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, 2020 (2020 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 . We continue to monitor the impact of the COVID-19 pandemic on our business and maintain our vigilant operating protocols to contain and mitigate the risk of spread of COVID-19 at each of our operating sites. To date, our protocols have been effective in mitigating and preventing a major outbreak of COVID-19 at our operating sites. We will continue to monitor, assess and update our COVID-19 response and to provide assistance to employees in obtaining vaccinations. Our results for the first nine months of 2021 reflect strong operating and financial performance, and cash flow generation. We believe we are well positioned to make investments in our business while providing shareholders with cash returns consistent with our financial policy. Refer to Note 5 and "Capital Resources and Liquidity" for further discussion of our financial policy. We continue to execute our operating plans in a safe, efficient and responsible manner and remain focused on building long-term value through solid management of our portfolio of long-lived and high-quality copper assets. As further discussed in "Operations," highlights for our mining operations during the first nine months of 2021 include: •Continued success with the ramp-up of underground mining atPT Freeport Indonesia (PT-FI); on track to reach annualized metal production targets by year-end 2021. •Strong performance fromCerro Verde's concentrator facilities with milling rates averaging 381,500 metric tons of ore per day and rates are targeted to average approximately 400,000 metric tons of ore per day in 2022. •Current operations at theLone Star copper leach project, which was successfully completed in the second half of 2020, are exceeding the initial design capacity of 200 million pounds of copper annually by approximately 25 percent. We are advancing climate initiatives and recently published our updated Climate Report inSeptember 2021 , which details the work underway across our global business to reduce greenhouse gas (GHG) emissions, improve energy efficiency, advance the use of renewable energy and enhance our resilience to future climate-related risks. Net income (loss) attributable to common stock totaled$1.4 billion in third-quarter 2021,$0.3 billion in third-quarter 2020,$3.2 billion for the first nine months of 2021 and$(0.1) billion for the first nine months of 2020. Results for the 2021 periods, compared with the 2020 periods, reflect higher copper prices and copper and gold sales volumes, partly offset by a higher provision for income taxes. The first nine months of 2020 also reflect charges directly associated with the COVID-19 pandemic and revised operating plans, including employee separation costs, totaling$178 million , losses on early extinguishment of debt totaling$100 million and metals inventory adjustments totaling$90 million . Refer to "Consolidated Results" for further discussion. 27 -------------------------------------------------------------------------------- Table of Contents AtSeptember 30, 2021 , we had consolidated debt of$9.7 billion and consolidated cash and cash equivalents of$7.7 billion , resulting in net debt of$2.0 billion . This represents a reduction in net debt of$4.1 billion from year-end 2020. Refer to "Net Debt" for reconciliations of debt and cash and cash equivalents to net debt. AtSeptember 30, 2021 , we had no borrowings and$3.5 billion available under our revolving credit facility. InSeptember 2021 , we prepaid$200 million of the Cerro Verde Term Loan and inOctober 2021 , we announced that inDecember 2021 we expect to redeem our outstanding$524 million principal amount of our 3.55% Senior Notes due 2022. We have no other senior note maturities untilMarch 2023 .
