10-Q 1 fcxq31110-q.htm FCX Q3 2011 FORM 10-Q FCX Q311 10-Q
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
 
FORM 10-Q
 
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2011
OR
[  ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from
 
to
Commission File Number: 001-11307-01
Freeport-McMoRan Copper & Gold Inc.
(Exact name of registrant as specified in its charter)
Delaware
74-2480931
(State or other jurisdiction of
(I.R.S. Employer Identification No.)
incorporation or organization)
 
 
 
333 North Central Avenue
 
Phoenix, AZ
85004-2189
(Address of principal executive offices)
(Zip Code)
(602) 366-8100
(Registrant's telephone number, including area code)
 
 
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
þ Yes  ¨ No

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate website, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).       þ Yes  ¨ No

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer þ         Accelerated filer ¨          Non-accelerated filer ¨         Smaller reporting company ¨

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
¨ Yes þ No

On October 31, 2011, there were issued and outstanding 947,911,093 shares of the registrant’s common stock, par value $0.10 per share.

FREEPORT-McMoRan COPPER & GOLD INC.

TABLE OF CONTENTS

 
 
 
Page
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
.


2


Part I.
FINANCIAL INFORMATION

Item 1.
Financial Statements.

FREEPORT-McMoRan COPPER & GOLD INC.
CONDENSED CONSOLIDATED BALANCE SHEETS (Unaudited)

 
September 30,
2011
 
December 31,
2010
 
(In millions)
ASSETS
 
 
 
Current assets:
 
 
 
Cash and cash equivalents
$
5,128

 
$
3,738

Trade accounts receivable
1,139

 
2,132

Other accounts receivable
307

 
293

Inventories:
 
 
 
Product
1,231

 
1,409

Materials and supplies, net
1,323

 
1,169

Mill and leach stockpiles
1,167

 
856

Other current assets
413

 
254

Total current assets
10,708

 
9,851

Property, plant, equipment and development costs, net
17,966

 
16,785

Long-term mill and leach stockpiles
1,599

 
1,425

Intangible assets, net
321

 
328

Other assets
1,114

 
997

Total assets
$
31,708

 
$
29,386

 
 
 
 
LIABILITIES AND EQUITY
 
 
 
Current liabilities:
 
 
 
Accounts payable and accrued liabilities
$
2,580

 
$
2,441

Dividends payable
240

 
240

Current portion of reclamation and environmental obligations
201

 
207

Accrued income taxes
110

 
648

Rio Tinto's share of joint venture cash flows
46

 
132

Current portion of debt
4

 
95

Total current liabilities
3,181

 
3,763

Long-term debt, less current portion
3,531

 
4,660

Deferred income taxes
3,365

 
2,873

Reclamation and environmental obligations, less current portion
2,139

 
2,071

Other liabilities
1,441

 
1,459

Total liabilities
13,657

 
14,826

Equity:
 
 
 
FCX stockholders’ equity:
 
 
 
Common stock
107

 
107

Capital in excess of par value
18,974

 
18,751

Retained earnings (deficit)
144

 
(2,590
)
Accumulated other comprehensive loss
(314
)
 
(323
)
Common stock held in treasury
(3,554
)
 
(3,441
)
Total FCX stockholders’ equity
15,357

 
12,504

Noncontrolling interests
2,694

 
2,056

Total equity
18,051

 
14,560

Total liabilities and equity
$
31,708

 
$
29,386

 
The accompanying notes are an integral part of these consolidated financial statements.

3


FREEPORT-McMoRan COPPER & GOLD INC.
CONSOLIDATED STATEMENTS OF INCOME (Unaudited)

 
Three Months Ended
 
Nine Months Ended
 
September 30,
 
September 30,
 
2011
 
2010
 
2011
 
2010
 
(In millions, except per share amounts)
Revenues
$
5,195

 
$
5,152

 
$
16,718

 
$
13,379

Cost of sales:
 
 
 
 
 
 
 
Production and delivery
2,570

 
2,266

 
7,504

 
6,234

Depreciation, depletion and amortization
257

 
268

 
756

 
788

Total cost of sales
2,827

 
2,534

 
8,260

 
7,022

Selling, general and administrative expenses
102

 
81

 
323

 
277

Exploration and research expenses
78

 
35

 
194

 
104

Environmental obligations and shutdown costs
38

 
3

 
98

 
5

Total costs and expenses
3,045

 
2,653

 
8,875

 
7,408

Operating income
2,150

 
2,499

 
7,843

 
5,971

Interest expense, net
(78
)
 
(103
)
 
(250
)
 
(370
)
Losses on early extinguishment of debt

 

 
(68
)
 
(77
)
Other income (expense), net
28

 
(19
)
 
40

 
2

Income before income taxes and equity in affiliated companies’
     net earnings
2,100

 
2,377

 
7,565

 
5,526

Provision for income taxes
(808
)
 
(845
)
 
(2,698
)
 
(1,956
)
Equity in affiliated companies’ net earnings
2

 
1

 
14

 
10

Net income
1,294

 
1,533

 
4,881

 
3,580

Net income attributable to noncontrolling interests
(241
)
 
(355
)
 
(961
)
 
(793
)
Preferred dividends

 

 

 
(63
)
Net income attributable to FCX common stockholders
$
1,053

 
$
1,178

 
$
3,920

 
$
2,724

Net income per share attributable to FCX common stockholders:
 
 
 
 
 
 
 
Basic
$
1.11

 
$
1.25

 
$
4.14

 
$
3.01

Diluted
$
1.10

 
$
1.24

 
$
4.10

 
$
2.94

Weighted-average common shares outstanding:
 
 
 
 
 
 
 
Basic
948

 
941

 
947

 
906

Diluted
955

 
947

 
955

 
947

Dividends declared per share of common stock
$
0.25

 
$
0.15

 
$
1.25

 
$
0.375

 
The accompanying notes are an integral part of these consolidated financial statements.


4


FREEPORT-McMoRan COPPER & GOLD INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
 
Nine Months Ended
 
September 30,
 
2011
 
2010
 
(In millions)
Cash flow from operating activities:
 
 
 
Net income
$
4,881

 
$
3,580

Adjustments to reconcile net income to net cash provided by operating activities:
 
 
 
Depreciation, depletion and amortization
756

 
788

Stock-based compensation
92

 
93

Charges for reclamation and environmental obligations, including accretion
144

 
117

Payments of reclamation and environmental obligations
(131
)
 
(139
)
Losses on early extinguishment of debt
68

 
77

Deferred income taxes
419

 
252

Increase in long-term mill and leach stockpiles
(174
)
 
(73
)
Changes in other assets and liabilities
(34
)
 
16

Other, net
(21
)
 
36

(Increases) decreases in working capital:
 
 
 
Accounts receivable
1,034

 
(391
)
Inventories
(266
)
 
(189
)
Other current assets
(152
)
 
(13
)
Accounts payable and accrued liabilities
(101
)
 
156

Accrued income and other taxes
(641
)
 
(92
)
Net cash provided by operating activities
5,874

 
4,218

 
 
 
 
Cash flow from investing activities:
 
 
 
Capital expenditures:
 
 
 
North America copper mines
(342
)
 
(140
)
South America
(431
)
 
(283
)
Indonesia
(463
)
 
(311
)
Africa
(89
)
 
(59
)
Molybdenum
(317
)
 
(34
)
Other
(107
)
 
(50
)
Other, net
24

 
20

Net cash used in investing activities
(1,725
)
 
(857
)
 
 
 
 
Cash flow from financing activities:
 
 
 
Proceeds from debt
37

 
52

Repayments of debt
(1,303
)
 
(1,678
)
Cash dividends and distributions paid:
 
 
 
Common stock
(1,186
)
 
(272
)
Preferred stock

 
(95
)
Noncontrolling interests
(350
)
 
(330
)
Contributions from noncontrolling interests
27

 
24

Net proceeds from (payments for) stock-based awards
2

 
(3
)
Excess tax benefit from stock-based awards
23

 
5

Other, net
(9
)
 

Net cash used in financing activities
(2,759
)
 
(2,297
)
 
 
 
 
Net increase in cash and cash equivalents
1,390

 
1,064

Cash and cash equivalents at beginning of year
3,738

 
2,656

Cash and cash equivalents at end of period
$
5,128

 
$
3,720


The accompanying notes are an integral part of these consolidated financial statements.

5


FREEPORT-McMoRan COPPER & GOLD INC.
CONSOLIDATED STATEMENT OF EQUITY (Unaudited)

 
FCX Stockholders’ Equity
 
 
 
 
 
Common Stock
 
 
 
 
 
Accumu-
lated
Other Compre-
hensive
Loss
 
Common Stock
Held in Treasury
 
Total FCX
Stock-holders' Equity
 
 
 
 
 
Number
of
Shares
 
At Par
Value
 
Capital in
Excess of
Par Value
 
Retained
Earnings (Deficit)

 
 
Number
of
Shares
 
At
Cost
 
 
Non-
controlling
Interests
 
Total
Equity
 
(In millions)
Balance at December 31, 2010
1,067

 
$
107

 
$
18,751

 
$
(2,590
)
 
$
(323
)
 
122

 
$
(3,441
)
 
$
12,504

 
$
2,056

 
$
14,560

Exercised and issued stock-based awards
4

 

 
48

 

 

 

 

 
48

 

 
48

Stock-based compensation

 

 
92

 

 

 

 

 
92

 

 
92

Tax benefit for stock-based awards

 

 
16

 

 

 

 

 
16

 

 
16

Tender of shares for stock-based awards

 

 
67

 

 

 
1

 
(113
)
 
(46
)
 

 
(46
)
Dividends on common stock

 

 

 
(1,186
)
 

 

 

 
(1,186
)
 

 
(1,186
)
Dividends and distributions to noncontrolling interests

 

 

 

 

 

 

 

 
(350
)
 
(350
)
Contributions from noncontrolling interests

 

 

 

 

 

 

 

 
27

 
27

Comprehensive income:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income

 

 

 
3,920

 

 

 

 
3,920

 
961

 
4,881

Other comprehensive income, net of taxes:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Unrealized losses on securities

 

 

 

 
(1
)
 

 

 
(1
)
 

 
(1
)
Translation adjustment

 

 

 

 
(1
)
 

 

 
(1
)
 

 
(1
)
Defined benefit plans:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Amortization of unrecognized amounts

 

 



 
11

 

 

 
11

 

 
11

Other comprehensive income

 

 

 

 
9

 

 

 
9

 

 
9

Total comprehensive income

 

 

 

 

 

 

 
3,929

 
961

 
4,890

Balance at September 30, 2011
1,071

 
$
107

 
$
18,974

 
$
144

 
$
(314
)
 
123

 
$
(3,554
)
 
$
15,357

 
$
2,694

 
$
18,051

 
The accompanying notes are an integral part of these consolidated financial statements.


6


FREEPORT-McMoRan COPPER & GOLD INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

1.
GENERAL INFORMATION
The accompanying unaudited consolidated financial statements have been prepared in accordance with the instructions to Form 10-Q and do not include all information and disclosures required by generally accepted accounting principles (GAAP) in the United States (U.S.). Therefore, this information should be read in conjunction with Freeport-McMoRan Copper & Gold Inc.’s (FCX) consolidated financial statements and notes contained in its 2010 Annual Report on 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 and nine-month periods ended September 30, 2011, are not necessarily indicative of the results that may be expected for the year ending December 31, 2011.

In December 2010, FCX’s Board of Directors declared a two-for-one split of its common stock in the form of a stock dividend on issued and outstanding shares, with the additional shares issued on February 1, 2011, to common shareholders of record at the close of business on January 15, 2011. All references to shares of common stock and per share amounts have been retroactively adjusted to reflect the two-for-one stock split.

2.
EARNINGS PER SHARE
FCX’s basic net income per share of common stock was calculated by dividing net income attributable to common stock by the weighted-average shares of common stock outstanding during the period. Following is a reconciliation of net income and weighted-average shares of common stock outstanding for purposes of calculating diluted net income per share (in millions, except per share amounts):
 
Three Months Ended
 
Nine Months Ended
 
 
September 30,
 
September 30,
 
 
2011
 
2010
 
2011
 
2010
 
Net income
$
1,294

 
$
1,533

 
$
4,881

 
$
3,580

 
Net income attributable to noncontrolling interests
(241
)
 
(355
)
 
(961
)
 
(793
)
 
Preferred dividends

 

 

 
(63
)
 
Net income attributable to FCX common stockholders
1,053

 
1,178

 
3,920

 
2,724

 
Plus income impact of assumed conversion of 6¾%
     Mandatory Convertible Preferred Stocka

 

 

 
63

 
Diluted net income attributable to FCX common
     stockholders
$
1,053

 
$
1,178

 
$
3,920

 
$
2,787

 
 
 
 
 
 
 
 
 
 
Weighted-average shares of common stock outstanding
948

 
941

 
947

 
906

 
Add stock issuable upon conversion, exercise or vesting of:
 
 
 
 
 
 
 
 
6¾% Mandatory Convertible Preferred Stocka

 

 

 
34

 
 Dilutive stock optionsb
6

 
4

 
7

 
5

 
 Restricted stock
1

 
2

 
1

 
2

 
Weighted-average shares of common stock outstanding for purposes of calculating diluted net income per share
955

 
947

 
955

 
947

 
Diluted net income per share attributable to FCX
     common stockholders
$
1.10

 
$
1.24

 
$
4.10

 
$
2.94

 
a.
All outstanding 6¾% Mandatory Convertible Preferred Stock automatically converted on May 1, 2010, into FCX common stock.
b.
Potential additional shares of common stock that were anti-dilutive totaled approximately three million for the three months ended September 30, 2011, none for the three months ended September 30, 2010, and two million for the nine months ended September 30, 2011 and 2010.

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. Excluded amounts were approximately 5 million stock options with a weighted-average exercise price of $55.57 per option for third-quarter 2011 and approximately 3 million stock options with a weighted-average exercise price of $55.74 for the nine months ended September 30, 2011. Stock options for approximately 19 million shares with a weighted-average exercise price of $37.78 were excluded for third-quarter 2010, and stock options for approximately 14

7


million shares with a weighted-average exercise price of $38.32 were excluded for the nine months ended September 30, 2010.

3.
PENSION AND POSTRETIREMENT BENEFITS
The components of net periodic benefit costs for pension and postretirement benefits follow (in millions):
 
Three Months Ended
 
Nine Months Ended
 
September 30,
 
September 30,
 
2011
 
2010
 
2011
 
2010
Service cost
$
9

 
$
8

 
$
29

 
$
26

Interest cost
27

 
27

 
81

 
80

Expected return on plan assets
(24
)
 
(23
)
 
(72
)
 
(70
)
Amortization of net actuarial loss
6

 
6

 
18

 
17

Net periodic benefit costs
$
18

 
$
18

 
$
56

 
$
53


4.
INVENTORIES, INCLUDING LONG-TERM MILL AND LEACH STOCKPILES
The components of inventories follow (in millions):
 
September 30,
2011
 
December 31, 2010
Mining Operations:
 
 
 
Raw materials
$
1

 
$
1

Work-in-process
77

 
93

Finished goodsa
758

 
704

Atlantic Copper, S.A. (Atlantic Copper):
 
 
 
Raw materials (concentrates)
146

 
336

Work-in-process
247

 
266

Finished goods
2

 
9

Total product inventories
1,231

 
1,409

Total materials and supplies, netb
1,323

 
1,169

Total inventories, less current portion of mill and leach stockpiles
$
2,554

 
$
2,578

a.
Primarily includes molybdenum concentrates, and copper concentrates, anodes, cathodes and rod.
b.
Materials and supplies inventory is net of obsolescence reserves totaling $26 million at September 30, 2011, and December 31, 2010.

A summary of mill and leach stockpiles follows (in millions):
 
September 30,
2011
 
December 31, 2010
Current:
 
 
 
Mill stockpiles
$
21

 
$
35

Leach stockpiles
1,146

 
821

Total current mill and leach stockpiles
$
1,167

 
$
856

Long-term:a
 
 
 
Mill stockpiles
$
518

 
$
470

Leach stockpiles
1,081

 
955

Total long-term mill and leach stockpiles
$
1,599

 
$
1,425

 
a.
Metals in stockpiles not expected to be recovered within the next 12 months.


8


5.
INCOME TAXES
Geographic sources of FCX's provision for income taxes follow (in millions):
 
Three Months Ended
 
Nine Months Ended
 
September 30,
 
September 30,
 
2011
 
2010
 
2011
 
2010
United States operations
$
163

 
$
73

 
$
421

 
$
205

International operations
645

 
772

 
2,277

 
1,751

Total
$
808

 
$
845

 
$
2,698

 
$
1,956


FCX’s consolidated effective income tax rate totaled 36 percent for the first nine months of 2011 and 35 percent for the first nine months of 2010. Variations in the relative proportions of jurisdictional income can result in fluctuations to FCX’s consolidated effective income tax rate.

6.
DEBT AND EQUITY TRANSACTIONS
On April 1, 2011, FCX redeemed its remaining $1.1 billion of outstanding 8.25% Senior Notes due 2015, for which holders received 104.125 percent of the principal amount together with accrued and unpaid interest. As a result of this redemption, FCX recorded a loss on early extinguishment of debt totaling $55 million ($49 million to net income attributable to FCX common stockholders or $0.05 per diluted share) for the first nine months of 2011.

During the second quarter of 2011, FCX purchased in the open market $35 million of its 9.5% Senior Notes due 2031 for $49 million, which resulted in losses on early extinguishment of debt totaling $6 million ($5 million to net income attributable to FCX common stockholders or $0.01 per diluted share) for the first nine months of 2011.

FCX entered into a new senior unsecured revolving credit facility on March 30, 2011, which replaced the existing revolving credit facilities that were scheduled to mature on March 19, 2012. FCX recognized a loss on early extinguishment of debt totaling $7 million ($6 million to net income attributable to FCX common shareholders or $0.01 per diluted share) for the first nine months of 2011 associated with this transaction. The new revolving credit facility is available until March 30, 2016, in an aggregate principal amount of $1.5 billion, with $500 million available to PT Freeport Indonesia. At September 30, 2011, FCX had no borrowings and $44 million of letters of credit issued under the revolving credit facility, resulting in availability of approximately $1.5 billion.

Interest on the revolving credit facility is generally based on the London Interbank Offered Rate (LIBOR) plus 2 percent, subject to an increase or decrease in the interest rate margin based on the credit ratings assigned to FCX’s senior unsecured debt by Standard & Poor’s Rating Services and Moody’s Investors Service.

The obligations of FCX and PT Freeport Indonesia under the revolving credit facility are not guaranteed by any subsidiaries and are unsecured; however, FCX may at any time designate any subsidiary (other than PT Freeport Indonesia) as a subsidiary guarantor. The revolving credit facility and FCX’s senior notes contain certain restrictive covenants that vary among the instruments, but include limitations on the incurrence of debt, liens and certain asset sales.

During the first nine months of 2010, FCX purchased in the open market $218 million of its 8.25% Senior Notes for $237 million and $329 million of its 8.375% Senior Notes for $358 million, which resulted in losses on early extinguishment of debt totaling $55 million ($48 million to net income attributable to FCX common stockholders or $0.05 per diluted share).

On April 1, 2010, FCX redeemed all of its $1 billion of outstanding Senior Floating Rates Notes due 2015, for which holders received 101 percent of the principal amount together with accrued and unpaid interest. As a result of this redemption, FCX recorded a loss on early extinguishment of debt totaling $22 million ($19 million to net income attributable to FCX common stockholders or $0.02 per diluted share) for the first nine months of 2010.


9


Consolidated interest expense (excluding capitalized interest) totaled $105 million in third-quarter 2011, $126 million in third-quarter 2010, $325 million for the first nine months of 2011 and $409 million for the first nine months of 2010. Capitalized interest totaled $27 million in third-quarter 2011, $23 million in third-quarter 2010, $75 million for the first nine months of 2011 and $39 million for the first nine months of 2010.

On September 29, 2011, FCX's Board of Directors declared a quarterly dividend of $0.25 per share, which was paid on November 1, 2011, to common shareholders of record at the close of business on October 15, 2011.

On May 1, 2010, the outstanding shares of FCX’s 6¾% Mandatory Convertible Preferred Stock were automatically converted into shares of FCX common stock (refer to Note 11 in FCX’s 2010 Annual Report on Form 10-K for further discussion).

Total comprehensive income attributable to FCX common stockholders totaled $1.1 billion in third-quarter 2011, $1.2 billion in third-quarter 2010, $3.9 billion for the first nine months of 2011 and $2.8 billion for the first nine months of 2010.

7. 
FINANCIAL INSTRUMENTS
FCX does not purchase, hold or sell derivative financial instruments unless there are market risks associated with an existing asset or obligation or if it anticipates a future activity that is likely to occur and will result in exposure to market risks and FCX intends to offset or mitigate such risks. 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, foreign currency and interest rate risks. The fair values of FCX’s derivative financial instruments are based on widely published market prices.

Commodity Contracts.  From time to time, FCX has entered into forward, futures and swap 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. As of September 30, 2011, FCX had no price protection contracts relating to its mine production. A discussion of FCX’s derivative commodity contracts and programs follows.

Derivatives Designated as Hedging Instruments – Fair Value Hedges
Copper Futures and Swap Contracts. Some of FCX’s U.S. copper cathode and rod customers request a fixed market price instead of the New York Mercantile Exchange (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 and swap contracts and then liquidating the copper futures contracts and settling the copper swap contracts during the month of shipment, which generally results in FCX receiving the COMEX average copper price in the month of shipment. Hedge gains or losses from these copper futures and swap contracts are recorded in revenues. FCX did not have any significant gains or losses during the three-month and nine-month periods ended September 30, 2011 and 2010, resulting from hedge ineffectiveness. At September 30, 2011, FCX held copper futures and swap contracts that qualified for hedge accounting for 73 million pounds at an average contract price of $3.90 per pound, with maturities through December 2012.

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, along with the unrealized gains (losses) on the related hedged item (firm sales commitments) follows (in millions):
 
Three Months Ended
 
Nine Months Ended
 
September 30,
 
September 30,
 
2011
 
2010
 
2011
 
2010
Copper futures and swap contracts:
 
 
 
 
 
 
 
Unrealized gains (losses):
 
 
 
 
 
 
 
Derivative financial instruments
$
(62
)
 
$
19

 
$
(72
)
 
$
1

Hedged item
62

 
(19
)
 
72

 
(1
)
 
 
 
 
 
 
 
 
Realized gains (losses):
 
 
 
 
 
 
 
Matured derivative financial instruments
(10
)
 
15

 
(4
)
 
16



10


Derivatives Not Designated as Hedging Instruments
Embedded Derivatives. As described in Note 1 to FCX’s 2010 Annual Report on Form 10-K under “Revenue Recognition,” certain FCX copper concentrate, copper cathode and gold sales contracts provide for provisional pricing primarily based on London Metal Exchange (LME) or COMEX prices at the time of shipment as specified in the contract. Similarly, FCX purchases copper and molybdenum under contracts that provide for provisional pricing (molybdenum purchases are based on an average Metals Week Molybdenum Dealer Oxide price). FCX applies the normal purchases and normal sales scope exception in accordance with derivatives and hedge accounting guidance to the host sales agreements since the contracts do not allow for net settlement and always result in physical delivery. Sales and purchases with a provisional sales price contain an embedded derivative (i.e., the price settlement mechanism that is settled after the time of delivery) that is required to be bifurcated from the host contract. The host contract is the sale or purchase of the metals contained in the concentrates or cathodes at the then-current LME or COMEX price (copper), London Bullion Market Association price (gold) or the average Metals Week Molybdenum Dealer Oxide price (molybdenum) as defined in the contract. Mark-to-market price fluctuations recorded through the settlement date are reflected in revenues for sales contracts and in cost of sales as production and delivery costs for purchase contracts.

A summary of FCX’s embedded derivatives at September 30, 2011, follows:
 
Open
 
Average Price
Per Unit
 
Maturities
 
Positions
 
Contract
 
Market
 
Through
Embedded derivatives in provisional sales contracts:
 
 
 
 
 
 
 
Copper (millions of pounds)
598

 
$
4.08

 
$
3.18

 
February 2012
Gold (thousands of ounces)
216

 
1,802

 
1,626

 
January 2012
Embedded derivatives in provisional purchase contracts:
 
 
 
 
 
 
 
Copper (millions of pounds)
193

 
4.11

 
3.18

 
January 2012

Copper Forward Contracts. Atlantic Copper, FCX’s wholly owned smelting and refining unit in Spain, enters into forward copper contracts designed to hedge its copper price risk whenever its physical purchases and sales pricing periods do not match. These transactions are intended to provide economic hedges against changes in copper prices, with the mark-to-market hedging gains or losses recorded in cost of sales. At September 30, 2011, Atlantic Copper held net forward copper purchase contracts for 3 million pounds at an average contract price of $3.38 per pound, with maturities through October 2011.

A summary of the realized and unrealized gains (losses) recognized in income before income taxes and equity in affiliated companies’ net earnings for commodity contracts that do not qualify as hedge transactions, including embedded derivatives, follows (in millions):
 
Three Months Ended
 
Nine Months Ended
 
September 30,
 
September 30,
 
2011
 
2010
 
2011
 
2010
Embedded derivatives in provisional sales
     contractsa
$
(624
)
 
$
376

 
$
(660
)
 
$
177

Embedded derivatives in provisional purchase
     contractsb

 

 

 
(1
)
Copper forward contractsb
4

 
(10
)
 
(2
)
 
(8
)
Copper futures and swap contractsa

 
1

 

 

a.
Amounts recorded in revenues. 
b.Amounts recorded in cost of sales as production and delivery costs.


