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Press release from Business Wire

Freeport-McMoRan Copper & Gold Inc. Reports Second-Quarter and Six-Month 2013 Results

Tuesday, July 23, 2013

Freeport-McMoRan Copper & Gold Inc. Reports Second-Quarter and Six-Month 2013 Results

08:00 EDT Tuesday, July 23, 2013

PHOENIX (Business Wire) -- Freeport-McMoRan Copper & Gold Inc. (NYSE: FCX)

  • During second-quarter 2013, FCX completed its $19 billion acquisitions of Plains Exploration & Production Company (PXP) and McMoRan Exploration Co. (MMR), creating a premier U.S.-based natural resource company. FCX's second-quarter 2013 financial results include PXP's operations beginning June 1, 2013, and MMR's operations beginning June 4, 2013.
  • Net income attributable to common stock totaled $482 million, $0.49 per share for second-quarter 2013, compared with net income of $710 million, $0.74 per share, for second-quarter 2012. Net income attributable to common stock for the first six months of 2013 totaled $1.1 billion, $1.17 per share, compared with $1.5 billion, $1.55 per share, for the first six months of 2012.
  • Consolidated sales for second-quarter 2013 totaled 951 million pounds of copper, 173 thousand ounces of gold, 23 million pounds of molybdenum and 5.0 million barrels of oil equivalents (MMBOE), reflecting results from Freeport-McMoRan Oil & Gas (FM O&G) beginning June 1, 2013. For the year 2013, sales are expected to approximate 4.1 billion pounds of copper, 1.1 million ounces of gold, 92 million pounds of molybdenum and 35 MMBOE (reflecting results for FM O&G beginning June 1, 2013).
  • Operating cash flows totaled $1.0 billion(including $235 million in working capital sources and changes in other tax payments) for second-quarter 2013 and $1.9 billion (net of $195 million in working capital uses and changes in other tax payments) for the first six months of 2013. Based on current sales volume and cost estimates and assuming average prices of $3.15 per pound for copper, $1,300 per ounce for gold, $10 per pound of molybdenum and $105 per barrel for Brent crude oil for the second half of 2013, operating cash flows for the year 2013 are expected to approximate $5.8 billion (net of $30 million of net working capital uses and other tax payments).
  • Capital expenditures totaled $1.2 billion for second-quarter 2013 and $2.0 billion for the first six months of 2013. Capital expenditures are expected to approximate $5.5 billion for the year 2013, including $2.3 billion for major projects at mining operations and $1.5 billion for oil and gas operations for the period beginning June 1, 2013.
  • During second-quarter 2013, FCX took actions to reduce or defer capital expenditures and other costs, and initiated efforts to identify potential asset sales to reduce debt and maintain financial strength and flexibility in response to recent declines in metals prices. As a first step, FCX has reduced budgeted future capital expenditures, exploration and other costs by a total of $1.9 billion in 2013 and 2014. FCX has also initiated a process to divest certain oil and gas properties from its conventional Gulf of Mexico (GOM) Shelf properties. FCX has a broad set of natural resource assets which provide many alternatives for future actions to enhance FCX's financial flexibility and value for shareholders. Additional capital cost reductions and divestitures will be pursued as required to maintain a strong balance sheet while preserving a strong resource position and portfolio of assets with attractive long-term growth prospects.
  • At June 30, 2013, consolidated cash totaled $3.3 billion and consolidated debt totaled $21.2 billion, including $0.7 billion of fair value adjustments to the stated value of assumed debt.
  • On May 31, 2013, FCX's Board of Directors declared a supplemental common stock dividend of $1.00 per share, which was paid on July 1, 2013. This supplemental dividend, which totaled $1.0 billion, is in addition to FCX's regular quarterly dividend of $0.3125 per share and is the eleventh supplemental dividend paid by FCX since 2004, which have totaled $3.0 billion.

Freeport-McMoRan Copper & Gold Inc. (NYSE: FCX) reported net income attributable to common stock of $482 million, $0.49 per share, for second-quarter 2013 and $1.1 billion, $1.17 per share, for the first six months of 2013, compared with $710 million, $0.74 per share, for second-quarter 2012 and $1.5 billion, $1.55 per share, for the first six months of 2012. FCX's results for the second quarter and first six months of 2013 include the results of its wholly owned subsidiary Freeport-McMoRan Oil & Gas (FM O&G), following the acquisitions of PXP on May 31, 2013, and of MMR on June 3, 2013. Results for second-quarter 2013 also included net gains of $265 million to net income attributable to common stock, $0.27 per share, related to the acquisitions, as more fully described below.

James R. Moffett, Chairman of the Board; Richard C. Adkerson, Vice Chairman, President and Chief Executive Officer; and James C. Flores, Vice Chairman and President and Chief Executive Officer of FM O&G, said, "We are pleased to report our initial quarterly results following the second-quarter 2013 oil and gas acquisitions. As an organization, we are focused on strong execution of our business plans, which provide exposure to a significant, geographically diverse natural resource base, with an established and successful operating history and with multi-faceted and financially attractive growth opportunities. We are committed to our business plan of reducing debt and maintaining a strong balance sheet, while investing in financially attractive projects and providing cash returns to shareholders. We are taking measures to execute prudent capital management in an uncertain global economic environment and are committed to pursuing additional divestitures and capital cost reductions as required to maintain a strong balance sheet while preserving a strong resource position and a portfolio of assets with attractive long-term growth prospects."

         

SUMMARY FINANCIAL DATA

Three Months Ended Six Months Ended
June 30, June 30,
  2013  

a

    2012     2013   a     2012
(in millions, except per share amounts)
Revenuesb $ 4,288       $ 4,475 $ 8,871       $ 9,080
Operating income $ 639 c $ 1,311 $ 1,994 c $ 3,045
Net income attributable to common stockd $ 482 c,e $ 710 $ 1,130 c,e,f $ 1,474 f
Diluted net income per share of common stock $ 0.49 c,e $ 0.74 $ 1.17 c,e,f $ 1.55 f
Diluted weighted-average common shares outstanding 984 953 968 954
Operating cash flowsg $ 1,034 $ 1,182 $ 1,865 $ 1,983
Capital expenditures $ 1,173 $ 840 $ 1,978 $ 1,547
At June 30:
Cash and cash equivalents $ 3,294 $ 4,508 $ 3,294 $ 4,508
Total debt, including current portion $ 21,215 $ 3,523 $ 21,215 $ 3,523
 

a.

  Includes the results of FM O&G beginning June 1, 2013. Results of the oil and gas operations for June 2013 included revenues of $336 million and operating income of $64 million.

b.

Includes (unfavorable) favorable adjustments to provisionally priced concentrate and cathode copper sales recognized in prior periods totaling $(117) million ($(55) million to net income attributable to common stock or $(0.06) per share) in second-quarter 2013, $(75) million ($(31) million to net income attributable to common stock or $(0.03) per share) in second-quarter 2012, $(26) million ($(12) million to net income attributable to common stock or $(0.01) per share) for the first six months of 2013 and $101 million ($43 million to net income attributable to common stock or $0.05 per share) for the first six months of 2012. The 2013 periods also reflect (unfavorable) adjustments of $(35) million ($(27) million to net income attributable to common stock or (0.03) per share) related to oil and gas derivative instruments that were assumed in connection with FCX's acquisition of PXP. For further discussion, refer to the supplemental schedule "Derivative Instruments" on page IX, which is available on FCX's website, "www.fcx.com."

c.

Includes charges of $61 million ($46 million to net income attributable to common stock or $0.05 per share) for second-quarter 2013 and $75 million ($57 million to net income attributable to common stock or $0.06 per share) for the first six months of 2013 for transaction and related costs principally associated with the acquisitions of PXP and MMR.

d.

FCX defers recognizing profits on intercompany sales until final sales to third parties occur. Refer to the "Consolidated Statements of Income" on page V for a summary of net impacts from changes in these deferrals.

e.

The second quarter and first six months of 2013 include gains associated with the acquisitions of PXP and MMR, including (i) $128 million to net income attributable to common stock, $0.13 per share, primarily related to FCX's preferred stock investment in and the subsequent acquisition of MMR, and (ii) $183 million to net income attributable to common stock, $0.19 per share, associated with net reductions in FCX's deferred tax liabilities and deferred tax asset valuation allowances.

f.

Includes losses on early extinguishment of debt totaling $39 million to net income attributable to common stock, $0.04 per share, for the first six months of 2013 related to the termination of the acquisition bridge loan facilities and $149 million to net income attributable to common stock, $0.16 per share, for the first six months of 2012 associated with the redemption of FCX's remaining 8.375% senior notes.

g.

Includes net working capital sources (uses) and changes in other tax payments of $235 million for second-quarter 2013, $(54) million for second-quarter 2012, $(195) million for the first six months of 2013 and $(774) million for the first six months of 2012.
 

