DISPOSITIONS

PT-FI Divestment. On December 21, 2018, FCX completed the transaction with the Indonesian government regarding PT-FI’s long-term mining rights and share ownership.

Pursuant to the previously announced divestment agreement and related documents, PT Indonesia Asahan Aluminium (Persero) (PT Inalum), an Indonesian state-owned enterprise, acquired for cash consideration of $3.85 billion all of Rio Tinto plc's (Rio Tinto) interests associated with its joint venture with PT-FI (the former Rio Tinto Joint Venture) and 100 percent of FCX's interests in PT Indonesia Papua Metal Dan Mineral (PTI - formerly known as PT Indocopper Investama), which at the time owned 9.36 percent of PT-FI. Of the $3.85 billion in cash consideration, Rio Tinto received $3.5 billion, and FCX received $350 million. In addition, Rio Tinto paid FCX $107 million for its share of the 2018 joint venture cash flows.

In connection with the transaction, an aggregate 40 percent share ownership in PT-FI was issued to PT Inalum and PTI (which is expected to be owned by PT Inalum and the provincial/regional government in Papua). Based on a subscription of PT Inalum’s rights to acquire for cash consideration of $3.5 billion all of Rio Tinto’s interests in the former Rio Tinto Joint Venture, PT-FI acquired all of the common stock of the entity (PT Rio Tinto Indonesia) that held Rio Tinto’s interest. After the transaction, PT Inalum’s (26.24 percent) and PTI’s (25.00 percent) collective share ownership of PT-FI totals 51.24 percent and FCX's share ownership totals 48.76 percent. The arrangements provide for FCX and the other pre-transaction PT-FI shareholders (i.e., PT Inalum and PTI) to retain the economics of the revenue and cost sharing arrangements under the former Rio Tinto Joint Venture. As a result, FCX’s economic interest in PT-FI is expected to approximate 81 percent from 2019 through 2022.

The divestment agreement provides that FCX will indemnify PT Inalum and PTI from any losses (reduced by receipts) arising from any tax disputes of PT-FI disclosed to PT Inalum in a Jakarta, Indonesia tax court letter limited to PTI’s respective percentage share at the time the loss is finally incurred. Any net obligations arising from any tax settlement would be paid on December 21, 2025.

FCX, PT-FI, PTI and PT Inalum entered into a shareholders agreement (the PT-FI Shareholders Agreement), which includes provisions related to the governance and management of PT-FI. FCX considered the terms of the PT-FI Shareholders Agreement and related governance structure, including whether PT Inalum has substantive participating rights, and concluded that it has retained control and would continue to consolidate PT-FI in its financial statements following the transaction. Among other terms, the governance arrangements under the PT-FI Shareholders Agreement transfers control over the management of PT-FI’s mining operations to an operating committee, which is controlled by FCX. Additionally, as discussed above, the existing PT-FI shareholders will retain the economics of the revenue and cost-sharing arrangements under the former Rio Tinto Joint Venture, so that FCX’s economic interest in the project through 2041 will not be significantly affected by the transaction. FCX believes its conclusion to continue to consolidate PT-FI in its financial statements is in accordance with SEC Regulation S-X, Rule 3A-02 (a), which provides for situations in which consolidation of an entity, notwithstanding the lack of majority ownership, is necessary to present fairly the financial position and results of operations of the registrant, because of the existence of a parent-subsidiary relationship by means other than record ownership of voting stock.

FCX also analyzed PT-FI’s acquisition of the Rio Tinto Joint Venture interests and concluded the transaction should be accounted for as an asset acquisition as substantially all of the fair value of the gross assets acquired is concentrated in mineral reserves and related long-lived mining assets. The acquisition was a single asset because substantially all of the acquired assets are linked to each other and cannot be physically removed without causing a significant diminution to the fair value of the other assets. PT-FI allocated the $3.5 billion purchase price to the assets acquired and liabilities assumed based on their estimated fair values on the acquisition date. The fair value estimates were based on, but not limited to, long-term metal price assumptions of $3.00 per pound of copper and $1,300 per ounce of gold; expected future cash flows based on estimated reserve quantities; costs to produce and develop the related reserves; current replacement cost for similar capacity for certain fixed assets; and appropriate discount rates using an estimated international cost of capital of 14 percent. The estimates were primarily based on significant inputs not observable in the market (as discussed above) and thus represent Level 3 measurements.

