FREEPORT-MCMORAN INC. 
In Management's Discussion and Analysis of Financial Condition and Results of Operations (MD&A), "we," "us" and "our" refer toFreeport-McMoRan Inc. (FCX) and its consolidated subsidiaries. You should read this discussion in conjunction with our consolidated financial statements, the related MD&A and the discussion of our Business and Properties in our annual report on Form 10-K for the year endedDecember 31, 2019 (2019 Form 10-K), filed with theUnited States (U.S.) Securities and Exchange Commission (SEC). The results of operations reported and summarized below are not necessarily indicative of future operating results (refer to "Cautionary Statement" for further discussion). References to "Notes" are Notes included in our Notes to Consolidated Financial Statements (Unaudited). Throughout MD&A, all references to income or losses per share are on a diluted basis. OVERVIEW We are a leading international mining company with headquarters inPhoenix, Arizona . We operate large, long-lived, geographically diverse assets with significant proven and probable reserves of copper, gold and molybdenum. We are one of the world's largest publicly traded copper producers. Our portfolio of assets includes the Grasberg minerals district inIndonesia , one of the world's largest copper and gold deposits; and significant mining operations inNorth America andSouth America , including the large-scaleMorenci minerals district inArizona and the Cerro Verde operation inPeru . OnApril 24, 2020 , we announced revised operating plans in response to the global COVID-19 pandemic and resulting negative impact on the global economy. TheApril 2020 revised operating plans included significant reductions to operating costs, capital expenditures and exploration and administrative costs for the year 2020. We proactively implemented operating protocols at each of our operating sites to contain and mitigate the risk of spread of COVID-19. We continue to work closely with communities where we operate across the globe and have provided monetary support and in-kind contributions of medical supplies, equipment and food. We continue to focus on safeguarding our business in an uncertain public health and economic environment, advancing the ramp-up of underground production at Grasberg to establish large-scale, low-cost copper and gold production, and advancing initiatives inNorth America andSouth America to position us for significant increases in cash flows in 2021 and beyond. The ramp-up of underground production at the Grasberg minerals district continues to advance on schedule, and theLone Star project inNorth America is substantially complete and on track to produce approximately 200 million pounds of copper per year beginning in the second half of 2020. We achieved significant progress at Cerro Verde during second-quarter 2020 to restore operations following COVID-19 restrictions imposed by the Peruvian government inMarch 2020 . Refer to "Operations" for further discussion. With a focus on cost and capital management, our second-quarter 2020 results reflected strong execution of theApril 2020 revised operating plans. Our second-quarter 2020 consolidated sales exceeded theApril 2020 estimates by 10 percent for copper and 12 percent for gold. Net income (loss) attributable to common stock totaled$53 million in second-quarter 2020,$(72) million in second-quarter 2019,$(438) million for the first six months of 2020 and$(41) million for the first six months of 2019. The results for second-quarter 2020, compared with second-quarter 2019, primarily reflect lower unit net cash costs, partly offset by lower copper prices, lower copper and gold sales volumes and charges associated with the COVID-19 pandemic and revised operating plans. The results for the first six months of 2020, compared with the first six months of 2019, primarily reflect lower copper and gold sales volumes, lower copper prices and charges associated with the COVID-19 pandemic and revised operating plans, partly offset by lower unit net cash costs. The 2020 periods also included favorable metals inventory adjustments of$139 million in second-quarter 2020 and unfavorable metals inventory adjustments of$83 million for the first six months of 2020. Refer to "Consolidated Results" for further discussion. AtJune 30, 2020 , we had$1.5 billion in consolidated cash and cash equivalents and$9.9 billion in total debt. AtJune 30, 2020 , we had no borrowings and$3.5 billion was available under our revolving credit facility. We have a strong liquidity position to manage market volatility, especially in light of the fact that we have no senior note maturities until 2022. 27
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InJuly 2020 , we completed an offering of$1.5 billion of senior notes in two tranches in an underwritten registered public offering. We used a portion of the net proceeds from the offering to purchase certain existing senior notes in connection with the early settlement of our previously announced tender offers. Depending on the final tender results, we may use all or a portion of the the remaining net proceeds from the offering to purchase more of certain existing senior notes in the tender offers. Any net proceeds not used for the tender offers will be used for general corporate purposes, which may include repurchases or redemptions of our senior notes. These transactions will further enhance financial flexibility and extend debt maturities. Refer to Note 5 and "Capital Resources and Liquidity" for further discussion.
OUTLOOK
Despite the rapid change in market conditions and unfavorable changes to the global economy as a result of the COVID-19 pandemic, we continue to view the long-term outlook for our business positively, supported by limitations on supplies of copper and by the requirements for copper in the world's economy. Our financial results vary as a result of fluctuations in market prices primarily for copper, gold and, to a lesser extent, molybdenum, as well as other factors. World market prices for these commodities have fluctuated historically and are affected by numerous factors beyond our control. Refer to "Markets" below and "Risk Factors" in Part I, Item 1A. of our 2019 Form 10-K and Part II, Item 1A. herein for further discussion. Because we cannot control the prices of our products, the key measures that management focuses on in operating our business are sales volumes, unit net cash costs, operating cash flows and capital expenditures. Consolidated Sales Volumes Following are our projected consolidated sales volumes for the year 2020: Copper (millions of recoverable pounds):North America copper mines 1,430South America mining 950Indonesia mining 770 Total 3,150
Gold (millions of recoverable ounces) 0.8
Molybdenum (millions of recoverable pounds) 77 a
a. Projected molybdenum sales include 25 million pounds produced by our
Molybdenum mines and 52 million pounds produced by our
Consolidated sales volumes for third-quarter 2020 are expected to approximate 790 million pounds of copper, 220 thousand ounces of gold and 18 million pounds of molybdenum. As PT-FI continues to ramp-up production from its significant underground ore bodies, metal production is expected to improve significantly in 2021, with estimated consolidated sales of 3.8 billion pounds of copper and 1.4 million ounces of gold. Projected sales volumes are dependent on operational performance, impacts and the duration of the COVID-19 pandemic, weather-related conditions, timing of shipments and other factors. For other important factors that could cause results to differ materially from projections, refer to "Cautionary Statement" and "Risk Factors" contained in Part I, Item 1A. of our 2019 Form 10-K and Part II, Item 1A. herein. Consolidated Unit Net Cash Costs Assuming average prices of$1,800 per ounce of gold and$7.00 per pound of molybdenum for the second half of 2020 and achievement of current sales volume and cost estimates, consolidated unit net cash costs (net of by-product credits) for our copper mines are expected to average$1.53 per pound of copper for the year 2020, (including$1.40 per pound of copper for the second half of 2020). The impact of price changes during the second half of 2020 on consolidated unit net cash costs for the year 2020 would approximate$0.01 per pound of copper for each$50 per ounce change in the average price of gold and$0.01 per pound of copper for each$2 per pound change in the average price of molybdenum. Quarterly unit net cash costs vary with fluctuations in sales volumes and realized prices, primarily for gold and molybdenum. We expect consolidated unit net cash costs to decline in 2021, following a ramp-up period at PT-FI. 28
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Consolidated Operating Cash Flows Our consolidated operating cash flows vary with sales volumes; prices realized from copper, gold and molybdenum sales; production costs; income taxes; other working capital changes; and other factors. Based on current sales volume and cost estimates, and assuming average prices of$2.85 per pound for copper,$1,800 per ounce for gold, and$7.00 per pound for molybdenum for the second half of 2020, our consolidated operating cash flows are estimated to approximate$2.6 billion (including$0.5 billion of working capital and other sources) for the year 2020. Estimated consolidated operating cash flows for the year 2020 also reflect an estimated income tax provision of$0.5 billion (refer to "Consolidated Results - Income Taxes" for further discussion of our projected income tax rate for the year 2020). The impact of price changes during the second half of 2020 on operating cash flows for the year 2020 would approximate$165 million for each$0.10 per pound change in the average price of copper,$25 million for each$50 per ounce change in the average price of gold and$35 million for each$2 per pound change in the average price of molybdenum. Consolidated Capital Expenditures Consolidated capital expenditures are expected to approximate$2.0 billion for the year 2020, including$1.3 billion for major projects, primarily associated with underground development activities in the Grasberg minerals district and completion of theLone Star copper leach project, and exclude estimates associated with the new smelter inIndonesia . A large portion of the capital expenditures relates to projects that are expected to add significant production and cash flow in future periods, enabling us to generate operating cash flows exceeding capital expenditures in future years. We have cash on hand and the financial flexibility to fund these expenditures and will continue to be disciplined in deploying capital. Corporate Items and Other During second-quarter 2020, we implemented a series of actions to reduce administrative and centralized support costs in conjunction with ourApril 2020 revised operating plans. Cost savings initiatives included a temporary reduction in certain employee benefits, the initiation of furloughs and an employee separation program, and reductions in third party service costs, facilities costs, travel and other expenses. During second-quarter 2020, we recognized charges totaling approximately$82 million ($60 million in production and delivery costs,$15 million in selling, general and administrative costs, and$7 million in mining exploration and research expenses) associated with the employee separation program. Annual savings associated with this program are expected to be in excess of$100 million . As part of the cost savings initiatives initiated in second-quarter 2020, the Board of Directors (the Board) approved a 25 percent reduction in the salary of each of our Chief Executive Officer and Chief Financial Officer through the end of 2020. Each of these executives also agreed to forgo substantially all their reduced cash salary for the remainder of 2020, which was substituted with an award of restricted stock units that will vest at the end of the year. Selling, general and administrative expense, excluding costs of the employee separation program, are expected to approximate$355 million for the year 2020.
