COMMITMENTS AND GUARANTEES

12 Months Ended

Dec. 31, 2019

Commitments and Contingencies Disclosure [Abstract]

COMMITMENTS AND GUARANTEES

Leases. Effective January 1, 2019, FCX adopted the new ASU for lease accounting (refer to Note 1 for further discussion). FCX leases various types of properties, including offices and equipment under non-cancelable leases. Nearly all of FCX’s leases were considered operating leases under the new ASU.

The components of FCX’s leases presented in the consolidated balance sheet as of December 31, 2019, follow:



Lease right-of-use assets (included in property, plant, equipment and mine development costs, net)	$	232

Short-term lease liabilities (included in accounts payable and accrued liabilities)	$	44
Long-term lease liabilities (included in other liabilities)	204
Total lease liabilities	$	248

Operating lease costs for the year ended December 31, 2019, primarily included in production and delivery expense in the consolidated statement of operations, are as follows:




Operating leases	$	55
Variable and short-term leases	79
Total operating lease costs	$	134

Prior to the adoption of the new ASU, lease costs totaled $80 million in 2018 and $59 million in 2017 (FCX elected the practical expedient not to adjust these years).

FCX paid $43 million during 2019 for lease liabilities recorded in the consolidated balance sheet (primarily included in operating cash flows in the consolidated statements of cash flows). As of December 31, 2019, the weighted-average discount rate used to determine the lease liabilities was 5.5 percent and the weighted-average remaining lease term was 8.2 years.

The future minimum payments for leases presented in the consolidated balance sheet at December 31, 2019, follow:



2020	$	57
2021	43
2022	36
2023	31
2024	29
Thereafter	121
Total payments	317
Less amount representing interest	(69		)
Present value of net minimum lease payments	248
Less current portion	(44		)
Long-term portion	$	204

Future minimum rentals under non-cancelable leases at December 31, 2018, under the prior lease accounting standard, totaled $53 million in 2019, $42 million in 2020, $38 million in 2021, $32 million in 2022, $29 million in 2023 and $171 million thereafter.

Contractual Obligations. At December 31, 2019, based on applicable prices on that date, FCX has unconditional purchase obligations (including take-or-pay contracts with terms less than one year) of $3.6 billion, primarily comprising the procurement of copper concentrate ($2.3 billion), cobalt ($470 million), electricity ($382 million) and transportation services ($268 million). Some of FCX’s unconditional purchase obligations are settled based on the prevailing market rate for the service or commodity purchased. In some cases, the amount of the actual obligation may change over time because of market conditions. Obligations for copper concentrate provide for deliveries of specified volumes to Atlantic Copper at market-based prices. Obligations for cobalt hydroxide intermediate provide for deliveries of specified volumes to Freeport Cobalt at market-based prices. Electricity obligations are primarily for

long-term power purchase agreements in North America and contractual minimum demand at the South America mines. Transportation obligations are primarily for South America contracted ocean freight.

FCX’s unconditional purchase obligations by year total $1.6 billion in 2020, $731 million in 2021, $300 million in 2022, $274 million in 2023, $270 million in 2024 and $387 million thereafter. During the three-year period ended December 31, 2019, FCX fulfilled its minimum contractual purchase obligations.

Special Mining License (IUPK) - Indonesia. As discussed in Note 2, on December 21, 2018, FCX completed the transaction with the Indonesia government regarding PT-FI’s long-term mining rights and share ownership. Concurrent with the closing of the transaction, the Indonesia government granted PT-FI an IUPK to replace its former COW, enabling PT-FI to conduct operations in the Grasberg minerals district through 2041. Under the terms of the IUPK, PT-FI has been granted an extension of mining rights through 2031, with rights to extend mining rights through 2041, subject to PT-FI completing the construction of a new smelter in Indonesia within five years of closing the transaction and fulfilling its defined fiscal obligations to the Indonesia government. The IUPK, and related documentation, contains legal and fiscal terms and is legally enforceable through 2041. In addition, FCX, as a foreign investor, has rights to resolve investment disputes with the Indonesia government through international arbitration.