The following table summarizes the allocation of the purchase price:



Current assets	$	25
Property, plant, equipment and mine development costs:
Mineral reserves	3,056
Mine development, infrastructure and other	1,559
Liabilities other than taxes	(77		)
Deferred income taxes, net	(1,063		)	^a
Total purchase price	$	3,500


a.	Deferred income taxes have been recognized on the fair value adjustments to net assets using an Indonesia corporate income tax rate of 25 percent.

Under applicable accounting guidance, changes in ownership that do not result in a change in control are accounted for as equity transactions with no impact on net income. The following table summarizes the consolidated impact of the transaction discussed above on FCX’s consolidated balance sheet as of December 21, 2018:



Cash	$	458
Other current assets	23
Property, plant, equipment and mine development costs:
Mineral reserves	3,056
Mine development, infrastructure and other	1,559
Liabilities other than taxes	(77		)
Deferred income taxes, net	(788		)
Noncontrolling interests	(4,762		)	^a
Capital in excess of par value	531


a.	Primarily reflects the approximate 40 percent economic interest in the former Rio Tinto Joint Venture for the period from 2023 through 2041, which was acquired by PTI and PT Inalum.

FCX considered if the adjustment to capital in excess of par value was an indicator of impairment and after considering other factors, such as PT-FI’s historical results and projected undiscounted cash flows, concluded that it did not indicate a potential impairment at PT-FI.

TF Holdings Limited - Discontinued Operations. On November 16, 2016, FCX completed the sale of its 70 percent interest in TF Holdings Limited (TFHL) to China Molybdenum Co., Ltd. (CMOC) for $2.65 billion in cash (before closing adjustments) and contingent consideration of up to $120 million in cash, consisting of $60 million if the average copper price exceeds $3.50 per pound and $60 million if the average cobalt price exceeds $20 per pound, both during the 24-month period beginning January 1, 2018. One-half of the proceeds from this transaction was used to repay borrowings under FCX’s unsecured bank term loan.

The contingent consideration is considered a derivative, and the fair value will be adjusted through December 31, 2019. The fair value of the contingent consideration derivative (included in other assets in the consolidated balance sheets) was $57 million at December 31, 2018, and $74 million at December 31, 2017. (Losses) gains resulting from changes in the fair value of the contingent consideration derivative ($(17) million in 2018, $61 million in 2017 and $13 million in 2016) are included in net (loss) income from discontinued operations and primarily resulted from fluctuations in cobalt and copper prices. Future changes in the fair value of the contingent consideration derivative will continue to be recorded in discontinued operations.

In accordance with accounting guidance, FCX reported the results of operations of TFHL as discontinued operations in the consolidated statements of operations because the disposal represents a strategic shift that had a major effect on operations. The consolidated statements of comprehensive income (loss) were not impacted by discontinued operations as TFHL did not have any other comprehensive income (loss), and the consolidated statements of cash flows are reported on a combined basis without separately presenting discontinued operations.

Net (loss) income from discontinued operations in the consolidated statements of operations consists of the following:



	Years Ended December 31,
	2018				2017				2016
Revenues^a	$	—			$	13			$	959
Costs and expenses:
Production and delivery costs	—				—				833
Depreciation, depletion and amortization	—				—				80			^b
Interest expense allocated from parent	—				—				39			^c
Other costs and expenses, net	—				—				10
Income (loss) before income taxes and net (loss) gain on disposal	—				13				(3		)
Net (loss) gain on disposal	(15		)	^d	57			^d	(198		)	^e
Net (loss) income before income taxes	(15		)		70				(201		)
(Provision for) benefit from income taxes	—				(4		)		8
Net (loss) income from discontinued operations	$	(15	)		$	66			$	(193	)


a.	In accordance with accounting guidance, amounts are net of recognition (eliminations) of intercompany sales totaling $13 million in 2017 and $(157) million in 2016.