MARKETS
World prices for copper, gold and molybdenum can fluctuate significantly. During the period fromJanuary 2010 throughJune 2020 , theLondon Metal Exchange (LME) copper settlement price varied from a low of$1.96 per pound in 2016 to a record high of$4.60 per pound in 2011; theLondon Bullion Market Association (LBMA) PM gold price fluctuated from a low of$1,049 per ounce in 2015 to a record high of$1,895 per ounce in 2011; and the Metals Week Molybdenum Dealer Oxide weekly average price ranged from a low of$4.46 per pound in 2015 to a high of$18.60 per pound in 2010. Copper, gold and molybdenum prices are affected by numerous factors beyond our control as described further in "Risk Factors" contained in Part I, Item 1A. of our 2019 Form 10-K and Part II, 1A. herein. 29
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[[Image Removed: coppera46.jpg]]
This graph presents LME copper settlement prices and the combined reported stocks of copper at the LME,Commodity Exchange Inc. , a division of theNew York Mercantile Exchange , and theShanghai Futures Exchange fromJanuary 2010 throughJune 2020 . During second-quarter 2020, LME copper settlement prices ranged from a low of$2.16 per pound to a high of$2.74 per pound, averaged$2.43 per pound and settled at$2.74 per pound onJune 30, 2020 . In second-quarter 2020, copper prices recovered from the sharp decline that occurred during first-quarter 2020, reflecting the combination of supply curtailments related to the COVID-19 pandemic, and an improving economic outlook during second-quarter 2020. The COVID-19 pandemic continues to cause substantial disruption and uncertainty in global economies and markets. The LME copper settlement price was$2.92 per pound onJuly 31, 2020 . While we acknowledge unfavorable changes to the global economy as a result of the ongoing COVID-19 pandemic, we continue to believe the underlying long-term fundamentals of the copper business remain positive, supported by the significant role of copper in the global economy and a challenging long-term supply environment attributable to difficulty in replacing existing large mines' output with new production sources. Future copper prices are expected to be volatile and are likely to be influenced by the world's response to the COVID-19 pandemic, demand fromChina and emerging markets, as well as economic activity in theU.S. and other industrialized countries, the timing of the development of new supplies of copper and the production levels of mines and copper smelters. 30
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[[Image Removed: golda46.jpg]] This graph presents LBMA PM gold prices fromJanuary 2010 throughJune 2020 . During second-quarter 2020, LBMA PM gold prices ranged from a low of$1,577 per ounce to a high of$1,772 per ounce, averaged$1,711 per ounce, and closed at$1,768 per ounce onJune 30, 2020 . Concerns about the global economy related to the COVID-19 pandemic, historically lowU.S. interest rates and the anticipated effects of global stimulus efforts have driven increased demand for gold. The LBMA PM gold price was$1,965 per ounce onJuly 31, 2020 . [[Image Removed: molya54.jpg]] This graph presents the Metals Week Molybdenum Dealer Oxide weekly average price fromJanuary 2010 throughJune 2020 . During second-quarter 2020, the weekly average price of molybdenum ranged from a low of$7.65 per pound to a high of$9.05 per pound, averaged$8.40 per pound, and was$7.65 per pound onJune 30, 2020 . Molybdenum prices continued to be negatively impacted by economic uncertainty associated with the COVID-19 pandemic during second-quarter 2020. The Metals Week Molybdenum Dealer Oxide weekly average price was$7.18 per pound onJuly 31, 2020 . 31
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CONSOLIDATED RESULTS
Three Months Ended June 30, Six Months Ended June 30,
2020 2019 2020 2019
SUMMARY FINANCIAL DATA (in millions, except per share amounts)
Revenuesa,b $ 3,054 $ 3,546 $ 5,852 $ 7,338
Operating income (loss)a,c,d $ 321 e $ 33 f,g $ (152 ) e,g $ 354 f,g
Net income (loss) attributable
to common stockh,i $ 53 j,k $ (72 ) $ (438 ) j,k $ (41 ) j,k
Diluted net income (loss) per
share of common stock $ 0.03 $ (0.05 ) $ (0.30 ) $ (0.03 )
Diluted weighted-average common 1,458 1,451 1,453 1,451
shares outstanding
Operating cash flowsl $ 491 $ 554 $ 453 $ 1,088
Capital expenditures $ 527 $ 629 $ 1,137 $ 1,251
At June 30:
Cash and cash equivalents $ 1,465 $ 2,623 $ 1,465 $ 2,623
Total debt, including current
portion $ 9,914 $ 9,916 $ 9,914 $ 9,916
a. Refer to Note 9 for a summary of revenues and operating income (loss) by
operating division.
b. Includes favorable (unfavorable) adjustments to prior period provisionally
priced concentrate and cathode copper sales totaling
to net income attributable to common stock or
second-quarter 2020,
common stock or
for the first six months of 2020 and
attributable to common stock or
2019 (refer to Note 6). The second-quarter and first six months of 2020 also
include reductions to revenues totaling $24 million ($24 million to net
income (loss) attributable to common stock or $0.02 per share) related to
forward sales contracts (refer to Note 6).
c. Includes metals inventory adjustments totaling
net income attributable to common stock or
2020,
less than
million to net loss attributable to common stock or
the first six months of 2020 and
attributable to common stock or
of 2019.
d. Includes net charges to environmental obligations and related litigation
reserves totaling
stock or less than
million to net loss attributable to common stock or
second-quarter 2019,
common stock or
million (
share) for the first six months of 2019.
e. Includes charges totaling
attributable to common stock or
per share) for the first six months of 2020 associated with the COVID-19
pandemic and revised operating plans, including employee separation costs.
These charges were recorded to production and delivery (
second-quarter 2020 and
depreciation, depletion and amortization (
and
administrative (
months of 2020) and mining exploration and research expense (
each of the second quarter and first six months of 2020).
f. Includes a charge of
common stock or
of 2019 for an adjustment to the settlement of the historical surface water
tax disputes with the local regional tax authority in
g. Includes net (losses) gains on sales of assets totaling
million to net loss attributable to common stock or
second-quarter 2019,
common stock or
million (
share) for the first six months of 2019 (refer to Note 7 for discussion of
adjustments to the estimated fair value of contingent consideration related
to the 2016 sale of onshore
h. Includes net tax credits of
2020,
(
share) for the first six months of 2019. Refer to "Income Taxes" for further
discussion of these net tax credits.
i. We defer recognizing profits on intercompany sales until final sales to third
parties occur. Refer to "Operations - Smelting and Refining" for a summary of
net impacts from changes in these deferrals.