11


Unsettled Derivative Financial Instruments
A summary of the fair values of unsettled derivative financial instruments recorded on the consolidated balance sheets follows (in millions):
 
September 30,
2011
 
December 31, 2010
Derivatives designated as hedging instruments
 
 
 
Commodity contracts:
 
 
 
Copper futures and swap contracts:a
 
 
 
Asset positionb
$

 
$
18

Liability positionc
(54
)
 

 
 
 
 
Derivatives not designated as hedging instruments
 
 
 
Commodity contracts:
 
 
 
Embedded derivatives in provisional sales/purchases contracts:d
 
 
 
Asset position
$
179

 
$
357

Liability position
(581
)
 
(115
)
Copper forward contracts:
 
 
 
Liability positionc
(1
)
 
(10
)
a.
FCX had paid $55 million to brokers at September 30, 2011, and $3 million at December 31, 2010, for margin requirements (recorded in other current assets). In addition, FCX held $28 million in margin funding from customers at September 30, 2011, and $8 million from brokers at December 31, 2010, associated with margin requirements (recorded in accounts payable and accrued liabilities).
b.
Amounts recorded in other current assets. 
c.
Amounts recorded in accounts payable and accrued liabilities. 
d.
Amounts recorded either as a net accounts receivable or a net accounts payable.

Foreign Currency Exchange Contracts.  As a global company, FCX transacts business in many countries and in many currencies. Foreign currency transactions at FCX’s international subsidiaries increase its risks because exchange rates can change between the time agreements are made and the time foreign currency transactions are settled. FCX may hedge or protect its international subsidiaries’ foreign currency transactions from time to time by entering into forward exchange contracts to lock in or minimize the effects of fluctuations in exchange rates. FCX had no outstanding foreign currency exchange contracts at September 30, 2011.

Interest Rate Swap Contracts.  From time to time, FCX or its subsidiaries may enter into interest rate swaps to manage its exposure to interest rate changes and to achieve a desired proportion of fixed-rate versus floating-rate debt based on current and projected market conditions. FCX may enter into fixed-to-floating interest rate swap contracts to protect against changes in the fair value of the underlying fixed-rate debt that result from market interest rate changes and to take advantage of lower interest rates. FCX had no outstanding interest rate swap contracts at September 30, 2011.

Credit Risk.  FCX is exposed to credit loss when counterparties with which FCX has entered into derivative transactions (commodity, foreign exchange and interest rate swaps) are unable to pay. To minimize the risk of such losses, FCX uses counterparties that meet certain credit requirements and periodically reviews the creditworthiness of these counterparties. FCX does not anticipate that any of the counterparties it deals with will default on their obligations. As of September 30, 2011, FCX did not have any significant credit exposure associated with derivative transactions.

Other Financial Instruments.  Other financial instruments include cash and cash equivalents, accounts receivable, trust assets, available-for-sale securities, accounts payable and accrued liabilities, dividends payable, Rio Tinto's share of joint venture cash flows and long-term debt. Refer to Note 8 for the fair values of these financial instruments.

Cash and Cash Equivalents, Accounts Receivable, Accounts Payable and Accrued Liabilities, Dividends Payable and Rio Tinto's Share of Joint Venture Cash Flows. The financial statement amount is a reasonable estimate of the fair value because of the short maturity of these instruments and generally negligible credit losses.

Trust Assets and Available-for-Sale Securities. The financial statement amount represents the fair value of trust assets and available-for-sale securities.

12



Long-Term Debt. The financial statement amount represents cost except for long-term debt acquired in the Phelps Dodge Corporation (Phelps Dodge) acquisition, which was recorded at fair value at the acquisition date.

8.
FAIR VALUE MEASUREMENT
Fair value accounting guidance includes a fair value 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 inputs) and the lowest priority to unobservable inputs (Level 3 inputs). FCX did not have any significant transfers in or out of Levels 1, 2, or 3 for the third quarter of 2011.

A summary of FCX’s financial assets and liabilities measured at fair value on a recurring basis follows (in millions):
 
Fair Value at September 30, 2011
 
Total
 
Level 1
 
Level 2
 
Level 3
Assets
 
 
 
 
 
 
 
Cash equivalents:
 
 
 
 
 
 
 
Money market funds
$
4,828

 
$
4,828

 
$

 
$

Time deposits
201

 
201

 

 

Total cash equivalents
5,029

 
5,029

 

 

 
 
 
 
 
 
 
 
Trust assets (current and long-term):
 
 
 
 
 
 
 
U.S. core fixed income funds
46

 

 
46

 

Government mortgage-backed securities
40

 

 
40

 

Government bonds and notes
22

 

 
22

 

Corporate bonds
18

 

 
18

 

Asset-backed securities
15

 

 
15

 

Money market funds
11

 
11

 

 

Municipal bonds
1

 

 
1

 

Total trust assets
153

 
11

 
142

 

 
 
 
 
 
 
 
 
Available-for-sale securities:
 
 
 
 
 
 
 
Time deposits
15

 
15

 

 

Equity securities
8

 
8

 

 

Money market funds
2

 
2

 

 

Total available-for-sale securities
25

 
25

 

 

 
 
 
 
 
 
 
 
Derivatives:
 
 
 
 
 
 
 
Embedded derivatives in provisional sales/purchases
179

 
179

 

 

 
 
 
 
 
 
 
 
Total assets
$
5,386

 
$
5,244

 
$
142

 
$

 
 
 
 
 
 
 
 
Liabilities
 
 
 
 
 
 
 
Derivatives:
 
 
 
 
 
 
 
Embedded derivatives in provisional sales/purchases
$
(581
)
 
$
(581
)
 
$

 
$

Copper futures and swap contracts
(54
)
 
(54
)
 

 

Copper forward contracts
(1
)
 
(1
)
 

 

Total derivative liabilities
$
(636
)
 
$
(636
)
 
$

 
$



13


Valuation Techniques

Money market funds and time deposits are classified within Level 1 of the fair value hierarchy because they are valued using quoted market prices in active markets.

Fixed income securities (government and agency securities, corporate bonds, asset-backed securities and U.S. core fixed income funds) are valued using a bid evaluation or a mid evaluation. A bid evaluation is an estimated price at which a dealer would pay for a security. A mid evaluation is the average of the estimated price at which a dealer would sell a security and the estimated price at which a dealer would pay for a security. 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.

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.

FCX’s embedded derivatives on provisional copper concentrate, copper cathode and gold purchases and sales are valued using quoted market prices based on the forward LME or COMEX prices (copper) and the London Bullion Market Association price (gold) and, as such, are classified within Level 1 of the fair value hierarchy. FCX’s embedded derivatives on provisional molybdenum purchases are valued based on the latest average weekly Metals Week Molybdenum Dealer Oxide prices and, as such, are classified within Level 1 of the fair value hierarchy.

FCX’s derivative financial instruments for copper futures and swap contracts and forward contracts are classified within Level 1 of the fair value hierarchy because they are valued using quoted market prices in active markets (refer to Note 7 for further discussion).

The techniques described above may produce a fair value calculation 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 measured at the reporting date. There have been no changes in the techniques used at September 30, 2011.

The carrying value for certain FCX financial instruments (i.e., accounts receivable, accounts payable and accrued liabilities, dividends payable, and Rio Tinto’s share of joint venture cash flows) approximate fair value and, therefore, have been excluded from the table below. A summary of the carrying amount and fair value of FCX’s other financial instruments follows (in millions):
 
At September 30, 2011
 
At December 31, 2010
 
Carrying
Amount
 
Fair
Value
 
Carrying
Amount
 
Fair
Value
Cash and cash equivalentsa
$
5,128

 
$
5,128

 
$
3,738

 
$
3,738

McMoRan Exploration Co. investmentb
482

 
445

 
500

 
623

Net embedded derivatives included in accounts receivable or payablea
(402
)
 
(402
)
 
242

 
242

Trust assets (current and long-term)a, c
153

 
153

 
148

 
148

Available-for-sale securities (current and long-term)a, c
25

 
25

 
34

 
34

Derivative assetsa, d

 

 
18

 
18

Derivative liabilities (current and long-term)a, e
(55
)
 
(55
)
 
(10
)
 
(10
)
Long-term debt (including amounts due within one year)f
(3,535
)
 
(3,830
)
 
(4,755
)
 
(5,146
)
 
a.
Recorded at fair value. 
b.
Recorded at cost and included in other assets. At December 31, 2010, fair value was based on a bid evaluation, which was an estimated price at which a dealer would pay for a security. At September 30, 2011, these securities were not actively trading; as such, fair value was based on a convertible pricing model using McMoRan Exploration Co.'s publicly traded common stock as the principle variable.
c.
Current portion included in other current assets and long-term portion included in other assets. 
d.
Included in other current assets. 
e.
Current portion included in accounts payable and accrued liabilities and long-term portion included in other liabilities.

14


f.
Recorded at cost except for long-term debt acquired in the Phelps Dodge acquisition, which was recorded at fair value at the acquisition date. Fair value of substantially all of FCX’s long-term debt is estimated based on quoted market prices.

9.
NEW ACCOUNTING STANDARDS
In May 2011, the Financial Accounting Standards Board (FASB) issued an Accounting Standards Update (ASU) in connection with guidance for fair value measurements and disclosures. This ASU clarifies the FASB's intent on current guidance, modifies and changes certain guidance and principles, and expands disclosures concerning Level 3 fair value measurements in the fair value hierarchy (including quantitative information about significant unobservable inputs within Level 3 of the fair value hierarchy). In addition, this ASU requires disclosure of the fair value hierarchy for assets and liabilities not measured at fair value in the statement of financial position, but whose fair value is required to be disclosed. This ASU is effective for interim and annual reporting periods beginning after December 15, 2011, and early application is not permitted.

In June 2011, FASB issued an ASU in connection with guidance on the presentation of comprehensive income. The objective of this ASU is to improve the comparability, consistency and transparency of financial reporting and to increase the prominence of items reported in other comprehensive income. This ASU requires an entity to present the components of net income and other comprehensive income and total comprehensive income (includes net income) either in a single continuous statement of comprehensive income or in two separate but consecutive statements. This ASU eliminates the option to present the components of other comprehensive income as part of the statement of equity, but does not change the items that must be reported in other comprehensive income. This ASU is effective for interim and annual reporting periods beginning after December 15, 2011, and early adoption is permitted. FCX is in the process of determining which presentation it will choose (single statement or two separate statements) and when it will adopt this ASU.

10.
SUBSEQUENT EVENTS
FCX evaluated events after September 30, 2011, and through the date the consolidated financial statements were issued, and determined any events or transactions occurring during this period that would require recognition or disclosure are appropriately addressed in these consolidated financial statements.

11.
BUSINESS SEGMENTS
FCX has organized its operations into five primary divisions – North America copper mines, South America mining, Indonesia mining, Africa mining and Molybdenum operations. Notwithstanding this structure, FCX internally reports information on a mine-by-mine basis. Therefore, FCX concluded that its operating segments include individual mines. Operating segments that meet certain thresholds are reportable segments.

Intersegment Sales. Intersegment sales between FCX’s operations are based on similar 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.

Allocations. FCX allocates certain operating costs, expenses and capital expenditures to its operating divisions and individual segments. However, not all costs and expenses applicable to a mine or operation are allocated. U.S. federal and state income taxes are recorded and managed at the corporate level, whereas international income taxes are recorded and managed within the applicable country. In addition, most exploration and research activities are managed at the corporate level, and those costs along with some selling, general and administrative costs are not allocated to the operating divisions or segments. Accordingly, the following segment information 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.





15


Business Segments
(In millions)
North America Copper Mines
 
South America
 
Indonesia
 
Africa
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Atlantic
 
Corporate,
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Copper
 
Other &
 
 
 
 
 
Other
 
 
 
Cerro
 
Other
 
 
 
 
 
 
 
Molyb-
 
Rod &
 
Smelting
 
Elimi-
 
FCX
 
Morenci
 
Mines
 
Total
 
Verde
 
Mines
 
Total
 
Grasberg
 
Tenke
 
denum
 
Refining
 
& Refining
 
nations
 
Total
Three Months Ended September 30, 2011
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Revenues:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Unaffiliated customers
$
78

 
$
44

 
$
122

 
$
396

 
$
570

 
$
966

 
$
1,275

a 
$
275

 
$
332

 
$
1,389

 
$
834

 
$
2

 
$
5,195

Intersegment
450

 
847

 
1,297

 
105

 
(18
)
 
87

 
87

 
1

 

 
7

 
3

 
(1,482
)
 

Production and delivery
252

 
412

 
664

 
196

 
282

 
478

 
503

 
142

 
260

 
1,390

 
826

 
(1,693
)
 
2,570

Depreciation, depletion and amortization
27

 
40

 
67

 
32

 
32

 
64

 
62

 
32

 
14

 
2

 
11

 
5

 
257

Selling, general and administrative expenses

 
1

 
1

 
1

 
1

 
2

 
29

 
1

 
3

 

 
5

 
61

 
102

Exploration and research expenses
3

 

 
3

 

 

 

 

 

 
1

 

 

 
74

 
78

Environmental obligations and shutdown costs
1

 
(15
)
 
(14
)
 

 

 

 

 

 

 

 

 
52

 
38

Operating income (loss)
245

 
453

 
698

 
272

 
237

 
509

 
768

 
101

 
54

 
4

 
(5
)
 
21

 
2,150

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Interest expense, net

 
1

 
1

 

 

 

 
7

 
2

 

 

 
4

 
64

 
78

Provision for income taxes

 

 

 
154

 
48

 
202

 
342

 
20

 

 

 

 
244

 
808

Total assets at September 30, 2011
1,981

 
4,966

 
6,947

 
4,886

 
3,475

 
8,361

 
5,437

 
3,791

 
2,342

 
323

 
955

 
3,552

 
31,708

Capital expenditures
21

 
117

 
138

 
64

 
110

 
174

 
162

 
49

 
155

 
2

 
5

 
32

 
717

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Three Months Ended September 30, 2010
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Revenues:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Unaffiliated customers
$
10

 
$
15

 
$
25

 
$
606

 
$
696

 
$
1,302

 
$
1,458

a 
$
307

 
$
293

 
$
1,174

 
$
592

 
$
1

 
$
5,152

Intersegment
364

 
609

 
973

 
84

 
79

 
163

 
416

 

 

 
7

 
3

 
(1,562
)
 

Production and delivery
185

 
351

 
536

 
194

 
268

 
462

 
528

 
141

 
199

 
1,172

 
590

 
(1,362
)
 
2,266

Depreciation, depletion and amortization
33

 
34

 
67

 
42

 
24

 
66

 
72

 
34

 
13

 
2

 
9

 
5

 
268

Selling, general and administrative expenses

 

 

 

 

 

 
25

 

 
2

 

 
4

 
50

 
81

Exploration and research expenses

 

 

 

 

 

 

 

 
1

 

 

 
34

 
35

Environmental obligations and shutdown costs

 

 

 

 

 

 

 

 

 
1

 

 
2

 
3

Operating income (loss)
156

 
239

 
395

 
454

 
483

 
937

 
1,249

 
132

 
78

 
6

 
(8
)
 
(290
)
 
2,499

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Interest expense, net
1

 
2

 
3

 

 

 

 

 
2

 

 

 
2

 
96

 
103

Provision for income taxes

 

 

 
147

 
151

 
298

 
499

 
32

 

 

 

 
16

 
845

Total assets at September 30, 2010
1,919

 
4,271

 
6,190

 
4,308

 
3,245

 
7,553

 
5,712

 
3,540

 
1,837

 
335

 
1,201

 
1,583

 
27,951

Capital expenditures
13

 
46

 
59

 
32

 
97

 
129

 
116

 
9

 
22

 
2

 
4

 
9

 
350

a.
Includes PT Freeport Indonesia’s sales to PT Smelting totaling $665 million in third-quarter 2011 and $603 million in third-quarter 2010.


16


Business Segments (Continued)
(In millions)
North America Copper Mines
 
South America
 
Indonesia
 
Africa
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Atlantic
 
Corporate,
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Copper
 
Other &
 
 
 
 
 
Other
 
 
 
Cerro
 
Other
 
 
 
 
 
 
 
Molyb-
 
Rod &
 
Smelting
 
Elimi-
 
FCX
 
Morenci
 
Mines
 
Total
 
Verde
 
Mines
 
Total
 
Grasberg
 
Tenke
 
denum
 
Refining
 
& Refining
 
nations
 
Total
Nine Months Ended September 30, 2011
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Revenues:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Unaffiliated customers
$
371

 
$
154

 
$
525

 
$
1,662

 
$
1,803

 
$
3,465

 
$
4,112

a 
$
959

 
$
1,119

 
$
4,291

 
$
2,241

 
$
6

 
$
16,718

Intersegment
1,274

 
2,540

 
3,814

 
303

 
135

 
438

 
544

 
4

 

 
19

 
11

 
(4,830
)
 

Production and delivery
719

 
1,204

 
1,923

 
569

 
761

 
1,330

 
1,547

 
422

 
786

 
4,292

 
2,274

 
(5,070
)
 
7,504

Depreciation, depletion and amortization
85

 
111

 
196

 
102

 
85

 
187

 
179

 
98

 
44

 
6

 
30

 
16

 
756

Selling, general and administrative expenses
1

 
2

 
3

 
3

 
2

 
5

 
100

 
6

 
11

 

 
18

 
180

 
323

Exploration and research expenses
4

 

 
4

 

 

 

 

 

 
3

 

 

 
187

 
194

Environmental obligations and shutdown costs
4

 
(15
)
 
(11
)
 

 

 

 

 

 

 
1

 

 
108

 
98

Operating income (loss)
832

 
1,392

 
2,224

 
1,291

 
1,090

 
2,381

 
2,830

 
437

 
275

 
11

 
(70
)
 
(245
)
 
7,843

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Interest expense, net
2

 
4

 
6

 
1

 

 
1

 
9

 
5

 

 

 
12

 
217

 
250

Provision for income taxes

 

 

 
476

 
353

 
829

 
1,241

 
100

 

 

 

 
528

 
2,698

Capital expenditures
69

 
273

 
342

 
120

 
311

 
431

 
463

 
89

 
317

 
7

 
29

 
71

 
1,749

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Nine Months Ended September 30, 2010
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Revenues:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Unaffiliated customers
$
20

 
$
31

 
$
51

 
$
1,338

 
$
1,646

 
$
2,984

 
$
3,490

a 
$
763

 
$
893

 
$
3,363

 
$
1,830

 
$
5

 
$
13,379

Intersegment
1,107

 
1,958

 
3,065

 
275

 
124

 
399

 
770

 

 

 
20

 
14

 
(4,268
)
 

Production and delivery
509

 
1,048

 
1,557

 
513

 
714

 
1,227

 
1,430

 
347

 
574

 
3,360

 
1,823

 
(4,084
)
 
6,234

Depreciation, depletion and amortization
110

 
110

 
220

 
109

 
77

 
186

 
192

 
94

 
38

 
6

 
28

 
24

 
788

Selling, general and administrative expenses

 

 

 

 

 

 
77

 

 
8

 

 
14

 
178

 
277

Exploration and research expenses

 

 

 

 

 

 

 

 
2

 

 

 
102

 
104

Environmental obligations and shutdown costs

 

 

 

 

 

 

 

 

 
1

 

 
4

 
5

Operating income (loss)
508

 
831

 
1,339

 
991

 
979

 
1,970

 
2,561

 
322

 
271

 
16

 
(21
)
 
(487
)
 
5,971

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Interest expense, net
3

 
8

 
11

 

 

 

 

 
4

 

 

 
7

 
348

 
370

Provision for income taxes

 

 

 
320

 
309

 
629

 
1,069

 
75

 

 

 

 
183

 
1,956

Capital expenditures
28

 
112

 
140

 
63

 
220

 
283

 
311

 
59

 
34

 
4

 
16

 
30

 
877

a.
Includes PT Freeport Indonesia's sales to PT Smelting totaling $2.0 billion in the first nine months of 2011 and $1.5 billion in the first nine months of 2010.

17


REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

TO THE BOARD OF DIRECTORS AND STOCKHOLDERS OF
FREEPORT-McMoRan COPPER & GOLD INC.

We have reviewed the condensed consolidated balance sheet of Freeport-McMoRan Copper & Gold Inc. as of September 30, 2011, and the related consolidated statements of income for the three- and nine-month periods ended September 30, 2011 and 2010, the consolidated statements of cash flows for the nine-month periods ended September 30, 2011 and 2010, and the consolidated statement of equity for the nine-month period ended September 30, 2011. These financial statements are the responsibility of the Company’s management.

We conducted our review in accordance with the standards of the Public Company Accounting Oversight Board (United States). A review of interim financial information 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 Public Company Accounting Oversight Board, 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.

Based on our review, we are not aware of any material modifications that should be made to the condensed consolidated financial statements referred to above 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), the consolidated balance sheet of Freeport-McMoRan Copper & Gold Inc. as of December 31, 2010, and the related consolidated statements of operations, cash flows, and equity for the year then ended (not presented herein), and in our report dated February 25, 2011, we expressed an unqualified opinion on those consolidated financial statements. In our opinion, the information set forth in the accompanying condensed consolidated balance sheet as of December 31, 2010, is fairly stated, in all material respects, in relation to the consolidated balance sheet from which it has been derived.

/s/ ERNST & YOUNG LLP

Phoenix, Arizona
November 4, 2011

18


Item 2.
 Management's Discussion and Analysis of Financial Condition and Results of Operations.

OVERVIEW

In Management’s Discussion and Analysis of Financial Condition and Results of Operations, “we,” “us” and “our” refer to Freeport-McMoRan Copper & Gold Inc. (FCX) and its consolidated subsidiaries. You should read this discussion in conjunction with our financial statements, the related Management’s Discussion and Analysis of Financial Condition and Results of Operations and the discussion of our Business and Properties in our annual report on Form 10-K for the year ended December 31, 2010, filed with the United States (U.S.) Securities and Exchange Commission (SEC). The results of operations reported and summarized below are not necessarily indicative of future operating results. References to “Notes” are Notes included in our Notes to Consolidated Financial Statements. Throughout Management's Discussion and Analysis of Financial Condition and Results of Operations all references to earnings or losses per share are on a diluted basis, unless otherwise noted, and have been retroactively adjusted to reflect the February 1, 2011, two-for-one stock split.

We are one of the world’s largest copper, gold and molybdenum mining companies in terms of reserves and production. Our portfolio of assets includes the Grasberg minerals district in Indonesia, significant mining operations in North and South America, and the Tenke Fungurume (Tenke) minerals district in the Democratic Republic of Congo (DRC). The Grasberg minerals district contains the largest single recoverable copper reserve and the largest single gold reserve of any mine in the world based on the latest available reserve data provided by third-party industry consultants. We also operate Atlantic Copper, our wholly owned copper smelting and refining unit in Spain.

Our results for the third quarter and first nine months of 2011, compared with the 2010 periods, primarily reflected higher realized copper and gold prices and lower copper and gold sales volumes. Third-quarter 2011 results also reflect unfavorable impacts from provisional price adjustments. Refer to “Consolidated Results” for further discussion of our consolidated financial results for the quarter and nine-month periods ended September 30, 2011 and 2010.

Third-quarter 2011 results also reflect the impacts of labor disruptions at PT Freeport Indonesia, including the eight-day strike in July 2011 and the ongoing strike that commenced on September 15, 2011. The union has notified PT Freeport Indonesia that it intends to extend the strike to December 15, 2011. PT Freeport Indonesia continues to seek to end the strike, which has no legal basis, and to conclude negotiations, on a fair and reasonable basis, of the bi-annual renewal of its collective labor agreement. PT Freeport Indonesia's compensation practices are highly competitive in Indonesia, and PT Freeport Indonesia has agreed to accept the recommendations of the government-appointed mediator for a generous increase in wages and other benefits. PT Freeport Indonesia has developed revised operating plans during the strike. Refer to "Consolidated Results" and "Operations - Indonesia Mining" for further discussion of the impacts from the labor disruptions at PT Freeport Indonesia.

During third-quarter 2011, Cerro Verde's union workforce also commenced a series of strike actions, with the latest strike commencing on September 29, 2011. Efforts are ongoing to reach a mutually satisfactory renewal of Cerro Verde's collective bargaining agreement. Production of copper and molybdenum has not been materially affected by the strike.

At September 30, 2011, we had $5.1 billion in consolidated cash and cash equivalents and $3.5 billion in total debt. During the first nine months of 2011, we repaid $1.2 billion in debt, including the April 2011 redemption of $1.1 billion of outstanding 8.25% Senior Notes (refer to Note 6 for further discussion), and paid common stock dividends totaling $1.2 billion. We have no significant debt maturities in the near term; however, we may consider additional opportunities to prepay debt in advance of scheduled maturities. Refer to “Capital Resources and Liquidity – Financing Activities” for further discussion.

In December 2010, our Board of Directors (the Board) authorized a two-for-one common stock split effected on February 1, 2011 (refer to Note 1 for further discussion). Refer to “Capital Resources and Liquidity – Financing Activities” for further discussion of common stock dividends.


19


OUTLOOK
 
While the near-term economic outlook is uncertain and has resulted in a decline in copper prices during the third quarter, we view the long-term outlook for our business positively, supported by limitations on supplies of copper and by the requirements for copper in the world’s economy.

Our financial results vary as a result of fluctuations in metal market prices, including copper, gold and molybdenum. World market prices for these commodities have fluctuated historically and are affected by numerous factors beyond our control. Because we cannot control the price of our products, the key measures that management focuses on in operating our business are sales volumes, unit net cash costs and operating cash flow. Discussion of the outlook for each of these measures follows.

Sales Volumes. Our projected sales volumes depend on the achievement of targeted mining rates, the successful operation of production facilities, the impact of weather conditions and other factors. On October 19, 2011, we reported that our consolidated sales from mines for the year 2011 are expected to approximate 3.8 billion pounds of copper, 1.6 million ounces of gold and 78 million pounds of molybdenum, including 915 million pounds of copper, 305 thousand ounces of gold and 18 million pounds of molybdenum for fourth-quarter 2011. We also reported that the impact of the labor disruptions at PT Freeport Indonesia for the year 2011, which is subject to change based on operating rates, mine plans, the extent to which PT Freeport Indonesia can operate using a reduced workforce, and the timing of the resumption of normal operations, is estimated to approximate 100 million pounds of copper and 100 thousand ounces of gold. Fourth-quarter 2011 sales estimates reflect reduced operations resulting from the current strike conditions, and include an assumption that operations are conducted on average at the reduced rates (mill throughput averaging approximately 175,000 metric tons of ore per day) throughout fourth-quarter 2011.