b.	In accordance with accounting guidance, depreciation, depletion and amortization was suspended subsequent to classification as assets held for sale, which occurred in May 2016.


c.	In accordance with accounting guidance, interest associated with FCX’s unsecured bank term loan that was required to be repaid as a result of the sale of TFHL has been allocated to discontinued operations.


d.	Includes a (loss) gain of $(17) million in 2018 and $61 million in 2017 associated with the change in the fair value of contingent consideration.


e.	Includes a charge of $33 million associated with the settlement agreement entered into with Gécamines, partly offset by a gain of $13 million for the fair value of contingent consideration.

Cash flows from discontinued operations included in the consolidated statements of cash flows for the year ended December 31, 2016, follow:




Net cash provided by operating activities	$	241
Net cash used in investing activities	(73		)
Net cash used in financing activities	(123		)
Increase in cash and cash equivalents	$	45

Assets Held for Sale. As a result of the 2016 sale of TFHL, FCX planned to sell its effective 56 percent interest in Freeport Cobalt and its wholly owned Kisanfu exploration project. Freeport Cobalt includes the large-scale cobalt refinery in Kokkola, Finland, and the related sales and marketing business. Kisanfu is a copper and cobalt exploration project, located near Tenke in the Democratic Republic of Congo (DRC). The assets and liabilities of Freeport Cobalt and Kisanfu were previously classified as held for sale in the consolidated balance sheet at December 31, 2017, and a $110 million estimated loss on disposal was recognized in 2016 when these assets were classified as held for sale (included in net gain on sales of assets in the consolidated statements of operations).

FCX is continuing to assess opportunities for its Kisanfu copper and cobalt exploration project, including development of the project on its own or a sale of all or a minority stake in the project. In 2017, a gain of $13 million was recorded to adjust the Kisanfu assets to their carrying value when they were initially classified as held for sale. In second-quarter 2018, management concluded it no longer believes that it is probable an outright sale will occur in the near term and the related assets and liabilities should no longer be classified as held for sale. Because of this conclusion, revisions to the consolidated balance sheet as of December 31, 2017, included a $90 million increase to property, plant, equipment and mine development costs, net, with an offsetting reduction in current assets held for sale, and a $27 million increase to deferred income taxes, with an offsetting reduction in current liabilities held for sale.

FCX continues to market the Freeport Cobalt assets, but concluded that they no longer qualified as held for sale as of December 31, 2018. In accordance with applicable accounting guidance, during 2018, FCX recorded a gain of $97 million to adjust the Freeport Cobalt assets to their carrying value when they were initially classified as held for sale. During fourth-quarter 2018, FCX also recorded $48 million of depreciation, depletion and amortization expense that was suspended while the assets were held for sale from December 2016 through September 2018. The carrying amounts of Freeport Cobalt’s major classes of assets and liabilities, which were reclassified from held for sale in the consolidated balance sheet at December 31, 2017, follow:



Assets
Cash and cash equivalents	$	79
Trade receivables	76
Inventories	256
Other receivables and current assets	20
Property, plant, equipment and mine development costs, net	60
Other assets	3
Total previously included in current assets held for sale	$	494

Liabilities
Accounts payable and accrued liabilities	$	176
Accrued income taxes	18
Long-term debt	112
Deferred income taxes and asset retirement obligations	17
Total previously included in current liabilities held for sale	$	323

Morenci. In May 2016, FCX sold a 13 percent undivided interest in its Morenci unincorporated joint venture to SMM Morenci, Inc. for $1.0 billion in cash. FCX recorded a $576 million gain on the transaction and used losses to offset cash taxes on the transaction. A portion of the proceeds from the transaction was used to repay borrowings under FCX’s unsecured bank term loan and revolving credit facility.

The Morenci unincorporated joint venture was owned 85 percent by FCX and 15 percent by Sumitomo Metal Mining Arizona, Inc. (Sumitomo). As a result of the transaction, the unincorporated joint venture is owned 72 percent by FCX, 15 percent by Sumitomo and 13 percent by SMM Morenci, Inc. (an affiliate of Sumitomo Metal Mining Co, Ltd.).