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j. Includes after-tax net losses on early extinguishment of debt totaling
million (
share) for the first six months of 2020 and
share) for the first six months of 2019 (refer to Note 5).
k. Includes other net credits (charges) totaling
in second quarter 2020,
six months of 2020 and
months of 2019.
l. Working capital and other sources totaled
2020 and
Three Months Ended June 30, Six Months Ended June 30,
2020 2019 2020 2019
SUMMARY OPERATING DATA
Copper (millions of recoverable
pounds)
Production 767 776 1,498 1,556
Sales, excluding purchases 759 807 1,488 1,591
Average realized price per pound
2.53 a$ 2.78 Site production and delivery costs$ 1.82 $ 2.26 $ 2.00 $ 2.21 per poundb Unit net cash costs per poundb$ 1.47 $ 1.92 $ 1.68 $ 1.85 Gold (thousands of recoverable ounces) Production 191 160 347 326 Sales, excluding purchases 184 189 328 431
Average realized price per ounce
1,709$ 1,315 Molybdenum (millions of recoverable pounds) Production 19 25 38 48 Sales, excluding purchases 18 24 39 46
Average realized price per pound
10.84
a. Includes reductions to average realized prices of
in second-quarter 2020 and
of 2020 related to forward sales contracts covering 150 million pounds of
copper sales for May and
to Note 6). There are no remaining forward sales contracts.
b. Reflects per pound weighted-average production and delivery costs and unit
net cash costs (net of by-product credits) for all copper mines, before 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 our consolidated financial statements, refer to "Product Revenues
and Production Costs."
Revenues
Consolidated revenues totaled$3.1 billion in second-quarter 2020,$3.5 billion in second-quarter 2019,$5.9 billion for the first six months of 2020 and$7.3 billion for the first six months of 2019. Revenues from our mining operations primarily include the sale of copper concentrate, copper cathode, copper rod, gold in concentrate and molybdenum. Refer to Note 9 for a summary of product revenues. 33
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Following is a summary of changes in our consolidated revenues between periods
(in millions):
Three Months Ended Six Months Ended June
June 30 30
Consolidated revenues - 2019 period $ 3,546 $ 7,338
Lower sales volumes:
Copper (132 ) (287 )
Gold (8 ) (135 )
Molybdenum (85 ) (90 )
(Lower) higher average realized prices:
Copper (152 ) (372 )
Gold 73 129
Molybdenum (46 ) (82 )
Adjustments for prior period provisionally priced
copper sales 138 (160 )
Lower Atlantic Copper revenues (80 ) (216 )
Lower revenues from purchased copper (158 ) (261 )
Lower cobalt revenues (84 ) (180 )
Lower treatment charges 25 50
(Higher) lower royalties and export duties (13 ) 10
Other, including intercompany eliminations 30 108
Consolidated revenues - 2020 period $ 3,054 $ 5,852
Sales Volumes. Consolidated copper and gold sales volumes decreased in the 2020
periods, compared to the 2019 periods, primarily reflecting lower operating
rates at Cerro Verde associated with COVID-19 restrictions and timing of
shipments. Refer to "Operations" for further discussion of sales volumes at our
mining operations.
Realized Prices. Our consolidated revenues can vary significantly as a result of
fluctuations in the market prices of copper, gold and molybdenum. Average
realized prices for second-quarter 2020, compared with second-quarter 2019, were
7 percent lower for copper, 29 percent higher for gold and 20 percent lower for
molybdenum, and average realized prices for the first six months of 2020,
compared with the first six months of 2019, were 9 percent lower for copper, 30
percent higher for gold and 16 percent lower for molybdenum.
Average realized copper prices include net favorable (unfavorable) adjustments
to current period provisionally priced copper sales totaling $107 million in
second-quarter 2020, $(39) million in second-quarter 2019, $26 million for the
first six months of 2020 and $(58) million for the first six months of 2019. As
discussed in Note 6, substantially all of our copper concentrate and cathode
sales contracts provide final copper pricing in a specified future month
(generally one to four months from the shipment date) based primarily on quoted
LME monthly average copper prices. We record revenues and invoice customers at
the time of shipment based on then-current LME prices, which results in an
embedded derivative on provisionally priced concentrate and cathode sales that
is adjusted to fair value through earnings each period, using the period-end
forward prices, until final pricing on the date of settlement. To the extent
final prices are higher or lower than what was recorded on a provisional basis,
an increase or decrease to revenues is recorded each reporting period until the
date of final pricing. Accordingly, in times of rising copper prices, our
revenues benefit from adjustments to the final pricing of provisionally priced
sales pursuant to contracts entered into in prior periods; in times of falling
copper prices, the opposite occurs. Average realized prices for the second
quarter and first six months of 2020 also included reductions totaling $24
million related to forward sales contracts (refer to Note 6).
Prior Period Provisionally Priced Copper Sales. Net favorable (unfavorable)
adjustments to prior periods' provisionally priced copper sales (i.e.,
provisionally priced sales at March 31, 2020 and 2019, and December 31, 2019 and
2018) recorded in consolidated revenues totaled $55 million in second-quarter
2020 and $(83) million in second-quarter 2019, $(102) million for the first six
months of 2020 and $58 million for the first six months of 2019. Refer to Notes
6 and 9 for a summary of total adjustments to prior period and current period
provisionally priced sales.
At June 30, 2020 , we had provisionally priced copper sales totaling 183 million
pounds of copper (net of intercompany sales and noncontrolling interests)
recorded at an average of $2.73 per pound, subject to final pricing over the
next several months. We estimate that each $0.05 change in the price realized
from the June 30, 2020 ,
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provisional price recorded would have an approximate$6 million effect on our 2020 net income attributable to common stock. The LME copper price settled at$2.92 per pound onJuly 31, 2020 .
Atlantic Copper Revenues. Atlantic Copper revenues totaled
Purchased Copper. We purchase copper cathode primarily for processing by our Rod & Refining operations. The volumes of copper purchases vary depending on cathode production from our operations and totaled 71 million pounds in second-quarter 2020, 114 million pounds in second-quarter 2019, 159 million pounds for the first six months of 2020 and 231 million pounds for the first six months of 2019. Cobalt Revenues. Cobalt revenues totaled$47 million in second-quarter 2020 and$112 million for the first six months of 2020, compared with$131 million in second-quarter 2019 and$292 million for the first six months of 2019. Lower revenues in the 2020 periods, compared with the 2019 periods, primarily reflect the sale of our cobalt refinery and related cobalt cathode precursor business in fourth-quarter 2019.
Treatment Charges. Revenues from our concentrate sales are recorded net of treatment charges (i.e., fees paid to smelters that are generally negotiated annually), which will vary with the sales volumes and the price of copper.
Royalties and Export Duties. Royalties are primarily on PT-FI sales and vary with the volume of metal sold and the prices of copper and gold. PT-FI will continue to pay export duties until development progress for the new smelter inIndonesia exceeds 50 percent. Refer to "Operations - Indonesia Mining" for further discussion of the new smelter inIndonesia and to Note 9 for a summary of royalty expense and export duties. Production and Delivery Costs Consolidated production and delivery costs totaled$2.4 billion in second-quarter 2020,$3.0 billion in second-quarter 2019,$4.9 billion for the first six months of 2020 and$5.9 billion for the first six months of 2019. Lower consolidated production and delivery costs in the 2020 periods primarily reflects lower mining costs inIndonesia (reflecting lower mining and milling rates associated with the completion of mining the Grasberg open pit) and inSouth America (reflecting lower operating rates associated with COVID-19 restrictions). The 2020 periods also included charges totaling$153 million in second-quarter 2020 and$173 million for the first six months of 2020 associated with the COVID-19 pandemic and revised operating plans, including employee separation costs. Site Production and Delivery Costs Per Pound. Site production and delivery costs for our copper mining operations primarily include labor, energy and commodity-based inputs, such as sulphuric acid, reagents, liners, tires and explosives. Consolidated site production and delivery costs (before net noncash and other costs) for our copper mines averaged$1.82 per pound of copper in second-quarter 2020,$2.26 per pound of copper in second-quarter 2019,$2.00 per pound of copper for the first six months of 2020 and$2.21 per pound of copper for the first six months of 2019. Lower consolidated site production and delivery costs per pound in the 2020 periods, compared with the 2019 periods, primarily reflect lower costs inIndonesia andSouth America (for the same reasons discussed in the paragraph above). Refer to "Operations - UnitNet Cash Costs" for further discussion of unit net cash costs associated with our operating divisions and to "Product Revenues and Production Costs" for reconciliations of per pound costs by operating division to production and delivery costs applicable to sales reported in our consolidated financial statements. Depreciation, Depletion and Amortization Depreciation will vary under the unit-of-production (UOP) method as a result of changes in sales volumes and the related UOP rates at our mining operations. Consolidated depreciation, depletion and amortization (DD&A) totaled$358 million in second-quarter 2020,$352 million in second-quarter 2019 and$699 million for each of the first six months of 2020 and 2019. Metals Inventory Adjustments Net realizable value metals inventory adjustments totaled a net credit of$139 million in second-quarter 2020 (primarily related to the reversal of net realizable value adjustments recorded on long-term copper inventories in first-quarter 2020), and charges of$2 million in second-quarter 2019,$83 million for the first six months of 2020 and$59 million for the first six months of 2019. Metals inventory adjustments in the 2020 periods were related to 35
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volatility in copper and molybdenum prices. Charges for the first six months of 2019 were mostly related to decreases in cobalt prices.