PT Freeport Indonesia is operating the Grasberg open pit and the Deep Ore Zone (DOZ) underground mine at reduced rates using non-striking employees and contractors. Since October 22, 2011, milling operations have been temporarily suspended pending repairs to concentrate pipelines damaged as a result of civil unrest which occurred during the course of the strike. PT Freeport Indonesia has initiated repairs to the damaged pipelines but has not been able to gain full access to the affected areas of the pipelines because of road blockages by striking workers. PT Freeport Indonesia is working with local authorities to restore access to the road and the pipelines so that repairs can be completed and milling operations restarted. During October 2011, mill throughput of approximately 120,000 metric tons of ore per day was below forecast because of the currently on-going suspension of milling and concentrate delivery operations since October 22, 2011.

We will provide further updates on the status of operations and revised estimates of fourth quarter production when access is restored and repairs are completed.

Unit Net Cash Costs. Assuming average prices of $1,600 per ounce of gold and $14 per pound of molybdenum for fourth-quarter of 2011, and achievement of current 2011 sales volume and cost estimates, consolidated unit net cash costs (net of by-product credits) for our copper mining operations are expected to average approximately $0.95 per pound of copper for the year 2011. Quarterly unit net cash costs vary with fluctuations in sales volumes and average realized prices for gold and molybdenum. Fourth-quarter 2011 unit net cash costs are expected to be higher than the average for the year primarily reflecting lower volumes in Indonesia. The impact of price changes on consolidated unit net cash costs would approximate $0.006 per pound for each $50 per ounce change in the average price of gold during fourth-quarter 2011, and $0.004 per pound for each $2 per pound change in the average price of molybdenum during fourth-quarter 2011. Refer to “Consolidated Results – Production and Delivery Costs” for further discussion of consolidated production and delivery costs.

Operating Cash Flows. Our operating cash flows vary with prices realized from copper, gold and molybdenum sales, our sales volumes, production costs, income taxes and other working capital changes and other factors. Based on projected consolidated sales volumes and unit net cash costs for 2011, and assuming average prices of $3.25 per pound of copper, $1,600 per ounce of gold and $14 per pound of molybdenum for fourth-quarter 2011, consolidated operating cash flows are estimated to approximate $7 billion for the year 2011, net of an estimated $0.3 billion for working capital requirements. Projected operating cash flows for the year 2011 also reflect estimated taxes of $3.3 billion (refer to “Consolidated Results – Provision for Income Taxes” for further discussion of our projected annual consolidated effective annual tax rate for 2011). The impact of price changes for fourth-quarter 2011 on operating cash flows would approximate $75 million for each $0.10 per pound change in the average price of copper, $10 million for each $50 per ounce change in the average price of gold and $10 million for each $2 per pound change in the average price of molybdenum.

20


COPPER, GOLD AND MOLYBDENUM MARKETS

World prices for copper, gold and molybdenum can fluctuate significantly. During the period from January 2001 through October 2011, the London Metal Exchange (LME) spot copper price varied from a low of $0.60 per pound in 2001 to a record high of $4.60 per pound in February 2011, the London p.m. gold price fluctuated from a low of $256 per ounce in 2001 to a record high of $1,895 per ounce in September 2011, and the Metals Week Molybdenum Dealer Oxide weekly average price ranged from a low of $2.19 per pound in 2001 to a record high of $39.25 per pound in 2005. Copper, gold and molybdenum prices are affected by numerous factors beyond our control as described further in our “Risk Factors” contained in Part I, Item 1A of our annual report on Form 10-K for the year ended December 31, 2010.

*  Excludes Shanghai stocks, producer, consumer and merchant stocks.

This graph presents LME spot copper prices and reported stocks of copper at the LME and the New York Mercantile Exchange (COMEX) from January 2001 through October 2011. From 2006 through most of 2008, limited supplies, combined with growing demand from China and other emerging economies, resulted in high copper prices and low levels of inventories. In late 2008, slowing consumption, turmoil in the U.S. financial markets and concerns about the global economy led to a sharp decline in copper prices, which reached a low of $1.26 per pound in December 2008. Copper prices have since improved from 2008 lows, attributable to a combination of strong demand from emerging markets and limitations on available supply. During third-quarter 2011, LME spot copper prices were volatile ranging from $3.16 per pound to $4.46 per pound, averaging $4.07 per pound and closing at $3.23 per pound on September 30, 2011. Copper and other commodity prices fell sharply in September on heightened concerns over the European sovereign debt crisis, economic conditions in the U.S. and Chinese monetary policy. Combined LME and COMEX inventories have risen somewhat in 2011, compared to year-end 2010 levels, as a result of reduced Chinese imports.

We believe the underlying fundamentals of the copper business remain positive, supported by the significant role of copper in the global economy, limited supplies from existing mines and the absence of significant new development projects. Future copper prices are expected to be volatile and are likely to be influenced by demand from China, economic activity in the U.S. and other industrialized countries, the timing of the development of new supplies of copper and production levels of mines and copper smelters. The LME spot copper price closed at $3.58 per pound on October 31, 2011.


21


This graph presents London p.m. gold prices from January 2001 through October 2011. During third-quarter 2011, gold prices were volatile ranging from $1,483 per ounce to a record high of $1,895 per ounce, averaging $1,702 per ounce and closing at $1,620 per ounce on September 30, 2011. Market sentiment for gold remains positive, which we believe is supported by fiscal issues affecting the U.S. and Europe, weakness in the U.S. dollar and prospects for future inflation. Gold prices closed at $1,722 per ounce on October 31, 2011
This graph presents the Metals Week Molybdenum Dealer Oxide weekly average prices from January 2001 through October 2011. In late 2008, molybdenum prices declined significantly as a result of the financial market turmoil and a decline in demand; however, molybdenum prices have increased from the 2008 lows, which we believe is supported by improved economic conditions and resulting demand increases. During third-quarter 2011, the weekly average price of molybdenum ranged from $14.40 per pound to $15.05 per pound and averaged $14.62 per pound. The Metals Week Molybdenum Dealer Oxide weekly average price was $12.70 per pound on October 31, 2011.


22


CONSOLIDATED RESULTS
 
Three Months Ended
 
Nine Months Ended
 
 
September 30,
 
September 30,
 
 
2011
 
2010
 
2011
 
2010
 
Financial Data (in millions, except per share amounts)
 
 
 
 
 
 
 
 
Revenuesa,b
$
5,195

 
$
5,152

 
$
16,718

 
$
13,379

 
Operating incomeb
$
2,150

 
$
2,499

 
$
7,843

 
$
5,971

 
Net income attributable to FCX common stockholders
$
1,053

c 
$
1,178

 
$
3,920

c,d 
$
2,724

d 
Diluted net income per share attributable to FCX common stockholders
$
1.10

c 
$
1.24

e 
$
4.10

c,d 
$
2.94

d,e 
Diluted weighted-average common shares outstanding
955

 
947

e 
955

 
947

e 
 
 
 
 
 
 
 
 
 
Mining Operating Data
 
 
 
 
 
 
 
 
Copper (millions of recoverable pounds)
 
 
 
 
 
 
 
 
Production
951

 
1,042

 
2,868

 
2,901

 
Sales, excluding purchases
947

 
1,081

 
2,875

 
2,955

 
Average realized price per pound
$
3.60

 
$
3.50

 
$
3.94

 
$
3.33

 
Site production and delivery costs per poundf
$
1.71

 
$
1.38

 
$
1.65

 
$
1.38

 
Unit net cash costs per poundf
$
0.80

 
$
0.82

 
$
0.84

 
$
0.87

 
Gold (thousands of recoverable ounces)
 
 
 
 
 
 
 
 
Production
385

 
492

 
1,202

 
1,257

 
Sales, excluding purchases
409

 
497

 
1,245

 
1,273

 
Average realized price per ounce
$
1,693

 
$
1,266

 
$
1,565

 
$
1,204

 
Molybdenum (millions of recoverable pounds)
 
 
 
 
 
 
 
 
Production
23

 
19

 
65

 
53

 
Sales, excluding purchases
19

 
17

 
60

 
50

 
Average realized price per pound
$
16.34

 
$
16.06

 
$
17.57

 
$
16.43

 
a.
Includes the impact of adjustments to provisionally priced concentrate and cathode sales recognized in prior periods (refer to “Revenues” below for further discussion). 
b.
Refer to Note 11 for a summary of revenues and operating income by business segment.
c.
Includes additional taxes of $50 million, net of noncontrolling interests, ($0.05 per share) associated with Peru's new mining tax and royalty regime (refer to "Provision for Income Taxes" for further discussion).
d.
Includes losses on early extinguishment of debt totaling $60 million ($0.06 per share) for the first nine months of 2011 and $67 million ($0.07 per share) for the first nine months of 2010. Refer to Note 6 for further discussion.
e.
Amounts have been adjusted to reflect the February 1, 2011, two-for-one stock split.
f.
Reflects per pound weighted-average 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 the per pound costs by operating division to production and delivery costs applicable to sales reported in our consolidated financial statements, refer to “Operations – Unit Net Cash Costs” and to “Product Revenues and Production Costs.”

Revenues
Consolidated revenues totaled $5.2 billion in third-quarter 2011 and $16.7 billion for the first nine months of 2011, compared with $5.2 billion in third-quarter 2010 and $13.4 billion for the first nine months of 2010. Consolidated revenues include the sale of copper concentrates, copper cathodes, copper rod, gold, molybdenum and other metals by our North and South America mines, the sale of copper concentrates (which also contain significant quantities of gold and silver) by our Indonesia mining operations, the sale of copper cathodes and cobalt hydroxide by our Africa mining operations, the sale of molybdenum in various forms by our Molybdenum operations, and the sale of copper cathodes, copper anodes, and gold in anodes and slimes by Atlantic Copper.


23


Following is a summary of changes in our consolidated revenues between periods (in millions):
 
Three Months Ended September 30,
 
Nine Months Ended September 30,
 
 
 
 
Consolidated revenues - 2010 periods
$
5,152

 
$
13,379

Higher (lower) price realizations from mining operations:
 
 
 
Copper
95

 
1,754

Gold
175

 
449

Molybdenum
5

 
69

Silver
44

 
121

Cobalt
(10
)
 
(15
)
Higher (lower) sales volumes from mining operations:
 
 
 
Copper
(469
)
 
(266
)
Gold
(111
)
 
(34
)
Molybdenum
42

 
177

Silver
9

 
24

Cobalt
66

 
150

Unfavorable impact of net adjustments to prior period/year provisionally priced sales
(368
)
 
(5
)
(Lower) higher purchased copper
(48
)
 
323

Higher Atlantic Copper revenues
242

 
408

Other, including intercompany eliminations
371

 
184

Consolidated revenues - 2011 periods
$
5,195

 
$
16,718


Price Realizations
Our consolidated revenues vary as a result of fluctuations in the market prices of copper, gold, molybdenum, silver and cobalt. Consolidated revenues in the 2011 periods, compared to the 2010 periods, reflected higher price realizations primarily associated with copper and gold. Realized copper prices averaged $3.60 per pound in third-quarter 2011 (compared with $3.50 per pound in third-quarter 2010) and $3.94 per pound for the first nine months of 2011 (compared with $3.33 per pound for the first nine months of 2010). Realized gold prices averaged $1,693 per ounce in third-quarter 2011 (compared with $1,266 per ounce in third-quarter 2010) and $1,565 per ounce for the first nine months of 2011 (compared with $1,204 per ounce for the first nine months of 2010).

Sales Volumes
Consolidated copper sales volumes of 947 million pounds in third-quarter 2011 and 2.9 billion pounds for the first nine months of 2011, were lower than copper sales volumes of 1.1 billion pounds in third-quarter 2010 and 3.0 billion pounds for the first nine months of 2010. Lower copper sales volumes in the 2011 periods primarily reflect lower sales volumes in Indonesia and South America, partly offset by higher sales in North America. Consolidated gold sales volumes of 409 thousand ounces in third-quarter 2011 and 1.2 million ounces for the first nine months of 2011 were lower than consolidated gold sales volumes of 497 thousand ounces in third-quarter 2010 and 1.3 million ounces for the first nine months of 2010. Lower gold sales volumes in the 2011 periods primarily reflect lower Grasberg production. Third-quarter 2011 production of copper and gold were adversely affected by labor disruptions at PT Freeport Indonesia. PT Freeport Indonesia has developed revised operating plans to produce and ship concentrates at modified levels with a reduced workforce and sold concentrate from inventory during third-quarter 2011, which partly mitigated the lower production levels.

Consolidated molybdenum sales volumes of 19 million pounds in third-quarter 2011 and 60 million pounds for the first nine months of 2011 were higher than molybdenum sales volumes of 17 million pounds in third-quarter 2010 and 50 million pounds for the first nine months of 2010. Higher molybdenum sales volumes primarily reflected improved demand.

Refer to “Operations” for further discussion of sales volumes at our operating divisions and for further discussion of the impacts from labor disruptions at PT Freeport Indonesia.


24


Provisionally Priced Copper Sales
During the first nine months of 2011, 55 percent of our mined copper was sold in concentrate, 22 percent as rod (from our North America operations) and 23 percent as cathodes. Substantially all of our copper concentrate and cathode sales contracts provide final copper pricing in a specified future month (generally one to four months from the shipment date) based primarily on quoted LME monthly average spot copper prices. We receive market prices based on prices in the specified future period, which results in price fluctuations recorded through revenues until the date of settlement. We record revenues and invoice customers at the time of shipment based on then-current LME prices, which results in an embedded derivative on our provisionally priced concentrate and cathode sales that is adjusted to fair value through earnings each period, using the period-end forward prices, until the date of final pricing. To the extent final prices are higher or lower than what was recorded on a provisional basis, an increase or decrease to revenues is recorded each reporting period until the date of final pricing. Accordingly, in times of rising copper prices, our revenues benefit from adjustments to the final pricing of provisionally priced sales pursuant to contracts entered into in prior periods; in times of falling copper prices, the opposite occurs.

At June 30, 2011, we had provisionally priced copper sales at our copper mining operations, primarily South America and Indonesia, totaling 435 million pounds of copper (net of intercompany sales and noncontrolling interests) recorded at an average of $4.27 per pound. Lower prices during third-quarter 2011 resulted in adjustments to these provisionally priced copper sales and unfavorably impacted consolidated revenues by $213 million ($100 million to net income attributable to common stockholders or $0.11 per share) in third-quarter 2011, compared with adjustments to the June 30, 2010, provisionally priced copper sales that favorably impacted third-quarter 2010 consolidated revenues by $191 million ($85 million to net income attributable to common stockholders or $0.09 per share). Adjustments to the December 31, 2010, provisionally priced copper sales unfavorably impacted consolidated revenues by $12 million ($5 million to net income attributable to common stockholders or $0.01 per share) for the first nine months of 2011, compared with adjustments to the December 31, 2009, provisionally priced copper sales that unfavorably impacted consolidated revenues by $23 million ($9 million to net income attributable to common stockholders or $0.01 per share) for the first nine months of 2010.

At September 30, 2011, we had provisionally priced copper sales at our copper mining operations, primarily South America and Indonesia, totaling 406 million pounds of copper (net of intercompany sales and noncontrolling interests) recorded at an average of $3.18 per pound, subject to final pricing over the next several months. We estimate that each $0.05 change in the price realized from the September 30, 2011, provisional price recorded would have a net impact on our 2011 consolidated revenues of approximately $27 million ($13 million to net income attributable to common stockholders). The LME spot copper price closed at $3.58 per pound on October 31, 2011.

Purchased Copper
From time to time we purchase copper cathode to be processed by our Rod & Refining operations when production from our North America copper mines does not meet customer demand. The increase in purchased copper in the nine-month 2011 period resulted from the timing of purchases and higher copper prices.

Atlantic Copper Revenues
The increase in Atlantic Copper’s revenues in the 2011 periods primarily reflected higher copper and gold prices. Refer to “Operations - Atlantic Copper Smelting & Refining” for further discussion.

Production and Delivery Costs
Consolidated production and delivery costs totaled $2.6 billion in third-quarter 2011 and $7.5 billion for the first nine months of 2011, compared with $2.3 billion in third-quarter 2010 and $6.2 billion for the first nine months of 2010. Higher production and delivery costs for the 2011 periods primarily reflected increased mining and milling activities in North America, higher input costs at our mining operations and higher costs of concentrate purchases at Atlantic Copper associated with higher copper and gold prices. The first nine months of 2011 also reflected higher costs of copper cathode purchases in North America associated with higher copper prices.

Consolidated unit site production and delivery costs for our copper mining operations averaged $1.71 per pound of copper in third-quarter 2011 and $1.65 per pound of copper for the first nine months of 2011, compared with $1.38 per pound of copper in the third quarter and first nine months of 2010. Higher site production and delivery costs in the 2011 periods primarily reflected lower copper sales volumes in Indonesia and South America and increased mining and milling activities in North America. Refer to “Operations – Unit Net Cash Costs” for further discussion of unit net cash costs associated with our operating divisions, and to “Product Revenues and Production Costs” for reconciliations of per pound costs by operating division to production and delivery costs applicable to sales reported in our consolidated financial statements.

25



Our copper mining operations require significant energy, principally diesel, electricity, coal and natural gas. For the year 2011, energy costs are expected to approximate 21 percent of our consolidated copper production costs, which reflects purchases of approximately 240 million gallons of diesel fuel; 6,585 gigawatt hours of electricity at our North America, South America and Africa copper mining operations (we generate all of our power at our Indonesia mining operation); 735 thousand metric tons of coal for our coal power plant in Indonesia; and 1 million MMBTU (million british thermal units) of natural gas at certain of our North America mines. Energy costs for 2010 approximated 20 percent of our consolidated copper production costs.

Depreciation, Depletion and Amortization
Consolidated depreciation, depletion and amortization expense totaled $257 million in third-quarter 2011 and $756 million for the first nine months of 2011, compared with $268 million in third-quarter 2010 and $788 million for the first nine months of 2010. Lower depreciation, depletion and amortization expense for the 2011 periods primarily reflects lower expense under the units-of-production method as a result of lower copper sales volumes.

Selling, General and Administrative Expenses
Consolidated selling, general and administrative expenses totaled $102 million in third-quarter 2011 and $323 million for the first nine months of 2011, compared with $81 million in third-quarter 2010 and $277 million for the first nine months of 2010, primarily reflecting higher estimated incentive compensation costs associated with improved operating results and higher charitable contributions.

Exploration and Research Expenses
Consolidated exploration and research expenses totaled $78 million in third-quarter 2011 and $194 million for the first nine months of 2011, compared with $35 million in third-quarter 2010 and $104 million for the first nine months of 2010. We are conducting exploration activities near our existing mines with a focus on opportunities to expand reserves that will support additional future production capacity in the large mineral districts where we currently operate. Favorable exploration results indicate opportunities for what we believe could be significant future potential reserve additions in North and South America and in the Tenke minerals district. The drilling data in North America continues to indicate the potential for expanded sulfide production.

For the year 2011, exploration and research expenditures are expected to total approximately $300 million, including approximately $250 million for exploration. Exploration activities will continue to focus primarily on the potential for future reserve additions in our existing mineral districts.

Environmental Obligations and Shutdown Costs
Environmental obligation costs consist of net revisions to our long-term environmental obligations as further described in Note 13 of our annual report on Form 10-K for the year ended December 31, 2010. Shutdown costs include care and maintenance costs and any litigation, remediation or related expenditures associated with closed facilities or operations. The increase in environmental obligations and shutdown costs for the 2011 periods, compared with the 2010 periods, primarily reflects net revisions to environmental obligations based on updated assumptions (refer to "Environmental and Reclamation Matters" for further discussion). The nine month period also reflects second-quarter 2011 adjustments to accruals for future shutdown costs.

Interest Expense, Net
Consolidated interest expense, excluding capitalized interest, totaled $105 million in third-quarter 2011 and $325 million for the first nine months of 2011, compared with $126 million in third-quarter 2010 and $409 million for the first nine months of 2010. Lower interest expense in the 2011 periods primarily reflected the impact of debt repayments during 2010 and the first nine months of 2011.

Capitalized interest is primarily related to our development projects and totaled $27 million in third-quarter 2011 and $75 million for the first nine months of 2011, compared with $23 million in third-quarter 2010 and $39 million for the first nine months of 2010. Refer to “Operations” for further discussion of current development projects.

Losses on Early Extinguishment of Debt
We recorded losses on early extinguishment of debt of $68 million ($60 million to net income attributable to common stockholders or $0.06 per share) for the first nine months of 2011 associated with the redemption of our 8.25% Senior Notes in April 2011, the revolving credit facilities that were replaced in March 2011 by a new senior unsecured revolving credit facility and open-market purchases of our 9.5% Senior Notes.


26


We recorded losses on early extinguishment of debt totaling $77 million ($67 million to net income attributable to common stockholders or $0.07 per share) for the first nine months of 2010 associated with redemption of our Senior Floating Rate Notes and open-market purchases of our 8.25% and 8.375% Senior Notes.

Refer to Note 6 for further discussion of these transactions.

Provision for Income Taxes
Following is a summary of the approximate amounts in the calculation of our consolidated provision for income taxes for the 2011 and 2010 periods (in millions, except percentages):
 
Nine Months Ended
 
Nine Months Ended
 
September 30, 2011
 
September 30, 2010
 
Incomea
 
Effective
Tax Rate
 
Income Tax
(Provision) Benefit
 
Incomea (Loss)
 
Effective
Tax Rate
 
Income Tax
(Provision) Benefit
U.S.
$
1,772

 
24%
 
$
(421
)
 
$
905

 
23%
 
$
(205
)
South America
2,326

 
36%
b 
(829
)
 
1,926

 
33%
 
(629
)
Indonesia
2,870

 
43%
 
(1,241
)
 
2,569

 
42%
 
(1,069
)
Africa
293

 
34%
 
(100
)
 
251

 
30%
 
(75
)
Eliminations and other
304

 
N/A
 
(127
)
 
(125
)
 
N/A
 
43

Annualized rate adjustmentc
N/A

 
N/A
 
20

 
N/A

 
N/A
 
(21
)
Consolidated FCX
$
7,565

 
36%
d 
$
(2,698
)
 
$
5,526

 
35%
 
$
(1,956
)
a.
Represents income (loss) by geographic location before income taxes and equity in affiliated companies’ net earnings.
b.
On September 29, 2011, Peru enacted its new mining tax and royalty regime. Under the new regime, companies that do not have stability agreements will be subject to a revised royalty and a special mining tax. Cerro Verde operates under a stability agreement and therefore, is not subject to the revised royalty and special mining tax until its stability agreement expires on December 31, 2013. The Peruvian government has also created a special mining burden that companies with stability agreements can elect to pay. The special mining burden is based on a sliding scale of 4 to 13 percent, with a maximum effective tax rate of 8.79 percent. Cerro Verde has elected to pay this special mining burden during the remaining term of its stability agreement. As a result , Cerro Verde recognized additional current and deferred tax expense of $57 million ($50 million net of noncontrolling interests) in third-quarter 2011. The deferred portion of this accrual relates primarily to the assets recorded in connection with the 2007 acquisition of Phelps Dodge.
c.
In accordance with applicable accounting rules, we adjust our interim provision for income taxes equal to our estimated annualized tax rate.
d.
Our consolidated effective income tax rate is a function of the combined effective tax rates for the jurisdictions in which we operate. Accordingly, variations in the relative proportions of jurisdictional income can result in fluctuations to our consolidated effective income tax rate. Assuming average prices of $3.25 per pound for copper, $1,600 per ounce for gold and $14 per pound for molybdenum for fourth-quarter 2011 and achievement of current 2011 sales volume and cost estimates, we estimate our annual consolidated effective tax rate will approximate 36 percent.
 
OPERATIONS

North America Copper Mines
We currently operate seven copper mines in North America – Morenci, Bagdad, Safford, Sierrita and Miami in Arizona, and Tyrone and Chino in New Mexico. All of these mining operations are wholly owned, except for Morenci, an unincorporated joint venture, in which we own an 85 percent undivided interest.

The North America copper mines include open-pit mining, sulfide ore concentrating, leaching and solution extraction/electrowinning (SX/EW) operations. Molybdenum concentrate is also produced by Morenci, Bagdad and Sierrita. A majority of the copper produced at our North America copper mines is cast into copper rod by our Rod & Refining operations. The remainder of our North America copper sales is primarily in the form of copper cathode or copper concentrate.

Operating and Development Activities. During 2010, we initiated plans to increase production at our North America copper mines, which had been curtailed in late 2008 because of weak market conditions. Further discussion of these projects is presented below.


27


We also have a number of opportunities to invest in additional production capacity at several of our North America copper mines. Positive exploration results in recent years indicate the potential for additional sulfide development in North America.

Morenci Mine Ramp-up and Mill Restart. During second-quarter 2011, we completed the ramp up of Morenci's mining rates to 635,000 metric tons of ore per day and milling rates to approximately 50,000 metric tons of ore per day, resulting in increased copper production of approximately 125 million pounds of copper per year.

We are advancing a feasibility study to expand mining and milling capacity at Morenci to process additional sulfide ore identified through positive exploratory drilling. This project, which would require significant investment, would increase milling rates from the current level of 50,000 metric tons of ore per day to approximately 115,000 metric tons of ore per day and target incremental annual copper production of approximately 225 million pounds within a three year timeframe. Completion of the feasibility study is expected in early 2012.

Miami Restart. The ramp up of mining activities at the Miami mine continues. Production at Miami currently approximates 60 million pounds of copper per year for 2011, and is expected to ramp up to approximately 70 million pounds of copper per year by 2012.

Chino Restart. During 2011, mining and milling activities were restarted at the Chino mine. Production at Chino currently approximates 70 million pounds of copper per year for 2011, and is expected to increase to approximately 200 million pounds of copper per year by 2014. Costs for the project associated with equipment and mill refurbishment are expected to approximate $175 million. Project costs of $106 million have been incurred as of September 30, 2011 ($96 million during the first nine months of 2011).

Twin Buttes. In December 2009, we purchased the Twin Buttes copper mine, which ceased operations in 1994 and is adjacent to our Sierrita mine. The purchase provides significant synergies in the Sierrita minerals district, including the potential for expanded mining activities and access to material that can be used for Sierrita tailings and stockpile reclamation purposes. We are conducting drilling on the property and metallurgical studies to support a feasibility study expected to commence in 2012.

Other Matters. During August 2011, we successfully negotiated a new three-year labor contract with our union-represented employees at the Chino mine.


