
 
 
 
 
Average realized price per pound
 
 
 
 
$
3.30

 
$
3.60

 
 
 
 
 
 
 
 
 
 
GOLD (thousands of recoverable ounces)
 
 
 
 
 
 
 
 
(FCX's net interest in %)
 
 
 
 
 
 
 
 
North America (100%)
7

 
13

 
6

 
13

 
South America (80%)
101

 
83

 
102

 
82

 
Indonesia (90.64%)b
1,142

 
862

 
1,096

 
915

 
Consolidated
1,250

 
958

 
1,204

 
1,010

 
Less noncontrolling interests
127

 
98

 
123

 
102

 
Net
1,123

 
860

 
1,081

 
908

 
 
 
 
 
 
 
 
 
 
Average realized price per ounce
 
 
 
 
$
1,315

 
$
1,665

 
 
 
 
 
 
 
 
 
 
MOLYBDENUM (millions of recoverable pounds)
 
 
 
 
 
 
 
 
(FCX's net interest in %)
 
 
 
 
 
 
 
 
Henderson (100%)
30

 
34

 
N/A

 
N/A

 
Climax (100%)
19

 
7

c 
N/A

 
N/A

 
North America (100%)a
32

 
36

 
N/A

 
N/A

 
Cerro Verde (53.56%)
13

 
8

 
N/A

 
N/A

 
Consolidated
94

 
85

 
93

 
83

 
Less noncontrolling interests
6

 
4

 
5

 
4

 
Net
88

 
81

 
88

 
79

 
 
 
 
 
 
 
 
 
 
Average realized price per pound
 
 
 
 
$
11.85

 
$
14.26

 
 
 
 
 
 
 
 
 
 
COBALT (millions of contained pounds)