Selling, general and administrative expenses Selling, general and administrative expenses totaled$91 million in second-quarter 2020,$92 million in second-quarter 2019,$201 million for the first six months of 2020 and$199 million for the first six months of 2019. During second-quarter 2020, we implemented a series of actions to reduce administrative and centralized support costs in conjunction with ourApril 2020 revised operating plans. Cost savings initiatives included a temporary reduction in certain employee benefits, the initiation of furloughs and an employee separation program, and reductions in third party service costs, facilities costs, travel and other expenses. Selling, general and administrative expenses include charges totaling$15 million associated with the employee separation program. Selling, general and administrative expense, excluding charges for the employee separation program, are expected to approximate$355 million for the year 2020. Mining Exploration and Research Expenses Consolidated exploration and research expenses for our mining operations totaled$18 million in second-quarter 2020,$31 million in second-quarter 2019,$34 million for the first six months of 2020 and$58 million for the first six months of 2019. Mining exploration and research expenses included employee separation charges totaling$7 million for each of the second quarter and first six months of 2020. OurApril 2020 revised operating plans prioritize existing mine operations. Exploration expenditures for the year 2020 are expected to approximate$30 million , approximately 60 percent below 2019 expenditures. Environmental Obligations and Shutdown Costs Environmental obligation costs reflect net revisions to our long-term environmental obligations, which vary from period to period because of changes to environmental laws and regulations, the settlement of environmental matters and/or circumstances affecting our operations that could result in significant changes in our estimates. Shutdown costs include care-and-maintenance costs and any litigation, remediation or related expenditures associated with closed facilities or operations. Net charges for environmental obligations and shutdown costs totaled$11 million in second-quarter 2020,$23 million in second-quarter 2019,$37 million for the first six months of 2020 and$65 million for the first six months of 2019. Interest Expense, Net Consolidated interest costs (before capitalization) totaled$159 million in second-quarter 2020,$167 million in second-quarter 2019,$330 million for the first six months of 2020 and$345 million for the first six months of 2019. Refer to Note 5 for further discussion of our 2020 debt transactions. Capitalized interest varies with the level of expenditures for our development projects and average interest rates on our borrowings, and totaled$44 million in second-quarter 2020,$35 million in second-quarter 2019,$88 million for the first six months of 2020 and$67 million for the first six months of 2019. Refer to "Capital Resources and Liquidity - Investing Activities" for discussion of capital expenditures associated with our major development projects. Income Taxes Following is a summary of the approximate amounts used in the calculation of our consolidated income tax (provision) benefit (in millions, except percentages): Six Months Ended June 30, 2020 2019 Effective Income Tax Effective Income Tax Income (Loss)a Tax Rate (Provision) Benefit Income (Loss)a Tax Rate (Provision) Benefit U.S.b $ (581 ) 10% $ 58 c $ (183 ) 10% $ 19 d South America (57 ) 58% 33 294 40% (117 ) Indonesia 169 54% (91 ) e (13 ) 69% 9 f Eliminations and other 74 N/A (16 ) (9 ) N/A (10 ) Rate adjustmentg - N/A (20 ) - N/A 9 Consolidated FCX $ (395 ) (9)% h $ (36 ) $ 89 101% $ (90 )
a. Represents income (loss) from continuing operations before income taxes and
equity in affiliated companies' net earnings.
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b. In addition to our
reflects corporate-level expenses, which include interest expense associated
with senior notes, general and administrative expenses, and environmental
obligations and shutdown costs.
c. Includes a tax credit of $53 million associated with the reversal of ayear-end 2019 tax charge related to the sale of our interest in the lower
zone of the Timok exploration project in
of $6 million associated with the removal of a valuation allowance on
deferred tax assets.
d. Includes tax credits totaling
changes.
e. Includes a tax charge of $8 million ($7 million net of noncontrolling
interest) associated with an unfavorable 2012
f. Includes a tax credit of$8 million ($6 million net of noncontrolling interest) associated with the reduction in PT-FI's statutory tax rates in accordance with its special mining license (IUPK). g. In accordance with applicable accounting rules, we adjust our interim provision for income taxes to equal our consolidated tax rate.
h. Our consolidated effective income tax rate is a function of the combined
effective tax rates for the jurisdictions in which we operate, excluding
the
the first six months of 2020 that will not result in a realized tax benefit,
applicable accounting rules require us to adjust our estimated annual
effective tax rate to exclude the impact of U.S. net losses.
Assuming achievement of current sales volume and cost estimates and average
prices of $2.85 per pound for copper, $1,800 per ounce for gold and $7.00 per
pound for molybdenum for the second half of 2020, we estimate our consolidated
effective tax rate for the year 2020 would approximate 60 percent. Changes in
sales volumes and average prices during 2020 would incur tax impacts at
estimated effective rates of 38 percent for Indonesia , 37 percent for Peru and 0
percent for the U.S.
Variations in the relative proportions of jurisdictional income result in
fluctuations to our consolidated effective income tax rate. Because of our U.S.
tax position, we do not record a financial statement impact for income or losses
generated in the U.S.
OPERATIONS
North America Copper Mines
We operate seven open-pit copper mines in North America - Morenci , Bagdad ,
Safford , Sierrita and Miami in Arizona , and Chino and Tyrone in New Mexico . In
addition to copper, certain of these mines produce molybdenum concentrate, gold
and silver. All of the North America mining operations are wholly owned, except
for Morenci . We record our 72 percent undivided joint venture interest in
Morenci using the proportionate consolidation method.
The North America copper mines include open-pit mining, sulfide ore
concentrating, leaching and solution extraction/electrowinning (SX/EW)
operations. A majority of the copper produced at our North America copper mines
is cast into copper rod by our Rod & Refining segment. The remainder of our
North America copper production is sold as copper cathode or copper concentrate,
a portion of which is shipped to Atlantic Copper (our wholly owned smelter).
Molybdenum concentrate, gold and silver are also produced by certain of our
North America copper mines.
Operating and Development Activities. The April 2020 revised operating plans
were effectively implemented across our North America operating sites and
production, costs and capital management were in line or better than the April
2020 estimates. The Lone Star project is substantially complete and on track to
produce approximately 200 million pounds of copper per year beginning in the
second half of 2020.
The April 2020 revised operating plans take into account the impact of currently
suspended operations at the Chino mine. We are currently assessing options and
future timing of the restart of the Chino mine, which will take into account
public health and market conditions.