28


Operating Data. Following is summary operating data for the North America copper mines for the third quarters and first nine months of 2011 and 2010:
 
Three Months Ended
 
Nine Months Ended
 
September 30,
 
September 30,
 
2011
 
2010
 
2011
 
2010
Operating Data, Net of Joint Venture Interest
 
 
 
 
 
 
 
Copper (millions of recoverable pounds)
 
 
 
 
 
 
 
Production
322

 
259

 
917

 
786

Sales, excluding purchases
307

 
267

 
914

 
847

Average realized price per pound
$
4.05

 
$
3.32

 
$
4.19

 
$
3.28

 
 
 
 
 
 
 
 
Molybdenum (millions of recoverable pounds)
 
 
 
 
 
 
 
Productiona
10

 
7

 
27

 
18

 
 
 
 
 
 
 
 
100% Operating Data
 
 
 
 
 
 
 
SX/EW operations
 
 
 
 
 
 
 
Leach ore placed in stockpiles (metric tons per day)
872,200

 
653,400

 
841,700

 
634,000

Average copper ore grade (percent)
0.25

 
0.22

 
0.25

 
0.24

Copper production (millions of recoverable pounds)
199

 
179

 
582

 
563

 
 
 
 
 
 
 
 
Mill operations
 
 
 
 
 
 
 
Ore milled (metric tons per day)
225,800

 
190,500

 
220,100

 
183,000

Average ore grade (percent):
 
 
 
 
 
 
 
Copper
0.38

 
0.32

 
0.37

 
0.31

Molybdenum
0.03

 
0.03

 
0.03

 
0.02

Copper recovery rate (percent)
84.5

 
82.6

 
83.5

 
83.0

Production (millions of recoverable pounds):
 
 
 
 
 
 
 
Copper
146

 
100

 
404

 
280

Molybdenum
10

 
7

 
27

 
18

a.
Reflects molybdenum production from certain of the North America copper mines. Sales of molybdenum are reflected in the Molybdenum division.

Copper sales volumes from our North America copper mines increased to 307 million pounds in third-quarter 2011 and 914 million pounds for the first nine months of 2011, compared with 267 million pounds in third-quarter 2010 and 847 million pounds for the first nine months of 2010, primarily reflecting increased production at the Morenci, Miami and Chino mines.

For the year 2011, copper sales volumes from our North America copper mines are expected to approximate 1.2 billion pounds, compared with 1.1 billion pounds of copper in 2010. Molybdenum production from our North America copper mines is expected to approximate 35 million pounds for the year 2011, compared with 25 million pounds in 2010.

Unit Net Cash Costs. Unit net cash costs per pound of copper is a measure intended to provide investors with information about the cash-generating capacity of our mining operations expressed on a basis relating to the primary metal product for our respective operations. We use this measure for the same purpose and for monitoring operating performance by our mining operations. This information differs from measures of performance determined in accordance with generally accepted accounting principles (GAAP) in the U.S. and should not be considered in isolation or as a substitute for measures of performance determined in accordance with U.S. GAAP. This measure is presented by other metals mining companies, although our measure may not be comparable to similarly titled measures reported by other companies.


29


Gross Profit per Pound of Copper and Molybdenum

The following tables summarize unit net cash costs and gross profit per pound at the North America copper mines for the third quarters and first nine months of 2011 and 2010. Refer to “Product Revenues and Production Costs” for an explanation of the “by-product” and “co-product” methods and a reconciliation of unit net cash costs per pound to production and delivery costs applicable to sales reported in our consolidated financial statements.
 
Three Months Ended
 
Three Months Ended
 
September 30, 2011
 
September 30, 2010
 
By- Product Method
 
Co-Product Method
 
By- Product Method
 
Co-Product Method
 
 
Copper
 
Molyb-
denuma
 
 
Copper
 
Molyb-
denuma
Revenues, excluding adjustments
$
4.05

 
$
4.05

 
$
15.22

 
$
3.32

 
$
3.32

 
$
15.10

 
 
 
 
 
 
 
 
 
 
 
 
Site production and delivery, before net noncash and other costs shown below
1.86

 
1.65

 
6.68

 
1.62

 
1.45

 
8.18

By-product creditsa
(0.55
)
 

 

 
(0.36
)
 

 

Treatment charges
0.11

 
0.11

 

 
0.10

 
0.10

 

Unit net cash costs
1.42

 
1.76

 
6.68

 
1.36

 
1.55

 
8.18

Depreciation, depletion and amortization
0.21

 
0.19

 
0.34

 
0.24

 
0.22

 
0.51

Noncash and other costs, net
0.04

 
0.04

 
0.02

 
0.11

 
0.11

 
(0.12
)
Total unit costs
1.67

 
1.99

 
7.04

 
1.71

 
1.88

 
8.57

Revenue adjustments
(0.04
)
 
(0.04
)
 

 

 

 

Idle facility and other non-inventoriable costs
(0.06
)
 
(0.06
)
 
(0.04
)
 
(0.10
)
 
(0.10
)
 
(0.04
)
Gross profit per pound
$
2.28

 
$
1.96

 
$
8.14

 
$
1.51

 
$
1.34

 
$
6.49

 
 
 
 
 
 
 
 
 
 
 
 
Copper sales (millions of recoverable pounds)
307

 
307

 
 
 
266

 
266

 
 
Molybdenum sales (millions of recoverable pounds)b
 
 
 
 
10

 
 
 
 
 
7

 
Nine Months Ended
 
Nine Months Ended
 
September 30, 2011
 
September 30, 2010
 
By- Product Method
 
Co-Product Method
 
By- Product Method
 
Co-Product Method
 
 
Copper
 
Molyb-
denuma
 
 
Copper
 
Molyb-
denuma
Revenues, excluding adjustments
$
4.19

 
$
4.19

 
$
16.30

 
$
3.28

 
$
3.28

 
$
15.49

 
 
 
 
 
 
 
 
 
 
 
 
Site production and delivery, before net noncash and other costs shown below
1.80

 
1.61

 
6.77

 
1.46

 
1.31

 
8.06

By-product creditsa
(0.52
)
 

 

 
(0.33
)
 

 

Treatment charges
0.10

 
0.10

 

 
0.09

 
0.09

 

Unit net cash costs
1.38

 
1.71

 
6.77

 
1.22

 
1.40

 
8.06

Depreciation, depletion and amortization
0.20

 
0.19

 
0.38

 
0.24

 
0.23

 
0.59

Noncash and other costs, net
0.08

 
0.07

 
0.05

 
0.13

 
0.12

 
(0.01
)
Total unit costs
1.66

 
1.97

 
7.20

 
1.59

 
1.75

 
8.64

Revenue adjustments

 

 

 

 

 

Idle facility and other non-inventoriable costs
(0.05
)
 
(0.05
)
 
(0.02
)
 
(0.08
)
 
(0.08
)
 
(0.02
)
Gross profit per pound
$
2.48

 
$
2.17

 
$
9.08

 
$
1.61

 
$
1.45

 
$
6.83

 
 
 
 
 
 
 
 
 
 
 
 
Copper sales (millions of recoverable pounds)
912

 
912

 
 
 
845

 
845

 
 
Molybdenum sales (millions of recoverable pounds)b
 
 
 
 
27
 
 
 
 
 
18

a.
Molybdenum credits and revenues reflect volumes produced at market-based pricing and also include tolling revenues at Sierrita. 
b.
Reflects molybdenum produced by certain of our North America copper mines.

Our operating North America copper mines have varying cost structures because of differences in ore grades and characteristics, processing costs, by-products and other factors. Average unit net cash costs (net of by-product credits) for our North America copper mines totaled $1.42 per pound of copper in third-quarter 2011 and $1.38 per pound of copper for the first nine months of 2011, compared with $1.36 per pound of copper in third-quarter 2010

30


and $1.22 per pound of copper for the first nine months of 2010, primarily reflecting higher site production and delivery costs ($0.24 per pound for the quarter and $0.34 per pound for the nine-month period) resulting from increased mining and milling activities and higher input costs. Partly offsetting higher site production and delivery costs were higher molybdenum credits ($0.19 per pound for both the quarter and nine-month periods) resulting from higher molybdenum volumes.

Assuming achievement of current sales volume and cost estimates and an average price of $14 per pound of molybdenum for fourth-quarter 2011, we estimate that average unit net cash costs (net of by-product credits) for our North America copper mines would approximate $1.42 per pound of copper for the year 2011, compared with $1.24 per pound of copper in 2010. North America's average unit net cash costs for 2011 would change by approximately $0.01 per pound for each $2 per pound change in the average price of molybdenum during fourth-quarter 2011.

South America Mining
We operate four copper mines in South America – Cerro Verde in Peru, and El Abra, Candelaria and Ojos del Salado in Chile. We own a 53.56 percent interest in Cerro Verde, a 51 percent interest in El Abra, and an 80 percent interest in both Candelaria and Ojos del Salado.

South America mining includes open-pit and underground mining, sulfide ore concentrating, leaching and SX/EW operations. Production from our South America mines is sold as copper concentrate or copper cathode under long-term contracts. Our South America mines ship a portion of their copper concentrate and cathode inventories to Atlantic Copper, an affiliated smelter. In addition to copper, the Cerro Verde mine produces molybdenum concentrates, and the Candelaria and Ojos del Salado mines produce gold and silver.

Operating and Development Activities.
El Abra Sulfide. During 2011, we commenced production from El Abra’s newly commissioned stacking and leaching facilities to transition from oxide to sulfide ores. Production from the sulfide ore is expected to approximate 300 million pounds of copper per year, replacing the currently depleting oxide copper production. The aggregate capital investment for this project is expected to total $725 million through 2015, of which approximately $580 million is for the initial phase of the project expected to be complete by the end of 2011. Project costs of $494 million have been incurred as of September 30, 2011 ($133 million during the first nine months of 2011).

We are also engaged in pre-feasibility studies for a potential large-scale milling operation at El Abra to process additional sulfide material and to achieve higher recoveries. Positive exploration results at El Abra indicate the potential for a significant sulfide resource. Exploration activities are continuing.

Cerro Verde Expansion. At Cerro Verde, plans for a large-scale concentrator expansion continue to be advanced. The approximate $4 billion project would 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. We filed an environmental impact assessment in fourth-quarter 2011.

An agreement has been reached with the Regional Government of Arequipa, the National Government, Servicio de Agua Potable y Alcantarillado de Arequipa S.A. (SEDAPAR) and other local institutions to allow Cerro Verde to finance the engineering and construction of a wastewater treatment plant for Arequipa, should Cerro Verde proceed with the expansion. Once Cerro Verde obtains a license for the treated water it would be used to supplement its existing water supplies to support the potential concentrator expansion.  

Candelaria Water. As part of our overall strategy to supply water to the Candelaria mine, we completed construction of a pipeline to bring water from a nearby water treatment facility. In addition, we have completed engineering and began construction for a desalination plant that will supply Candelaria’s longer term water needs. The plant is expected to be completed in early 2013 at a capital investment of $280 million. Project costs of $84 million have been incurred as of September 30, 2011 ($78 million during the first nine months of 2011).


31


Other Matters. As reported in Note 13 of our annual report on Form 10-K for the year ended December 31, 2010, Cerro Verde has received assessments from SUNAT, the Peruvian national tax authority, in connection with claims for mining royalties related to the minerals processed by its concentrator, which was added to Cerro Verde’s processing facilities in late 2006. These assessments relate to the period from October 2006 through December 2007, and to the years 2008 and 2009. SUNAT issued rulings denying Cerro Verde’s protest of the assessments, and Cerro Verde has appealed these decisions to the Peruvian Tax Tribunal. Cerro Verde is challenging these royalties because its stability agreement with the Peruvian government exempts from assessments all minerals extracted from its mining concession, irrespective of the method used for processing those minerals. If Cerro Verde is ultimately found responsible for these royalties, it will also be liable for interest, which accrues at rates that range from approximately 7 to 18 percent based on the year accrued and the currency in which the amounts would be payable. At September 30, 2011, the aggregate amount of the assessments, including interest and penalties, approximated $184 million. This amount will continue to increase at varying interest rates until this matter is resolved. SUNAT may continue to assess mining royalties annually until this matter is resolved by the Tax Tribunal.

As reported in Note 14 of our annual report on Form 10-K for the year ended December 31, 2010, during 2006, the Peruvian government announced that all mining companies operating in Peru would be required to make annual contributions to local development funds for a five-year period (covering the years 2006 through 2010). Cerro Verde's final contribution to these funds was made in early 2011. In September 2011, Peru enacted a new mining tax and royalty regime. As a result, Cerro Verde recognized additional current and deferred income tax expense in third-quarter 2011. Refer to "Consolidated Results - Provision for Income Taxes" for further discussion.

In July 2011, the Chilean senate passed legislation regulating mine closure, which establishes new requirements for closure plans. Our Chilean operations will be required to update closure plans and provide financial assurance for these obligations.

During third-quarter 2011, Cerro Verde's union workforce commenced a series of strike actions. The most recent strike commenced on September 29, 2011. Efforts are ongoing to reach a mutually satisfactory renewal of Cerro Verde's collective bargaining agreement. Production of copper and molybdenum has not been materially affected.


32


Operating Data. Following is summary operating data for our South America mining operations for the third quarters and first nine months of 2011 and 2010:
 
Three Months Ended
 
Nine Months Ended
 
September 30,
 
September 30,
 
2011
 
2010
 
2011
 
2010
Copper (millions of recoverable pounds)
 
 
 
 
 
 
 
Production
325

 
356

 
969

 
1,007

Sales
322

 
377

 
965

 
995

Average realized price per pound
$
3.45

 
$
3.55

 
$
3.82

 
$
3.36

 
 
 
 
 
 
 
 
Gold (thousands of recoverable ounces)
 
 
 
 
 
 
 
Production
25

 
29

 
73

 
68

Sales
23

 
30

 
72

 
69

Average realized price per ounce
$
1,664

 
$
1,265

 
$
1,556

 
$
1,211

 
 
 
 
 
 
 
 
Molybdenum (millions of recoverable pounds)
 
 
 
 
 
 
 
Productiona
2

 
2

 
8

 
5

 
 
 
 
 
 
 
 
SX/EW operations
 
 
 
 
 
 
 
Leach ore placed in stockpiles (metric tons per day)
244,100

 
281,000

 
249,500

 
261,500

Average copper ore grade (percent)
0.54

 
0.39

 
0.48

 
0.42

Copper production (millions of recoverable pounds)
111

 
122

 
314

 
385

 
 
 
 
 
 
 
 
Mill operations
 
 
 
 
 
 
 
Ore milled (metric tons per day)
185,700

 
193,800

 
192,300

 
187,100

Average ore grade:
 
 
 
 
 
 
 
Copper (percent)
0.66

 
0.69

 
0.66

 
0.64

Gold (grams per metric ton)
0.12

 
0.11

 
0.12

 
0.10

Molybdenum (percent)
0.02

 
0.02

 
0.02

 
0.02

Copper recovery rate (percent)
89.1

 
90.7

 
90.0

 
90.0

Production (recoverable):
 
 
 
 
 
 
 
Copper (millions of pounds)
214

 
234

 
655

 
622

Gold (thousands of ounces)
25

 
29

 
73

 
68

Molybdenum (millions of pounds)
2

 
2

 
8

 
5

a.
Reflects molybdenum production from Cerro Verde. Sales of molybdenum are reflected in the Molybdenum division.

Copper sales from our South America mining operations declined to 322 million pounds in third-quarter 2011 and 965 million pounds for the first nine months of 2011, compared with 377 million pounds in third-quarter 2010 and 995 million pounds for the first nine months of 2010, primarily reflecting the timing of shipments. Third-quarter 2011 was also impacted by lower production at Candelaria and the first nine months of 2011 was impacted by anticipated lower mining rates at El Abra as it transitioned from oxide to sulfide ores.

For the year 2011, consolidated sales volumes from South America mining are expected to approximate 1.3 billion pounds of copper and 100 thousand ounces of gold, similar to 2010 sales of 1.3 billion pounds of copper and 93 thousand ounces of gold. Molybdenum production from Cerro Verde is expected to approximate 10 million pounds for the year 2011, compared with 7 million pounds in 2010.

Unit Net Cash Costs. Unit net cash costs per pound of copper is a measure intended to provide investors with information about the cash-generating capacity of our mining operations expressed on a basis relating to the primary metal product for our respective operations. We use this measure for the same purpose and for monitoring operating performance by our mining operations. This information differs from measures of performance determined in accordance with U.S. GAAP and should not be considered in isolation or as a substitute for measures of performance determined in accordance with U.S. GAAP. This measure is presented by other metals mining companies, although our measure may not be comparable to similarly titled measures reported by other companies.


33


Gross Profit per Pound of Copper

The following tables summarize unit net cash costs and gross profit per pound at the South America mining operations for the third quarters and first nine months of 2011 and 2010. Unit net cash costs per pound of copper are reflected under the by-product and co-product methods as the South America mining operations also had small amounts of molybdenum, gold and silver sales. Refer to “Product Revenues and Production Costs” for an explanation of the “by-product” and “co-product” methods and a reconciliation of unit net cash costs per pound to production and delivery costs applicable to sales reported in our consolidated financial statements.
 
Three Months Ended
 
Three Months Ended
 
September 30, 2011
 
September 30, 2010
 
By-Product
Method
 
Co-Product
Method
 
By-Product
Method
 
Co-Product
Method
Revenues, excluding adjustments
$
3.45

 
$
3.45

 
$
3.55

 
$
3.55

 
 
 
 
 
 
 
 
Site production and delivery, before net noncash and other costs shown below
1.38

 
1.25

 
1.16

 
1.09

By-product credits
(0.36
)
 

 
(0.21
)
 

Treatment charges
0.13

 
0.13

 
0.18

 
0.18

Unit net cash costs
1.15

 
1.38

 
1.13

 
1.27

Depreciation, depletion and amortization
0.20

 
0.19

 
0.17

 
0.17

Noncash and other costs, net
0.02

 
0.01

 
0.02

 
0.02

Total unit costs
1.37

 
1.58

 
1.32

 
1.46

Revenue adjustments, primarily for pricing on prior period open sales
(0.45
)
 
(0.45
)
 
0.28

 
0.28

Other non-inventoriable costs
(0.07
)
 
(0.06
)
 
(0.04
)
 
(0.03
)
Gross profit per pound
$
1.56

 
$
1.36

 
$
2.47

 
$
2.34

 
 
 
 
 
 
 
 
Copper sales (millions of recoverable pounds)
322

 
322

 
377

 
377

 
Nine Months Ended
 
Nine Months Ended
 
September 30, 2011
 
September 30, 2010
 
By-Product
Method
 
Co-Product
Method
 
By-Product
Method
 
Co-Product
Method
Revenues, excluding adjustments
$
3.82

 
$
3.82

 
$
3.36

 
$
3.36

 
 
 
 
 
 
 
 
Site production and delivery, before net noncash and other costs shown below
1.31

 
1.20

 
1.19

 
1.12

By-product credits
(0.36
)
 

 
(0.19
)
 

Treatment charges
0.17

 
0.17

 
0.15

 
0.15

Unit net cash costs
1.12

 
1.37

 
1.15

 
1.27

Depreciation, depletion and amortization
0.19

 
0.18

 
0.19

 
0.18

Noncash and other costs, net
0.02

 
0.02

 
0.01

 
0.01

Total unit costs
1.33

 
1.57

 
1.35

 
1.46

Revenue adjustments, primarily for pricing on prior period open sales
0.01

 
(0.01
)
 
(0.01
)
 
(0.01
)
Other non-inventoriable costs
(0.05
)
 
(0.04
)
 
(0.03
)
 
(0.03
)
Gross profit per pound
$
2.45

 
$
2.20

 
$
1.97

 
$
1.86

 
 
 
 
 
 
 
 
Copper sales (millions of recoverable pounds)
965

 
965

 
995

 
995


Our South America mines have varying cost structures because of differences in ore grades and characteristics, processing costs, by-products and other factors. Average unit net cash costs (net of by-product credits) for our South America mining operations averaged $1.15 per pound of copper in third-quarter 2011, compared with $1.13 per pound in third-quarter 2010. Higher unit net cash costs in third-quarter 2011 primarily reflected higher site production and delivery costs ($0.22 per pound) associated with lower copper sales volumes, partly offset by higher gold, molybdenum and silver credits ($0.15 per pound) and lower treatment charges ($0.05 per pound).


34


Average unit net cash costs at our South America mining operations averaged $1.12 per pound for the first nine months of 2011, compared with $1.15 for the first nine months of 2010. Lower unit net cash costs for the first nine months of 2011 primarily reflected higher molybdenum, gold and silver credits ($0.17 per pound), that more than offset higher site production and delivery costs ($0.12 per pound).

Revenue adjustments primarily result from changes in prices on provisionally priced copper sales recognized in prior periods. To the extent prices are higher or lower than what was recorded on a provisional basis, an increase or decrease to revenues is recorded each reporting period until the date of final pricing. Accordingly, lower copper prices at the end of third-quarter 2011 resulted in unfavorable revenue adjustments to June 30, 2011, provisionally priced copper sales, whereas, increasing prices in third-quarter 2010 resulted in favorable revenue adjustments to June 30, 2010, provisionally priced copper sales. Refer to “Consolidated Results - Revenues” for further discussion.

Assuming achievement of current 2011 sales volume and cost estimates and average prices of $1,600 per ounce of gold and $14 per pound of molybdenum for fourth-quarter 2011, we estimate that average unit net cash costs (net of by-product credits) for our South America mining operations would approximate $1.17 per pound of copper for the year 2011, compared with $1.15 per pound in 2010.

Indonesia Mining
Indonesia mining includes PT Freeport Indonesia’s Grasberg minerals district. We own 90.64 percent of PT Freeport Indonesia, including 9.36 percent owned through our wholly owned subsidiary, PT Indocopper Investama.

PT Freeport Indonesia produces copper concentrates, which contain significant quantities of gold and silver. Substantially all of PT Freeport Indonesia’s copper concentrates are sold under long-term contracts, of which approximately one-half is sold to affiliated smelters, Atlantic Copper and PT Smelting (PT Freeport Indonesia’s 25-percent owned copper smelter and refinery in Indonesia) and the remainder to other customers.

We have established certain unincorporated joint ventures with Rio Tinto plc (Rio Tinto), under which Rio Tinto has a 40 percent interest in certain assets and future production exceeding specified annual amounts of copper, gold and silver.

Development Activities. We have several projects in progress in the Grasberg minerals district, primarily related to the development of the large-scale, high-grade underground ore bodies located beneath and nearby the Grasberg open pit. In aggregate, these underground ore bodies are expected to ramp up to approximately 240,000 metric tons of ore per day following the currently anticipated transition from the Grasberg open pit in 2016. Over the next five years, aggregate capital spending on these projects is expected to average $635 million per year ($500 million per year net to PT Freeport Indonesia). Considering the long-term nature and large size of these projects, actual costs could differ materially from these estimates.

The following provides additional information on these projects, including the continued development of the Common Infrastructure project, the Grasberg Block Cave and Big Gossan underground mines and development of the Deep Mill Level Zone (DMLZ) ore body, that lies below the DOZ underground mine.

Common Infrastructure and Grasberg Block Cave. In 2004, PT Freeport Indonesia commenced its Common Infrastructure project to provide access to its large undeveloped underground ore bodies located in the Grasberg minerals district through a tunnel system located approximately 400 meters deeper than its existing underground tunnel system. In addition to providing access to our underground ore bodies, the tunnel system will enable PT Freeport Indonesia to conduct future exploration in prospective areas associated with currently identified ore bodies. The tunnel system has reached the Big Gossan terminal and development of the lower Big Gossan infrastructure is ongoing. We have also advanced development of the Grasberg spur and have completed the tunneling required to reach the Grasberg underground ore body. Development continues on the Grasberg Block Cave terminal infrastructure and mine access.

The Grasberg Block Cave underground mine accounts for over one-third of our reserves in Indonesia. Production at the Grasberg Block Cave mine is currently scheduled to commence at the end of mining the Grasberg open pit, which is currently expected to continue until mid-2016. The timing of the transition to underground Grasberg Block Cave mine development will continue to be assessed. Targeted production rates once the Grasberg Block Cave mining operation reaches full capacity are expected to approximate 160,000 metric tons of ore per day.


35


Aggregate mine development capital for the Grasberg Block Cave mine and associated Common Infrastructure is expected to approximate $3.9 billion (incurred between 2008 and 2021), with PT Freeport Indonesia’s share totaling approximately $3.5 billion. Aggregate project costs totaling $485 million have been incurred through September 30, 2011 ($225 million during the first nine months of 2011).

Big Gossan. The Big Gossan underground mine is a high-grade deposit located near PT Freeport Indonesia’s existing milling complex. The Big Gossan mine is being developed as an open-stope mine with backfill consisting of mill tailings and cement, an established mining methodology. Production, which began in fourth-quarter 2010, is designed to ramp up to 7,000 metric tons of ore per day by the end of 2012 (equal to average annual aggregate incremental production of 125 million pounds of copper and 65,000 ounces of gold, with PT Freeport Indonesia receiving 60 percent of these amounts). The aggregate capital investment for this project is currently estimated at approximately $550 million, with PT Freeport Indonesia’s share totaling approximately $515 million. Aggregate project costs of $483 million have been incurred through September 30, 2011 ($39 million during the first nine months of 2011).

DMLZ. The DMLZ ore body lies below the DOZ mine at the 2,590-meter elevation and represents the downward continuation of mineralization in the Ertsberg East Skarn system and neighboring Ertsberg porphyry. We plan to mine the ore body using a block-cave method with production beginning in 2015, near completion of mining at the DOZ mine. Drilling efforts continue to determine the extent of this ore body. We continue to develop the Common Infrastructure project and tunnels from mill level. In 2009, we completed a portion of the spur to the DMLZ mine and reached the edge of the DMLZ terminal and development continued on terminal infrastructure and mine access in 2010. Aggregate mine development capital costs for the DMLZ are expected to approximate $2.0 billion (incurred from 2009 to 2020), with PT Freeport Indonesia’s share totaling approximately $1.2 billion. Aggregate project costs totaling $217 million have been incurred through September 30, 2011 ($114 million during the first nine months of 2011). Targeted production rates once the DMLZ mining operation reaches full capacity are expected to approximate 80,000 metric tons of ore per day.