ACQUISITIONS OF PXP AND MMR

FCX completed the acquisition of PXP on May 31, 2013, and the acquisition of MMR on June 3, 2013. PXP per-share consideration was equivalent to 0.6531 shares of FCX common stock and $25.00 in cash, resulting in FCX issuing 91 million shares of its common stock and paying $3.8 billion in cash (including $0.4 billion for the special dividend paid to PXP stockholders on May 31, 2013). MMR per-share consideration consisted of $14.75 in cash ($1.7 billion in cash, net of FCX's and PXP's interests in MMR) and 1.15 units of a royalty trust, which holds a five percent overriding royalty interest in future production from MMR's ultra-deep exploration prospects that existed at the acquisition date.

In accordance with the acquisition method of accounting, the purchase price from FCX's oil and gas acquisitions has been allocated on a preliminary basis to the assets acquired and liabilities assumed based on initial estimates of their fair values on the respective acquisition dates, with the excess of purchase price over the estimated fair value of the net assets acquired recorded as goodwill.

Following is a summary of FM O&G's preliminary acquisition-date balance sheet (in billions):

     
Preliminary
Acquisition-Date
Fair Valuea
Current assets $ 1.1

Oil and natural gas propertiesb:

Subject to depletion 12.2
Not subject to depletion 11.4
Property, plant and equipment 0.3
Other assets 0.4
Goodwill 1.8
Total assets $ 27.2
 
Current liabilities $ 1.1
Assumed debt (current and long-term) 11.2 c
Other liabilities (primarily asset retirement obligations) 1.0
Deferred income taxesd 3.9
Redeemable noncontrolling interest 1.1
Equity (FCX's investment in FM O&G) 8.9
Total liabilities and equity $ 27.2
 

a.

  The final valuation of assets acquired and liabilities assumed is not complete and carrying amounts initially assigned to the assets and liabilities may change as the fair value analysis is completed.

b.

FCX's oil and gas operations will follow the full cost method of accounting whereby all costs associated with oil and gas acquisition, exploration and development activities are capitalized. Capitalized costs, along with estimated future costs to develop proved reserves, are amortized to expense under the unit-of-production method using estimates of proved oil and natural gas reserves. The costs of unproved oil and gas properties are excluded from amortization until the properties are evaluated, at which time the related costs are subject to amortization. Under the full cost accounting rules, FCX will conduct a "ceiling test" each quarter to review the carrying value of its oil and gas properties for impairment.

c.

Includes $0.8 billion of fair value adjustments to the stated value of the assumed debt. Following the acquisitions, FCX repaid $4.1 billion of the assumed debt primarily related to PXP's amended credit facility with proceeds from a $4.0 billion bank term loan.

d.

Deferred income taxes have been recognized based on the estimated fair value adjustments to net assets using a 38 percent tax rate, which reflected the 35 percent federal statutory rate and a 3 percent weighted-average of the applicable statutory state tax rates, net of federal benefit.
 

SUMMARY OPERATING DATA

       
Three Months Ended Six Months Ended
June 30, June 30,
2013     2012 2013     2012
Copper (millions of recoverable pounds)
Production 909 887 1,889 1,720
Sales, excluding purchases 951 927 1,905 1,754
Average realized price per pound $ 3.17 $ 3.53 $ 3.29 $ 3.61
Site production and delivery costs per pounda $ 2.11 $ 2.01 $ 2.02 $ 1.98
Unit net cash costs per pounda $ 1.85 $ 1.49 $ 1.71 $ 1.38
Gold (thousands of recoverable ounces)
Production 151 251 386 503
Sales, excluding purchases 173 266 387 554
Average realized price per ounce $ 1,322 $ 1,588 $ 1,434 $ 1,639
Molybdenum (millions of recoverable pounds)
Production 24 20 46 41
Sales, excluding purchases 23 20 48 41
Average realized price per pound $ 12.35 $ 15.44 $ 12.56 $ 15.39
Oil Equivalents b
Sales volumes:
MMBOE 5.0 5.0
MBOE per day 169 169
Cash operating margin per BOE:
Realized revenues per BOE $ 74.37 c $ 74.37 c
Cash production costs per BOE 16.58 c 16.58 c
Cash operating margin per BOE $ 57.79 $ 57.79
 

a.

Reflects per pound weighted-average site 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 per pound unit costs by operating division to production and delivery costs applicable to sales reported in FCX's consolidated financial statements, refer to the supplemental schedule, "Product Revenues and Production Costs," beginning on page XIII, which is available on FCX's website, "www.fcx.com."

b.

Reflects the operating results of FM O&G for the period beginning June 1, 2013.

c.

Cash operating margin for FCX's oil and gas operations reflects realized revenues less cash production costs. Realized revenues exclude unrealized gains (losses) on derivative instruments (average realized price excluding both realized and unrealized gains (losses) on derivative instruments was $74.03 per BOE) and cash production costs exclude accretion and other costs. For reconciliations of realized revenues and cash production costs per BOE to revenues and production and delivery costs reported in FCX's consolidated financial statements, refer to the supplemental schedule “Product Revenues and Production Costs” beginning on page XIII, which is available on FCX's website, “www.fcx.com.”

Consolidated Sales Volumes

Second-quarter 2013 consolidated copper sales of 951 million pounds were lower than the April 2013 estimate of 1.0 billion pounds, but higher than second-quarter 2012 sales of 927 million pounds, reflecting increased sales from the Americas and Africa, partly offset by reduced volumes from Indonesia. Second-quarter 2013 consolidated gold sales of 173 thousand ounces were lower than the April 2013 estimate of 295 thousand ounces and second-quarter 2012 sales of 266 thousand ounces. Compared with the April 2013 estimates, lower copper and gold sales volumes primarily reflected lower production from Indonesia as a result of the temporary suspension of operations in mid-May following a tragic accident. Second-quarter 2013 consolidated molybdenum sales of 23 million pounds approximated the April 2013 estimate and were higher than second-quarter 2012 sales of 20 million pounds primarily because of stronger sales in the metallurgical and chemical sectors.

Second-quarter 2013 sales from FCX's recently acquired oil and gas operations totaled 5.0 MMBOE for the period from June 1, 2013 through June 30, 2013, including 3.4 million barrels of (MMBbls) of crude oil, 7.7 billion cubic feet (Bcf) of natural gas and 0.3 MMBbls of natural gas liquids (NGLs).

On May 14, 2013, a tragic accident, which resulted in 28 fatalities and 10 injuries, occurred at PT Freeport Indonesia when the rock structure above an underground ceiling for a training facility collapsed in an unprecedented and unexpected event. While the accident occurred outside the area of mining operations, PT Freeport Indonesia temporarily suspended mining and processing activities at the Grasberg complex in respect for the deceased and injured workers and their families, and to conduct inspections of its facilities in coordination with Indonesian government authorities. The temporary suspension of mining and processing activities at PT Freeport Indonesia, which have subsequently resumed, resulted in an estimated production impact of approximately 125 million pounds of copper and 125 thousand ounces of gold for second-quarter 2013.

Consolidated sales for the year 2013 are expected to approximate 4.1 billion pounds of copper, 1.1 million ounces of gold, 92 million pounds of molybdenum and 35 MMBOE, including 1.1 billion pounds of copper, 330 thousand ounces of gold, 22 million pounds of molybdenum and 15 MMBOE for third-quarter 2013. Projected 2013 sales volumes of copper and gold are approximately 210 million pounds and 260 thousand ounces lower than April 2013 estimates primarily reflecting the impact of the temporary production suspension at PT Freeport Indonesia in second-quarter 2013, impacts of achieving a full ramp-up in underground production and the timing of accessing higher grade material in the Grasberg open pit. The shortfalls are expected to be recovered in future periods.

Consolidated Unit Costs

Mining Unit Net Cash Costs. Consolidated average unit net cash costs (net of by-product credits) for FCX's mining operations of $1.85 per pound of copper in second-quarter 2013 were higher than unit net cash costs of $1.49 per pound in second-quarter 2012 primarily reflecting lower copper and gold volumes in Indonesia, anticipated higher mining rates in North America and the impact of lower gold prices in net by-product credits.

Assuming average prices of $1,300 per ounce of gold and $10 per pound of molybdenum for the second half of 2013 and achievement of current sales volume and cost estimates, consolidated unit net cash costs (net of by-product credits) for FCX's copper mining operations are expected to average approximately $1.58 per pound of copper for the year 2013. Projected unit net cash costs for 2013 are higher than previous estimates primarily because of the impact of lower copper and gold volumes from Indonesia. The impact of price changes for the second half of 2013 on consolidated unit net cash costs would approximate $0.01 per pound for each $50 per ounce change in the average price of gold and $0.01 per pound for each $2 per pound change in the average price of molybdenum. Quarterly unit net cash costs vary with fluctuations in sales volumes and average realized prices (primarily gold and molybdenum prices). Unit net cash costs are expected to decline during the second half of 2013 and in 2014 as FCX gains access to higher grade ore in Indonesia.

Oil and Gas Cash Production Costs per BOE. Cash production costs for oil and gas operations were $16.58 per BOE in June 2013. Based on current sales volume and cost estimates for the second half of 2013, cash production costs per BOE are expected to approximate $19 per BOE in the second half of 2013.

MINING OPERATIONS

North America Copper Mines. FCX operates seven open-pit copper mines in North America - Morenci, Bagdad, Safford, Sierrita and Miami in Arizona, and Chino and Tyrone in New Mexico. All of the North America mining operations are wholly owned, except for Morenci. FCX records its 85 percent joint venture interest in Morenci using the proportionate consolidation method. In addition to copper, the Sierrita, Bagdad, Morenci and Chino mines also produce molybdenum concentrates, which are sold to FCX's molybdenum sales company at market-based pricing.

