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

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Freeport-McMoRan Copper & Gold Inc. Reports Second-Quarter and Six-Month2013 Results

PHOENIX--(BUSINESS WIRE)-- Freeport-McMoRan Copper & Gold Inc. (NYS: 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. (NYS: 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 EndedSix 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$639c$1,311$1,994c$3,045
Net income attributable to common stockd$482c,e$710$1,130c,e,f$1,474f
Diluted net income per share of common stock$0.49c,e$0.74$1.17c,e,f$1.55f
Diluted weighted-average common shares outstanding984953968954
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 depletion12.2
Not subject to depletion11.4
Property, plant and equipment0.3
Other assets0.4
Goodwill1.8
Total assets$27.2
 
Current liabilities$1.1
Assumed debt (current and long-term)11.2c
Other liabilities (primarily asset retirement obligations)1.0
Deferred income taxesd3.9
Redeemable noncontrolling interest1.1
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 EndedSix Months Ended
June 30,June 30,
2013  20122013  2012
Copper (millions of recoverable pounds)
Production9098871,8891,720
Sales, excluding purchases9519271,9051,754
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)
Production151251386503
Sales, excluding purchases173266387554
Average realized price per ounce$1,322$1,588$1,434$1,639
Molybdenum (millions of recoverable pounds)
Production24204641
Sales, excluding purchases23204841
Average realized price per pound$12.35$15.44$12.56$15.39
Oil Equivalentsb
Sales volumes:
MMBOE5.05.0
MBOE per day169169
Cash operating margin per BOE:
Realized revenues per BOE$74.37c$74.37c
Cash production costs per BOE16.58c16.58c
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 EndedSix Months Ended
June 30,June 30,
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