In
OUTLOOK
We continue to view the long-term outlook for our business positively, supported by limitations on supplies of copper and 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 2020 Form 10-K 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 2021: Copper (millions of recoverable pounds):North America copper mines 1,455South America mining 1,030Indonesia mining 1,327 Total 3,812 Gold (millions of recoverable ounces) 1.3
Molybdenum (millions of recoverable pounds) 85 a
a.Projected molybdenum sales include 28 million pounds produced by our
Molybdenum mines and 57 million pounds produced by our
Consolidated sales volumes in fourth-quarter 2021 are expected to approximate 1.025 billion pounds of copper, 375 thousand ounces of gold and 22 million pounds of molybdenum. Projected sales volumes are dependent on operational performance (including from underground mining at PT-FI), weather-related conditions, timing of shipments, and other factors detailed in the "Cautionary Statement" below. For other important factors that could cause results to differ materially from projections, refer to "Risk Factors" contained in Part I, Item 1A. of our 2020 Form 10-K. Consolidated Unit Net Cash Costs Assuming average prices of$1,800 per ounce of gold and$19.00 per pound of molybdenum in fourth-quarter 2021 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$1.33 per pound of copper for the year 2021 (including$1.26 per pound of copper in fourth-quarter 2021). The impact of price changes during fourth-quarter 2021 on consolidated unit net cash costs for the year 2021 would approximate$0.015 per pound of copper for each$100 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. 28 -------------------------------------------------------------------------------- Table of Contents 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$4.50 per pound for copper,$1,800 per ounce for gold, and$19.00 per pound for molybdenum in fourth-quarter 2021, our consolidated operating cash flows are estimated to approximate$7.5 billion for the year 2021. Estimated consolidated operating cash flows for the year 2021 also reflect an estimated income tax provision of$2.5 billion (refer to "Consolidated Results - Income Taxes" for further discussion of our projected income tax rate for the year 2021). The impact of price changes during fourth-quarter 2021 on operating cash flows would approximate$100 million for each$0.10 per pound change in the average price of copper,$25 million for each$100 per ounce change in the average price of gold and$15 million for each$2 per pound change in the average price of molybdenum. Consolidated Capital Expenditures Consolidated capital expenditures for the year 2021 are expected to approximate$2.3 billion ($2.0 billion excluding capital expenditures for the new greenfield smelter and PMR (collectively, theIndonesia smelter project). Consolidated capital expenditures for the year 2021 are expected to include$1.3 billion for major mining projects, primarily associated with underground development activities in the Grasberg minerals district. All costs associated with theIndonesia smelter project will be shared 49 percent by FCX and 51 percent byPT Indonesia Asahan Aluminium (Persero) (PT Inalum, also known as MIND ID), and will be largely offset by a phase-out of the 5 percent export duty currently paid to theIndonesia government as well as the tax deductibility of smelter costs by PT-FI. Current capital expenditures for theIndonesia smelter project are being funded through PT-FI's$1.0 billion unsecured bank credit facility, with additional debt financing being evaluated. 29 -------------------------------------------------------------------------------- Table of Contents MARKETS World prices for copper, gold and molybdenum can fluctuate significantly. During the period fromJanuary 2011 throughSeptember 2021 , theLondon Metal Exchange (LME) copper settlement price varied from a low of$1.96 per pound in 2016 to a record high of$4.86 per pound in 2021; theLondon Bullion Market Association (London ) PM gold price fluctuated from a low of$1,049 per ounce in 2015 to a record high of$2,067 per ounce in 2020; 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$20.01 per pound in 2021. 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 2020 Form 10-K. [[Image Removed: fcx-20210930_g2.jpg]] This graph presents LME copper settlement prices and the combined reported stocks of copper at the LME,Commodity Exchange Inc. , and theShanghai Futures Exchange fromJanuary 2011 throughSeptember 2021 . During third-quarter 2021, LME copper settlement prices ranged from a low of$3.98 per pound to a high of$4.44 per pound, averaged$4.25 per pound and settled at$4.10 per pound onSeptember 30, 2021 . Copper prices were volatile during the quarter as a result of a strongU.S. dollar and prospects for slowing economic growth globally, and particularly inChina , partly offset by falling exchange inventories and a positive long-term outlook supported by forecasts for a continued global economic recovery and copper's prominent role in the clean energy transition. The LME copper settlement price was$4.52 per pound onOctober 29, 2021 . We believe expectations for longer-term copper demand growth remain in place. We expect future demand to be supported by the global transition to renewable energy and other carbon-reduction initiatives, and continued urbanization in developing countries. The historically low inventories; limited number of approved, large-scale projects scheduled; the long lead times required to permit and build new mines; and declining ore grades at existing operations highlight the supply challenges for copper. 