Operating and Development Activities. FCX has increased production from its North America copper mines in recent years and continues to evaluate a number of opportunities to invest in additional production capacity at its North America copper mines in response to positive exploration results in recent years. Future investments will be undertaken based on the results of economic and technical feasibility studies and taking into consideration market conditions.

At Morenci, FCX is expanding mining and milling capacity to process additional sulfide ores identified through exploratory drilling. The project is targeting incremental annual production of approximately 225 million pounds of copper in 2014 (an approximate 40 percent increase from 2012) through an increase in milling rates from 50,000 metric tons of ore per day to approximately 115,000 metric tons of ore per day and mining rates from 700,000 short tons per day to 900,000 short tons per day. The targeted increase in mining rates has been achieved and construction activities for the new mill and related facilities are in progress. At June 30, 2013, approximately $0.6 billion has been incurred for this project, with approximately $1.0 billion remaining to be incurred. Cost estimates for the project are approximately 15 percent higher than previous estimates resulting from increased equipment and material costs and higher labor costs.

During second-quarter 2013, FCX took actions to reduce near-term capital expenditures and other costs (refer to "Capital Expenditures" on page 14 for further discussion).

Operating Data. Following is summary consolidated operating data for the North America copper mines for the second quarters and first six months of 2013 and 2012:

       
Three Months Ended Six Months Ended
June 30, June 30,
  2013     2012 2013     2012
Copper (millions of recoverable pounds)
Production 349 331 692 668
Sales 372 361 725 699
Average realized price per pound $ 3.25 $ 3.57 $ 3.41 $ 3.68
 
Molybdenum (millions of recoverable pounds)
Productiona 9 9 17 19
 
Unit net cash costs per pound of copper b :
Site production and delivery, excluding adjustments $ 2.09 $ 1.88 $ 2.04 $ 1.84
By-product credits (0.25 ) (0.36 ) (0.26 ) (0.39 )
Treatment charges 0.08   0.10   0.11   0.12  
Unit net cash costs $ 1.92   $ 1.62   $ 1.89   $ 1.57  
 

a.

Refer to summary operating data on page 4 for FCX's consolidated molybdenum sales, which includes sales of molybdenum produced at the North America copper mines.

b.

For a reconciliation of unit net cash costs per pound to production and delivery costs applicable to sales reported in FCX's consolidated financial statements, refer to the supplemental schedule, "Product Revenues and Production Costs," beginning on page XIII, which is available on FCX's website, "www.fcx.com."

 

North America's consolidated copper sales volumes of 372 million pounds in second-quarter 2013 were higher than second-quarter 2012 sales of 361 million pounds, primarily reflecting increased production at the Chino mine. Sales from the North America copper mines are expected to approximate 1.5 billion pounds of copper for the year 2013, compared with 1.35 billion pounds in 2012, primarily reflecting higher production at Morenci and Chino.

As anticipated, average unit net cash costs (net of by-product credits) for the North America copper mines of $1.92 per pound of copper in second-quarter 2013 were higher than unit net cash costs of $1.62 per pound in second-quarter 2012, primarily reflecting higher mining rates and lower molybdenum credits. Average unit net cash costs (net of by-product credits) for the North America copper mines are expected to approximate $1.87 per pound of copper for the year 2013, based on current sales volume and cost estimates and assuming an average molybdenum price of $10 per pound for the second half of 2013. North America's average projected unit net cash costs would change by approximately $0.015 per pound for each $2 per pound change in the average price of molybdenum for the second half of 2013.

South America Mining. FCX operates four copper mines in South America - Cerro Verde in Peru and El Abra, Candelaria and Ojos del Salado in Chile. FCX owns a 53.56 percent interest in Cerro Verde, a 51 percent interest in El Abra, and an 80 percent interest in both the Candelaria and Ojos del Salado mining complexes. All operations in South America are consolidated in FCX's financial statements. South America mining includes open-pit and underground mining. In addition to copper, the Candelaria and Ojos del Salado mines produce gold and silver, and the Cerro Verde mine produces molybdenum concentrates which are sold to FCX's molybdenum sales company at market-based pricing.

Development Activities. FCX has commenced initial construction activities associated with a large-scale expansion at Cerro Verde. The project will 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. At June 30, 2013, approximately $0.8 billion has been incurred for this project, with approximately $3.6 billion remaining to be incurred.

FCX continues to evaluate a potential large-scale milling operation at El Abra to process additional sulfide material and to achieve higher recoveries. Exploration results at El Abra indicate the potential for a significant sulfide resource. Future long-term investments will require evaluation and the completion of feasibility studies and will be dependent on overall market conditions.

During second-quarter 2013, FCX took actions to reduce near-term capital expenditures and other costs (refer to "Capital Expenditures" on page 14 for further discussion).

Operating Data. Following is summary consolidated operating data for the South America mining operations for the second quarters and first six months of 2013 and 2012:

    Three Months Ended     Six Months Ended
June 30, June 30,
  2013     2012 2013     2012
Copper (millions of recoverable pounds)
Production 299 304 597 597
Sales 315 301 600 587
Average realized price per pound $ 3.13 $ 3.51 $ 3.22 $ 3.56
 
Gold (thousands of recoverable ounces)
Production 19 18 40 37
Sales 21 16 42 35
Average realized price per ounce $ 1,317 $ 1,596 $ 1,449 $ 1,630
 
Molybdenum (millions of recoverable pounds)
Productiona 2 2 4 4
 
Unit net cash costs per pound of copper b :
Site production and delivery, excluding adjustments $ 1.62 $ 1.56 $ 1.62 $ 1.55
By-product credits (0.24 ) (0.23 ) (0.26 ) (0.26 )
Treatment charges 0.16   0.16   0.17   0.16  
Unit net cash costs $ 1.54   $ 1.49   $ 1.53   $ 1.45  
 

a.

Refer to summary operating data on page 4 for FCX's consolidated molybdenum sales, which includes sales of molybdenum produced at Cerro Verde.

b.

For a reconciliation of unit net cash costs per pound to production and delivery costs applicable to sales reported in FCX's consolidated financial statements, refer to the supplemental schedule, "Product Revenues and Production Costs," beginning on page XIII, which is available on FCX's website, "www.fcx.com."

 

South America's consolidated copper sales volumes of 315 million pounds in second-quarter 2013 were higher than second-quarter 2012 sales of 301 million pounds primarily related to timing of shipments. Sales from South America mining are expected to approximate 1.3 billion pounds of copper for the year 2013, compared with sales of 1.25 billion pounds of copper in 2012, primarily reflecting higher grade ore at Candelaria.

Average unit net cash costs (net of by-product credits) for South America mining of $1.54 per pound of copper in second-quarter 2013 were higher than unit net cash costs of $1.49 per pound in second-quarter 2012 primarily reflecting higher mining costs. Average unit net cash costs (net of by-product credits) for South America mining are expected to approximate $1.42 per pound of copper for the year 2013, based on current sales volume and cost estimates and assuming average prices of $1,300 per ounce of gold and $10 per pound of molybdenum for the second half of 2013.

Indonesia Mining. Through its 90.64 percent owned and consolidated subsidiary PT Freeport Indonesia, FCX's assets include one of the world's largest copper and gold deposits at the Grasberg minerals district in Papua, Indonesia. PT Freeport Indonesia produces copper concentrates, which contain significant quantities of gold and silver.

Development Activities. FCX has several projects in progress in the Grasberg minerals district, primarily related to the development of large-scale, high-grade underground ore bodies. In aggregate, these underground ore bodies are expected to ramp up over several years to produce approximately 240,000 metric tons of ore per day following the currently anticipated transition from the Grasberg open pit in 2017. Development of the Grasberg Block Cave and Deep Mill Level Zone (DMLZ) is advancing according to schedule, which would enable the DMLZ to commence production in 2015 and the Grasberg Block Cave mine to commence production in 2017. Over the next five years, estimated aggregate capital spending on these projects is currently expected to average $760 million per year ($600 million per year net to PT Freeport Indonesia).

During second-quarter 2013, FCX took actions to reduce near-term capital expenditures and other costs (refer to "Capital Expenditures" on page 14 for further discussion).

Operating Data. Following is summary consolidated operating data for the Indonesia mining operations for the second quarters and first six months of 2013 and 2012:

       
Three Months Ended Six Months Ended
June 30, June 30,
  2013     2012 2013     2012
Copper (millions of recoverable pounds)
Production 139 173 358 296
Sales 158 183 356 317
Average realized price per pound $ 3.08 $ 3.49 $ 3.20 $ 3.56
 
Gold (thousands of recoverable ounces)
Production 131 230 343 459
Sales 151 247 342 513
Average realized price per ounce $ 1,321 $ 1,587 $ 1,431 $ 1,639
 
Unit net cash costs per pound of copper a :
Site production and delivery, excluding adjustments $ 3.55 $ 3.23 $ 3.03 $ 3.35
Gold and silver credits (1.20 ) (2.20 ) (1.44 ) (2.75 )
Treatment charges 0.23 0.21 0.23 0.20
Royalty on metals 0.13   0.13   0.13   0.13  
Unit net cash costs $ 2.71   $ 1.37   $ 1.95   $ 0.93  
 

a.