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Operating Data. Following is summary consolidated operating data for theNorth America copper mines: Three Months Ended June 30, Six Months Ended June 30, 2020 2019 2020 2019 Operating Data, Net of Joint Venture Interests Copper (millions of recoverable pounds) Production 368 370 714 706 Sales, excluding purchases 368 369 723 689
Average realized price per pound
2.50 a
Molybdenum (millions of recoverable pounds) Productionb 9 9 17 16 100% Operating Data Leach operations Leach ore placed in stockpiles 744,000 797,600 736,100 751,600 (metric tons per day) Average copper ore grade (percent) 0.28 0.23 0.28 0.23 Copper production (millions of 265 245 500 471
recoverable pounds)
Mill operations Ore milled (metric tons per day) 286,200 320,300 309,800 317,900 Average ore grade (percent): Copper 0.37 0.36 0.34 0.34 Molybdenum 0.02 0.02 0.02 0.02 Copper recovery rate (percent) 84.6 87.4 85.8 87.6 Copper production (millions of 176 195 354 371
recoverable pounds)
a. Includes reductions to average realized prices of
in second-quarter 2020 and
of 2020 related to forward sales contracts covering 150 million pounds of
copper sales for May and June 2020 at a fixed price of $2.34 per pound.
b. Refer to "Consolidated Results" for our consolidated molybdenum sales
volumes, which include sales of molybdenum produced at the
copper mines.
North America's consolidated copper sales volumes totaled 368 million pounds in
second-quarter 2020, 369 million pounds in second-quarter 2019, 723 million
pounds for the first six months of 2020 and 689 million pounds for the first six
months of 2019. Higher sales volumes for the first six months of 2020, compared
with the first six months of 2019, primarily reflect timing of shipments. North
America copper sales are estimated to approximate 1.4 billion pounds for the
year 2020, similar to the year 2019.
Unit Net Cash Costs. Unit net cash costs per pound of copper is a measure
intended to provide investors with information about the cash-generating
capacity of our mining operations expressed on a basis relating to the primary
metal product for our respective operations. We use this measure for the same
purpose and for monitoring operating performance by our mining operations. This
information differs from measures of performance determined in accordance with
U.S. GAAP and should not be considered in isolation or as a substitute for
measures of performance determined in accordance with U.S. GAAP. This measure is
presented by other metals mining companies, although our measure may not be
comparable to similarly titled measures reported by other companies.
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Gross Profit per Pound of Copper and Molybdenum The following table summarizes unit net cash costs and gross profit per pound at ourNorth America copper mines. Refer to "Product Revenues and Production Costs" for an explanation of the "by-product" and "co-product" methods and a reconciliation of unit net cash costs per pound to production and delivery costs applicable to sales reported in our consolidated financial statements. Three Months Ended June 30, 2020 2019 Co-Product Method Co-Product Method By- Product Molyb- By- Product Molyb- Method Copper denuma Method Copper denuma Revenues, excluding adjustments$ 2.42 b$ 2.42 $ 8.33
Site production and delivery, before net noncash and other costs shown below 1.85 1.73 6.76 2.05 1.88 9.53 By-product credits (0.17 ) - - (0.26 ) - - Treatment charges 0.10 0.10 - 0.11 0.10 - Unit net cash costs 1.78 1.83 6.76 1.90 1.98 9.53 DD&A 0.24 0.22 0.55 0.24 0.22 0.77 Metals inventory adjustments (0.24 ) (0.24 ) - - - - Noncash and other costs, net 0.09 c 0.09 0.08 0.03 0.02 0.23 Total unit costs 1.87 1.90 7.39 2.17 2.22 10.53 Revenue adjustments, primarily for pricing on prior period open sales 0.02 0.02 - (0.04 ) (0.04 ) - Gross profit per pound$ 0.57 $ 0.54 $ 0.94
Copper sales (millions of
recoverable pounds) 368 368 369 369
Molybdenum sales (millions of
recoverable pounds)a 9 9
Six Months Ended June 30,
2020 2019
Co-Product Method Co-Product Method
By- Product Molyb- By- Product Molyb-
Method Copper denuma Method Copper denuma
Revenues, excluding adjustments $ 2.50 b $ 2.50 $ 8.99 Site production and delivery, before net noncash and other costs shown below 2.00 1.85 7.81 2.05 1.87 9.69 By-product credits (0.19 ) - - (0.26 ) - - Treatment charges 0.10 0.10 - 0.11 0.11 - Unit net cash costs 1.91 1.95 7.81 1.90 1.98 9.69 DD&A 0.25 0.23 0.64 0.25 0.22 0.75 Metals inventory adjustments 0.08 0.07 - - - - Noncash and other costs, net 0.09 c 0.09 0.15 0.05 0.04 0.22 Total unit costs 2.33 2.34 8.60 2.20 2.24 10.66 Other revenue adjustments, primarily for pricing on prior period open sales (0.03 ) (0.03 ) - 0.01 0.01 - Gross profit per pound$ 0.14 $ 0.13 $ 0.39
Copper sales (millions of recoverable pounds) 722 722 689 689 Molybdenum sales (millions of recoverable pounds)a 17 16
a. Reflects sales of molybdenum produced by certain of the
mines to our molybdenum sales company at market-based pricing.
b. Includes reductions to average realized prices of
in second-quarter 2020 and
of 2020 related to forward sales contracts covering 150 million pounds of
copper sales for May and June 2020 at a fixed price of $2.34 per pound.
c. Includes charges totaling
and
associated with the
separation costs) and the COVID-19 pandemic.
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OurNorth America copper mines have varying cost structures because of differences in ore grades and characteristics, processing costs, by-product credits and other factors. Average unit net cash costs (net of by-product credits) of$1.78 per pound of copper in second-quarter 2020 were lower than unit net cash costs of$1.90 per pound of copper in second-quarter 2019, primarily reflecting lower mining costs and cost reductions associated with theApril 2020 revised operating plans. Average unit net cash costs of$1.91 per pound for the first six months of 2020 approximated unit net cash costs of$1.90 per pound of copper for the first six months of 2019. Because certain assets are depreciated on a straight-line basis,North America's average unit depreciation rate may vary with asset additions and the level of copper production and sales. Average unit net cash costs (net of by-product credits) for ourNorth America copper mines are expected to approximate$1.81 per pound of copper for the year 2020, based on achievement of current sales volume and cost estimates and assuming an average molybdenum price of$7.00 per pound for the second half of 2020.North America's average unit net cash costs for the year 2020 would change by approximately$0.02 per pound of copper for each$2 per pound change in the average price of molybdenum for the second half of 2020. South America Mining We operate two copper mines inSouth America -Cerro Verde inPeru (in which we own a 53.56 percent interest) and El Abra inChile (in which we own a 51 percent interest), which are consolidated in our financial statements.South America mining includes open-pit mining, sulfide ore concentrating, leaching and SX/EW operations. Production from ourSouth America mines is sold as copper concentrate or cathode under long-term contracts. OurSouth America mines also sell a portion of their copper concentrate production toAtlantic Copper. In addition to copper, the Cerro Verde mine produces molybdenum concentrate and silver. Operating and Development Activities.Cerro Verde achieved significant progress during second-quarter 2020 to restore operations following COVID-19 restrictions imposed by the Peruvian government inMarch 2020 . Strict health protocols have been implemented and a plan forCerro Verde to restore operations was approved by the Peruvian government in second-quarter 2020.Cerro Verde's operating rates averaged 251,800 metric tons of ore per day in second-quarter 2020, including an average of 316,800 metric tons of ore per day inJune 2020 (which is approximately 80 percent of the 2019 annual average). We currently expect operations during the second half of 2020 to average approximately 350,000 metric tons of ore per day. We are continuing to operate El Abra consistent with theApril 2020 revised operating plans while closely monitoring public health conditions inChile . Operating Data. Following is summary consolidated operating data forSouth America mining: Three Months Ended June 30, Six Months Ended June 30, 2020 2019 2020 2019 Copper (millions of recoverable pounds) Production 218 281 463 580 Sales 219 287 466 577
Average realized price per pound
2.57
Molybdenum (millions of recoverable
pounds)
Productiona 4 7 8 15
Leach operations
Leach ore placed in stockpiles
(metric tons per day) 141,900 187,000 162,200 178,400
Average copper ore grade (percent) 0.33 0.38 0.35 0.36
Copper production (millions of 62 63 122
recoverable pounds) 125
Mill operations
Ore milled (metric tons per day) 251,800 b 407,700 300,700 b 397,200
Average ore grade (percent):
Copper 0.39 0.34 0.36 0.36
Molybdenum 0.01 0.02 0.01 0.02
Copper recovery rate (percent) 83.9 81.7 80.8 84.5
Copper production (millions of 156 218 338 458
recoverable pounds)
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a. Refer to "Consolidated Results" for our consolidated molybdenum sales
volumes, which include sales of molybdenum produced at Cerro Verde.
b. Cerro Verde mill operations were negatively impacted by COVID-19
restrictions.