Other Matters. As reported in Note 13 of our annual report on Form 10-K for the year ended December 31, 2010, in October 2010, PT Freeport Indonesia received an assessment from the Indonesian tax authorities for additional taxes of $106 million and interest of $52 million related to various audit exceptions for 2005. PT Freeport Indonesia has filed objections to these assessments because it believes that it has properly paid taxes for the year 2005. In October 2011, PT Freeport Indonesia also received an assessment from the Indonesian tax authorities for additional taxes of $22 million and interest of $10 million related to various audit exceptions for 2006. PT Freeport Indonesia plans to file objections to these assessments. PT Freeport Indonesia is working with the Indonesian tax authorities to resolve these matters.

As reported in Note 13 of our annual report on Form 10-K for the year ended December 31, 2010, in December 2009, PT Freeport Indonesia was notified by the Large Taxpayer’s Office of the Government of Indonesia of its view that PT Freeport Indonesia is obligated to pay value added taxes on certain goods imported after the year 2000. The amount of taxes and penalties would be significant. PT Freeport Indonesia believes that, pursuant to the terms of its Contract of Work, it is only required to pay value added taxes on these types of goods imported after December 30, 2009. PT Freeport Indonesia has not received an assessment and is working with the applicable government authorities to resolve this matter.

As reported in “Risk Factors” contained in Part I, Item 1A of our annual report on Form 10-K for the year ended December 31, 2010, between July 2009 and January 2010, a series of shooting incidents along the road leading to our mining and milling operations at the Grasberg mining complex resulted in three fatalities and several injuries. In early April 2011, two additional incidents resulted in two fatalities and two injuries to PT Freeport Indonesia employees. In October 2011, additional shooting incidents in our tailings area and along the access road to the Grasberg mining complex resulted in six fatalities and several injuries. The investigation of these matters is continuing. We have taken precautionary measures, including limiting use of the road to secured convoys and the Indonesian government has responded with additional security forces and expressed a strong commitment to protect the safety of the community and our operations. Our mining and milling activities have not been interrupted by these incidents; however, prolonged limitations on access to the road could adversely affect operations at the mine. Refer to Part II, Item 1A. “Risk Factors.”

During third-quarter 2011, PT Freeport Indonesia was adversely affected by labor disruptions, including the eight-day strike in July 2011 and the ongoing strike that commenced September 15, 2011. The union has notified PT Freeport Indonesia that it intends to extend the strike to December 15, 2011. PT Freeport Indonesia continues to

36


seek an end to the strike, which has no legal basis, and to conclude negotiations, on a fair and reasonable basis, of the bi-annual renewal of its collective labor agreement. PT Freeport Indonesia's compensation practices are highly competitive in Indonesia, and PT Freeport Indonesia has agreed to accept the recommendations of the government appointed mediator for a generous increase in wages and other benefits. However, the union has declined to accept these recommendations, and on October 10, 2011, PT Freeport Indonesia filed its case with the Industrial Court. We cannot predict when the strike will end or what the outcome of our labor negotiations will be.

As a result of the reduced production levels caused by the labor disruptions, PT Freeport Indonesia declared force majeure on certain of its concentrate sales contracts. Since October 22, 2011, milling operations have been temporarily suspended pending repairs to concentrate pipelines damaged as a result of civil unrest which occurred during the course of the strike. PT Freeport Indonesia has initiated repairs to the damaged pipelines but has not been able to gain full access to the affected areas because of road blockages by striking workers. PT Freeport Indonesia is working with local authorities to restore access to the road and the pipelines so that repairs can be completed and milling operations restarted. Refer to Part II, Item 1A. “Risk Factors” for further discussion of operational risks associated with labor disputes at our mining operations.

Operating Data. Following is summary operating data for our Indonesia mining operations for the third quarters and first nine months of 2011 and 2010:
 
Three Months Ended
 
Nine Months Ended
 
September 30,
 
September 30,
 
2011
 
2010
 
2011
 
2010
Operating Data, Net of Joint Venture Interest
 
 
 
 
 
 
 
Copper (millions of recoverable pounds)
 
 
 
 
 
 
 
Production
233

 
358

 
778

 
913

Sales
253

 
364

 
796

 
919

Average realized price per pound
$
3.29

 
$
3.60

 
$
3.82

 
$
3.36

 
 
 
 
 
 
 
 
Gold (thousands of recoverable ounces)
 
 
 
 
 
 
 
Production
357

 
462

 
1,123

 
1,185

Sales
384

 
466

 
1,168

 
1,200

Average realized price per ounce
$
1,695

 
$
1,266

 
$
1,565

 
$
1,204

 
 
 
 
 
 
 
 
100% Operating Data
 
 
 
 
 
 
 
Ore milled (metric tons per day):a
 
 
 
 
 
 
 
Grasberg open pit
107,000

 
150,400

 
137,200

 
150,300

DOZ underground mine
43,900

 
78,500

 
58,900

 
78,500

Big Gossan underground mine
1,300

 

 
1,800

 

Total
152,200

 
228,900

 
197,900

 
228,800

Average ore grade:
 
 
 
 
 
 
 
Copper (percent)
0.90

 
0.92

 
0.80

 
0.84

Gold (grams per metric ton)
1.14

 
0.92

 
0.92

 
0.81

Recovery rates (percent):
 
 
 
 
 
 
 
Copper
89.8

 
89.1

 
88.2

 
88.8

Gold
82.4

 
83.6

 
81.3

 
80.6

Production (recoverable):
 
 
 
 
 
 
 
Copper (millions of pounds)
237

 
362

 
803

 
975

Gold (thousands of ounces)
408

 
513

 
1,261

 
1,298

a.
Amounts represent the approximate average daily throughput processed at PT Freeport Indonesia’s mill facilities from each producing mine.

At the Grasberg mine, the sequencing in mining areas with varying ore grades causes fluctuations in the timing of ore production resulting in varying quarterly and annual sales of copper and gold. Sales volumes from our Indonesia mining operations declined to 253 million pounds of copper and 384 thousand ounces of gold in third-quarter 2011 and 796 million pounds of copper and 1.2 million ounces of gold for the first nine months of 2011, compared with 364 million pounds of copper and 466 thousand ounces of gold in third-quarter 2010 and 919 million

37


pounds of copper and 1.2 million ounces of gold for the first nine months of 2010, primarily because of planned sequencing of mining in a lower ore-grade section of the Grasberg open pit. The estimated impact from labor disruptions on third-quarter 2011 production, including the eight-day strike in July 2011 and the ongoing strike that commenced on September 15, 2011, totaled approximately 70 million pounds of copper and 100 thousand ounces of gold. PT Freeport Indonesia has developed revised operating plans during the strike and also sold concentrates from inventory during third-quarter 2011, which partly mitigated the lower production levels.

On October 19, 2011, we reported that for the year 2011, we expect sales from our Indonesia mining operations to approximate 1.0 billion pounds of copper and 1.45 million ounces of gold, compared with 1.2 billion pounds of copper and 1.8 million ounces of gold in 2010. We also reported that the impact of labor disruptions for the year 2011, which is subject to change based on operating rates, mine plans, the extent to which we can operate using a reduced workforce, and the timing of resumption of normal operations, is estimated to approximate 100 million pounds of copper and 100 thousand ounces of gold. Fourth-quarter 2011 sales estimates reflect reduced operations resulting from the current strike conditions, and include an assumption that operations are conducted on average at the reduced rates (mill throughput averaging approximately 175,000 metric tons of ore per day) throughout fourth-quarter 2011. During October 2011, mill throughput of approximately 120,000 metric tons of ore per day was below forecast because of the currently on-going suspension of milling and concentrate delivery operations since October 22, 2011. We will update our estimates of fourth quarter sales when repairs to the concentrate pipelines are completed.

Unit Net Cash Costs. Unit net cash costs per pound of copper is a measure intended to provide investors with information about the cash-generating capacity of our mining operations expressed on a basis relating to the primary metal product for our respective operations. We use this measure for the same purpose and for monitoring operating performance by our mining operations. This information differs from measures of performance determined in accordance with U.S. GAAP and should not be considered in isolation or as a substitute for measures of performance determined in accordance with U.S. GAAP. This measure is presented by other metals mining companies, although our measure may not be comparable to similarly titled measures reported by other companies.

Gross Profit per Pound of Copper and per Ounce of Gold

The following tables summarize the unit net cash costs and gross profit per pound of copper and per ounce of gold at our Indonesia mining operations for the third quarters and first nine months of 2011 and 2010. Refer to “Production Revenues and Production Costs” for an explanation of “by-product” and “co-product” methods and a reconciliation of unit net cash costs per pound to production and delivery costs applicable to sales reported in our consolidated financial statements.
 
Three Months Ended
 
Three Months Ended
 
September 30, 2011
 
September 30, 2010
 
By-Product Method
 
Co-Product Method
 
By-Product Method
 
Co-Product Method
 
 
Copper
 
Gold
 
 
Copper
 
Gold
Revenues, excluding adjustments
$
3.29

 
$
3.29

 
$
1,695

 
$
3.60

 
$
3.60

 
$
1,266

 
 
 
 
 
 
 
 
 
 
 
 
Site production and delivery, before net noncash and other costs shown below
1.98

 
1.09

 
561

 
1.43

 
0.98

 
344

Gold and silver credits
(2.80
)
 

 

 
(1.67
)
 

 

Treatment charges
0.18

 
0.10

 
53

 
0.22

 
0.15

 
53

Royalty on metals
0.16

 
0.09

 
46

 
0.12

 
0.08

 
29

Unit net cash (credits) costs
(0.48
)
 
1.28

 
660

 
0.10

 
1.21

 
426

Depreciation and amortization
0.25

 
0.13

 
69

 
0.20

 
0.14

 
48

Noncash and other costs, net
0.01

 
0.01

 
4

 
0.02

 
0.01

 
4

Total unit (credits) costs
(0.22
)
 
1.42

 
733

 
0.32

 
1.36

 
478

Revenue adjustments, primarily for pricing on prior period open sales
(0.35
)
 
(0.35
)
 
74

 
0.22

 
0.22

 
(10
)
Gross profit per pound/ounce
$
3.16

 
$
1.52

 
$
1,036

 
$
3.50

 
$
2.46

 
$
778

 
 
 
 
 
 
 
 
 
 
 
 
Copper sales (millions of recoverable pounds)
253

 
253

 
 
 
364

 
364

 
 
Gold sales (thousands of recoverable ounces)
 
 
 
 
384

 
 
 
 
 
466


38


 
Nine Months Ended
 
Nine Months Ended
 
September 30, 2011
 
September 30, 2010
 
By-Product Method
 
Co-Product Method
 
By-Product Method
 
Co-Product Method
 
 
Copper
 
Gold
 
 
Copper
 
Gold
Revenues, excluding adjustments
$
3.82

 
$
3.82

 
$
1,565

 
$
3.36

 
$
3.36

 
$
1,204

 
 
 
 
 
 
 
 
 
 
 
 
Site production and delivery, before net noncash and other costs shown below
1.91

 
1.17

 
480

 
1.52

 
1.02

 
367

Gold and silver credits
(2.39
)
 

 

 
(1.63
)
 

 

Treatment charges
0.18

 
0.11

 
46

 
0.23

 
0.16

 
56

Royalty on metals
0.16

 
0.10

 
41

 
0.12

 
0.08

 
29

Unit net cash (credits) costs
(0.14
)
 
1.38

 
567

 
0.24

 
1.26

 
452

Depreciation and amortization
0.23

 
0.14

 
56

 
0.21

 
0.14

 
50

Noncash and other costs, net
0.04

 
0.02

 
8

 
0.03

 
0.03

 
8

Total unit costs
0.13

 
1.54

 
631

 
0.48

 
1.43

 
510

Revenue adjustments, primarily for pricing on prior period open sales
(0.01
)
 
(0.01
)
 
(15
)
 
(0.01
)
 
(0.01
)
 
1

Gross profit per pound/ounce
$
3.68

 
$
2.27

 
$
919

 
$
2.87

 
$
1.92

 
$
695

 
 
 
 
 
 
 
 
 
 
 
 
Copper sales (millions of recoverable pounds)
796

 
796

 
 
 
919

 
919

 
 
Gold sales (thousands of recoverable ounces)
 
 
 
 
1,168

 
 
 
 
 
1,200


Because of the fixed nature of a large portion of PT Freeport Indonesia’s costs, unit costs vary significantly from period to period depending on volumes of copper and gold sold during the period, and realized gold prices. Unit net cash costs (net of gold and silver credits) for our Indonesia mining operations averaged a net credit of $0.48 per pound of copper in third-quarter 2011 and net credit of $0.14 per pound of copper for the first nine months of 2011, compared with a net cost of $0.10 per pound of copper in third-quarter 2010 and a net cost of $0.24 per pound of copper for the first nine months of 2010. Lower unit net cash costs primarily reflected higher gold and silver credits ($1.13 per pound for the quarter and $0.76 for the nine-month period) that more than offset higher site production and delivery costs ($0.55 per pound for the quarter and $0.39 per pound for the nine-month period) primarily from lower copper volumes.

Treatment charges vary with the volume of metals sold and the price of copper, and royalties vary with the volume of metals sold and the prices of copper and gold.

Revenue adjustments primarily result from changes in prices on provisionally priced copper sales recognized in prior periods. To the extent prices are higher or lower than what was recorded on a provisional basis, an increase or decrease to revenues is recorded each reporting period until the date of final pricing. Accordingly, lower copper prices at the end of third-quarter 2011 resulted in unfavorable revenue adjustments to June 30, 2011, provisionally priced copper sales, whereas, increasing prices in third-quarter 2010 resulted in favorable revenue adjustments to June 30, 2010, provisionally priced copper sales. Refer to “Consolidated Results - Revenues” for further discussion.

Assuming achievement of current sales volume and cost estimates, and an average gold price of $1,600 per ounce for fourth-quarter 2011, we estimate that average unit net cash costs for PT Freeport Indonesia (net of gold and silver credits) would approximate $0.03 per pound of copper for the year 2011, compared with a net credit of $0.04 per pound in 2010. Indonesia's unit net cash costs for 2011 would change by $0.025 per pound for each $50 per ounce change in the average price of gold during fourth-quarter 2011. Fourth-quarter 2011 unit net cash costs for PT Freeport Indonesia are expected to be higher than the average for the year primarily because of lower volumes.

Africa Mining
Africa mining includes the Tenke copper and cobalt mining concessions in the Katanga province of the DRC. The Tenke mine includes surface mining, leaching and SX/EW operations. Copper production from the Tenke mine is sold as copper cathode. In addition to copper, the Tenke mine produces cobalt hydroxide. All Africa mining operations are conducted by Tenke Fungurume Mining S.A.R.L. (TFM).

In October 2010, the government of the DRC concluded its review of TFM’s existing mining contracts and confirmed that they are in good standing. In connection with the review, TFM made several commitments that have been reflected in amendments to its mining contracts, which were signed by the parties in December 2010 (refer to Note

39


14 in our annual report on Form 10-K for the year ended December 31, 2010, for further discussion). In March 2011, the amendments were approved by a ministerial council, and a Presidential Decree signed by the President and Prime Minister of the DRC was issued in April 2011. After receiving the required government approval of the modifications to TFM's bylaws that reflect the agreement with the government of the DRC, our effective ownership interest in the project will be reduced to 56.0 percent prospectively, compared to our current ownership interest of 57.75 percent.

Operating and Development Activities. Pursuant to our agreement with Lundin Mining Corporation, we were responsible for funding 70 percent of the project development costs and 100 percent of certain cost overruns on the initial project. Of the approximate $2 billion we invested in the initial project, we have received payments of approximately $700 million through September 30, 2011.

The milling facilities at Tenke, which were designed to process ore at a rate of 8,000 metric tons per day, continue to perform above capacity, with throughput averaging 12,000 metric tons of ore per day in third-quarter 2011 and 10,800 metric tons of ore per day for the first nine months of 2011. Mining rates have been increased to enable additional copper production from the initial project capacity of 250 million pounds of copper per year to ramp up to approximately 290 million pounds of copper per year.

We are undertaking a second phase of the project, which would include optimizing the current plant and increasing capacity. As part of the second phase, we plan to expand the mill rate to 14,000 metric tons per day and to construct related processing facilities that would target the addition of approximately 150 million pounds of copper per year. The approximate $850 million project, which includes mill upgrades, additional mining equipment and a new tankhouse and sulphuric acid plant expansion, is targeted for completion in 2013.

We continue to engage in drilling activities, exploration analyses and metallurgical testing to evaluate the potential of the highly prospective minerals district at Tenke. These analyses are being incorporated in future plans to evaluate opportunities for expansion. Future expansions are subject to a number of factors, including economic and market conditions and the business and investment climate in the DRC.

Other Matters. During second-quarter 2011, we successfully revised the Collective Labor Agreement (CLA) with union-represented employees at TFM to conform provisions to recent changes in DRC law. The revisions did not contain any material modifications and will come up for review in August 2013. Salary scale, which is negotiated outside of the CLA on a bi-annual basis, is up for review in August 2012.

Operating Data. Following is summary operating data for our Africa mining operations for the third quarters and first nine months of 2011 and 2010:
 
Three Months Ended
 
Nine Months Ended
 
September 30,
 
September 30,
 
2011
 
2010
 
2011
 
2010
Copper (millions of recoverable pounds)
 
 
 
 
 
 
 
Production
71

 
69

 
204

 
195

Sales
65

 
73

 
200

 
194

Average realized price per pounda
$
3.46

 
$
3.36

 
$
3.89

 
$
3.22

 
 
 
 
 
 
 
 
Cobalt (millions of contained pounds)
 
 
 
 
 
 
 
Production
6

 
5

 
18

 
14

Sales
6

 
6

 
19

 
13

Average realized price per pound
$
10.05

 
$
11.93

 
$
10.71

 
$
11.51

 
 
 
 
 
 
 
 
Ore milled (metric tons per day)
12,000

 
11,800

 
10,800

 
10,100

Average ore grade (percent):
 
 
 
 
 
 
 
Copper
3.21

 
3.20

 
3.42

 
3.55

Cobalt
0.41

 
0.39

 
0.40

 
0.40

Copper recovery rate (percent)
91.4

 
90.5

 
92.0

 
91.0

a.
Includes adjustments for point-of-sale transportation costs as negotiated in customer contracts.
 

40


Copper sales volumes from our Africa mining operations totaled 65 million pounds of copper in third-quarter 2011 and 200 million pounds of copper for the first nine months of 2011, compared with 73 million pounds in third-quarter 2010 and 194 million pounds for the first nine months of 2010. Lower copper sales volumes in third-quarter 2011 primarily reflected the timing of shipments.

For the year 2011, we expect sales volumes from our Africa mining operations to approximate 275 million pounds of copper and 25 million pounds of cobalt, compared with 262 million pounds of copper and 20 million pounds of cobalt in 2010.
 
Unit Net Cash Costs. Unit net cash costs per pound of copper is a measure intended to provide investors with information about the cash-generating capacity of our mining operations expressed on a basis relating to the primary metal product for our respective operations. We use this measure for the same purpose and for monitoring operating performance by our mining operations. This information differs from measures of performance determined in accordance with U.S. GAAP and should not be considered in isolation or as a substitute for measures of performance determined in accordance with U.S. GAAP. This measure is presented by other metals mining companies, although our measure may not be comparable to similarly titled measures reported by other companies.

Gross Profit per Pound of Copper and Cobalt

The following tables summarize the unit net cash costs and gross profit per pound of copper and cobalt at our Africa mining operations for the third quarters and first nine months of 2011 and 2010. Refer to “Production Revenues and Production Costs” for an explanation of “by-product” and “co-product” methods and a reconciliation of unit net cash costs per pound to production and delivery costs applicable to sales reported in our consolidated financial statements.
 
Three Months Ended
 
Three Months Ended
 
September 30, 2011
 
September 30, 2010
 
By-Product Method
 
Co-Product Method
 
By-Product Method
 
Co-Product Method
 
 
Copper
 
Cobalt
 
 
Copper
 
Cobalt
Revenues, excluding adjustmentsa
$
3.46

 
$
3.46

 
$
10.05

 
$
3.36

 
$
3.36

 
$
11.93

 
 
 
 
 
 
 
 
 
 
 
 
Site production and delivery, before net noncash and other costs shown below
1.55

 
1.40

 
5.71

 
1.44

 
1.19

 
6.05

Cobalt creditsb
(0.51
)
 

 

 
(0.65
)


 

Royalty on metals
0.08

 
0.06

 
0.15

 
0.07

 
0.06

 
0.19

Unit net cash costs
1.12

 
1.46

 
5.86

 
0.86

 
1.25

 
6.24

Depreciation and amortization
0.48

 
0.41

 
0.88

 
0.46

 
0.39

 
0.89

Noncash and other costs, net
0.24

 
0.20

 
0.44

 
0.20

 
0.16

 
0.37

Total unit costs
1.84

 
2.07

 
7.18

 
1.52

 
1.80

 
7.50

Revenue adjustments, primarily for pricing on prior period open sales
(0.01
)
 
(0.01
)
 
(0.10
)
 
0.03

 
0.03

 
(0.89
)
Other non-inventoriable costs
(0.05
)
 
(0.05
)
 
(0.09
)
 
(0.04
)
 
(0.04
)
 
(0.09
)
Gross profit per pound
$
1.56

 
$
1.33

 
$
2.68

 
$
1.83

 
$
1.55

 
$
3.45

 
 
 
 
 
 
 
 
 
 
 
 
Copper sales (millions of recoverable pounds)
65

 
65

 
 
 
73

 
73

 
 
Cobalt sales (millions of contained pounds)
 
 
 
 
6

 
 
 
 
 
6


41


 
Nine Months Ended
 
Nine Months Ended
 
September 30, 2011
 
September 30, 2010
 
By-Product Method
 
Co-Product Method
 
By-Product Method
 
Co-Product Method
 
 
Copper
 
Cobalt
 
 
Copper
 
Cobalt
Revenues, excluding adjustmentsa
$
3.89

 
$
3.89

 
$
10.71

 
$
3.22

 
$
3.22

 
$
11.51

 
 
 
 
 
 
 
 
 
 
 
 
Site production and delivery, before net noncash and other costs shown below
1.57

 
1.37

 
5.62

 
1.37

 
1.23

 
5.88

Cobalt creditsb
(0.68
)
 

 

 
(0.54
)
 

 

Royalty on metals
0.09

 
0.07

 
0.18

 
0.07

 
0.06

 
0.19

Unit net cash costs
0.98

 
1.44

 
5.80

 
0.90

 
1.29

 
6.07

Depreciation and amortization
0.49

 
0.41

 
0.82

 
0.49

 
0.40

 
1.24

Noncash and other costs, net
0.16

 
0.14

 
0.27

 
0.09

 
0.07

 
0.22

Total unit costs
1.63

 
1.99

 
6.89

 
1.48

 
1.76

 
7.53

Revenue adjustments, primarily for pricing on prior period open sales
(0.01
)
 
(0.01
)
 
0.12

 

 

 
0.28

Other non-inventoriable costs
(0.04
)
 
(0.04
)
 
(0.09
)
 
(0.08
)
 
(0.07
)
 
(0.21
)
Gross profit per pound
$
2.21

 
$
1.85

 
$
3.85

 
$
1.66

 
$
1.39

 
$
4.05

 
 
 
 
 
 
 
 
 
 
 
 
Copper sales (millions of recoverable pounds)
200

 
200

 
 
 
194

 
194

 
 
Cobalt sales (millions of contained pounds)
 
 
 
 
19

 
 
 
 
 
13

a.
Includes adjustments for point-of-sale transportation costs as negotiated in customer contracts. 
b.
Net of cobalt downstream processing and freight costs.

Unit net cash costs (net of cobalt credits) for our Africa mining operations of $1.12 per pound of copper in third-quarter 2011 and $0.98 per pound of copper for the first nine months of 2011 were higher than unit net cash costs of $0.86 per pound of copper in third-quarter 2010 and $0.90 per pound of copper for the first nine months of 2010. Higher unit net cash costs in the 2011 periods primarily reflected higher site production and delivery costs ($0.11 per pound for the quarter and $0.20 for the nine-month period) mostly associated with increased mining and milling activity and higher input costs. Lower cobalt credits in third-quarter 2011 ($0.14 per pound) also added to higher unit net cash costs, while for the first nine months of 2011 higher cobalt credits ($0.14 per pound) partly offset higher site production and delivery costs.

Assuming achievement of current sales volumes and cost estimates and an average cobalt price of $14 per pound for fourth-quarter 2011, we estimate that average unit net cash costs (net of cobalt credits) would approximate $1.03 per pound of copper for the year 2011, compared with $0.90 per pound in 2010. Africa's unit net cash costs for 2011 would change by $0.03 per pound for each $2 per pound change in the average price of cobalt during fourth-quarter 2011.

Molybdenum
We are an integrated producer of molybdenum, with mining, sulfide ore concentrating, roasting and processing facilities that produce high-purity, molybdenum-based chemicals, molybdenum metal powder and metallurgical products, which are sold to customers around the world. Our molybdenum operations include the wholly owned Henderson molybdenum mine in Colorado and related conversion facilities. The Henderson underground mine produces high-purity, chemical-grade molybdenum concentrates, which are typically further processed into value-added molybdenum chemical products. The Molybdenum operations also include the wholly owned Climax molybdenum mine in Colorado (refer to further discussion below); a sales company that purchases and sells molybdenum from our Henderson mine and from certain of our North and South America mines that produce molybdenum; and related conversion facilities that, at times, roast and/or process material on a toll basis for third-parties. Toll arrangements require the tolling customer to deliver appropriate molybdenum-bearing material to our facilities for processing into a product that is returned to the customer, who pays us for processing their material into the specified products.

Development Activities. Construction activities at the Climax molybdenum mine are approximately 80 percent complete. We plan to commence production during 2012. Production from the Climax mine is expected to ramp up to a rate of 20 million pounds of molybdenum per year during 2013 and, depending on market conditions, may be increased to 30 million pounds of molybdenum per year. We intend to operate our Climax and Henderson

42


molybdenum mines in a flexible manner to meet market requirements. Total estimated initial costs for the project approximate $710 million plus an additional approximate $200 million for tailings dam and water treatment facilities to be completed after startup. Project cost of $577 million have been incurred through September 30, 2011 ($304 million during the first nine months of 2011).