 

For a reconciliation of unit net cash costs per pound to production and delivery costs applicable to sales reported in FCX's consolidated financial statements, refer to the supplemental schedule, "Product Revenues and Production Costs," beginning on page XIII, which is available on FCX's website, "www.fcx.com."

 

Indonesia's second-quarter 2013 copper sales of 158 million pounds and gold sales of 151 thousand ounces were lower than second-quarter 2012 copper sales of 183 million pounds and gold sales of 247 thousand ounces resulting primarily from a suspension of activities following the accident described below.

On May 14, 2013, a tragic accident, which resulted in 28 fatalities and 10 injuries, occurred at PT Freeport Indonesia when the rock structure above an underground ceiling for a training facility collapsed in an unprecedented and unexpected event. While the accident occurred outside the area of mining operations, PT Freeport Indonesia temporarily suspended mining and processing activities at the Grasberg complex in respect for the deceased and injured workers and their families, and to conduct inspections of its facilities in coordination with Indonesian government authorities. The temporary suspension of mining and processing activities at PT Freeport Indonesia, which has subsequently resumed, resulted in an estimated production impact of approximately 125 million pounds of copper and 125 thousand ounces of gold for second-quarter 2013.

Following approval from Indonesia's Department of Energy and Mineral Resources, PT Freeport Indonesia resumed open pit mining and concentrating activities at its Grasberg operations on June 24, 2013, and resumed underground operations on July 9, 2013. PT Freeport Indonesia has conducted safety inspections throughout its operations, which focused on ground control installation and monitoring. For the period from July 10 to July 19, 2013, mill rates averaged approximately 200,000 metric tons of ore per day. Productivity in the open-pit operations continues to improve and the Deep Ore Zone (DOZ) mine is being ramped up. Current DOZ rates approximate 40,000 metric tons of ore per day and are expected to reach 80,000 metric tons of ore per day by mid-2014.

At the Grasberg mine, the sequencing of 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 from Indonesia mining are expected to approximate 0.9 billion pounds of copper and 1.0 million ounces of gold for the year 2013, compared with 0.7 billion pounds of copper and 0.9 million ounces of gold for the year 2012. Projected 2013 sales volumes of copper and gold are approximately 230 million pounds and 250 thousand ounces lower than April 2013 estimates primarily reflecting the impact of the temporary production suspension in second-quarter 2013, impacts of achieving a full ramp-up in underground production and the timing of accessing higher grade material in the open pit. Sales from Indonesia mining are expected to increase in 2014 through 2016 as PT Freeport Indonesia gains access to higher ore grades.

A significant portion of PT Freeport Indonesia's costs are fixed and unit costs vary depending on production volumes. Indonesia's unit net cash costs (including gold and silver credits) of $2.71 per pound of copper in second-quarter 2013 were significantly higher than unit net cash costs of $1.37 per pound in second-quarter 2012 primarily reflecting the impact of the temporary production suspension in second-quarter 2013.

Unit net cash costs (net of gold and silver credits) for Indonesia mining are expected to approximate $1.51 per pound of copper for the year 2013, based on current sales volume and cost estimates and assuming an average gold price of $1,300 per ounce for the second half of 2013. Indonesia mining's projected unit net cash costs would change by approximately $0.04 per pound for each $50 per ounce change in the average price of gold for the second half of 2013. Because of the fixed nature of a large portion of Indonesia's costs, unit costs vary from quarter to quarter depending on copper and gold sales volumes. Indonesia mining's unit net cash costs are expected to decline during the second half of 2013 as it gains access to higher grade ore.

PT Freeport Indonesia has commenced discussions with union officials regarding its bi-annual labor agreement which is scheduled for renewal in September 2013.

Africa Mining. Through its 56 percent owned and consolidated subsidiary Tenke Fungurume Mining S.A.R.L. (TFM), FCX operates the Tenke Fungurume (Tenke) minerals district in the Katanga province of the Democratic Republic of Congo (DRC). In addition to copper, the Tenke mine produces cobalt hydroxide.

Operating and Development Activities. TFM has completed its second phase expansion project, which included optimizing the current plant and increasing mine, mill and processing capacity. The expanded mill has a design capacity of 14,000 metric tons of ore per day, enabling an increase in Tenke's copper production by 150 million pounds to over 430 million pounds per year. The expanded mill facility is performing well, with second-quarter 2013 average throughput rates of 15,000 metric tons per day. The addition of a second sulphuric acid plant is expected to be completed in 2015.

Refer to "Capital Expenditures" on page 14 for further discussion of FCX's initiatives to reduce near-term capital expenditures and other costs.

FCX continues 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.

Operating Data. Following is summary consolidated operating data for the Africa mining operations for the second quarters and first six months of 2013 and 2012:

       
Three Months Ended Six Months Ended
June 30, June 30,
  2013     2012 2013     2012
Copper (millions of recoverable pounds)
Production 122 79 242 159
Sales 106 82 224 151
Average realized price per pounda $ 3.10 $ 3.45 $ 3.22 $ 3.54
 
Cobalt (millions of contained pounds)
Production 5 6 11 12
Sales 5 6 11 11
Average realized price per pound $ 8.48 $ 8.24 $ 7.99 $ 8.40
 
Unit net cash costs per pound of copper b :
Site production and delivery, excluding adjustments $ 1.47 $ 1.48 $ 1.43 $ 1.49
Cobalt creditsc (0.30 ) (0.33 ) (0.26 ) (0.34 )
Royalty on metals 0.06   0.07   0.06   0.08  
Unit net cash costs $ 1.23   $ 1.22   $ 1.23   $ 1.23  
 

a.

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

b.

For a reconciliation of unit net cash costs per pound to production and delivery costs applicable to sales reported in FCX's consolidated financial statements, refer to the supplemental schedule, "Product Revenues and Production Costs," beginning on page XIII, which is available on FCX's website, "www.fcx.com."

c.

Net of cobalt downstream processing and freight costs.
 

Africa's copper sales of 106 million pounds in second-quarter 2013 were higher than second-quarter 2012 copper sales of 82 million pounds, primarily reflecting higher mining and milling rates principally related to the ramp up of the expansion project and higher ore grades. Africa mining's sales are expected to approximate 450 million pounds of copper and 24 million pounds of cobalt for the year 2013, compared with 336 million pounds of copper and 25 million pounds of cobalt for the year 2012.

Africa mining's unit net cash costs (net of cobalt credits) of $1.23 per pound of copper in second-quarter 2013 were slightly higher than unit net cash costs of $1.22 per pound in second-quarter 2012. Unit net cash costs (net of cobalt credits) for Africa mining are expected to approximate $1.24 per pound of copper for the year 2013, based on current sales volume and cost estimates and assuming an average cobalt price of $12 per pound for the second half of 2013. Africa mining's projected unit net cash costs would change by approximately $0.035 per pound for each $2 per pound change in the average price of cobalt for the second half of 2013.

Molybdenum Mines. FCX has two wholly owned molybdenum mines in North America - the Henderson underground mine and the Climax open-pit mine, both in Colorado. The Henderson and Climax mines produce high-purity, chemical-grade molybdenum concentrates, which are typically further processed into value-added molybdenum chemical products.

Operating Data. Following is summary consolidated operating data for the molybdenum mines for the second quarters and first six months of 2013 and 2012:

       
Three Months Ended Six Months Ended
June 30, June 30,
  2013     2012 2013     2012
Molybdenum production (millions of recoverable pounds)a 13 9 25 18
 
Unit net cash cost per pound of molybdenumb $ 6.79 $ 6.83 $ 7.05 $ 6.85
 
a.   Refer to summary operating data on page 4 for FCX's consolidated molybdenum sales, which includes sales of molybdenum produced at the molybdenum mines, and from the North and South America copper mines.
b.

Unit net cash costs per pound of molybdenum for the 2013 periods reflect the results of the Henderson and Climax mines, and the 2012 periods reflect the results of only the Henderson mine as startup activities were still underway for the Climax mine. For a reconciliation of unit net cash costs per pound to production and delivery costs applicable to sales reported in FCX's consolidated financial statements, refer to the supplemental schedule, "Product Revenues and Production Costs," beginning on page XIII, which is available on FCX's website, "www.fcx.com."

 

Average unit net cash costs for the molybdenum mines of $6.79 per pound of molybdenum in second-quarter 2013 were lower than Henderson's unit net cash costs of $6.83 per pound in second-quarter 2012. Based on current sales volume and cost estimates, unit net cash costs for the molybdenum mines are expected to average approximately $7.10 per pound of molybdenum for the year 2013.

Mining Exploration Activities. FCX is actively conducting exploration activities near its existing mines with a focus on opportunities to expand reserves that will support the development of additional future production capacity in the large minerals districts where it currently operates. Exploration results indicate opportunities for significant future potential reserve additions in North and South America and in the Tenke Fungurume minerals district. The drilling data in North America continue to indicate the potential for expanded sulfide production.