South America's consolidated copper sales volumes totaled 219 million pounds in
second-quarter 2020, 287 million pounds in second-quarter 2019, 466 million
pounds for the first six months of 2020 and 577 million pounds for the first six
months of 2019. Lower sales volumes for the 2020 periods, compared to the 2019
periods, primarily reflect lower operating rates at Cerro Verde associated with
COVID-19 restrictions.
Copper sales from South America mines are expected to approximate 950 million
pounds for the year 2020, compared with 1.2 billion pounds of copper for the
year 2019.
Unit Net Cash Costs. Unit net cash costs per pound of copper is a measure
intended to provide investors with information about the cash-generating
capacity of our mining operations expressed on a basis relating to the primary
metal product for our respective operations. We use this measure for the same
purpose and for monitoring operating performance by our mining operations. This
information differs from measures of performance determined in accordance with
U.S. GAAP and should not be considered in isolation or as a substitute for
measures of performance determined in accordance with U.S. GAAP. This measure is
presented by other metals mining companies, although our measure may not be
comparable to similarly titled measures reported by other companies.
Gross Profit (Loss) per Pound of Copper
The following table summarizes unit net cash costs and gross profit (loss) per
pound of copper at our South America mining operations. Unit net cash costs per
pound of copper are reflected under the by-product and co-product methods as the
South America mining operations also had sales of molybdenum and silver. Refer
to "Product Revenues and Production Costs" for an explanation of the
"by-product" and "co-product" methods and a reconciliation of unit net cash
costs per pound to production and delivery costs applicable to sales reported in
our consolidated financial statements.
Three Months Ended June 30,
2020 2019
By-Product Co-Product By-Product Co-Product
Method Method
Method Method
Revenues, excluding adjustments
Site production and delivery, before net noncash and other costs shown below 1.64 1.57 1.92 1.74 By-product credits (0.11 ) - (0.28 ) - Treatment charges 0.15 0.15 0.18 0.18 Royalty on metals - - 0.01 0.01 Unit net cash costs 1.68 1.72 1.83 1.93 DD&A 0.47 0.44 0.41 0.37 Metals inventory adjustments (0.26 ) (0.26 ) - - Noncash and other costs, net 0.32 a 0.30 0.07 0.07 Total unit costs 2.21 2.20 2.31 2.37 Revenue adjustments, primarily for pricing on prior period open sales 0.20 0.20 (0.20 ) (0.20 ) Gross profit per pound$ 0.66 $ 0.67 $ 0.21 $ 0.15 Copper sales (millions of recoverable pounds) 219 219 287 287 41
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Six Months Ended June 30,
2020 2019
By-Product Co-Product By-Product Co-Product
Method Method
Method Method
Revenues, excluding adjustments
Site production and delivery, before net noncash and other costs shown below 1.84 1.72 1.82 1.64 By-product credits (0.14 ) - (0.31 ) - Treatment charges 0.15 0.15 0.19 0.19 Royalty on metals - - 0.01 0.01 Unit net cash costs 1.85 1.87 1.71 1.84 DD&A 0.45 0.42 0.40 0.35 Metals inventory adjustments 0.01 0.01 - - Noncash and other costs, net 0.21 a 0.20 0.08 0.08 Total unit costs 2.52 2.50 2.19 2.27 Other revenue adjustments, primarily for pricing on prior period open sales (0.15 ) (0.15 ) 0.06 0.06 Gross (loss) profit per pound$ (0.10 ) $ (0.08 ) $ 0.62 $ 0.54 Copper sales (millions of recoverable pounds) 466 466 577 577
a. Includes charges totaling
and
associated with idle facility (
related to the COVID-19 pandemic, and employee separation costs associated
with the
OurSouth America mines have varying cost structures because of differences in ore grades and characteristics, processing costs, by-product credits and other factors. Average unit net cash costs (net of by-product credits) of$1.68 per pound of copper in second-quarter 2020 were lower than unit net cash costs of$1.83 per pound of copper in second-quarter 2019, primarily reflecting reduced mining and milling activities at Cerro Verde, partly offset by lower sales volumes and lower by-product credits. Average unit net cash costs (net of by-product credits) of$1.85 per pound for the first six months of 2020 were higher than unit net cash costs of$1.71 per pound for the first six months of 2019, primarily reflecting lower sales volumes and lower by-product credits, partly offset by reduced mining and milling activities at Cerro Verde.
Revenues from
Because certain assets are depreciated on a straight-line basis,South America's unit depreciation rate may vary with asset additions and the level of copper production and sales. Revenue adjustments primarily result from changes in prices on provisionally priced copper sales recognized in prior periods. Refer to "Consolidated Results - Revenues" for further discussion of adjustments to prior period provisionally priced copper sales. Average unit net cash costs (net of by-product credits) forSouth America mining are expected to approximate$1.92 per pound of copper for the year 2020, based on current sales volume and cost estimates and assuming an average price of$7.00 per pound of molybdenum for the second half of 2020. Indonesia Mining PT-FI operates one of the world's largest copper and gold mines at the Grasberg minerals district inPapua ,Indonesia . PT-FI produces copper concentrate that contains significant quantities of gold and silver. We have a 48.76 percent interest in PT-FI and manage its mining operations. As further discussed in Note 2 of our 2019 Form 10-K, under the terms of the shareholders agreement, our economic interest in PT-FI approximates 81 percent through2022. PT -FI's results are consolidated in our financial statements.
Substantially all of PT-FI's copper concentrate is sold under long-term
contracts. During the first six months of 2020, 70 percent of PT-FI's
concentrate production was sold to PT Smelting (PT-FI's 25-percent-owned smelter
and refinery in Gresik,
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Operating and Development Activities. The ramp-up of underground production at the Grasberg minerals district inIndonesia continues to advance on schedule. During second-quarter 2020, a total of 46 new drawbells were added at theGrasberg Block Cave andDeep Mill Level Zone (DMLZ) underground mines, bringing cumulative open drawbells to 261. Combined average daily production from Grasberg Block Cave and DMLZ mines totaled 54,800 metric tons of ore per day during second-quarter 2020, approximately 9 percent above theApril 2020 estimate and 46 percent above the first-quarter 2020 average (and increased to a combined daily production average of approximately 70,000 metric tons of ore per day at the end ofJune 2020). PT -FI expects its 2021 copper and gold production to approximate 1.4 billion pounds of copper and 1.4 million ounces of gold, nearly double projected 2020 levels. The successful completion of this ramp up is expected to enable PT-FI to generate average annual production for the next several years of 1.55 billion pounds of copper and 1.6 million ounces of gold at an average unit net cash cost of approximately$0.20 per pound of copper assuming an average price of$1,400 per ounce of gold and achievement of projected sales volumes and cost estimates. PT-FI's estimated annual capital spending on underground mine development projects is expected to average approximately$0.9 billion per year for the three-year period 2020 through 2022, net of scheduled contributions from PT Indonesia Asahan Aluminium (Persero ) (PT Inalum). In accordance with applicable accounting guidance, aggregate costs (before scheduled contributions from PT Inalum), which are expected to average$1.0 billion per year for the three-year period 2020 through 2022, will be reflected as an investing activity in our cash flow statement, and contributions from PT Inalum will be reflected as a financing activity.Indonesian Smelter . As a result of disruptions to work and travel schedules of international contractors and current restrictions on access to the proposed physical site in Gresik,Indonesia associated with COVID-19 mitigation measures, PT-FI has notified the Indonesian government of delays in achieving the completion timeline ofDecember 2023. PT -FI continues to discuss with the Indonesian government a deferred schedule for the project as well as other alternatives in light of COVID-19 and global economic conditions. Operating Data. Following is summary consolidated operating data forIndonesia mining: Three Months Ended June 30, Six Months Ended June 30, 2020 2019 2020 2019 Operating Data Copper (millions of recoverable pounds) Production 181 125 321 270 Sales 172 151 299 325
Average realized price per pound
2.54
Gold (thousands of recoverable ounces) Production 189 154 341 316 Sales 180 185 319 420
Average realized price per ounce
1,709
Operating Data Ore extracted and milled (metric tons per day): Grasberg open pita - 54,000 3,600 78,300 DOZ underground mineb 21,600 21,100 20,900 25,700 Grasberg Block Cave underground mineb 27,200 7,400 23,100 6,200 DMLZ underground mineb 27,600 7,700 23,100 7,200 Big Gossan underground mineb 5,900 5,400 6,300 5,500 Total 81,900 c 95,600 77,000 122,900 Average ore grades: Copper (percent) 1.27 0.80 1.21 0.69 Gold (grams per metric ton) 1.04 0.79 1.02 0.66 Recovery rates (percent): Copper 91.7 88.3 91.7 86.3 Gold 78.3 74.9 77.6 71.6
a. Includes ore from the Grasberg open-pit stockpile.