Other Matters. During second-quarter 2011, we successfully negotiated a new three-year labor agreement covering union-represented employees at Stowmarket, our molybdenum conversion facility in the United Kingdom. We are also negotiating the renewal of the labor agreement covering union-represented employees at Rotterdam, our molybdenum conversion facility in the Netherlands, which expired in March 2011.
 
Operating Data. Following is summary operating data for the Molybdenum operations for the third quarters and first nine months of 2011 and 2010:
 
Three Months Ended
 
Nine Months Ended
 
September 30,
 
September 30,
 
2011
 
2010
 
2011
 
2010
Molybdenum (millions of recoverable pounds)
 
 
 
 
 
 
 
Productiona
11

 
10

 
30

 
30

Sales, excluding purchasesb
19

 
17

 
60

 
50

Average realized price per pound
$
16.34

 
$
16.06

 
$
17.57

 
$
16.43

 
 
 
 
 
 
 
 
Henderson molybdenum mine
 
 
 
 
 
 
 
Ore milled (metric tons per day)
24,500

 
23,000

 
23,300

 
23,000

Average molybdenum ore grade (percent)
0.24

 
0.25

 
0.24

 
0.25

Molybdenum production (millions of recoverable pounds)
11

 
10

 
30

 
30

a.
Reflects production at the Henderson molybdenum mine. 
b.
Includes sales of molybdenum produced at our North and South America copper mines.

Consolidated molybdenum sales volumes increased to 19 million pounds in third-quarter 2011 and 60 million pounds for the first nine months of 2011, compared with 17 million pounds in third-quarter 2010 and 50 million pounds for the first nine months of 2010.

For the year 2011, we expect molybdenum sales volumes to approximate 78 million pounds (of which approximately 45 million pounds represents molybdenum production from our North and South America copper mines), compared with 67 million pounds in 2010 (of which 32 million pounds represented molybdenum production from our North and South America copper mines).

Unit Net Cash Costs. Unit net cash costs per pound of molybdenum is a measure intended to provide investors with information about the cash-generating capacity of our mining operations expressed on a basis relating to the primary metal product for our respective operations. We use this measure for the same purpose and for monitoring operating performance by our mining operations. This information differs from measures of performance determined in accordance with U.S. GAAP and should not be considered in isolation or as a substitute for measures of performance determined in accordance with U.S. GAAP. This measure is presented by other metals mining companies, although our measure may not be comparable to similarly titled measures reported by other companies.


43


Gross Profit per Pound of Molybdenum

The following table summarizes the unit net cash costs and gross profit per pound of molybdenum at our Henderson molybdenum mine for the third quarters and first nine months of 2011 and 2010. Refer to “Product Revenues and Production Costs” for a reconciliation of unit net cash costs per pound to production and delivery costs applicable to sales reported in our consolidated financial statements.
 
Three Months Ended
 
Nine Months Ended
 
September 30,
 
September 30,
 
2011
 
2010
 
2011
 
2010
Revenues, excluding adjustments
$
15.38

 
$
15.42

 
$
16.66

 
$
15.84

 
 
 
 
 
 
 
 
Site production and delivery, before net noncash and other costs shown below
5.21

 
4.87

 
5.26

 
4.67

Treatment charges and other
1.03

 
1.07

 
0.93

 
1.08

Unit net cash costs
6.24

 
5.94

 
6.19

 
5.75

Depreciation, depletion and amortization
0.94

 
0.83

 
0.90

 
0.83

Noncash and other costs, net
0.03

 
0.03

 
0.04

 
0.03

Total unit costs
7.21

 
6.80

 
7.13

 
6.61

Gross profita
$
8.17

 
$
8.62

 
$
9.53

 
$
9.23

 
 
 
 
 
 
 
 
Molybdenum sales (millions of recoverable pounds)b
11

 
10

 
30

 
30

a.
Gross profit reflects sales of Henderson production based on volumes produced at market-based pricing. On a consolidated basis, the Molybdenum division includes profits on sales as they are made to third parties and realizations based on actual contract terms. As a result, the actual gross profit realized will differ from the amounts reported in this table.
b.
Reflects production at the Henderson molybdenum mine.

Henderson’s unit net cash costs were $6.24 per pound of molybdenum in third-quarter 2011 and $6.19 per pound of molybdenum for the first nine months of 2011, compared with $5.94 per pound of molybdenum in third-quarter 2010 and $5.75 per pound of molybdenum for the first nine months of 2010, primarily reflecting higher input costs, including labor and materials.

Assuming achievement of current 2011 sales volume and cost estimates, we estimate that unit net cash costs for Henderson to approximate $6.50 per pound of molybdenum for the year 2011, compared with $5.90 per pound in 2010.

Atlantic Copper Smelting & Refining
Atlantic Copper, our wholly owned subsidiary located in Spain, smelts and refines copper concentrates and markets refined copper and precious metals in slimes. During the first nine months of 2011, Atlantic Copper purchased approximately 32 percent of its concentrate requirements from our Indonesia mining operations and approximately 22 percent from our South America mining operations. Through this form of downstream integration, we are assured placement of a significant portion of our concentrate production.

Smelting and refining charges consist of a base rate and, in certain contracts, price participation based on copper prices. Treatment charges for smelting and refining copper concentrates represent a cost to our Indonesia and our South America mining operations, and income to Atlantic Copper and PT Smelting, PT Freeport Indonesia's 25 percent owned smelter and refinery. Thus, higher treatment and refining charges benefit our smelter operations and adversely affect our mining operations in Indonesia and South America. Our North America copper mines are not significantly affected by changes in treatment and refining charges because these operations are largely integrated with our wholly owned Miami smelter located in Arizona.

In May 2011, Atlantic Copper successfully completed a scheduled 26-day maintenance turnaround, which had a $30 million impact on production and delivery costs for the first nine months of 2011. Atlantic Copper's major maintenance turnarounds typically occur approximately every eight years, with short-term maintenance turnarounds in the interim.

Atlantic Copper had operating losses of $5 million in third-quarter 2011 and $70 million for the first nine months of 2011, compared with $8 million in third-quarter 2010 and $21 million for the first nine months of 2010. The decline in

44


Atlantic Copper’s operating results for the nine month period primarily reflects the impact of the May 2011 scheduled maintenance turnaround, lower gold credits and currency exchange rate impacts.

We defer recognizing profits on sales from our Indonesia and South America mining operations to Atlantic Copper and on 25 percent of Indonesia mining sales to PT Smelting until final sales to third parties occur. Our net deferred profits on our Indonesia and South America mining operations concentrate inventories at Atlantic Copper and PT Smelting to be recognized in future periods’ net income after taxes and noncontrolling interests totaled $101 million at September 30, 2011. Changes in these deferrals attributable to variability in intercompany volumes resulted in net additions to net income attributable to common stockholders totaling $84 million ($0.09 per share) in third-quarter 2011 and $82 million ($0.09 per share) for the first nine months of 2011, compared with net reductions of $38 million ($0.04 per share) in third-quarter 2010 and $66 million ($0.07 per share) for the first nine months of 2010. Quarterly variations in ore grades, the timing of intercompany shipments and changes in product prices will result in variability in our net deferred profits and quarterly earnings.

CAPITAL RESOURCES AND LIQUIDITY

Our operating cash flows vary with prices realized from copper, gold and molybdenum sales, our sales volumes, production costs, income taxes and other working capital changes and other factors. Strong operating performance and favorable copper and gold prices have enabled us to enhance our financial and liquidity position, reduce debt and pay cash dividends to shareholders, while pursuing future growth opportunities. While the near-term economic outlook is uncertain and has resulted in recent declines in copper prices, we view the long-term outlook for our business positively, supported by limitations on supplies of copper and by the requirements for copper in the world’s economy, and will continue to adjust our operating strategy as market conditions change.

Based on current mine plans and subject to future copper, gold and molybdenum prices, we expect estimated operating cash flows for the year 2011 to be greater than our budgeted capital expenditures, expected debt payments, dividends, noncontrolling interest distributions and other cash requirements.

Cash and Cash Equivalents
At September 30, 2011, we had consolidated cash and cash equivalents of $5.1 billion. The following table reflects the U.S. and international components of consolidated cash and cash equivalents at September 30, 2011, and December 31, 2010 (in billions):
 
September 30, 2011
 
December 31, 2010
Cash at domestic companiesa
$
2.5

 
$
1.9

Cash at international operations
2.6

 
1.8

Total consolidated cash and cash equivalents
5.1

 
3.7

Less: Noncontrolling interests’ share
(0.8
)
 
(0.4
)
Cash, net of noncontrolling interests’ share
4.3

 
3.3

Less: Withholding taxes and other
(0.1
)
 
(0.2
)
Net cash available to FCX
$
4.2

 
$
3.1

a.
Includes cash at our parent company and other North America operations.

Cash held at our international operations is generally used to support our foreign operations' capital expenditures, operating expenses, working capital or other cash needs. At September 30, 2011, management believed that sufficient liquidity was available in the U.S. With the exception of Tenke Fungurume, we have not elected to permanently reinvest earnings from our foreign subsidiaries, and we have recorded deferred tax liabilities for foreign earnings that are available to be repatriated to the U.S. From time to time, our foreign subsidiaries distribute earnings to the U.S. through dividends which are subject to applicable withholding taxes and noncontrolling interests' share.


45


Operating Activities
Our operating cash flows vary with prices realized from copper, gold and molybdenum sales, our sales volumes, production costs, income taxes and other working capital changes and other factors. We generated operating cash flows totaling $5.9 billion for the first nine months of 2011, net of $126 million for working capital uses, compared with operating cash flows totaling $4.2 billion for the first nine months of 2010, net of $529 million for working capital uses. Higher operating cash flows for the first nine months of 2011, compared with the first nine months of 2010, primarily reflected higher copper and gold price realizations.

Refer to “Outlook” for further discussion of projected operating cash flows for the year 2011.

Investing Activities
Capital expenditures, including capitalized interest, increased to $1.7 billion for the first nine months of 2011, compared with $877 million for the first nine months of 2010, primarily reflecting higher capital spending in the 2011 period associated with our development projects, including increased spending for construction on the Climax molybdenum mine, the underground development projects at Grasberg and the restart of mining and milling activities at the Chino mine in North America. Refer to “Operations” for further discussion.

Capital expenditures for the year 2011 are expected to approximate $2.6 billion, including $1.4 billion for major projects. Major projects for 2011 primarily include underground development activities at Grasberg, construction activities at the Climax molybdenum mine and completion of the initial phase of the sulfide ore project at El Abra. We are also considering additional investments at several of our sites. Capital spending plans will continue to be reviewed and adjusted in response to changes in market conditions and other factors.

Financing Activities
Debt and Equity Transactions. At September 30, 2011, total debt approximated $3.5 billion, and we had 948 million common shares outstanding.

In April 2011, we redeemed the remaining $1.1 billion of our outstanding 8.25% Senior Notes. In addition, during the first nine months of 2011, we made open-market purchases of $35 million of our 9.5% Senior Notes and repaid the remaining $85 million of our 8.75% Senior Notes. Refer to Note 6 for further discussion.

In April 2010, we redeemed all of our $1 billion of outstanding Senior Floating Rate Notes. In addition, during the first nine months of 2010, we made open-market purchases of $547 million of our 8.25% and 8.375% Senior Notes. Refer to Note 6 for further discussion.

Since January 1, 2009, we have repaid approximately $3.8 billion of our outstanding debt resulting in estimated annual interest savings of approximately $260 million based on current interest rates. We have no significant debt maturities through 2016; however, we may consider opportunities to prepay debt in advance of scheduled maturities. We have $3.0 billion in 8.375% Senior Notes that are redeemable in whole or in part, at our option, at make-whole redemption prices prior to April 2012, and afterwards at stated redemption prices.

On March 30, 2011, we entered into a new senior unsecured revolving credit facility, which replaced the revolving credit facilities that were scheduled to expire on March 19, 2012. This revolving credit facility is available until March 30, 2016, in an aggregate principal amount of $1.5 billion, with $500 million available to PT Freeport Indonesia. At September 30, 2011, we had no borrowings and $44 million in letters of credit issued under the revolving credit facility, resulting in availability of approximately $1.5 billion. Refer to Note 6 for further discussion.

We have an open-market share purchase program for up to 30 million shares, of which 23.7 million shares remain available. There have been no purchases since 2008. The timing of future purchases of our common stock is dependent on many factors, including our operating results; cash flows and financial position; copper, gold and molybdenum prices; the price of our common shares; and general economic and market conditions.

Dividends. Common stock dividends paid for the first nine months of 2011 totaled $1.2 billion, which included $474 million for the supplemental dividend paid on June 1, 2011. Common stock dividends for the first nine months of 2010 totaled $272 million.

After being suspended in late 2008, the Board reinstated a cash dividend on our common stock in October 2009 at an annual rate of $0.30 per share ($0.075 per share quarterly). In April 2010, the Board authorized an increase in the annual cash dividend to an annual rate of $0.60 per share ($0.15 per share quarterly) and in October 2010, the

46


Board authorized another increase in the cash dividend to the current annual rate of $1.00 per share ($0.25 per share quarterly). The Board also authorized supplemental common stock dividends of $0.50 per share paid in December 2010 and $0.50 per share paid in June 2011.

On September 29, 2011, the Board declared a regular quarterly dividend of $0.25 per share, which was paid on November 1, 2011. The declaration of dividends is at the discretion of the Board. The amount of cash dividends on our common stock is dependent upon our financial results, cash requirements, future prospects and other factors deemed relevant by the Board. The Board will continue to review our financial policy on an ongoing basis.

During 2010, our 6¾% Mandatory Convertible Preferred Stock automatically converted into 78.9 million shares of our common stock (refer to Note 11 of our annual report on Form 10-K for the year ended December 31, 2010, for further discussion). As a result, we no longer have requirements to pay preferred stock dividends. Preferred stock dividends paid totaled $95 million for the first nine months of 2010.

Cash dividends paid to noncontrolling interests totaled $350 million for the first nine months of 2011 and $330 million for the first nine months of 2010, reflecting dividends paid to the noncontrolling interest owners of PT Freeport Indonesia and our South America mines.

CONTRACTUAL OBLIGATIONS

There have been no material changes in our contractual obligations since year-end 2010. Refer to Item 7 in our annual report on Form 10-K for the year ended December 31, 2010, for further information regarding our contractual obligations.

ENVIRONMENTAL AND RECLAMATION MATTERS

Our mining, exploration, production and historical operating activities are subject to stringent laws and regulations governing the protection of the environment. We review changes in facts and circumstances associated with our environmental and reclamation obligations at least quarterly. There have been no material changes to our environmental and reclamation obligations since year-end 2010. However, updated cost assumptions, including increases and decreases to cost estimates and changes in the anticipated scope and timing of remediation activities, resulted in revisions to certain of our environmental obligations and resulted in a net charge of $31 million to environmental obligations and shutdown costs in third-quarter 2011. Refer to Note 13 in our annual report on Form 10-K for the year ended December 31, 2010, for further information regarding environmental and reclamation obligations.

NEW ACCOUNTING STANDARDS

We do not expect the impact of recently issued accounting standards to have a significant impact on our future financial statements and disclosures.


47


PRODUCT REVENUES AND PRODUCTION COSTS

Unit net cash costs per pound of copper and molybdenum are measures intended to provide investors with information about the cash-generating capacity of our mining operations expressed on a basis relating to the primary metal product for the respective operations. We use this measure for the same purpose and for monitoring operating performance by our mining operations. This information differs from measures of performance determined in accordance with U.S. GAAP and should not be considered in isolation or as a substitute for measures of performance determined in accordance with U.S. GAAP. This measure is presented by other metals mining companies, although our measures may not be comparable to similarly titled measures reported by other companies.

We present gross profit per pound of copper in the following tables using both a “by-product” method and a “co-product” method. We use the by-product method in our presentation of gross profit per pound of copper because (i) the majority of our revenues are copper revenues, (ii) we mine ore, which contains copper, gold, molybdenum and other metals, (iii) it is not possible to specifically assign all of our costs to revenues from the copper, gold, molybdenum and other metals we produce, (iv) it is the method used to compare mining operations in certain industry publications and (v) it is the method used by our management and the Board to monitor operations. In the co-product method presentation below, shared costs are allocated to the different products based on their relative revenue values, which will vary to the extent our metals sales volumes and realized prices change.

We show adjustments for prior period open sales as separate line items. Because these adjustments do not result from current period sales, we have reflected these separately from revenues on current period sales. Noncash and other costs consist of items such as stock-based compensation costs, write-offs of equipment and/or unusual charges. They are removed from site production and delivery costs in the calculation of unit net cash costs. As discussed above, gold, molybdenum and other metal revenues at copper mines are reflected as credits against site production and delivery costs in the by-product method. Following are presentations under both the by-product and co-product methods together with reconciliations to amounts reported in our consolidated financial statements.



48


North America Copper Mines Product Revenues and Production Costs

Three Months Ended September 30, 2011
 
 
 
(In millions)
By-Product
 
Co-Product Method
 
Method
 
Copper
 
Molybdenuma
 
Otherb
 
Total
Revenues, excluding adjustments
$
1,240

 
$
1,240

 
$
146

 
$
40

 
$
1,426

 
 
 
 
 
 
 
 
 
 
Site production and delivery, before net noncash and other costs shown below
569

 
506

 
64

 
15

 
585

By-product creditsa
(170
)
 

 

 

 

Treatment charges
36

 
34

 

 
2

 
36

Net cash costs
435

 
540

 
64

 
17

 
621

Depreciation, depletion and amortization
64

 
59

 
4

 
1

 
64

Noncash and other costs, net
12

 
12

 

 

 
12

Total costs
511

 
611

 
68

 
18

 
697

Revenue adjustments
(11
)
 
(11
)
 

 

 
(11
)
Idle facility and other non-inventoriable costs
(19
)
 
(19
)
 

 

 
(19
)
Gross profit
$
699

 
$
599

 
$
78

 
$
22

 
$
699

 
 
 
 
 
 
 
 
 
 
Reconciliation to Amounts Reported
 
 
 
 
 
 
 
 
 
 
Revenues
 
Production and Delivery
 
Depreciation, Depletion and Amortization
 
 
 
 
Totals presented above
$
1,426

 
$
585

 
$
64

 
 
 
 
Treatment charges
N/A

 
36

 
N/A

 
 
 
 
Net noncash and other costs
N/A

 
12

 
N/A

 
 
 
 
Revenue adjustments
(11
)
 
N/A

 
N/A

 
 
 
 
Idle facility and other non-inventoriable costs
N/A

 
19

 
N/A

 
 
 
 
Eliminations and other
4

 
12

 
3

 
 
 
 
North America copper mines
1,419

 
664

 
67

 
 
 
 
South America mining
1,053

 
478

 
64

 
 
 
 
Indonesia mining
1,362

 
503

 
62

 
 
 
 
Africa mining
276

 
142

 
32

 
 
 
 
Molybdenum
332

 
260

 
14

 
 
 
 
Rod & Refining
1,396

 
1,390

 
2

 
 
 
 
Atlantic Copper Smelting & Refining
837

 
826

 
11

 
 
 
 
Corporate, other & eliminations
(1,480
)
 
(1,693
)
 
5

 
 
 
 
As reported in FCX’s consolidated financial statements
$
5,195

 
$
2,570

 
$
257

 
 
 
 
 
a.
Molybdenum credits and revenues reflect volumes produced at market-based pricing and also include tolling revenues at Sierrita.
 
b.
Includes gold and silver product revenues and production costs.

49


North America Copper Mines Product Revenues and Production Costs (continued)

Three Months Ended September 30, 2010
 
 
 
(In millions)
By-Product
 
Co-Product Method
 
Method
 
Copper
 
Molybdenuma
 
Otherb
 
Total
Revenues, excluding adjustments
$
881

 
$
881

 
$
96

 
$
13

 
$
990

 
 
 
 
 
 
 
 
 
 
Site production and delivery, before net noncash and other costs shown below
429

 
384

 
52

 
7

 
443

By-product creditsa
(95
)
 

 

 

 

Treatment charges
27

 
26

 

 
1

 
27

Net cash costs
361

 
410

 
52

 
8

 
470

Depreciation, depletion and amortization
63

 
59

 
3

 
1

 
63

Noncash and other costs, net
30

 
31

 
(1
)
 

 
30

Total costs
454

 
500

 
54

 
9

 
563

Revenue adjustments

 

 

 

 

Idle facility and other non-inventoriable costs
(26
)
 
(25
)
 
(1
)
 

 
(26
)
Gross profit
$
401

 
$
356

 
$
41

 
$
4

 
$
401

 
 
 
 
 
 
 
 
 
 
Reconciliation to Amounts Reported
 
 
 
 
 
 
 
 
 
 
Revenues
 
Production and Delivery
 
Depreciation, Depletion and Amortization
 
 
 
 
Totals presented above
$
990

 
$
443

 
$
63

 
 
 
 
Treatment charges
N/A

 
27

 
N/A

 
 
 
 
Net noncash and other costs
N/A

 
30

 
N/A

 
 
 
 
Revenue adjustments

 
N/A

 
N/A

 
 
 
 
Idle facility and other non-inventoriable costs
N/A

 
26

 
N/A

 
 
 
 
Eliminations and other
8

 
10

 
4

 
 
 
 
North America copper mines
998

 
536

 
67

 
 
 
 
South America mining
1,465

 
462

 
66

 
 
 
 
Indonesia mining
1,874

 
528

 
72

 
 
 
 
Africa mining
307

 
141

 
34

 
 
 
 
Molybdenum
293

 
199

 
13

 
 
 
 
Rod & Refining
1,181

 
1,172

 
2

 
 
 
 
Atlantic Copper Smelting & Refining
595

 
590

 
9

 
 
 
 
Corporate, other & eliminations
(1,561
)
 
(1,362
)
 
5

 
 
 
 
As reported in FCX’s consolidated financial statements
$
5,152

 
$
2,266

 
$
268

 
 
 
 
 
a.
Molybdenum credits and revenues reflect volumes produced at market-based pricing and also include tolling revenues at Sierrita.
 
b.
Includes gold and silver product revenues and production costs.

50


North America Copper Mines Product Revenues and Production Costs (continued)

Nine Months Ended September 30, 2011
 
 
 
(In millions)
By-Product
 
Co-Product Method
 
Method
 
Copper
 
Molybdenuma
 
Otherb
 
Total
Revenues, excluding adjustments
$
3,820

 
$
3,820

 
$
429

 
$
84

 
$
4,333

 
 
 
 
 
 
 
 
 
 
Site production and delivery, before net noncash and other costs shown below
1,637

 
1,466

 
178

 
33

 
1,677

By-product creditsa
(473
)
 

 

 

 

Treatment charges
97

 
93

 

 
4

 
97

Net cash costs
1,261

 
1,559

 
178

 
37

 
1,774

Depreciation, depletion and amortization
185

 
173

 
10

 
2

 
185

Noncash and other costs, net
70

 
68

 
1

 
1

 
70

Total costs
1,516

 
1,800

 
189

 
40

 
2,029

Revenue adjustments
(1
)
 
(1
)
 

 

 
(1
)
Idle facility and other non-inventoriable costs
(47
)
 
(46
)
 
(1
)
 

 
(47
)
Gross profit
$
2,256

 
$
1,973

 
$
239

 
$
44

 
$
2,256

 
 
 
 
 
 
 
 
 
 
Reconciliation to Amounts Reported
 
 
 
 
 
 
 
 
 
 
Revenues
 
Production and Delivery
 
Depreciation, Depletion and Amortization
 
 
 
 
Totals presented above
$
4,333

 
$
1,677

 
$
185

 
 
 
 
Treatment charges
N/A

 
97

 
N/A

 
 
 
 
Net noncash and other costs
N/A

 
70

 
N/A

 
 
 
 
Revenue adjustments
(1
)
 
N/A

 
N/A

 
 
 
 
Idle facility and other non-inventoriable costs
N/A

 
47

 
N/A

 
 
 
 
Eliminations and other
7

 
32

 
11

 
 
 
 
North America copper mines
4,339

 
1,923

 
196

 
 
 
 
South America mining
3,903

 
1,330

 
187

 
 
 
 
Indonesia mining
4,656

 
1,547

 
179

 
 
 
 
Africa mining
963

 
422

 
98

 
 
 
 
Molybdenum
1,119

 
786

 
44

 
 
 
 
Rod & Refining
4,310

 
4,292

 
6

 
 
 
 
Atlantic Copper Smelting & Refining
2,252

 
2,274

 
30

 
 
 
 
Corporate, other & eliminations
(4,824
)
 
(5,070
)
 
16

 
 
 
 
As reported in FCX’s consolidated financial statements
$
16,718

 
$
7,504

 
$
756

 
 
 
 
 
a.
Molybdenum credits and revenues reflect volumes produced at market-based pricing and also include tolling revenues at Sierrita.
 
b.
Includes gold and silver product revenues and production costs.