Exploration spending associated with mining operations is expected to approximate $185 million for the year 2013, compared to $251 million in 2012. Exploration activities will continue to focus primarily on the potential for future reserve additions in FCX's existing minerals districts. Projected exploration spending for 2013 is approximately 20 percent lower than previous estimates as a result of ongoing efforts to reduce capital spending and other operating costs.

OIL & GAS OPERATIONS

FCX's recently acquired oil and gas business (FM O&G) provides exposure to energy markets with positive fundamentals, strong margins and cash flows and a large resource base with financially attractive exploration and development investment opportunities. The portfolio of assets includes significant oil production facilities and growth potential in the Deepwater Gulf of Mexico (GOM), strong oil production from the onshore Eagle Ford trend in Texas, established oil production facilities onshore and offshore California, large onshore resources in the Haynesville natural gas trend in Louisiana, and an industry leading position in the emerging shallow water, ultra-deep gas trend on the Shelf of the GOM and onshore in South Louisiana. Excluding the impact of derivative instruments, approximately 90 percent of FM O&G's revenues are from oil and NGLs.

Financial and Operating Data. The following table reflects the summary financial and operating results of FCX's oil and gas operations for June 2013:

   
Financial Summary (in millions):
Realized revenues $ 372 a
Cash production costs 83   a
Cash operating margin $ 289
Capital expenditures $ 190
Sales Volumes:
Oil (MMBbls) 3.4
Natural gas (Bcf) 7.7
NGLs (MMBbls) 0.3
MMBOE 5.0
Average Realizations:
Oil (per barrel) $ 97.42 a
Natural gas (per MMbtu) $ 3.86 a
NGLs (per barrel) $ 35.18 a
Cash Operating Margin per BOE:
Realized revenues per BOE $ 74.37 a
Cash production costs per BOE 16.58   a
Cash operating margin per BOE $ 57.79  
 

a.

 

Cash operating margin for FCX's oil and gas operations reflects realized revenues less cash production costs. Average realized revenues exclude unrealized gains (losses) on derivative instruments (average realized prices excluding both realized and unrealized gains (losses) on derivative instruments were $97.05 per barrel for oil, $3.81 per MMbtu for natural gas, $35.18 per barrel for NGLs and $74.03 per BOE) and cash production costs exclude accretion and other costs. For reconciliations of average realized prices and cash production costs per BOE to revenues and production and delivery costs reported in FCX's consolidated financial statements, refer to the supplemental schedule “Product Revenues and Production Costs” beginning on page XIII, which is available on FCX's website, “www.fcx.com.”

 

Realized revenues for FCX's oil and gas operations totaled $372 million ($74.37 per BOE) and cash production costs totaled $83 million ($16.58 per BOE) in June 2013.

During June 2013, Brent crude oil prices averaged $103.38 per barrel. FM O&G's average realized price for crude oil in June 2013 was $97.42 per barrel, or 94 percent of Brent. Excluding the impact of derivative instruments, the June 2013 average realized price for crude oil was $97.05 per barrel.

The New York Mercantile Exchange (NYMEX) gas price for the June 2013 contract was $4.15 per million British thermal units (MMBtu). FM O&G's average realized price for natural gas in June 2013 was $3.86 per MMBtu, or 93 percent of NYMEX. Excluding the impact of derivative instruments, the June 2013 average realized price for natural gas was $3.81 per MMBtu.

The following table presents sales volumes per day by region for FCX's oil and gas operations:

 
Sales Volumes (MBOE per day):
GOMa 64
Eagle Ford 43
California 37
Haynesville/Madden/Other 25
Total oil and gas operations 169

a.

 

Includes sales from properties on the Shelf and in the Deepwater GOM. Production from the GOM Shelf totaled 15 MBOE per day in June 2013, approximating 22 percent of the GOM total.

Daily sales volumes averaged 169 MBOE in June 2013, including 114 MBbls of crude oil per day, 263 MMcf of natural gas per day and 11 MBbls of NGLs per day. For the second half of 2013, sales volumes from FCX's oil and gas operations are expected to average 163 MBOE per day, comprised of 67 percent oil, 27 percent natural gas and 6 percent NGLs.

Based on current sales volume and cost estimates for the second half of 2013, cash production costs are expected to approximate $19 per BOE for the year 2013 (reflecting results beginning June 1, 2013).

Exploration, Operating and Development Activities. FCX's oil and gas business has significant proved, probable and possible reserves, and a large resource position with financially attractive organic growth opportunities. The portfolio includes a broad range of relatively low-risk development opportunities and high-potential exploration prospects. The business will be managed to reinvest its cash flows in projects with attractive rates of returns and risk profiles.

Capital expenditures for FM O&G totaled $190 million during June 2013, including $77 million in Eagle Ford, $52 million in GOM (including GOM Shelf), $30 million in California and $18 million in the Ultra-deep Trend. Oil and gas capital expenditures are expected to approximate $1.3 billion for the second half of 2013, including approximately $0.4 billion in the Deepwater GOM, $0.4 billion in Eagle Ford and $0.2 billion in the Ultra-deep Trend. Capital expenditures for FM O&G are expected to be funded by its operating cash flows. In addition, FM O&G is undertaking a plan to divest of certain of its Shelf oil and gas properties and may consider potential additional sales or partnering arrangements, depending on market conditions.

Gulf of Mexico. Multiple development and exploration opportunities have been identified in the Deepwater GOM that are expected to benefit from tieback opportunities to available production capacity at the FM O&G operated large-scale Holstein, Marlin and Horn Mountain deepwater production platforms. FM O&G has contracted three drill ships to drill and evaluate deepwater prospects, two of which are currently under construction. Delivery of the drill ships are expected mid-2014 and early 2015.

At the Lucius development in Keathley Canyon (in which FM O&G has a 23.33 percent working interest) five of the six planned wells have been drilled with the sixth well currently in progress. In December 2011, the operator and its working interest partners sanctioned development of Lucius, a subsea development consisting of a truss spar hull located in 7,200 feet of water with a topside capacity of 80 MBbls of oil per day and 450 MMcf of gas per day. First production is anticipated in the second half of 2014.

In April 2013, the operator of the Phobos prospect (in which FM O&G has a 50 percent working interest) announced that the Phobos-1 well encountered approximately 250 net feet of high quality oil pay in Lower Tertiary reservoirs. The Phobos discovery is located in approximately 8,500 feet of water, approximately 11 miles south of the Lucius development. Phobos' close proximity to Lucius could enhance the economics of this project. The operator and partners are incorporating the data from the Phobos-1 well to determine future plans.

Eagle Ford. FCX has an attractive position in an oil and NGLs rich section of the Eagle Ford shale play, located in South Texas. Production from the field has grown significantly in recent years and totaled 43 MBOE per day in June 2013. At June 30, 2013, FM O&G had six drilling rigs operating. As part of its capital reduction initiatives, FCX expects to reduce drilling activity at Eagle Ford over the next several quarters. FCX's Eagle Ford acreage position provides flexibility to manage its drilling program to meet capital spending and cash flow objectives.

California. FCX's development plans are principally focused on maintaining stable production levels in its long established producing fields principally onshore California.

Haynesville. FCX has rights to a substantial natural gas resource, estimated to exceed five trillion cubic feet (Tcf), located in the Haynesville shale play in North Louisiana. Drilling activities in recent years have been significantly reduced as a result of low natural gas prices. The field is currently being operated to maximize cash flows in a low natural gas price environment. FM O&G has flexibility to manage its drilling program and large resource to benefit from potentially higher future natural gas prices.

Ultra-deep Trend. FCX has a leading industry position in the emerging ultra-deep trend with a significant onshore and offshore lease acreage position with high quality prospects and the potential to develop a significant long-term, low-cost source of natural gas. Data from seven wells drilled to date indicate the presence of geologic formations that are analogous to productive formations in the Deepwater GOM and onshore in the Gulf Coast region. The near-term focus is on further defining the trend onshore. FM O&G currently has two onshore ultra-deep exploration prospects in-progress, including Lineham Creek (in which FM O&G has a 36 percent working interest) and Lomond North in the Highlander area (in which FM O&G has a 72 percent working interest).

CASH FLOWS, CASH, DEBT and FINANCIAL OUTLOOK

Operating Cash Flows. FCX generated operating cash flows of $1.0 billion (including $235 million in working capital sources and changes in other tax payments) for second-quarter 2013 and $1.9 billion (net of $195 million in working capital uses and changes in other tax payments) for the first six months of 2013.

Based on current sales volume and cost estimates and assuming average prices of $3.15 per pound of copper, $1,300 per ounce of gold, $10 per pound of molybdenum, and $105 per barrel of Brent crude oil for the second half of 2013, FCX's consolidated operating cash flows are estimated to approximate $5.8 billion (net of $30 million in net working capital uses and changes in other tax payments) for the year 2013. The impact of price changes during the second half of 2013 on operating cash flows would approximate $200 million for each $0.10 per pound change in the average price of copper, $30 million for each $50 per ounce change in the average price of gold, $55 million for each $2 per pound change in the average price of molybdenum and $55 million for each $5 per barrel increase in the price of Brent crude oil.