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b. Reflects ore extracted, including ore from development activities that result
in metal production.
c. Does not foot because of rounding.
PT-FI's consolidated copper sales of 172 million pounds in second-quarter 2020 were higher than second-quarter 2019 consolidated copper sales of 151 million pounds, primarily reflecting higher ore grades, partly offset by anticipated lower mill rates as PT-FI continues to ramp-up production from its underground ore bodies. PT-FI's consolidated copper sales of 299 million pounds for the first six months of 2020 were lower than consolidated copper sales of 325 million pounds for first six months of 2019, primarily reflecting timing of shipments, partly offset by higher ore grades. PT-FI's consolidated gold sales of 180 thousand ounces of gold in second-quarter 2020 and 319 thousand ounces of gold for the first six months of 2020 were lower than second-quarter 2019 consolidated sales of 185 thousand ounces of gold and 420 thousand ounces of gold for the first six months of 2019, primarily reflecting timing of shipments, partly offset by higher ore grades. Consolidated sales volumes from PT-FI are expected to approximate 770 million pounds of copper and 0.8 million ounces of gold in 2020. As PT-FI continues to ramp-up production from its underground ore bodies, metal production is expected to improve significantly in 2021. Unit Net Cash Costs. Unit net cash costs per pound of copper is a measure intended to provide investors with information about the cash-generating capacity of our mining operations expressed on a basis relating to the primary metal product for our respective operations. We use this measure for the same purpose and for monitoring operating performance by our mining operations. This information differs from measures of performance determined in accordance withU.S. GAAP and should not be considered in isolation or as a substitute for measures of performance determined in accordance withU.S. GAAP. This measure is presented by other metals mining companies, although our measure may not be comparable to similarly titled measures reported by other companies. Gross Profit (Loss) per Pound of Copper and per Ounce of Gold The following table summarizes the unit net cash costs and gross profit (loss) per pound of copper and per ounce of gold at ourIndonesia mining operations. Refer to "Product Revenues and Production Costs" for an explanation of "by-product" and "co-product" methods and a reconciliation of unit net cash costs per pound to production and delivery costs applicable to sales reported in our consolidated financial statements. Three Months EndedJune 30, 2020 2019 Co-Product Method Co-Product Method By-Product Method Copper
Gold By-Product Method Copper Gold Revenues, excluding adjustments $
2.67 $ 2.67 $ 1,748 $ 2.71 $ 2.71 $ 1,350
Site production and delivery, before
net noncash and other costs shown
below 2.00 1.17 766 3.40 2.09 1,041
Gold and silver credits (1.95 ) - - (1.69 ) - -
Treatment charges 0.27 0.16 105 0.26 0.16 80
Export duties 0.09 0.05 35 0.07 0.04 20
Royalty on metals 0.15 0.08 65 0.11 0.08 28
Unit net cash costs 0.56 1.46 971 2.15 2.37 1,169
DD&A 0.72 0.42 276 0.65 0.40 199
Noncash and other costs, net 0.05 a 0.03 17 0.30 b 0.18 91
Total unit costs 1.33 1.91 1,264 3.10 2.95 1,459
Revenue adjustments, primarily for
pricing on prior period open sales 0.07 0.07 41 (0.13 ) (0.13 ) (7 )
PT Smelting intercompany (loss) (0.15 ) (0.09 ) (57 ) 0.06 0.03 16
profit
Gross profit (loss) per pound/ounce $ 1.26$ 0.74 $ 468 $ (0.46 )$ (0.34 ) $ (100 ) Copper sales (millions of recoverable pounds) 172 172 151 151 Gold sales (thousands of recoverable ounces) 180 185 44
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Six Months Ended June 30,
2020 2019
Co-Product Method Co-Product Method
By-Product Method Copper Gold By-Product Method Copper Gold Revenues, excluding adjustments $
2.54 $ 2.54 $ 1,709 $ 2.77 $ 2.77 $ 1,314
Site production and delivery, before
net noncash and other costs shown
below 2.29 1.31 884 3.24 1.99 944
Gold and silver credits (1.91 ) - - (1.75 ) - -
Treatment charges 0.28 0.17 110 0.28 0.17 81
Export duties 0.07 0.04 25 0.08 0.05 24
Royalty on metals 0.15 0.08 58 0.14 0.09 38
Unit net cash costs 0.88 1.60 1,077 1.99 2.30 1,087
DD&A 0.75 0.43 289 0.63 0.38 183
Noncash and other costs, net 0.12 a 0.06 45 0.14 b 0.09 43
Total unit costs 1.75 2.09 1,411 2.76 2.77 1,313
Other revenue adjustments, primarily
for pricing on prior period open
sales (0.07 ) (0.07 ) 14 0.05 0.05 5
PT Smelting intercompany profit - - - 0.04 0.02 10
Gross profit per pound/ounce $ 0.72 $ 0.38 $ 312 $ 0.10 $ 0.07 $ 16
Copper sales (millions of
recoverable pounds) 299 299 325 325
Gold sales (thousands of recoverable
ounces) 319 420
a. Includes COVID-19 related costs of $0.03 per pound of copper in
second-quarter 2020 and
2020.
b. Includes charges of
adjustments to the settlement of the historical surface water tax disputes
with the local regional tax authority in
A significant portion of PT-FI's costs are fixed and unit costs vary depending on volumes and other factors. PT-FI's unit net cash costs (including gold and silver credits) of$0.56 per pound of copper in second-quarter 2020 and$0.88 per pound for the first six months of 2020 were lower than unit net cash costs of$2.15 per pound of copper in second-quarter 2019 and$1.99 per pound for the first six months of 2019, primarily reflecting reduced site production costs and higher gold prices. The decrease in unit net cash costs in second-quarter 2020 also reflected higher copper sales volumes. Treatment charges vary with the volume of metals sold and the price of copper, and royalties vary with the volume of metals sold and the prices of copper and gold. PT-FI will continue to pay export duties until development progress for the new smelter inIndonesia exceeds 50 percent.
PT-FI's export duties totaled
PT-FI's royalties totaled
Because certain assets are depreciated on a straight-line basis, PT-FI's unit depreciation rate may vary with asset additions and the level of copper production and sales. DD&A per pound of copper under the by-product method was$0.72 per pound in second-quarter 2020,$0.65 per pound in second-quarter 2019,$0.75 for the first six months of 2020 and$0.63 per pound for the first six months of 2019. The increase in the 2020 periods, compared with the 2019 periods, primarily reflects underground development assets placed in service.
Revenue adjustments primarily result from changes in prices on provisionally priced copper sales recognized in prior periods.