51


North America Copper Mines Product Revenues and Production Costs (continued)

Nine Months Ended September 30, 2010
 
 
 
(In millions)
By-Product
 
Co-Product Method
 
Method
 
Copper
 
Molybdenuma
 
Otherb
 
Total
Revenues, excluding adjustments
$
2,771

 
$
2,771

 
$
277

 
$
44

 
$
3,092

 
 
 
 
 
 
 
 
 
 
Site production and delivery, before net noncash and other costs shown below
1,231

 
1,109

 
144

 
21

 
1,274

By-product creditsa
(278
)
 

 

 

 

Treatment charges
75

 
73

 

 
2

 
75

Net cash costs
1,028

 
1,182

 
144

 
23

 
1,349

Depreciation, depletion and amortization
207

 
195

 
10

 
2

 
207

Noncash and other costs, net
107

 
107

 

 

 
107

Total costs
1,342

 
1,484

 
154

 
25

 
1,663

Revenue adjustments
(2
)
 
(2
)
 

 

 
(2
)
Idle facility and other non-inventoriable costs
(65
)
 
(64
)
 
(1
)
 

 
(65
)
Gross profit
$
1,362

 
$
1,221

 
$
122

 
$
19

 
$
1,362

 
 
 
 
 
 
 
 
 
 
Reconciliation to Amounts Reported
 
 
 
 
 
 
 
 
 
 
Revenues
 
Production and Delivery
 
Depreciation, Depletion and Amortization
 
 
 
 
Totals presented above
$
3,092

 
$
1,274

 
$
207

 
 
 
 
Treatment charges
N/A

 
75

 
N/A

 
 
 
 
Net noncash and other costs
N/A

 
107

 
N/A

 
 
 
 
Revenue adjustments
(2
)
 
N/A

 
N/A

 
 
 
 
Idle facility and other non-inventoriable costs
N/A

 
65

 
N/A

 
 
 
 
Eliminations and other
26

 
36

 
13

 
 
 
 
North America copper mines
3,116

 
1,557

 
220

 
 
 
 
South America mining
3,383

 
1,227

 
186

 
 
 
 
Indonesia mining
4,260

 
1,430

 
192

 
 
 
 
Africa mining
763

 
347

 
94

 
 
 
 
Molybdenum
893

 
574

 
38

 
 
 
 
Rod & Refining
3,383

 
3,360

 
6

 
 
 
 
Atlantic Copper Smelting & Refining
1,844

 
1,823

 
28

 
 
 
 
Corporate, other & eliminations
(4,263
)
 
(4,084
)
 
24

 
 
 
 
As reported in FCX’s consolidated financial statements
$
13,379

 
$
6,234

 
$
788

 
 
 
 
 
a.
Molybdenum credits and revenues reflect volumes produced at market-based pricing and also include tolling revenues at Sierrita.
 
b.
Includes gold and silver product revenues and production costs.





52


South America Mining Product Revenues and Production Costs

Three Months Ended September 30, 2011
 
 
 
 
 
 
 
(In millions)
By-Product
 
Co-Product Method
 
Method
 
Copper
 
Other
 
Total
Revenues, excluding adjustments
$
1,112

 
$
1,112

 
$
124

a 
$
1,236

 
 
 
 
 
 
 
 
Site production and delivery, before net noncash and other costs shown below
445

 
402

 
50

 
452

By-product credits
(117
)
 

 

 

Treatment charges
43

 
43

 

 
43

Net cash costs
371

 
445

 
50

 
495

Depreciation, depletion and amortization
64

 
60

 
4

 
64

Noncash and other costs, net
5

 
4

 
1

 
5

Total costs
440

 
509

 
55

 
564

Revenue adjustments, primarily for pricing on prior period open sales
(147
)
 
(147
)
 

 
(147
)
Other non-inventoriable costs
(22
)
 
(18
)
 
(4
)
 
(22
)
Gross profit
$
503

 
$
438

 
$
65

 
$
503

 
 
 
 
 
 
 
 
Reconciliation to Amounts Reported
 
 
 
 
 
 
 
 
Revenues
 
Production and Delivery
 
Depreciation, Depletion and Amortization
 
 
Totals presented above
$
1,236

 
$
452

 
$
64

 
 
Treatment charges
(43
)
 
N/A

 
N/A

 
 
Net noncash and other costs
N/A

 
5

 
N/A

 
 
Revenue adjustments, primarily for pricing on prior period open sales
(147
)
 
N/A

 
N/A

 
 
Other non-inventoriable costs
N/A

 
22

 
N/A

 
 
Eliminations and other
7

 
(1
)
 

 
 
South America mining
1,053

 
478

 
64

 
 
North America copper mines
1,419

 
664

 
67

 
 
Indonesia mining
1,362

 
503

 
62

 
 
Africa mining
276

 
142

 
32

 
 
Molybdenum
332

 
260

 
14

 
 
Rod & Refining
1,396

 
1,390

 
2

 
 
Atlantic Copper Smelting & Refining
837

 
826

 
11

 
 
Corporate, other & eliminations
(1,480
)
 
(1,693
)
 
5

 
 
As reported in FCX’s consolidated financial statements
$
5,195

 
$
2,570

 
$
257

 
 
 
a.
Includes gold sales of 23 thousand ounces ($1,664 per ounce average realized price) and silver sales of 834 thousand ounces ($40.75 per ounce average realized price); also includes molybdenum sales of 2 million pounds ($13.53 per pound average realized price), which reflects molybdenum produced by Cerro Verde at market-based pricing.


53


South America Mining Product Revenues and Production Costs (continued)

Three Months Ended September 30, 2010
 
 
 
 
 
 
 
(In millions)
By-Product
 
Co-Product Method
 
Method
 
Copper
 
Other
 
Total
Revenues, excluding adjustments
$
1,341

 
$
1,341

 
$
85

a 
$
1,426

 
 
 
 
 
 
 
 
Site production and delivery, before net noncash and other costs shown below
439

 
413

 
30

 
443

By-product credits
(81
)
 

 

 

Treatment charges
68

 
68

 

 
68

Net cash costs
426

 
481

 
30

 
511

Depreciation, depletion and amortization
65

 
62

 
3

 
65

Noncash and other costs, net
7

 
7

 

 
7

Total costs
498

 
550

 
33

 
583

Revenue adjustments, primarily for pricing on prior period open sales
106

 
106

 

 
106

Other non-inventoriable costs
(16
)
 
(15
)
 
(1
)
 
(16
)
Gross profit
$
933

 
$
882

 
$
51

 
$
933

 
 
 
 
 
 
 
 
Reconciliation to Amounts Reported
 
 
 
 
 
 
 
 
Revenues
 
Production and Delivery
 
Depreciation, Depletion and Amortization
 
 
Totals presented above
$
1,426

 
$
443

 
$
65

 
 
Treatment charges
(68
)
 
N/A

 
N/A

 
 
Net noncash and other costs
N/A

 
7

 
N/A

 
 
Revenue adjustments, primarily for pricing on prior period open sales
106

 
N/A

 
N/A

 
 
Other non-inventoriable costs
N/A

 
16

 
N/A

 
 
Eliminations and other
1

 
(4
)
 
1

 
 
South America mining
1,465

 
462

 
66

 
 
North America copper mines
998

 
536

 
67

 
 
Indonesia mining
1,874

 
528

 
72

 
 
Africa mining
307

 
141

 
34

 
 
Molybdenum
293

 
199

 
13

 
 
Rod & Refining
1,181

 
1,172

 
2

 
 
Atlantic Copper Smelting & Refining
595

 
590

 
9

 
 
Corporate, other & eliminations
(1,561
)
 
(1,362
)
 
5

 
 
As reported in FCX’s consolidated financial statements
$
5,152

 
$
2,266

 
$
268

 
 
 
a.
Includes gold sales of 30 thousand ounces ($1,265 per ounce average realized price) and silver sales of 883 thousand ounces ($18.98 per ounce average realized price); also includes molybdenum sales of 2 million pounds ($13.84 per pound average realized price), which reflects molybdenum produced by Cerro Verde at market-based pricing.

54


South America Mining Product Revenues and Production Costs (continued)

Nine Months Ended September 30, 2011
 
 
 
 
 
 
 
(In millions)
By-Product
 
Co-Product Method
 
Method
 
Copper
 
Other
 
Total
Revenues, excluding adjustments
$
3,688

 
$
3,688

 
$
372

a 
$
4,060

 
 
 
 
 
 
 
 
Site production and delivery, before net noncash and other costs shown below
1,268

 
1,159

 
128

 
1,287

By-product credits
(353
)
 

 

 

Treatment charges
164

 
164

 

 
164

Net cash costs
1,079

 
1,323

 
128

 
1,451

Depreciation, depletion and amortization
187

 
175

 
12

 
187

Noncash and other costs, net
15

 
14

 
1

 
15

Total costs
1,281

 
1,512

 
141

 
1,653

Revenue adjustments, primarily for pricing on prior period open sales
14

 
(6
)
 
20

 
14

Other non-inventoriable costs
(53
)
 
(46
)
 
(7
)
 
(53
)
Gross profit
$
2,368

 
$
2,124

 
$
244

 
$
2,368

 
 
 
 
 
 
 
 
Reconciliation to Amounts Reported
 
 
 
 
 
 
 
 
Revenues
 
Production and Delivery
 
Depreciation, Depletion and Amortization
 
 
Totals presented above
$
4,060

 
$
1,287

 
$
187

 
 
Treatment charges
(164
)
 
N/A

 
N/A

 
 
Net noncash and other costs
N/A

 
15

 
N/A

 
 
Revenue adjustments, primarily for pricing on prior period open sales
14

 
N/A

 
N/A

 
 
Other non-inventoriable costs
N/A

 
53

 
N/A

 
 
Eliminations and other
(7
)
 
(25
)
 

 
 
South America mining
3,903

 
1,330

 
187

 
 
North America copper mines
4,339

 
1,923

 
196

 
 
Indonesia mining
4,656

 
1,547

 
179

 
 
Africa mining
963

 
422

 
98

 
 
Molybdenum
1,119

 
786

 
44

 
 
Rod & Refining
4,310

 
4,292

 
6

 
 
Atlantic Copper Smelting & Refining
2,252

 
2,274

 
30

 
 
Corporate, other & eliminations
(4,824
)
 
(5,070
)
 
16

 
 
As reported in FCX’s consolidated financial statements
$
16,718

 
$
7,504

 
$
756

 
 
 
a.
Includes gold sales of 72 thousand ounces ($1,556 per ounce average realized price) and silver sales of 2.3 million ounces ($38.70 per ounce average realized price); also includes molybdenum sales of 8 million pounds ($14.59 per pound average realized price), which reflects molybdenum produced by Cerro Verde at market-based pricing.

55


South America Mining Product Revenues and Production Costs (continued)

Nine Months Ended September 30, 2010
 
 
 
 
 
 
 
(In millions)
By-Product
 
Co-Product Method
 
Method
 
Copper
 
Other
 
Total
Revenues, excluding adjustments
$
3,343

 
$
3,343

 
$
201

a 
$
3,544

 
 
 
 
 
 
 
 
Site production and delivery, before net noncash and other costs shown below
1,185

 
1,118

 
79

 
1,197

By-product credits
(189
)
 

 

 

Treatment charges
148

 
148

 

 
148

Net cash costs
1,144

 
1,266

 
79

 
1,345

Depreciation, depletion and amortization
184

 
176

 
8

 
184

Noncash and other costs, net
14

 
13

 
1

 
14

Total costs
1,342

 
1,455

 
88

 
1,543

Revenue adjustments, primarily for pricing on prior period open sales
(15
)
 
(15
)
 

 
(15
)
Other non-inventoriable costs
(30
)
 
(27
)
 
(3
)
 
(30
)
Gross profit
$
1,956

 
$
1,846

 
$
110

 
$
1,956

 
 
 
 
 
 
 
 
Reconciliation to Amounts Reported
 
 
 
 
 
 
 
 
Revenues
 
Production and Delivery
 
Depreciation, Depletion and Amortization
 
 
Totals presented above
$
3,544

 
$
1,197

 
$
184

 
 
Treatment charges
(148
)
 
N/A

 
N/A

 
 
Net noncash and other costs
N/A

 
14

 
N/A

 
 
Revenue adjustments, primarily for pricing on prior period open sales
(15
)
 
N/A

 
N/A

 
 
Other non-inventoriable costs
N/A

 
30

 
N/A

 
 
Eliminations and other
2

 
(14
)
 
2

 
 
South America mining
3,383

 
1,227

 
186

 
 
North America copper mines
3,116

 
1,557

 
220

 
 
Indonesia mining
4,260

 
1,430

 
192

 
 
Africa mining
763

 
347

 
94

 
 
Molybdenum
893

 
574

 
38

 
 
Rod & Refining
3,383

 
3,360

 
6

 
 
Atlantic Copper Smelting & Refining
1,844

 
1,823

 
28

 
 
Corporate, other & eliminations
(4,263
)
 
(4,084
)
 
24

 
 
As reported in FCX’s consolidated financial statements
$
13,379

 
$
6,234

 
$
788

 
 
 
a.
Includes gold sales of 69 thousand ounces ($1,211 per ounce average realized price) and silver sales of 2.0 million ounces ($18.26 per ounce average realized price); also includes molybdenum sales of 5 million pounds ($13.10 per pound average realized price), which reflects molybdenum produced by Cerro Verde at market-based pricing.





56


Indonesia Mining Product Revenues and Production Costs

Three Months Ended September 30, 2011
 
 
 
(In millions)
By-Product
 
Co-Product Method
 
Method
 
Copper
 
Gold
 
Silver
 
Total
Revenues, excluding adjustments
$
831

 
$
831

 
$
650

 
$
27

a 
$
1,508

 
 
 
 
 
 
 
 
 
 
Site production and delivery, before net noncash and other costs shown below
499

 
275

 
215

 
9

 
499

Gold and silver credits
(707
)
 

 

 

 

Treatment charges
47

 
26

 
20

 
1

 
47

Royalty on metals
41

 
23

 
17

 
1

 
41

Net cash (credits) costs
(120
)
 
324

 
252

 
11

 
587

Depreciation and amortization
62

 
34

 
27

 
1

 
62

Noncash and other costs, net
4

 
2

 
2

 

 
4

Total (credits) costs
(54
)
 
360

 
281

 
12

 
653

Revenue adjustments, primarily for pricing on prior period open sales
(88
)
 
(88
)
 
28

 
2

 
(58
)
Gross profit
$
797

 
$
383

 
$
397

 
$
17

 
$
797

 
 
 
 
 
 
 
 
 
 
Reconciliation to Amounts Reported
 
 
 
 
 
 
 
 
 
 
Revenues
 
Production and Delivery
 
Depreciation, Depletion and Amortization
 
 
 
 
Totals presented above
$
1,508

 
$
499

 
$
62

 
 
 
 
Treatment charges
(47
)
 
N/A

 
N/A

 
 
 
 
Royalty on metals
(41
)
 
N/A

 
N/A

 
 
 
 
Net noncash and other costs
N/A

 
4

 
N/A

 
 
 
 
Revenue adjustments, primarily for pricing on prior period open sales
(58
)
 
N/A

 
N/A

 
 
 
 
Indonesia mining
1,362

 
503

 
62

 
 
 
 
North America copper mines
1,419

 
664

 
67

 
 
 
 
South America mining
1,053

 
478

 
64

 
 
 
 
Africa mining
276

 
142

 
32

 
 
 
 
Molybdenum
332

 
260

 
14

 
 
 
 
Rod & Refining
1,396

 
1,390

 
2

 
 
 
 
Atlantic Copper Smelting & Refining
837

 
826

 
11

 
 
 
 
Corporate, other & eliminations
(1,480
)
 
(1,693
)
 
5

 
 
 
 
As reported in FCX’s consolidated financial statements
$
5,195

 
$
2,570

 
$
257

 
 
 
 

a.
Includes silver sales of 807 thousand ounces ($34.05 per ounce average realized price).

57


Indonesia Mining Product Revenues and Production Costs (continued)

Three Months Ended September 30, 2010
 
 
 
(In millions)
By-Product
 
Co-Product Method
 
Method
 
Copper
 
Gold
 
Silver
 
Total
Revenues, excluding adjustments
$
1,310

 
$
1,310

 
$
590

 
$
22

a 
$
1,922

 
 
 
 
 
 
 
 
 
 
Site production and delivery, before net noncash and other costs shown below
522

 
356

 
160

 
6

 
522

Gold and silver credits
(609
)
 

 

 

 

Treatment charges
79

 
54

 
24

 
1

 
79

Royalty on metals
45

 
31

 
14

 

 
45

Net cash costs
37

 
441

 
198

 
7

 
646

Depreciation and amortization
72

 
49

 
22

 
1

 
72

Noncash and other costs, net
6

 
4

 
2

 

 
6

Total costs
115

 
494

 
222

 
8

 
724

Revenue adjustments, primarily for pricing on prior period open sales
79

 
79

 
(5
)
 
2

 
76

Gross profit
$
1,274

 
$
895

 
$
363

 
$
16

 
$
1,274

 
 
 
 
 
 
 
 
 
 
Reconciliation to Amounts Reported
 
 
 
 
 
 
 
 
 
 
Revenues
 
Production and Delivery
 
Depreciation, Depletion and Amortization
 
 
 
 
Totals presented above
$
1,922

 
$
522

 
$
72

 
 
 
 
Treatment charges
(79
)
 
N/A

 
N/A

 
 
 
 
Royalty on metals
(45
)
 
N/A

 
N/A

 
 
 
 
Net noncash and other costs
N/A

 
6

 
N/A

 
 
 
 
Revenue adjustments, primarily for pricing on prior period open sales
76

 
N/A

 
N/A

 
 
 
 
Indonesia mining
1,874

 
528

 
72

 
 
 
 
North America copper mines
998

 
536

 
67

 
 
 
 
South America mining
1,465

 
462

 
66

 
 
 
 
Africa mining
307

 
141

 
34

 
 
 
 
Molybdenum
293

 
199

 
13

 
 
 
 
Rod & Refining
1,181

 
1,172

 
2

 
 
 
 
Atlantic Copper Smelting & Refining
595

 
590

 
9

 
 
 
 
Corporate, other & eliminations
(1,561
)
 
(1,362
)
 
5

 
 
 
 
As reported in FCX’s consolidated financial statements
$
5,152

 
$
2,266

 
$
268

 
 
 
 

a.
Includes silver sales of 1.1 million ounces ($20.93 per ounce average realized price).

58


Indonesia Mining Product Revenues and Production Costs (continued)

Nine Months Ended September 30, 2011
 
 
 
(In millions)
By-Product
 
Co-Product Method
 
Method
 
Copper
 
Gold
 
Silver
 
Total
Revenues, excluding adjustments
$
3,040

 
$
3,040

 
$
1,829

 
$
92

a 
$
4,961

 
 
 
 
 
 
 
 
 
 
Site production and delivery, before net noncash and other costs shown below
1,521

 
932

 
561

 
28

 
1,521

Gold and silver credits
(1,903
)
 

 

 

 

Treatment charges
145

 
89

 
53

 
3

 
145

Royalty on metals
130

 
79

 
48

 
3

 
130

Net cash (credits) costs
(107
)
 
1,100

 
662

 
34

 
1,796

Depreciation and amortization
179

 
110

 
66

 
3

 
179

Noncash and other costs, net
26

 
16

 
10

 

 
26

Total costs
98

 
1,226

 
738

 
37

 
2,001

Revenue adjustments, primarily for pricing on prior period open sales
(12
)
 
(12
)
 
(17
)
 
(1
)
 
(30
)
Gross profit
$
2,930

 
$
1,802

 
$
1,074

 
$
54

 
$
2,930

 
 
 
 
 
 
 
 
 
 
Reconciliation to Amounts Reported
 
 
 
 
 
 
 
 
 
 
Revenues
 
Production and Delivery
 
Depreciation, Depletion and Amortization
 
 
 
 
Totals presented above
$
4,961

 
$
1,521

 
$
179

 
 
 
 
Treatment charges
(145
)
 
N/A

 
N/A

 
 
 
 
Royalty on metals
(130
)
 
N/A

 
N/A

 
 
 
 
Net noncash and other costs
N/A

 
26

 
N/A

 
 
 
 
Revenue adjustments, primarily for pricing on prior period open sales
(30
)
 
N/A

 
N/A

 
 
 
 
Indonesia mining
4,656

 
1,547

 
179

 
 
 
 
North America copper mines
4,339

 
1,923

 
196

 
 
 
 
South America mining
3,903

 
1,330

 
187

 
 
 
 
Africa mining
963

 
422

 
98

 
 
 
 
Molybdenum
1,119

 
786

 
44

 
 
 
 
Rod & Refining
4,310

 
4,292

 
6

 
 
 
 
Atlantic Copper Smelting & Refining
2,252

 
2,274

 
30

 
 
 
 
Corporate, other & eliminations
(4,824
)
 
(5,070
)
 
16

 
 
 
 
As reported in FCX’s consolidated financial statements
$
16,718

 
$
7,504

 
$
756

 
 
 
 

a.
Includes silver sales of 2.5 million ounces ($36.44 per ounce average realized price).

59


Indonesia Mining Product Revenues and Production Costs (continued)

Nine Months Ended September 30, 2010
 
 
 
(In millions)
By-Product
 
Co-Product Method
 
Method
 
Copper
 
Gold
 
Silver
 
Total
Revenues, excluding adjustments
$
3,085

 
$
3,085

 
$
1,445

 
$
59

a 
$
4,589

 
 
 
 
 
 
 
 
 
 
Site production and delivery, before net noncash and other costs shown below
1,400

 
941

 
441

 
18

 
1,400

Gold and silver credits
(1,505
)
 

 

 

 

Treatment charges
213

 
144

 
67

 
2

 
213

Royalty on metals
109

 
73

 
34

 
2

 
109

Net cash costs
217

 
1,158

 
542

 
22

 
1,722

Depreciation and amortization
192

 
129

 
60

 
3

 
192

Noncash and other costs, net
30

 
20

 
10

 

 
30

Total costs
439

 
1,307

 
612

 
25

 
1,944

Revenue adjustments, primarily for pricing on prior period open sales
(8
)
 
(8
)
 
1

 

 
(7
)
Gross profit
$
2,638

 
$
1,770

 
$
834

 
$
34

 
$
2,638

 
 
 
 
 
 
 
 
 
 
Reconciliation to Amounts Reported
 
 
 
 
 
 
 
 
 
 
Revenues
 
Production and Delivery
 
Depreciation, Depletion and Amortization
 
 
 
 
Totals presented above
$
4,589

 
$
1,400

 
$
192

 
 
 
 
Treatment charges
(213
)
 
N/A

 
N/A

 
 
 
 
Royalty on metals
(109
)
 
N/A

 
N/A

 
 
 
 
Net noncash and other costs
N/A

 
30

 
N/A

 
 
 
 
Revenue adjustments, primarily for pricing on prior period open sales
(7
)
 
N/A

 
N/A

 
 
 
 
Indonesia mining
4,260

 
1,430

 
192

 
 
 
 
North America copper mines
3,116

 
1,557

 
220

 
 
 
 
South America mining
3,383

 
1,227

 
186

 
 
 
 
Africa mining
763

 
347

 
94

 
 
 
 
Molybdenum
893

 
574

 
38

 
 
 
 
Rod & Refining
3,383

 
3,360

 
6

 
 
 
 
Atlantic Copper Smelting & Refining
1,844

 
1,823

 
28

 
 
 
 
Corporate, other & eliminations
(4,263
)
 
(4,084
)
 
24

 
 
 
 
As reported in FCX’s consolidated financial statements
$
13,379

 
$
6,234

 
$
788

 
 
 
 

a.
Includes silver sales of 3.2 million ounces ($18.90 per ounce average realized price).

60


Africa Mining Product Revenues and Production Costs

Three Months Ended September 30, 2011
 
 
 
 
 
 
 
(In millions)
By-Product
 
Co-Product Method
 
Method
 
Copper
 
Cobalt
 
Total
Revenues, excluding adjustmentsa
$
226

 
$
226

 
$
56

 
$
282

 
 
 
 
 
 
 
 
Site production and delivery, before net noncash and other costs shown below
101

 
92

 
31

 
123

Cobalt creditsb
(34
)
 

 

 

Royalty on metals
5

 
4

 
1

 
5

Net cash costs
72

 
96

 
32

 
128

Depreciation, depletion and amortization
32

 
27

 
5

 
32

Noncash and other costs, net
16

 
13

 
3

 
16

Total costs
120

 
136

 
40

 
176

Revenue adjustments, primarily for pricing on prior period open sales
(1
)
 
(1
)
 

 
(1
)
Other non-inventoriable costs
(3
)
 
(2
)
 
(1
)
 
(3
)
Gross profit
$
102

 
$
87

 
$
15

 
$
102

 
 
 
 
 
 
 
 
Reconciliation to Amounts Reported
 
 
 
 
 
 
 
 
Revenues
 
Production and Delivery
 
Depreciation, Depletion and Amortization
 
 
Totals presented above
$
282

 
$
123

 
$
32

 
 
Royalty on metals
(5
)
 
N/A

 
N/A

 
 
Net noncash and other costs
N/A

 
16

 
N/A

 
 
Revenue adjustments, primarily for pricing on prior period open sales
(1
)
 
N/A

 
N/A

 
 
Other non-inventoriable costs
N/A

 
3

 
N/A

 
 
Africa mining
276

 
142

 
32

 
 
North America copper mines
1,419

 
664

 
67

 
 
South America mining
1,053

 
478

 
64

 
 
Indonesia mining
1,362

 
503

 
62

 
 
Molybdenum
332

 
260

 
14

 
 
Rod & Refining
1,396

 
1,390

 
2

 
 
Atlantic Copper Smelting & Refining
837

 
826

 
11

 
 
Corporate, other & eliminations
(1,480
)
 
(1,693
)
 
5

 
 
As reported in FCX’s consolidated financial statements
$
5,195

 
$
2,570

 
$
257

 
 
 
a.
Includes adjustments for point-of-sale transportation costs as negotiated in customer contracts.
 
b.
Net of cobalt downstream processing and freight costs.


61


Africa Mining Product Revenues and Production Costs (continued)

Three Months Ended September 30, 2010
 
 
 
 
 
 
 
(In millions)
By-Product
 
Co-Product Method
 
Method
 
Copper
 
Cobalt
 
Total
Revenues, excluding adjustmentsa
$
244

 
$
244

 
$
72

 
$
316

 
 
 
 
 
 
 
 
Site production and delivery, before net noncash and other costs shown below
104

 
87

 
36

 
123

Cobalt creditsb
(48
)
 

 

 

Royalty on metals
6

 
5

 
1

 
6

Net cash costs
62

 
92

 
37

 
129

Depreciation, depletion and amortization
34

 
28

 
6

 
34

Noncash and other costs, net
14

 
12

 
2

 
14

Total costs
110

 
132

 
45

 
177

Revenue adjustments, primarily for pricing on prior period open sales
2

 
2

 
(5
)
 
(3
)
Other non-inventoriable costs
(3
)
 
(2
)
 
(1
)
 
(3
)
Gross profit
$
133

 
$
112

 
$
21

 
$
133

 
 
 
 
 
 
 
 
Reconciliation to Amounts Reported
 
 
 
 
 
 
 
 
Revenues
 
Production and Delivery
 
Depreciation, Depletion and Amortization
 
 
Totals presented above
$
316

 
$
123

 
$
34

 
 
Royalty on metals
(6
)
 
N/A

 
N/A

 
 
Net noncash and other costs
N/A

 
14

 
N/A

 
 
Revenue adjustments, primarily for pricing on prior period open sales
(3
)
 
N/A

 
N/A

 
 
Other non-inventoriable costs
N/A

 
3

 
N/A

 
 
Eliminations and other

 
1

 

 
 
Africa mining
307

 
141

 
34

 
 
North America copper mines
998

 
536

 
67

 
 
South America mining
1,465

 
462

 
66

 
 
Indonesia mining
1,874

 
528

 
72

 
 
Molybdenum
293

 
199

 
13

 
 
Rod & Refining
1,181

 
1,172

 
2

 
 
Atlantic Copper Smelting & Refining
595

 
590

 
9

 
 
Corporate, other & eliminations
(1,561
)
 
(1,362
)
 
5

 
 
As reported in FCX’s consolidated financial statements
$
5,152

 
$
2,266

 
$
268

 
 
 
a.
Includes adjustments for point-of-sale transportation costs as negotiated in customer contracts.
 
b.
Net of cobalt downstream processing and freight costs.