Capital Expenditures. Capital expenditures totaled $1.2 billion for second-quarter 2013 and $2.0 billion for the first six months of 2013. Capital expenditures for the second quarter and first six months of 2013 included $190 million for oil and gas operations for the period beginning June 1, 2013.

Capital expenditures are currently expected to approximate $5.5 billion for the year 2013, including $2.3 billion for major projects at mining operations and $1.5 billion for oil and gas operations (for the period beginning June 1, 2013). Major projects at FCX's mines for the year 2013 primarily include the expansions at Cerro Verde and Morenci and underground development activities at Grasberg. Capital expenditures for FCX's oil & gas operations are expected to be funded by its operating cash flows.

During second-quarter 2013, FCX took actions to reduce or defer capital expenditures and other costs, and initiated efforts to identify potential asset sales to reduce debt and maintain financial strength and flexibility in response to recent declines in metals prices. As a first step, FCX has reduced its budgeted future capital expenditures, exploration and other costs by a total of $1.9 billion in 2013 and 2014, including $1.0 billion in reductions and deferrals of mining capital projects, $0.4 billion in reduced oil and gas investments and $0.5 billion in reduced minerals exploration, research and other costs. Capital spending plans remain under review and will be revised as market conditions warrant.

FCX has also initiated a process to divest certain oil and gas properties from its conventional GOM Shelf properties. FCX has a broad set of natural resource assets which provide many alternatives for future actions to enhance FCX's financial flexibility and value for shareholders. Additional capital cost reductions and divestitures will be pursued as required to maintain a strong balance sheet while preserving a strong resource position and portfolio of assets with attractive long-term growth prospects.

Cash. Following is a summary of cash available to the parent company, net of noncontrolling interests' share, taxes and other costs at June 30, 2013 (in billions):

   
Cash at domestic companies $ 1.3
Cash at international operations 2.0  
Total consolidated cash and cash equivalents 3.3
Less: Noncontrolling interests' share (0.8 )
Cash, net of noncontrolling interests' share 2.5
Less: Withholding taxes and other (0.1 )
Net cash available $ 2.4  
 

Debt. Following is a summary of total debt and related weighted-average interest rates at June 30, 2013:

     

 

Weighted-

June 30, 2013 Average
(in billions) Interest Rate
Acquisition-related debt $ 10.5 a 3.1%
Assumed debt of PXP and MMR 7.1 b 7.0%
FCX's previously existing debt 3.6   3.5%
$ 21.2   4.4%
 

a.

  FCX used the proceeds from the issuance of $6.5 billion of senior notes and a $4.0 billion bank term loan to finance the acquisitions of PXP and MMR and repay certain PXP debt.

b.

Following the acquisitions of PXP and MMR, FCX repaid $4.1 billion of the $11.2 billion of debt assumed in the transactions.

FCX has established a plan to reduce debt and is targeting reductions that will reduce total debt to $12 billion over the next three years.

Upon closing of the PXP acquisition, FCX replaced its revolving credit facility that was scheduled to expire in March 2016 with a new $3.0 billion senior unsecured revolving credit facility, which is available through May 2018. At June 30, 2013, FCX had no borrowings outstanding and $46 million of letters of credit issued under its revolving credit facility, resulting in availability of approximately $3.0 billion.

FINANCIAL POLICY

FCX has a long-standing tradition of seeking to build shareholder value through investing in projects with attractive rates of return and returning cash to shareholders through common stock dividends and share purchases. FCX paid common stock dividends of $595 million in the first six months of 2013.

On May 31, 2013, FCX's Board of Directors (the Board) declared a supplemental common stock dividend of $1.00 per share, which was paid on July 1, 2013. Based on 1.04 billion common shares outstanding, the supplemental dividend payment totaled $1.0 billion. This supplemental dividend, which is in addition to FCX's regular quarterly dividend, is the eleventh supplemental dividend paid by FCX since 2004. FCX's current annual dividend rate for its common stock is $1.25 per share. On June 27, 2013, the Board declared a regular quarterly dividend of $0.3125 per share, which will be paid on August 1, 2013.

FCX intends to continue to maintain a strong financial position, with a focus on debt reduction while continuing to invest in attractive growth projects and providing cash returns to shareholders. The Board will continue to review FCX's financial policy on an ongoing basis.

WEBCAST INFORMATION

A conference call with securities analysts to discuss FCX's second-quarter 2013 results is scheduled for today at 10:00 a.m. Eastern Time. The conference call will be broadcast on the Internet along with slides. Interested parties may listen to the conference call live and view the slides by accessing "www.fcx.com." A replay of the webcast will be available through Friday, August 23, 2013.

FCX is a premier U.S.-based natural resource company with an industry leading global portfolio of mineral assets, significant oil and gas resources and a growing production profile. FCX is the world's largest publicly traded copper producer.

FCX's portfolio of assets includes the Grasberg minerals district in Indonesia, one of the world's largest copper and gold deposits; significant mining operations in the Americas, including the large-scale Morenci minerals district in North America and the Cerro Verde and El Abra operations in South America; the Tenke Fungurume minerals district in the DRC; and significant oil and natural gas assets in North America, including reserves in the Deepwater GOM, onshore and offshore California and in the Eagle Ford and Haynesville shale plays, and an industry leading position in the emerging shallow water, ultra-deep gas trend on the Shelf of the GOM and onshore in South Louisiana. Additional information about FCX is available on FCX's website at "www.fcx.com."

Cautionary Statement and Regulation G Disclosure: This press release contains forward-looking statements in which FCX discusses its potential future performance. Forward-looking statements are all statements other than statements of historical facts, such as projections or expectations relating to ore grades and milling rates, production and sales volumes, unit net cash costs, operating cash flows, capital expenditures, exploration efforts and results, development and production activities and costs, liquidity, tax rates, the impact of copper, gold, molybdenum, cobalt, oil and gas price changes, the impact of derivative positions, the impact of deferred intercompany profits on earnings, reserve estimates, 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 FCX's Board and will depend on FCX's financial results, cash requirements, future prospects, and other factors deemed relevant by the Board.

FCX cautions readers that forward-looking statements are not guarantees of future performance and its actual results may differ materially from those anticipated, projected or assumed in the forward-looking statements. Important factors that can cause FCX's actual results to differ materially from those anticipated in the forward-looking statements include demand for, and prices of, copper, gold, molybdenum, cobalt, oil and gas, mine sequencing, production rates, drilling results, the outcome of ongoing discussions with the Indonesian government, the potential effects of violence in Indonesia, the resolution of administrative disputes in the Democratic Republic of Congo, labor relations, the ability to retain current or future lease acreage rights, unanticipated hazards for which we have limited or no insurance coverage, failure of third party partners to fulfill their capital and other commitments, adverse conditions that could lead to structural or mechanical failures or increased costs, changes in reserve estimates, currency translation risks, risks associated with the integration of recently acquired oil and gas operations, industry risks, regulatory changes, political risks, weather- and climate-related risks, environmental risks, litigation results, and other factors described in more detail under the heading “Risk Factors” in FCX's Annual Report on Form 10-K for the year ended December 31, 2012, filed with the U.S. Securities and Exchange Commission (SEC) as updated by FCX's subsequent filings with the SEC.

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

This press release also contains certain financial measures such as unit net cash costs per pound of copper and per pound of molybdenum, oil and gas product revenues, cash production costs and realizations, which are not recognized under generally accepted accounting principles in the U.S. As required by SEC Regulation G, reconciliations of these measures to amounts reported in FCX's consolidated financial statements are in the supplemental schedules of this press release, which are also available on FCX's website, " www.fcx.com ."

 
FREEPORT-McMoRan COPPER & GOLD INC.
SELECTED MINING OPERATING DATA
         
Three Months Ended June 30,
Production   Sales

COPPER (millions of recoverable pounds)

2013 2012 2013 2012
(FCX's net interest in %)

North America

Morenci (85%)a 136 129 147 141
Bagdad (100%) 52 48 54 52
Safford (100%) 42 46 43 50
Sierrita (100%) 39 39 42 45
Miami (100%) 14 17 15 19
Chino (100%) 40 31 44 32
Tyrone (100%) 24 20 25 21
Other (100%) 2   1   2   1
Total North America 349   331   372   361
 

South America

Cerro Verde (53.56%) 136 151 139 149
El Abra (51%) 84 82 93 87
Candelaria/Ojos del Salado (80%) 79   71   83   65
Total South America 299   304   315   301
 

Indonesia

Grasberg (90.64%)b 139   173   158   183
 

Africa

Tenke Fungurume (56%) 122   79   106   82
 
Consolidated 909   887   951   927
Less noncontrolling interests 187   175   188   178
Net 722   712   763   749
 
Consolidated sales from mines 951 927
Purchased copper 54   25
Total copper sales, including purchases 1,005   952
 
Average realized price per pound $ 3.17 $ 3.53
 

GOLD (thousands of recoverable ounces)

(FCX's net interest in %)
North America (100%) 1 3 1 3
South America (80%) 19 18 21 16
Indonesia (90.64%)b 131   230   151   247
Consolidated 151   251   173   266
Less noncontrolling interests 16   25   18   27
Net 135   226   155   239
 
Average realized price per ounce $ 1,322 $ 1,588
 

MOLYBDENUM (millions of recoverable pounds)

(FCX's net interest in %)
Henderson (100%) 8 8 N/A N/A
Climax (100%) 5 1 N/A N/A
North America copper mines (100%)a 9 9 N/A N/A
Cerro Verde (53.56%) 2   2   N/A N/A
Consolidated 24   20   23   20
Less noncontrolling interests 1   1   1   1
Net 23   19   22   19
 
Average realized price per pound $ 12.35 $ 15.44
 

COBALT (millions of contained pounds)

(FCX's net interest in %)
Consolidated - Tenke Fungurume (56%) 5   6   5   6
Less noncontrolling interests 2   2   2   3
Net 3   4   3   3
 
Average realized price per pound $ 8.48 $ 8.24
 

a. Amounts are net of Morenci's 15 percent joint venture partner's interest.

b. Amounts are net of Grasberg's joint venture partner's interest, which varies in accordance with the terms of the joint venture agreement.