Timok. In May 2016, FMC sold an interest in the Timok exploration project in Serbia to Global Reservoir Minerals Inc. (now known as Nevsun Resources, Ltd.) for consideration of $135 million in cash and contingent consideration of up to $107 million payable to FCX in stages upon achievement of defined development milestones. As a result of this transaction, FCX recorded a gain of $133 million in 2016, and no amounts were recorded for contingent consideration under the loss recovery approach. A portion of the proceeds from the transaction was used to repay borrowings under FCX’s unsecured bank term loan.

Oil and Gas Operations. In 2018, FCX Oil & Gas LLC (FM O&G) disposed of certain property interests that resulted in the recognition of a gain of $27 million, primarily associated with the abandonment obligations that were assumed by the acquirer. In 2017, FM O&G sold certain property interests for cash consideration of $80 million (before closing adjustments). Under the full cost accounting rules, the sales resulted in the recognition of gains of $49 million in 2017.

In December 2016, FM O&G completed the sale of its onshore California oil and gas properties to Sentinel Peak Resources California LLC (Sentinel) for cash consideration of $592 million (before closing adjustments from the July 1, 2016, effective date) and contingent consideration of up to $150 million, consisting of $50 million per year for 2018, 2019 and 2020 if the price of Brent crude oil averages over $70 per barrel in each of these calendar years. The contingent consideration is considered a derivative, and the fair value will be adjusted through the year 2020. The fair value of the contingent consideration derivative (included in other assets in the consolidated balance sheets) was $16 million at December 31, 2018, and $34 million at December 31, 2017. The contingent consideration of $50 million for 2018 was realized because the average Brent crude oil price exceeded $70 per barrel for the year and was included in other current assets in the consolidated balance sheet at December 31, 2018. Future changes in the fair value of the contingent consideration derivative will continue to be recorded in operating income. Sentinel assumed abandonment obligations associated with the properties.

In December 2016, FM O&G completed the sale of its Deepwater Gulf of Mexico (GOM) oil and gas properties to Anadarko Petroleum Corporation (Anadarko) for cash consideration of $2.0 billion (before closing adjustments from the August 1, 2016, effective date) and up to $150 million in contingent payments. The contingent payments were recorded under the loss recovery approach, whereby contingent gains are recorded up to the amount of any loss on the sale, and reduced the loss on the sale in 2016. The contingent payments were included in other current assets ($27 million) and other assets ($116 million) at December 31, 2018, and in other current assets ($24 million) and other assets ($126 million) at December 31, 2017, in the consolidated balance sheets. The contingent payments will be received over time ($7 million was collected in 2018) as Anadarko realizes future cash flows in connection with a third-party production handling agreement for an offshore platform. Anadarko assumed abandonment obligations associated with these properties. A portion of the proceeds from this transaction was used to repay FCX’s remaining outstanding borrowings under its unsecured bank term loan.

Under the full cost accounting rules, the sales of the Deepwater GOM and onshore California oil and gas properties required gain (loss) recognition (net loss of $9 million in 2016, which was net of $150 million for contingent payments associated with the Deepwater GOM sale and $33 million for the fair value of contingent consideration from the onshore California sale) because of their significance to the full cost pool.

In connection with the sale of the Deepwater GOM oil and gas properties, FM O&G entered into an agreement to amend the terms of the Plains Offshore Operations Inc. Preferred Stock that was reported as redeemable noncontrolling interest on FCX’s financial statements. The amendment provided FM O&G the right to call these securities for $582 million. FM O&G exercised this option in December 2016 and recorded a $199 million gain on redemption to retained earnings.

In July 2016, FM O&G sold its Haynesville shale assets for cash consideration of $87 million, before closing adjustments. In June 2016, FM O&G sold certain oil and gas royalty interests to Black Stone Minerals, L.P. for cash consideration of $102 million, before closing adjustments. Under the full cost accounting rules, the proceeds from these transactions were recorded as a reduction of capitalized oil and gas properties, with no gain or loss recognition in 2016 because the reserves were not significant to the full cost pool.