Fair Value Measurement (Unaudited)

3 Months Ended

Mar. 31, 2013

Fair Value Measurement [Abstract]

Fair Value Measurement

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). FCX did not have any significant transfers in or out of Levels 1, 2 or 3 for first-quarter 2013.

A summary of the carrying amount and fair value of FCX’s financial instruments other than cash and cash equivalents, accounts receivable, and accounts payable and accrued liabilities follows (in millions):

	At March 31, 2013
	Carrying		Fair Value
	Amount		Total		Level 1		Level 2		Level 3
Assets
Investment securities (current and long-term):
MMR investmentb	$	439	$	592	$	—	$	592	$	—
U.S. core fixed income funda,c	22		22		—		22		—
Money market fundsa, c	16		16		16		—		—
Equity securitiesa, c	7		7		7		—		—
Total investment securities	484		637		23		614		—
Trust assets (long-term):a, c
U.S. core fixed income fund	49		49		—		49		—
Government mortgage-backed securities	40		40		—		40		—
Corporate bonds	28		28		—		28		—
Government bonds and notes	19		19		—		19		—
Asset-backed securities	18		18		—		18		—
Money market funds	7		7		7		—		—
Municipal bonds	1		1		—		1		—
Total trust assets	162		162		7		155		—
Derivatives:a
Embedded derivatives in provisional sales/purchase
contracts in a gross asset positiond	19		19		—		19		—
Copper forward contractse	1		1		1		—		—
Total derivative assets	20		20		1		19		—
Total assets			$	819	$	31	$	788	$	—
Liabilities
Derivatives:a
Embedded derivatives in provisional sales/purchase
contracts in a gross liability positiond	$	79	$	79	$	—	$	79	$	—
Copper futures and swap contractsf	8		8		6		2		—
Total derivative liabilities	87		87		6		81		—
Long-term debt, including current portiong	10,092		10,129		—		10,129		—
Total liabilities			$	10,216	$	6	$	10,210	$	—

	At December 31, 2012
	Carrying		Fair Value
	Amount		Total		Level 1		Level 2		Level 3
Assets
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 a gross asset positiond	36		36		—		36		—
Copper futures and swaps contractse	5		5		5		—		—
Total derivative assets	41		41		5		36		—
Total assets			$	789	$	36	$	753	$	—
Liabilities
Derivatives:a
Embedded derivatives in provisional sales/purchase
contracts in a gross 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	$	—

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 trade accounts receivable and/or accounts payable and accrued liabilities (refer to Note 7 for further discussion).

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.

FCX's investment in MMR's 5.75% Convertible Perpetual Preferred Stock (MMR investment) is not actively traded. Historically, FCX used a pricing simulation model in determining fair value of the MMR investment; however, because of the definitive agreement to acquire MMR (refer to Note 2), FCX incorporated a discounted cash flow model in determining fair value of the MMR investment at March 31, 2013. Accordingly, FCX primarily valued its MMR investment based on a discounted cash flow model that uses risk-adjusted discount rates as the most significant observable input and an expected settlement date. FCX continues to classify this valuation within Level 2 of the fair value hierarchy.

Fixed income securities (U.S. core fixed income funds, government securities, corporate bonds, asset-backed securities and municipal bonds) 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 7 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 the current portion, 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 measurement at the reporting date. There have been no changes in the techniques used at March 31, 2013, except as otherwise described above.