 
FREEPORT-McMoRan COPPER & GOLD INC.
SELECTED MINING OPERATING DATA (continued)
         
Six Months Ended June 30,
Production   Sales

COPPER (millions of recoverable pounds)

2013 2012 2013 2012
(FCX's net interest in %)

North America

Morenci (85%)a 274 259 288 273
Bagdad (100%) 101 96 105 101
Safford (100%) 73 92 80 95
Sierrita (100%) 83 82 85 89
Miami (100%) 28 37 29 39
Chino (100%) 83 60 87 59
Tyrone (100%) 47 40 48 41
Other (100%) 3   2   3   2
Total North America 692   668   725   699
 

South America

Cerro Verde (53.56%) 258 290 258 285
El Abra (51%) 174 164 172 166
Candelaria/Ojos del Salado (80%) 165   143   170   136
Total South America 597   597   600   587
 

Indonesia

Grasberg (90.64%)b 358   296   356   317
 

Africa

Tenke Fungurume (56%) 242   159   224   151
 
Consolidated 1,889   1,720   1,905   1,754
Less noncontrolling interests 378   340   370   336
Net 1,511   1,380   1,535   1,418
 
Consolidated sales from mines 1,905 1,754
Purchased copper 103   52
Total copper sales, including purchases 2,008   1,806
 
Average realized price per pound $ 3.29 $ 3.61
 

GOLD (thousands of recoverable ounces)

(FCX's net interest in %)
North America (100%) 3 7 3 6
South America (80%) 40 37 42 35
Indonesia (90.64%)b 343   459   342   513
Consolidated 386   503   387   554
Less noncontrolling interests 40   50   40   55
Net 346   453   347   499
 
Average realized price per ounce $ 1,434 $ 1,639
 

MOLYBDENUM (millions of recoverable pounds)

(FCX's net interest in %)
Henderson (100%) 15 17 N/A N/A
Climax (100%) 10 1 N/A N/A
North America copper mines (100%)a 17 19 N/A N/A
Cerro Verde (53.56%) 4   4   N/A N/A
Consolidated 46   41   48   41
Less noncontrolling interests 2   2   2   2
Net 44   39   46   39
 
Average realized price per pound $ 12.56 $ 15.39
 

COBALT (millions of contained pounds)

(FCX's net interest in %)
Consolidated - Tenke Fungurume (56%) 11   12   11   11
Less noncontrolling interests 5   5   5   5
Net 6   7   6   6
 
Average realized price per pound $ 7.99 $ 8.40
 

a. Amounts are net of Morenci's 15 percent joint venture partner's interest.

b. Amounts are net of Grasberg's joint venture partner's interest, which varies in accordance with the terms of the joint venture agreement.

 
FREEPORT-McMoRan COPPER & GOLD INC.
SELECTED MINING OPERATING DATA (continued)
         
Three Months Ended Six Months Ended
June 30,   June 30,
2013 2012 2013 2012
100% North America Copper Mines

Solution Extraction/Electrowinning (SX/EW) Operations

Leach ore placed in stockpiles (metric tons per day) 1,053,000 948,600 1,026,700 990,800
Average copper ore grade (percent) 0.22 0.21 0.22 0.22
Copper production (millions of recoverable pounds) 226 210 435 428
 

Mill Operations

Ore milled (metric tons per day) 240,900 228,300 245,700 232,200
Average ore grades (percent):
Copper 0.38 0.37 0.39 0.37
Molybdenum 0.03 0.03 0.03 0.03
Copper recovery rate (percent) 82.4 85.3 83.4 82.6
Production (millions of recoverable pounds):
Copper 148 144 306 286
Molybdenum 9 9 17 19
 
100% South America Mining

SX/EW Operations

Leach ore placed in stockpiles (metric tons per day) 279,100 242,700 271,000 219,500
Average copper ore grade (percent) 0.50 0.54 0.50 0.55
Copper production (millions of recoverable pounds) 110 113 219 231
 

Mill Operations

Ore milled (metric tons per day) 194,600 192,600 191,600 189,300
Average ore grades:
Copper (percent) 0.56 0.58 0.57 0.57
Gold (grams per metric ton) 0.09 0.08 0.10 0.09
Molybdenum (percent) 0.02 0.02 0.02 0.02
Copper recovery rate (percent) 89.8 88.6 90.3 88.9
Production (recoverable):
Copper (millions of pounds) 189 191 378 366
Gold (thousands of ounces) 19 18 40 37
Molybdenum (millions of pounds) 2 2 4 4
 
100% Indonesia Mining
Ore milled (metric tons per day)a
Grasberg open pit 81,800 132,800 109,500 106,600
DOZ underground mine 31,100 45,400 44,900 39,300
Big Gossan underground mine 1,400   1,300   2,200   1,200
Total 114,300   179,500   156,600   147,100
Average ore grades:
Copper (percent) 0.73 0.57 0.69 0.59
Gold (grams per metric ton) 0.53 0.58 0.53 0.68
Recovery rates (percent):
Copper 89.0 88.9 88.7 89.2
Gold 75.4 76.2 73.1 79.0
Production (recoverable):
Copper (millions of pounds) 139 173 358 296
Gold (thousands of ounces) 131 230 343 459
 
100% Africa Mining
Ore milled (metric tons per day) 15,000 12,900 14,800 12,500
Average ore grades (percent):
Copper 4.59 3.45 4.52 3.53
Cobalt 0.31 0.36 0.32 0.37
Copper recovery rate (percent) 89.9 90.6 91.7 90.9
Production (millions of pounds):
Copper (recoverable) 122 79 242 159
Cobalt (contained) 5 6 11 12
 
100% Molybdenum Mines b
Ore milled (metric tons per day) 39,000 22,000 37,400 20,900
Average molybdenum ore grade (percent) 0.19 0.22 0.19 0.24
Molybdenum production (millions of recoverable pounds) 13 8 25 17
 

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

b. The 2013 periods reflect the results of the Henderson and Climax mines; the 2012 periods reflect the results of only the Henderson mine, as startup activities were still underway for the Climax mine.

FREEPORT-McMoRan COPPER & GOLD INC.
SELECTED OIL AND GAS OPERATING DATA
       
June 1, 2013 to June 30, 2013
Sales Volumes

(in MMBbls, Bcf and MMBOE)a

Sales per Day

(in MBbls, MMcf and MBOE)a

FCX CONSOLIDATED OIL AND GAS OPERATIONS
Oil(barrels) 3.4 114
Natural gas (cubic feet) 7.7 263
Natural gas liquids (NGLs, in barrels) 0.3 11
Barrels of oil equivalents (BOE) 5.0 169
Cash operating margin per BOE:
Realized revenue per BOE $ 74.37 b
Cash production costs per BOE $ 16.58 b
Cash operating margin per BOE $ 57.79
Depreciation, depletion and amortization per BOE $ 33.82
Capital expenditures (in millions) $ 190
 

GULF OF MEXICO (GOM) c

Oil(barrels) 1.4 46
Natural gas (cubic feet) 2.4 86
NGLs (barrels) 0.1 4
BOE 1.9 64
Average realized price per BOE $ 78.07 b
Cash production costs per BOE $ 14.07 b
Capital expenditures (in millions) $ 70
 
EAGLE FORD
Oil(barrels) 0.9 31
Natural gas (cubic feet) 1.1 37
NGLs (barrels) 0.2 6
BOE 1.3 43
Average realized price per BOE $ 76.94 b
Cash production costs per BOE $ 12.79 b
Capital expenditures (in millions) $ 77
 
CALIFORNIA
Oil(barrels) 1.1 36
Natural gas (cubic feet) 0.2 6
BOE 1.1 37
Average realized price per BOE $ 94.48 b
Cash production costs per BOE $ 30.98 b
Capital expenditures (in millions) $ 30
 
HAYNESVILLE/MADDEN/OTHER
Oil(barrels) 1
Natural gas (cubic feet) 4.0 134
NGLs (barrels) 1
BOE 0.7 25
Average realized price per BOE $ 23.77 b
Cash production costs per BOE $ 6.91 b
Capital expenditures (in millions) $ 13
 

a. MMBbls = million barrels; MBbls = thousand barrels; Bcf = billion cubic feet; MMcf = million cubic feet; MMBOE = million BOE; MBOE = thousand BOE

b. Cash operating margin for FCX's oil and gas operations reflects realized revenues less cash production costs. Average realized revenues exclude unrealized gains (losses) on derivative instruments and cash production costs exclude accretion and other costs. In addition, derivative instruments for FCX's oil and gas operations are managed on a consolidated basis; accordingly, average realized price per BOE by region does not reflect adjustments for derivative instruments. For reconciliations of average realized prices and cash production costs per BOE to revenues and production and delivery costs reported in FCX's consolidated financial statements, refer to the supplemental schedule “Product Revenues and Production Costs” beginning on page XIII, which is available on FCX's website, “www.fcx.com.”

c. Includes properties on the Shelf and in the Deepwater GOM.