62


Africa Mining Product Revenues and Production Costs (continued)

Nine Months Ended September 30, 2011
 
 
 
 
 
 
 
(In millions)
By-Product
 
Co-Product Method
 
Method
 
Copper
 
Cobalt
 
Total
Revenues, excluding adjustmentsa
$
779

 
$
779

 
$
201

 
$
980

 
 
 
 
 
 
 
 
Site production and delivery, before net noncash and other costs shown below
313

 
275

 
105

 
380

Cobalt creditsb
(136
)
 

 

 

Royalty on metals
18

 
14

 
4

 
18

Net cash costs
195

 
289

 
109

 
398

Depreciation, depletion and amortization
98

 
83

 
15

 
98

Noncash and other costs, net
32

 
27

 
5

 
32

Total costs
325

 
399

 
129

 
528

Revenue adjustments, primarily for pricing on prior period open sales
(1
)
 
(1
)
 
2

 
1

Other non-inventoriable costs
(10
)
 
(8
)
 
(2
)
 
(10
)
Gross profit
$
443

 
$
371

 
$
72

 
$
443

 
 
 
 
 
 
 
 
Reconciliation to Amounts Reported
 
 
 
 
 
 
 
 
Revenues
 
Production and Delivery
 
Depreciation, Depletion and Amortization
 
 
Totals presented above
$
980

 
$
380

 
$
98

 
 
Royalty on metals
(18
)
 
N/A

 
N/A

 
 
Net noncash and other costs
N/A

 
32

 
N/A

 
 
Revenue adjustments, primarily for pricing on prior period open sales
1

 
N/A

 
N/A

 
 
Other non-inventoriable costs
N/A

 
10

 
N/A

 
 
Africa mining
963

 
422

 
98

 
 
North America copper mines
4,339

 
1,923

 
196

 
 
South America mining
3,903

 
1,330

 
187

 
 
Indonesia mining
4,656

 
1,547

 
179

 
 
Molybdenum
1,119

 
786

 
44

 
 
Rod & Refining
4,310

 
4,292

 
6

 
 
Atlantic Copper Smelting & Refining
2,252

 
2,274

 
30

 
 
Corporate, other & eliminations
(4,824
)
 
(5,070
)
 
16

 
 
As reported in FCX’s consolidated financial statements
$
16,718

 
$
7,504

 
$
756

 
 
 
a.
Includes adjustments for point-of-sale transportation costs as negotiated in customer contracts.
 
b.
Net of cobalt downstream processing and freight costs.

63


Africa Mining Product Revenues and Production Costs (continued)

Nine Months Ended September 30, 2010
 
 
 
 
 
 
 
(In millions)
By-Product
 
Co-Product Method
 
Method
 
Copper
 
Cobalt
 
Total
Revenues, excluding adjustmentsa
$
623

 
$
623

 
$
150

 
$
773

 
 
 
 
 
 
 
 
Site production and delivery, before net noncash and other costs shown below
264

 
238

 
76

 
314

Cobalt creditsb
(104
)
 

 

 

Royalty on metals
14

 
11

 
3

 
14

Net cash costs
174

 
249

 
79

 
328

Depreciation, depletion and amortization
94

 
78

 
16

 
94

Noncash and other costs, net
18

 
15

 
3

 
18

Total costs
286

 
342

 
98

 
440

Revenue adjustments, primarily for pricing on prior period open sales

 

 
4

 
4

Other non-inventoriable costs
(15
)
 
(12
)
 
(3
)
 
(15
)
Gross profit
$
322

 
$
269

 
$
53

 
$
322

 
 
 
 
 
 
 
 
Reconciliation to Amounts Reported
 
 
 
 
 
 
 
 
Revenues
 
Production and Delivery
 
Depreciation, Depletion and Amortization
 
 
Totals presented above
$
773

 
$
314

 
$
94

 
 
Royalty on metals
(14
)
 
N/A

 
N/A

 
 
Net noncash and other costs
N/A

 
18

 
N/A

 
 
Revenue adjustments, primarily for pricing on prior period open sales
4

 
N/A

 
N/A

 
 
Other non-inventoriable costs
N/A

 
15

 
N/A

 
 
Africa mining
763

 
347

 
94

 
 
North America copper mines
3,116

 
1,557

 
220

 
 
South America mining
3,383

 
1,227

 
186

 
 
Indonesia mining
4,260

 
1,430

 
192

 
 
Molybdenum
893

 
574

 
38

 
 
Rod & Refining
3,383

 
3,360

 
6

 
 
Atlantic Copper Smelting & Refining
1,844

 
1,823

 
28

 
 
Corporate, other & eliminations
(4,263
)
 
(4,084
)
 
24

 
 
As reported in FCX’s consolidated financial statements
$
13,379

 
$
6,234

 
$
788

 
 
 
a.
Includes adjustments for point-of-sale transportation costs as negotiated in customer contracts.
 
b.
Net of cobalt downstream processing and freight costs.



64


Henderson Molybdenum Mine Product Revenues and Production Costs

 
Three Months Ended September 30,
 
 
(In millions)
2011
 
2010
 
 
Revenues, excluding adjustments
$
163

 
$
162

 
 
 
 
 
 
 
 
Site production and delivery, before net noncash and other costs shown below
55

 
51

 
 
Treatment charges and other
11

 
12

 
 
Net cash costs
66

 
63

 
 
Depreciation, depletion and amortization
10

 
9

 
 
Noncash and other costs, net

 

 
 
Total costs
76

 
72

 
 
Gross profita
$
87

 
$
90

 
 
 
 
 
 
 
 
Reconciliation to Amounts Reported
Revenues
 
Production and Delivery
 
Depreciation, Depletion and Amortization
Three Months Ended September 30, 2011
 
 
 
 
 
Totals presented above
$
163

 
$
55

 
$
10

Treatment charges and other
(11
)
 
N/A

 
N/A

Net noncash and other costs
N/A

 

 
N/A

Henderson mine
152

 
55

 
10

Other molybdenum operations and eliminationsb
180

 
205

 
4

Molybdenum
332

 
260

 
14

North America copper mines
1,419

 
664

 
67

South America mining
1,053

 
478

 
64

Indonesia mining
1,362

 
503

 
62

Africa mining
276

 
142

 
32

Rod & Refining
1,396

 
1,390

 
2

Atlantic Copper Smelting & Refining
837

 
826

 
11

Corporate, other & eliminations
(1,480
)
 
(1,693
)
 
5

As reported in FCX’s consolidated financial statements
$
5,195

 
$
2,570

 
$
257

 
 
 
 
 
 
Three Months Ended September 30, 2010
 
 
 
 
 
Totals presented above
$
162

 
$
51

 
$
9

Treatment charges and other
(12
)
 
N/A

 
N/A

Net noncash and other costs
N/A

 

 
N/A

Henderson mine
150

 
51

 
9

Other molybdenum operations and eliminationsb
143

 
148

 
4

Molybdenum
293

 
199

 
13

North America copper mines
998

 
536

 
67

South America mining
1,465

 
462

 
66

Indonesia mining
1,874

 
528

 
72

Africa mining
307

 
141

 
34

Rod & Refining
1,181

 
1,172

 
2

Atlantic Copper Smelting & Refining
595

 
590

 
9

Corporate, other & eliminations
(1,561
)
 
(1,362
)
 
5

As reported in FCX’s consolidated financial statements
$
5,152

 
$
2,266

 
$
268

a.
Gross profit reflects sales of Henderson production based on volumes produced at market-based pricing. On a consolidated basis, the Molybdenum division includes profits on sales as they are made to third parties and realizations based on actual contract terms. As a result, the actual gross profit realized will differ from the amounts reported in this table.
b.
Primarily includes amounts associated with the molybdenum sales company, which includes sales of molybdenum produced by our North and South America copper mines.

65


Henderson Molybdenum Mine Product Revenues and Production Costs (continued)

 
Nine Months Ended September 30,
 
 
(In millions)
2011
 
2010
 
 
Revenues, excluding adjustments
$
499

 
$
478

 
 
 
 
 
 
 
 
Site production and delivery, before net noncash and other costs shown below
158

 
141

 
 
Treatment charges and other
28

 
33

 
 
Net cash costs
186

 
174

 
 
Depreciation, depletion and amortization
27

 
25

 
 
Noncash and other costs, net
1

 
1

 
 
Total costs
214

 
200

 
 
Gross profita
$
285

 
$
278

 
 
 
 
 
 
 
 
Reconciliation to Amounts Reported
Revenues
 
Production and Delivery
 
Depreciation, Depletion and Amortization
Nine Months Ended September 30, 2011
 
 
 
 
 
Totals presented above
$
499

 
$
158

 
$
27

Treatment charges and other
(28
)
 
N/A

 
N/A

Net noncash and other costs
N/A

 
1

 
N/A

Henderson mine
471

 
159

 
27

Other molybdenum operations and eliminationsb
648

 
627

 
17

Molybdenum
1,119

 
786

 
44

North America copper mines
4,339

 
1,923

 
196

South America mining
3,903

 
1,330

 
187

Indonesia mining
4,656

 
1,547

 
179

Africa mining
963

 
422

 
98

Rod & Refining
4,310

 
4,292

 
6

Atlantic Copper Smelting & Refining
2,252

 
2,274

 
30

Corporate, other & eliminations
(4,824
)
 
(5,070
)
 
16

As reported in FCX’s consolidated financial statements
$
16,718

 
$
7,504

 
$
756

 
 
 
 
 
 
Nine Months Ended September 30, 2010
 
 
 
 
 
Totals presented above
$
478

 
$
141

 
$
25

Treatment charges and other
(33
)
 
N/A

 
N/A

Net noncash and other costs
N/A

 
1

 
N/A

Henderson mine
445

 
142

 
25

Other molybdenum operations and eliminationsb
448

 
432

 
13

Molybdenum
893

 
574

 
38

North America copper mines
3,116

 
1,557

 
220

South America mining
3,383

 
1,227

 
186

Indonesia mining
4,260

 
1,430

 
192

Africa mining
763

 
347

 
94

Rod & Refining
3,383

 
3,360

 
6

Atlantic Copper Smelting & Refining
1,844

 
1,823

 
28

Corporate, other & eliminations
(4,263
)
 
(4,084
)
 
24

As reported in FCX’s consolidated financial statements
$
13,379

 
$
6,234

 
$
788

a.
Gross profit reflects sales of Henderson production based on volumes produced at market-based pricing. On a consolidated basis, the Molybdenum division includes profits on sales as they are made to third parties and realizations based on actual contract terms. As a result, the actual gross profit realized will differ from the amounts reported in this table.
b.
Primarily includes amounts associated with the molybdenum sales company, which includes sales of molybdenum produced by our North and South America copper mines.


66


CAUTIONARY STATEMENT

Our discussion and analysis contains forward-looking statements in which we discuss factors we believe may affect our future performance.  Forward-looking statements are all statements other than statements of historical facts, such as those statements regarding projected ore grades and milling rates, projected production and sales volumes, projected unit net cash costs, projected operating cash flows, projected capital expenditures, exploration efforts and results, mine production and development plans, the impact of deferred intercompany profits on earnings, liquidity, other financial commitments and tax rates, the impact of copper, gold, molybdenum and cobalt price changes, potential prepayments of debt, future dividend payments and potential share purchases.  The words “anticipates,” “may,” “can,” “plans,” “believes,” “estimates,” “expects,” “projects,” “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 our Board and will depend on our financial results, cash requirements, future prospects, and other factors deemed relevant by the Board.

We caution readers that forward-looking statements are not guarantees of future performance and our actual results may differ materially from those anticipated, projected or assumed in the forward-looking statements.  Important factors that can cause our 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 potential effects of violence in Indonesia, the resolution of administrative disputes in the Democratic Republic of Congo, weather- and climate-related risks, labor relations, including the resolution of labor negotiations and strikes in Indonesia and Peru, environmental risks, litigation results, currency translation risks and other factors described in more detail under the heading “Risk Factors” in our annual report on Form 10-K for the year ended December 31, 2010, filed with the SEC as updated by our subsequent filings with the SEC.

Investors are cautioned that many of the assumptions on which our forward-looking statements are based are likely to change after our forward-looking statements are made, including for example commodity prices, which we cannot control, and production volumes and costs, some aspects of which we may or may not be able to control. Further, we may make changes to our business plans that could or will affect our results. We caution investors that we do not intend to update our forward-looking statements notwithstanding any changes in our assumptions, changes in our business plans, our actual experience, or other changes, and we undertake no obligation to update any forward-looking statements more frequently than quarterly.

Item 3.
Quantitative and Qualitative Disclosures About Market Risk.

There have been no material changes in our market risks during the three months ended September 30, 2011. For additional information on market risks, refer to “Disclosures About Market Risks” included in Part II, Item 7A of our annual report on Form 10-K for the year ended December 31, 2010. For projected sensitivities of our operating cash flow to changes in commodity prices, refer to “Outlook” in Part I, Item 2 of this quarterly report on Form 10-Q; for projected sensitivities of our provisionally priced copper sales to changes in commodity prices refer to “Consolidated Results – Revenues” in Part I, Item 2 of this quarterly report on Form 10-Q.

Item 4.
Controls and Procedures.

(a)
Evaluation of disclosure controls and procedures. Our chief executive officer and chief financial officer, with the participation of management, have evaluated the effectiveness of our “disclosure controls and procedures” (as defined in Rules 13a-15(e) and 15(d)-15(e) under the Securities Exchange Act of 1934) as of the end of the period covered by this quarterly report on Form 10-Q. Based on their evaluation, they have concluded that our disclosure controls and procedures are effective as of the end of the period covered by this report.

(b)
Changes in internal control. During second-quarter 2011, we began a phased implementation of a new enterprise resource planning (ERP) information technology system to upgrade our information technology infrastructure and enhance operating efficiency and effectiveness.  Implementation at our North America mining operations is ongoing. We expect implementation of the ERP system to be completed at all of our operations over an approximate two-year period.  During each phase of the implementation, an appropriate level of training of employees, testing of the system and monitoring of the financial results recorded in the system is conducted. Management has updated our system of internal control over financial reporting for the impacted operating business units.


67


With the exception of the ERP implementation described above, there has been no change in our internal control over financial reporting that occurred in the quarterly period covered by this report that materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

Part II.
OTHER INFORMATION

Item 1.
Legal Proceedings.

We are involved in various legal proceedings that arise in the ordinary course of our business or are associated with environmental issues arising from legacy operations conducted over the years by Phelps Dodge Corporation and its affiliates.  We are also involved from time to time in other reviews, investigations and proceedings by government agencies, some of which may result in adverse judgments, settlements, fines, penalties, injunctions or other relief. There have been no new material legal proceedings since the information included in Part I, Item 3. “Legal Proceedings,” of our annual report on Form 10-K for the year ended December 31, 2010.

Management does not believe, based on currently available information, that the outcome of any proceeding reported in “Legal Proceedings” in our annual report on Form 10-K for the year ended December 31, 2010, as updated by our quarterly report on Form 10-Q for the period ended June 30, 2011 and this quarterly report, will have a material adverse effect on our financial condition, although individual outcomes could be material to our operating results for a particular period, depending on the nature and magnitude of the outcome and the operating results for the period.

The following presents material changes to the litigation and environmental proceedings included in Part I, Item 3. "Legal Proceedings" of our annual report on Form 10-K for the year ended December 31, 2010:

Litigation

Blackwell, Oklahoma Litigation. Information regarding these legal proceedings is incorporated by reference to Part I, Item 3. “Legal Proceedings” of our annual report on Form 10-K for the year ended December 31, 2010, as updated by Part II, Item 1. “Legal Proceedings” of our quarterly report on Form 10-Q for the quarter ended June 30, 2011. At a mediation session in September 2011, we reached agreements in principle with the plaintiffs' counsel to settle each of the following matters: Coffey, et al., v. Freeport-McMoRan Copper & Gold, Inc., et al., United States District Court for the Western District of Oklahoma, Case No. CIV-10-295-HE, and Brown et al. v. Freeport-McMoRan Copper & Gold Inc., et al., Kay County Oklahoma District Court, Case No. lCJ-2009-213. The agreements in principle did not have, and the settlements (if effected in accordance with the agreements in principle) will not have a material effect on our financial condition, results of operations or cash flow. Both agreements in principle are subject to negotiation and execution of definitive settlement agreements, and the agreement to settle the Coffey case is subject to a hearing at which the court must determine whether the settlement is "fair, adequate and reasonable." We do not expect the hearing to occur before the first quarter of 2012.

Environmental Proceedings

Arizona Department of Environmental Quality - Morenci. Information regarding this legal proceeding is incorporated by reference to Part I, Item 3. "Legal Proceedings" of our annual report on Form 10-K for the year ended December 31, 2010, as updated by Part II, Item 1. “Legal Proceedings” of our quarterly report on Form 10-Q for the quarter ended June 30, 2011.  On August 1, 2011, the Maricopa County Superior Court approved the consent judgment with the State of Arizona formalizing the agreed-upon settlement.

Tax Proceeding

Cerro Verde Tax Proceeding. Information regarding this proceeding contained in Note 13 of our annual report on Form 10-K for the year ended December 31, 2010, as updated by the information regarding this proceeding contained in Part I, Item 2. “Management's Discussion and Analysis of Financial Condition and Results of Operations” of our quarterly reports on Form 10-Q for the quarters ended March 31, 2011 and June 30, 2011, under the heading “Operations - South America Mining,” is incorporated herein by reference.

Sociedad Minera Cerro Verde S.A.A. (Cerro Verde) received assessments from SUNAT, the Peruvian national tax authority, in connection with claims for mining royalties related to the minerals processed by its concentrator, which was added to Cerro Verde's processing facilities in late 2006. These assessments relate to the period from October

68


2006 through December 2007, and to the years 2008 and 2009. SUNAT issued rulings denying Cerro Verde's protests of the assessments. On May 12, 2010, Cerro Verde filed a claim with the Peruvian Tax Tribunal appealing SUNAT's decision for the period from October 2006 through December 2007. On March 10, 2011, Cerro Verde filed a claim with the Peruvian Tax Tribunal appealing SUNAT's decision for the year 2008. Cerro Verde is challenging these assessments because its stability agreement with the Peruvian government exempts from royalties all minerals extracted from its mining concession, irrespective of the method used for processing those minerals. If Cerro Verde is ultimately found responsible for these royalties, it will also be liable for interest, which accrues at rates that range from approximately 7 to 18 percent based on the year accrued and the currency in which the amounts would be payable. At September 30, 2011, the aggregate amount of the assessments, including interest and penalties, approximated $184 million. This amount will continue to increase at varying interest rates until this matter is resolved. SUNAT may continue to assess mining royalties annually until this matter is resolved by the Tax Tribunal.

Item 1A. Risk Factors.

The following risk factors included in Part I, Item 1A. “Risk Factors” in our annual report on Form 10-K for the year ended December 31, 2010, and Part II, Item 1A. "Risk Factors" in our quarterly report on Form 10-Q for the period ended June 30, 2011, respectively, have been updated:

Operational Risks

Labor unrest and activism could disrupt our operations and may adversely affect our business, financial condition, results of operations and prospects.

As further described in Part 1. Items 1 and 2. “Business and Properties” in our annual report on Form 10-K for the year ended December 31, 2010, we are party to labor agreements with various unions that represent employees at our operations. Labor agreements are generally negotiated on a periodic basis, and the risk exists that labor agreements may not be renewed on reasonably satisfactory terms to us or at all. We cannot predict what issues may be raised by the collective bargaining units representing our employees and, if raised, whether negotiations concerning those issues will be successfully concluded. Our production and sales volumes could be significantly reduced and our business, financial condition and results of operations adversely affected by significant reductions in productivity or protracted work stoppages at one or more of our operations. Additionally, if we enter into a new labor agreement with any union that significantly increases our labor costs relative to our competitors, our ability to compete may be materially adversely affected.

During July 2011, PT Freeport Indonesia union workers commenced an eight-day labor strike, which led to a temporary suspension of mining, milling and concentrate shipments. On September 15, 2011, PT Freeport Indonesia union workers commenced another labor strike that is ongoing. The union has notified PT Freeport Indonesia that it intends to extend the strike to December 15, 2011. PT Freeport Indonesia continues to seek an end to the strike, which has no legal basis, and to conclude negotiations, on a fair and reasonable basis, of the bi-annual renewal of its collective labor agreement. PT Freeport Indonesia's compensation practices are highly competitive in Indonesia, and PT Freeport Indonesia has agreed to accept the recommendations of the government-appointed mediator for a generous increase in wages and other benefits. However, the union has declined to accept these recommendations, and on October 10, 2011, PT Freeport Indonesia filed its case with the Industrial Court. We cannot predict when the strike will end or what the outcome of our labor negotiations will be.

During third-quarter 2011, Cerro Verde's union workforce commenced a series of labor strikes, the most recent of which commenced on September 29, 2011. Efforts are ongoing to reach a mutually satisfactory renewal of Cerro Verde's collective bargaining agreement.

If we do not successfully negotiate new collective bargaining agreements with our union workers, including those employed by PT Freeport Indonesia and Cerro Verde, we may incur prolonged strikes and other work stoppages at our mining operations.


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The following risk factor contained in Part I, Item 1A. of our annual report on Form 10-K for the year ended December 31, 2010, has been updated:

International risks

Because our Grasberg minerals district in Papua, Indonesia remains our most significant operating asset, our business may continue to be adversely affected by Indonesian political, economic and social uncertainties. 

The information regarding incidents occurring at our Indonesian mining operations during 2011 contained in Part I, Item 2. “Management's Discussion and Analysis of Financial Condition and Results of Operations” of this quarterly report on Form 10-Q for the quarter ended September 30, 2011, under the heading "Operations - Indonesia Mining" is incorporated herein by reference.

Item 2.
Unregistered Sales of Equity Securities and Use of Proceeds.

(c)
The following table sets forth information with respect to shares of Freeport-McMoRan Copper & Gold Inc. (FCX) common stock purchased by us during the three months ended September 30, 2011:
 
Period
 
(a) Total Number
of Shares Purchased
 
(b) Average
Price Paid Per Share
 
(c) Total Number of
Shares Purchased as Part
of Publicly Announced Plans or Programsa
 
(d) Maximum Number
of Shares That May
Yet Be Purchased Under the Plans or Programsa
 
 
July 1-31, 2011
 

 
 

 
23,685,500

 
August 1-31, 2011
 

 
 

 
23,685,500

 
September 1-30, 2011
 

 
 

 
23,685,500

 
Total
 

 
 

 
23,685,500

a.
On July 21, 2008, our Board of Directors approved an increase in our open-market share purchase program for up to 30 million shares, of which 23.7 million shares remain available for purchase. There have been no purchases under this program since 2008. This program does not have an expiration date.
 
Item 4.
Mine Safety Disclosure.

The safety and health of all employees is our highest priority. Management believes that safety and health considerations are integral to, and compatible with, all other functions in the organization and that proper safety and health management will enhance production and reduce costs. Our approach towards the health and safety of our workforce is to continuously improve performance through implementing robust management systems and providing adequate training, safety incentive and occupational health programs. Refer to Exhibit 99.1 for mine safety disclosures required in accordance with Section 1503(a) of the Dodd-Frank Wall Street Reform and Consumer Protection Act.
 
Item 6.
Exhibits.

The exhibits to this report are listed in the Exhibit Index beginning on Page E-1 hereof.

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FREEPORT-McMoRan COPPER & GOLD INC.

SIGNATURE

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.
 
FREEPORT-McMoRan COPPER & GOLD INC.
 
 
 
 
By:
/s/ C. Donald Whitmire, Jr.
 
 
C. Donald Whitmire, Jr.
 
 
Vice President and
 
 
Controller – Financial Reporting
 
 
(authorized signatory and
 
 
Principal Accounting Officer)



Date:  November 4, 2011

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FREEPORT-McMoRan COPPER & GOLD INC.
EXHIBIT INDEX
 
 
Filed
 
Exhibit
 
with this
Incorporated by Reference
Number
Exhibit Title
Form 10-Q
Form
File No.
Date Filed
3.1
Composite Certificate of Incorporation of FCX.
 
10-Q
001-11307-01
8/6/2010
3.2
Amended and Restated By-Laws of FCX, as amended through February 2, 2010.
 
8-K
001-11307-01
2/5/2010
Letter from Ernst & Young LLP regarding unaudited interim financial statements.
X
 
 
 
Certification of Principal Executive Officer pursuant to Rule 13a-14(a)/15d – 14(a).
X
 
 
 
Certification of Principal Financial Officer pursuant to Rule 13a-14(a)/15d – 14(a).
X
 
 
 
Certification of Principal Executive Officer pursuant to 18 U.S.C. Section 1350.
X
 
 
 
Certification of Principal Financial Officer pursuant to 18 U.S.C Section 1350.
X
 
 
 
Mine Safety and Health Administration Safety Data.
X
 
 
 
101.INS
XBRL Instance Document.
X
 
 
 
101.SCH
XBRL Taxonomy Extension Schema.
X
 
 
 
101.CAL
XBRL Taxonomy Extension Calculation Linkbase.
X
 
 
 
101.DEF
XBRL Taxonomy Extension Definition Linkbase.
X
 
 
 
101.LAB
XBRL Taxonomy Extension Label Linkbase.
X
 
 
 
101.PRE
XBRL Taxonomy Extension Presentation Linkbase.
X
 
 
 


E-1