PT Smelting intercompany (loss) profit represents the change in the deferral of 25 percent of PT-FI's profit on sales to PT Smelting. Refer to "Smelting and Refining" below for further discussion. Assuming an average gold price of$1,800 per ounce for the second half of 2020 and achievement of current sales volume and cost estimates, unit net cash costs (including gold and silver credits) for PT-FI are expected to 45
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approximate$0.54 per pound of copper for the year 2020 (including$0.34 per pound of copper for the second half of 2020). The impact of price changes during the second half of 2020 on PT-FI's average unit net cash costs for the year 2020 would approximate$0.03 per pound of copper for each$50 per ounce change in the average price of gold. PT-FI's projected sales volumes and unit net cash costs for the year 2020 are dependent on a number of factors, including underground development progress, operational performance and timing of shipments. InMarch 2020, PT -FI received a one-year extension of its export license throughMarch 15, 2021 . Molybdenum Mines We operate two wholly owned molybdenum mines inColorado - theHenderson underground mine and the Climax open-pit mine. TheHenderson and Climax mines produce high-purity, chemical-grade molybdenum concentrate, which is typically further processed into value-added molybdenum chemical products. The majority of the molybdenum concentrate produced at theHenderson and Climax mines, as well as from ourNorth America andSouth America copper mines, is processed at our own conversion facilities. Production from the Molybdenum mines totaled 6 million pounds of molybdenum in second-quarter 2020, 9 million pounds in second-quarter 2019, 13 million pounds for the first six months of 2020 and 17 million pounds for the first six months of 2019. The decrease in the 2020 periods, compared with the 2019 periods, primarily reflects lower production in response to market conditions. Refer to "Consolidated Results" for our consolidated molybdenum operating data, which includes sales of molybdenum produced at our Molybdenum mines and from ourNorth America andSouth America copper mines. Refer to "Outlook" for projected consolidated molybdenum sales volumes. Operating and Development Activities. TheApril 2020 revised operating plans for our molybdenum business have been effectively implemented, with site production and delivery costs declining by approximately 20 percent compared to first-quarter 2020. Unit Net Cash Costs Per Pound of Molybdenum. Unit net cash costs per pound of molybdenum is a measure intended to provide investors with information about the cash-generating capacity of our mining operations expressed on a basis relating to the primary metal product for our respective operations. We use this measure for the same purpose and for monitoring operating performance by our mining operations. This information differs from measures of performance determined in accordance withU.S. GAAP and should not be considered in isolation or as a substitute for measures of performance determined in accordance withU.S. GAAP. This measure is presented by other metals mining companies, although our measure may not be comparable to similarly titled measures reported by other companies. Average unit net cash costs for our Molybdenum mines of$8.97 per pound of molybdenum in second-quarter 2020 were lower than unit net cash costs of$9.15 per pound in second-quarter 2019, primarily reflecting lower operating costs associated with theApril 2020 revised operating plans. Average unit net cash costs of$9.52 per pound of molybdenum for the first six months of 2020 were higher than unit net cash costs of$9.45 per pound for the first six months of 2019, primarily reflecting lower sales volumes, partly offset by lower operating costs associated with theApril 2020 revised operating plans. Average unit net cash costs for our Molybdenum mines do not include noncash and other costs, which include charges totaling$1.00 per pound of molybdenum in second-quarter 2020 and$0.48 per pound of molybdenum for the first six months of 2020, primarily associated with theApril 2020 revised operating plans (including employee separation costs) and contract cancellation costs related to the COVID-19 pandemic. Based on current sales volume and cost estimates, average unit net cash costs for the Molybdenum mines are expected to approximate$10.20 per pound of molybdenum for the year 2020. Refer to "Product Revenues and Production Costs" for a reconciliation of unit net cash costs per pound to production and delivery costs applicable to sales reported in our consolidated financial statements. Smelting and Refining We wholly own and operate a smelter inArizona (Miami smelter), a refinery inTexas (El Paso refinery ) and a smelter and refinery inSpain (Atlantic Copper). Additionally, PT-FI owns 25 percent of a smelter and refinery in Gresik,Indonesia (PT Smelting). Treatment charges for smelting and refining copper concentrate consist of a base rate per pound of copper and per ounce of gold and are generally fixed. Treatment charges represent a cost to our mining operations and income to Atlantic Copper and PT Smelting. Thus, higher treatment charges benefit our smelter operations and adversely affect our mining operations. OurNorth America copper mines are less 46
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significantly affected by changes in treatment charges because these operations are largely integrated with ourMiami smelter andEl Paso refinery . Through this form of downstream integration, we are assured placement of a significant portion of our concentrate production. Atlantic Copper smelts and refines copper concentrate and markets refined copper and precious metals in slimes. During the first six months of 2020,Atlantic Copper's concentrate purchases include 20 percent from our copper mining operations and 80 percent from third parties. PT-FI's contract with PT Smelting provides for PT-FI to supply 100 percent of the copper concentrate requirements (subject to a minimum or maximum treatment charge rate) necessary for PT Smelting to produce 205,000 metric tons of copper annually on a priority basis. PT-FI may also sell copper concentrate to PT Smelting at market rates for quantities in excess of 205,000 metric tons of copper annually. During the first six months of2020, PT -FI supplied substantially all of PT Smelting's concentrate requirements. InMarch 2020, PT Smelting received a one-year extension of its anode slimes export license throughMarch 10, 2021 . We defer recognizing profits on sales from our mining operations toAtlantic Copper and on 25 percent of PT-FI's sales to PT Smelting until final sales to third parties occur. Changes in these deferrals attributable to variability in intercompany volumes resulted in net (reductions) additions to operating income (loss) totaling$(17) million ($(6) million to net income attributable to common stock) in second-quarter 2020,$11 million ($(2) million to net loss attributable to common stock) in second-quarter 2019,$(6) million ($1 million to net loss attributable to common stock) for the first six months of 2020 and$(20) million ($(15) million to net loss attributable to common stock) for the first six months of 2019. Our net deferred profits on our inventories at Atlantic Copper and PT Smelting to be recognized in future periods' net income attributable to common stock totaled$28 million atJune 30, 2020 .
CAPITAL RESOURCES AND LIQUIDITY
Our consolidated operating cash flows vary with sales volumes; prices realized from copper, gold and molybdenum sales; production costs; income taxes; other working capital changes; and other factors. We believe that we have a high-quality portfolio of long-lived copper assets positioned to generate long-term value. PT-FI has several projects in the Grasberg minerals district related to the development of its large-scale, long-lived, high-grade underground ore bodies and we have substantially completed a project to develop theLone Star leachable ores near ourSafford operation in easternArizona . We are also evaluating other opportunities to enhance net present values, and we continue to consider future development of our copper resources, the timing of which will be dependent on market conditions. InApril 2020 we announced revised operating plans in response to the global COVID-19 pandemic and resulting negative impact on the global economy. The revised operating plans are focused on maximizing cash flow and protecting liquidity in a weak and uncertain economic environment and to preserve asset values for anticipated improved copper prices as economic conditions recover. As presented in "Outlook," projected operating cash flows for the year 2020 of$2.6 billion are expected to exceed projected capital expenditures for the year 2020 by$0.6 billion . The increase in expected operating cash flows for the year 2020, compared to theApril 2020 estimate, primarily reflects an increase in copper prices. A large portion of the capital expenditures relate to projects that are expected to add significant production and cash flow in future periods. We have cash on hand and the financial flexibility to fund these expenditures and will continue to be disciplined in deploying capital. AtJune 30, 2020 , we had$5.0 billion in liquidity, comprised of$1.5 billion in consolidated cash and$3.5 billion of availability under our revolving credit facility. With continued successful execution of the revised operating plans, we expect operating cash flows to improve significantly in 2021. InMarch 2020 , we completed the sale of$1.3 billion in new 8-year and 10-year senior notes and used the net proceeds to purchase and redeem a portion of certain existing senior notes. InJuly 2020 , we completed the sale of$1.5 billion in new 8-year and 10-year senior notes. We used the net proceeds from the July offering to purchase$1.3 billion of certain existing senior notes in connection with the early settlement of our tender offers. Depending on our final tender results, we may use all or a portion of the remaining net proceeds from the offering to purchase more of certain senior notes in the tender offers. Any net proceeds not used for the tender offers will be used for general corporate purposes, which may include repurchases or redemptions of our senior notes. Refer to Note 5 and below for further discussion. These transactions will further enhance financial flexibility and extend debt maturities. 47
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