 
FREEPORT-McMoRan COPPER & GOLD INC.
CONSOLIDATED STATEMENTS OF INCOME (Unaudited)
 
Three Months Ended Six Months Ended
June 30, June 30,
2013 2012 2013 2012
(In Millions, Except Per Share Amounts)
Revenues $ 4,288 a $ 4,475 a $ 8,871 a $ 9,080 a
Cost of sales:
Production and delivery 2,853 2,622 5,572 5,050
Depreciation, depletion and amortization 530   291   859   558  
Total cost of sales 3,383 2,913 6,431 5,608
Selling, general and administrative expenses 186 b 97 299 b 201
Mining exploration and research expenses 64 73 116 135
Environmental obligations and shutdown costs 16   81   31   91  
Total costs and expenses 3,649   3,164   6,877   6,035  
Operating income 639 1,311 1,994 3,045
Interest expense, net (132 ) c (43 ) c (189 ) c (106 ) c
Losses on early extinguishment of debt (45 ) (168 )
Gain on investment in McMoRan Exploration Co. (MMR) 128 d 128 d
Other income, net 13   51   10   38  

 

Income before income taxes and equity in affiliated companies' net earnings (losses)

648 1,319 1,898 2,809
Provision for income taxes (40 ) d (422 ) (468 ) d (913 )
Equity in affiliated companies' net earnings (losses) 2   (3 ) 4   (1 )
Net income 610 894 1,434 1,895
Net income attributable to noncontrolling interests (128 ) (184 ) (304 ) (421 )
Net income attributable to FCX common stock $ 482   e $ 710   e $ 1,130   e $ 1,474   e
 
Net income per share attributable to FCX common stock:
Basic $ 0.49   $ 0.75   $ 1.17   $ 1.55  
Diluted $ 0.49   $ 0.74   $ 1.17   $ 1.55  
 
Weighted-average common shares outstanding:
Basic 980   949   965   949  
Diluted 984   953   968   954  
 
Dividends declared per share of common stock $ 1.3125   $ 0.3125   $ 1.625   $ 0.625  
 

a. Includes (unfavorable) favorable adjustments to provisionally priced copper sales recognized in the prior periods totaling $(117) million ($(55) million to net income attributable to common stock) in second-quarter 2013, $(75) million ($(31) million to net income attributable to common stock) in second-quarter 2012, $(26) million ($(12) million to net income attributable to common stock) for the first six months of 2013 and $101 million ($43 million to net income attributable to common stock) for the first six months of 2012. The 2013 periods also reflect (unfavorable) adjustments of $(35) million ($(27) million to net income attributable to common stock) related to oil and gas derivative instruments that were acquired in connection with FCX's acquisition of Plains Exploration & Company (PXP). For further discussion refer to the supplemental schedule, "Derivative Instruments" on page IX.

b. Includes charges of $61 million ($46 million to net income attributable to common stock) for second- quarter 2013 and $75 million ($57 million to net income attributable to common stock) for the first six months of 2013 for transaction and related costs principally associated with the acquisitions of PXP and MMR.

c. Consolidated interest expense, excluding capitalized interest, totaled $167 million in second-quarter 2013 and $55 million in second-quarter 2012, $242 million for the first six months of 2013 and $154 million for the first six months of 2012. Higher interest expense in the 2013 periods primarily reflected additional expense associated with acquisition-related debt.

d. Includes gains associated with the acquisitions of PXP and MMR, including (i) $128 million to net income attributable to common stock primarily related to FCX's preferred stock investment in and the subsequent acquisition of MMR, and (ii) $183 million to net income attributable to common stock associated with net reductions in FCX's deferred tax liabilities and deferred tax asset valuation allowances resulting from the acquisitions.

e. FCX defers recognizing profits on intercompany sales until final sales to third parties occur. Changes in these deferrals attributable to variability in intercompany volumes resulted in net additions (reductions) to net income attributable to common stock of $2 million in second-quarter 2013, $17 million in second-quarter 2012, $27 million for the first six months of 2013 and $(35) million for the first six months of 2012. For further discussion refer to the supplemental schedule, "Deferred Profits" on page X.

 
FREEPORT-McMoRan COPPER & GOLD INC.
CONDENSED CONSOLIDATED BALANCE SHEETS (Unaudited)
       
June 30, December 31,
2013 2012
(In Millions)
ASSETS
Current assets:
Cash and cash equivalents $ 3,294 $ 3,705
Trade accounts receivable 1,244 927
Other accounts receivable 635 702
Inventories:
Mill and leach stockpiles 1,713 1,672
Materials and supplies, net 1,725 1,504
Product 1,508 1,400
Other current assets 458 387  
Total current assets 10,577 10,297
Property, plant, equipment and development costs, net 46,254 20,999
Long-term mill and leach stockpiles 2,192 1,955
Goodwill 1,811
Other assets 2,269 2,189  
Total assets $ 63,103 $ 35,440  
 
LIABILITIES AND EQUITY
Current liabilities:
Accounts payable and accrued liabilities $ 3,771 $ 2,708
Dividends payable 1,368 a 299
Current portion of reclamation and environmental obligations 284 241
Accrued income taxes 114 93
Current portion of debt 73 2  
Total current liabilities 5,610 3,343
Long-term debt, less current portion 21,142 3,525
Deferred income taxes 6,786 3,490
Reclamation and environmental obligations, less current portion 3,106 2,127
Other liabilities 1,731 1,644  
Total liabilities 38,375 14,129
 
Redeemable noncontrolling interest 861
 
Equity:
FCX stockholders' equity:
Common stock 117 107
Capital in excess of par value 22,072 19,119
Retained earnings 1,865 2,399
Accumulated other comprehensive loss (495) (506 )
Common stock held in treasury (3,681) (3,576 )
Total FCX stockholders' equity 19,878 17,543
Noncontrolling interests 3,989 3,768  
Total equity 23,867 21,311  
Total liabilities and equity $ 63,103 $ 35,440  
 

a. Includes $1.0 billion for the $1.00 per share supplemental dividend paid on July 1, 2013.

 
FREEPORT-McMoRan COPPER & GOLD INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
   
Six Months Ended
June 30,
2013     2012
(In Millions)
Cash flow from operating activities:
Net income $ 1,434 $ 1,895
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation, depletion and amortization 859 558
Gain on investment in MMR (128 )
Stock-based compensation 65 54
Pension plan contributions (42 ) (75 )
Net charges for reclamation and environmental obligations, including accretion

73

112
Payments of reclamation and environmental obligations (91 ) (98 )
Losses on early extinguishment of debt 45 168
Deferred income taxes 43 288
Increase in long-term mill and leach stockpiles (236 ) (162 )
Other, net

38

17
(Increases) decreases in working capital and other tax payments, excluding amounts acquired from PXP and MMR:
Accounts receivable 350 (182 )
Inventories (160 ) (160 )
Other current assets 58 (11 )
Accounts payable and accrued liabilities (371 ) (117 )
Accrued income taxes and other tax payments (72 ) (304 )
Net cash provided by operating activities 1,865   1,983  
 
Cash flow from investing activities:
Capital expenditures:
North America copper mines (543 ) (296 )
South America (470 ) (392 )
Indonesia (511 ) (387 )
Africa (103 ) (297 )
Molybdenum mines (82 ) (148 )
Oil & gas operations (190 )
Other (79 ) (27 )
Acquisition of PXP, net of cash acquired (3,465 )
Acquisition of MMR, net of cash acquired (1,628 )
Acquisition of cobalt chemical business, net of cash acquired (321 )
Other, net (264 ) (4 )
Net cash used in investing activities (7,656 ) (1,551 )
 
Cash flow from financing activities:
Proceeds from debt 11,021 3,016
Repayments of debt (4,541 ) (3,171 )
Redemption of MMR preferred stock (202 )
Cash dividends and distributions paid:
Common stock (595 ) (535 )
Noncontrolling interests (90 ) (38 )
Debt financing costs (111 ) (22 )
Other, net (102 ) 4  
Net cash provided by (used in) financing activities 5,380   (746 )
 
Net decrease in cash and cash equivalents (411 ) (314 )
Cash and cash equivalents at beginning of year 3,705   4,822  
Cash and cash equivalents at end of period $ 3,294   $ 4,508  

Freeport-McMoRan Copper & Gold Inc.
Financial Contacts:
Kathleen L. Quirk, 602-366-8016
or
David P. Joint, 504-582-4203
or
Media Contact:
Eric E. Kinneberg, 602-366-7994

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