The key fiscal terms set forth in the IUPK include a 25 percent corporate income tax rate, a 10 percent profits tax on net income, and royalty rates of 4 percent for copper, 3.75 percent for gold and 3.25 percent for silver. PT-FI’s royalties totaled $106 million in 2019, $238 million in 2018 and $173 million in 2017.

The IUPK requires PT-FI to pay export duties of 5 percent, declining to 2.5 percent when smelter development progress exceeds 30 percent and eliminated when smelter progress exceeds 50 percent. PT-FI had previously agreed to and has been paying export duties since July 2014 (refer to Note 12 for further discussion of disputed export duties for the period April 2017 to December 21, 2018). PT-FI’s export duties charged against revenues totaled $66 million in 2019 (excluding $155 million associated with the historical export duty matter as discussed in Note 12), $180 million in 2018 and $115 million in 2017.

The IUPK also requires PT-FI to pay surface water taxes of $15 million annually, beginning in 2019, which are recognized in production and delivery costs as incurred.

In connection with a memorandum of understanding previously entered into with the Indonesia government in July 2014, PT-FI provided an assurance bond at that time to support its commitment to construct a new smelter in Indonesia ($157 million based on exchange rate as of December 31, 2019).

On September 12, 2019, PT-FI received approval from the Indonesia government to increase its export quota from approximately 180,000 dry metric tons (DMT) of concentrate to approximately 680,000 DMT for the current export period, which expires March 8, 2020.

Community Development Programs. FCX has adopted policies that govern its working relationships with the communities where it operates. These policies are designed to guide its practices and programs in a manner that respects and promotes basic human rights and the culture of the local people impacted by FCX’s operations. FCX continues to make significant expenditures on community development, education, training and cultural programs.

In 1996, PT-FI established the Freeport Partnership Fund for Community Development (Partnership Fund) through which PT-FI has made available funding and technical assistance to support community development initiatives in the areas of health, education, economic development and local infrastructure of the area. PT-FI had committed through December 31, 2019, to provide one percent of its annual revenue for the development of the local communities in its area of operations through the Partnership Fund. Negotiations to extend this agreement are currently underway though PT-FI will continue its contributions to ensure there are no interruptions in the implementation of approved projects. PT-FI charged $28 million in 2019, $55 million in 2018 and $44 million in 2017 to cost of sales for this commitment.

Guarantees. FCX provides certain financial guarantees (including indirect guarantees of the indebtedness of others) and indemnities.

Prior to its acquisition by FCX, FMC and its subsidiaries have, as part of merger, acquisition, divestiture and other transactions, from time to time, indemnified certain sellers, buyers or other parties related to the transaction from and against certain liabilities associated with conditions in existence (or claims associated with actions taken) prior to the closing date of the transaction. As part of these transactions, FMC indemnified the counterparty from and against certain excluded or retained liabilities existing at the time of sale that would otherwise have been transferred to the party at closing. These indemnity provisions generally now require FCX to indemnify the party against certain liabilities that may arise in the future from the pre-closing activities of FMC for assets sold or purchased. The indemnity classifications include environmental, tax and certain operating liabilities, claims or litigation existing at closing and various excluded liabilities or obligations. Most of these indemnity obligations arise from transactions that closed many years ago, and given the nature of these indemnity obligations, it is not possible to estimate the maximum potential exposure. Except as described in the following sentence, FCX does not consider any of such obligations as having a probable likelihood of payment that is reasonably estimable, and accordingly, has not recorded any obligations associated with these indemnities. With respect to FCX’s environmental indemnity obligations, any expected costs from these guarantees are accrued when potential environmental obligations are considered by management to be probable and the costs can be reasonably estimated.