FAIR VALUE MEASUREMENT

12 Months Ended

Dec. 31, 2012

Fair Value Disclosures [Abstract]

Fair Value Measurements

FAIR VALUE MEASUREMENT

Fair value accounting guidance includes a hierarchy that prioritizes the inputs to valuation techniques used to measure fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 inputs) and the lowest priority to unobservable inputs (Level 3 inputs).

Level 1 Unadjusted quoted prices in active markets that are accessible at the measurement date for identical, unrestricted assets or liabilities;

Level 2 Quoted prices in markets that are not active, quoted prices for similar assets or liabilities in active markets, inputs other than quoted prices that are observable for the asset or liability, or inputs that are derived principally from or corroborated by observable market data by correlation or other means; and

Level 3 Prices or valuation techniques that require inputs that are both significant to the fair value measurement and unobservable (supported by little or no market activity).

FCX did not have any significant transfers in or out of Levels 1, 2, or 3 in 2012.

The carrying value for certain FCX financial instruments (i.e., cash, accounts receivable, accounts payable and accrued liabilities, and dividends payable) approximate fair value because of their short-term nature and generally negligible credit losses. A summary of the carrying amount and fair value of FCX’s other financial instruments follows:

	At December 31, 2012
	Carrying		Fair Value
	Amount		Total		Level 1		Level 2		Level 3
Assets
Cash equivalents:a
Money market funds	$	2,991	$	2,991	$	2,991	$	—	$	—
Investment securities (current and long-term):
MMR investmentb	446		539		—		539		—
U.S. core fixed income funda, c	22		22		—		22		—
Money market fundsa, c	16		16		16		—		—
Equity securitiesa, c	8		8		8		—		—
Total investment securities	492		585		24		561		—
Trust assets (long-term):a, c
U.S. core fixed income fund	50		50		—		50		—
Government mortgage-backed securities	36		36		—		36		—
Corporate bonds	30		30		—		30		—
Government bonds and notes	24		24		—		24		—
Asset-backed securities	15		15		—		15		—
Money market funds	7		7		7		—		—
Municipal bonds	1		1		—		1		—
Total trust assets	163		163		7		156		—

Derivatives:a
Embedded derivatives in provisional sales/purchase
contracts in an asset positiond	36		36		—		36		—
Copper futures and swap contractse	5		5		5		—		—
Total derivative assets	41		41		5		36		—
Total assets			$	3,780	$	3,027	$	753	$	—
Liabilities
Derivatives:a
Embedded derivatives in provisional sales/purchase
contracts in a liability positiond	$	27	$	27	$	—	$	27	$	—
Copper futures and swap contractsf	1		1		1		—		—
Total derivative liabilities	28		28		1		27		—
Long-term debt, including current portiong	3,527		3,589		—		3,589		—
Total liabilities			$	3,617	$	1	$	3,616	$	—

	At December 31, 2011
	Carrying		Fair Value
	Amount		Total		Level 1		Level 2		Level 3
Assets
Cash equivalents:a
Money market funds	$	4,007	$	4,007	$	4,007	$	—	$	—
Investment securities (current and long-term):
MMR investmentb	475		507		—		507		—
Equity securitiesa, c	9		9		9		—		—
Money market fundsa, c	2		2		2		—		—
Total investment securities	486		518		11		507		—
Trust assets (long-term):a,c
Government mortgage-backed securities	47		47		—		47		—
U.S. core fixed income fund	46		46		—		46		—
Government bonds and notes	21		21		—		21		—
Corporate bonds	19		19		—		19		—
Asset-backed securities	9		9		—		9		—
Money market funds	9		9		9		—		—
Municipal bonds	1		1		—		1		—
Total trust assets	152		152		9		143		—
Derivatives:a
Embedded derivatives in provisional sales/purchase
contracts in an asset positiond	72		72		—		72		—
Copper futures and swap contractse	3		3		3		—		—
Copper forward contractse	2		2		1		1		—
Total derivative assets	77		77		4		73		—
Total assets			$	4,754	$	4,031	$	723	$	—
Liabilities
Derivatives:a
Embedded derivatives in provisional sales/purchase
contracts in a liability positiond	$	82	$	82	$	—	$	82	$	—
Copper futures and swap contractsf	13		13		11		2		—
Total derivative liabilities	95		95		11		84		—
Long-term debt, including current portiong	3,537		3,797		—		3,797		—
Total liabilities			$	3,892	$	11	$	3,881	$	—

a. Recorded at fair value. 

b. Recorded at cost and included in other assets.

c. Current portion included in other current assets and long-term portion included in other assets. 

d. Embedded derivatives are recorded in accounts receivable and/or accounts payable and accrued liabilities.

e. Included in other current assets.

f. Included in accounts payable and accrued liabilities.

g. Recorded at cost except for long-term debt acquired in the FMC acquisition, which was recorded at fair value at the acquisition date.

Valuation Techniques

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

MMR's 5.75% Convertible Perpetual Preferred Stock is not actively traded; therefore, FCX's investment in the MMR 5.75% Convertible Perpetual Preferred Stock is valued based on a pricing simulation model that uses the quoted market prices of MMR's publicly traded common stock as the most significant observable input and other inputs, such as expected volatility, expected settlement date, and risk-free interest rate. Therefore, this investment is classified within Level 2 of the fair value hierarchy.

Fixed income securities (government securities, U.S. core fixed income funds, corporate bonds and asset-backed securities) 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 have critical inputs of quoted monthly LME or COMEX copper forward prices and the London PM gold forward price at each reporting date based on the month of maturity; however, FCX's contracts themselves are not traded on an exchange. As a result, these derivatives are classified within Level 2 of the fair value hierarchy.

FCX’s derivative financial instruments for copper futures and swap contracts and copper forward contracts that are traded on the respective exchanges are classified within Level 1 of the fair value hierarchy because they are valued using quoted monthly COMEX or LME forward prices at each reporting date based on the month of maturity (refer to Note 15 for further discussion). Certain of these contracts are traded on the over-the-counter market and are classified within Level 2 of the fair value hierarchy.

Long-term debt, including current portion, is not actively traded and is valued using prices obtained from a readily available pricing source and, as such, is classified within Level 2 of the fair value hierarchy.

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 December 31, 2012.