30 -------------------------------------------------------------------------------- Table of Contents [[Image Removed: fcx-20210930_g3.jpg]] This graph presents London PM gold prices fromJanuary 2011 throughSeptember 2021 . During third-quarter 2021, London PM gold prices ranged from a low of$1,723 per ounce to a high of$1,829 per ounce, averaged$1,790 per ounce, and closed at$1,743 per ounce onSeptember 30, 2021 . While the global economic recovery has put downward pressure on gold prices, many analysts expect gold prices to remain supported by the effects of elevated debt levels associated with large pandemic-related stimulus efforts and historically lowU.S. interest rates. The London PM gold price was$1,769 per ounce onOctober 29, 2021 . 31 -------------------------------------------------------------------------------- Table of Contents [[Image Removed: fcx-20210930_g4.jpg]] This graph presents the Metals Week Molybdenum Dealer Oxide weekly average price fromJanuary 2011 throughSeptember 2021 . During third-quarter 2021, the weekly average price of molybdenum ranged from a low of$17.84 per pound to a high of$20.01 per pound, averaged$19.09 per pound, and was$18.45 per pound onSeptember 30, 2021 . Molybdenum prices have reacted to supply constraints and increased demand, as mines in bothChile andPeru reported lower production, and logistics challenges continued globally. The Metals Week Molybdenum Dealer Oxide weekly average price was$19.34 per pound onOctober 29, 2021 . 32 -------------------------------------------------------------------------------- Table of Contents CONSOLIDATED RESULTS Three Months Ended
2021 2020 2021 2020
SUMMARY FINANCIAL DATA (in millions, except per share amounts)
Revenuesa,b $ 6,083 $ 3,851 $ 16,681 $ 9,703
Operating incomea $ 2,462 $ 880 $ 6,061 $ 728 Net income (loss) attributable to common stockc
329 e$ 3,200 d$ (109) e Diluted net income (loss) per share of common stock$ 0.94 $ 0.22 $ 2.16 $ (0.08) Diluted weighted-average common shares outstanding 1,484 1,461 1,481 1,453 Operating cash flowsf$ 1,965 $ 1,237 $ 5,435 $ 1,690 Capital expenditures$ 541 $ 436 $ 1,344 $ 1,573 At September 30: Cash and cash equivalents$ 7,672 $ 2,403 $ 7,672 $ 2,403 Total debt, including current portion$ 9,665 $ 10,030 $ 9,665 $ 10,030 a.Refer to Note 9 for a summary of revenues and operating income by operating division. b.Includes (unfavorable) favorable adjustments to prior period provisionally priced concentrate and cathode copper sales totaling$(9) million ($(3) million to net income attributable to common stock or less than$0.01 per share) in third-quarter 2021,$71 million ($28 million to net income attributable to common stock or$0.02 per share) in third-quarter 2020,$169 million ($65 million to net income attributable to common stock or$0.05 per share) for the first nine months of 2021 and$(102) million ($(42) million to net loss attributable to common stock or$(0.03) per share) for the first nine months of 2020 (refer to Note 6 for further discussion). c.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. d.Includes net credits (charges) totaling$79 million ($0.05 per share) in third-quarter 2021 and$(16) million ($(0.01) per share) for the first nine months of 2021. Net credits in third-quarter 2021 were primarily associated with the release of valuation allowances at PT-FI and a gain on sale of our remaining cobalt business in Kokkola,Finland (Freeport Cobalt), partly offset by metals inventory adjustments. The first nine months of 2021 also included net charges primarily associated with nonrecurring labor-related charges at Cerro Verde and contested matters at PT-FI (including historical tax audits and an administrative fine levied by theIndonesia government). e.Includes net charges totaling$101 million ($0.07 per share) in third-quarter 2020 and$347 million ($0.24 per share) for the first nine months of 2020, primarily associated with the COVID-19 pandemic and revised operating plans (including employee separation costs), net losses on early extinguishment of debt and metals inventory adjustments. f.Working capital and other sources totaled$180 million in third-quarter 2021,$178 million in third-quarter 2020,$367 million for the first nine months of 2021 and$319 million for the first nine months of 2020. 33
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Table of Contents
Three Months Ended September
30, Nine Months Ended September 30,
2021 2020 2021 2020
SUMMARY OPERATING DATA
Copper (millions of recoverable pounds)
Production 987 844 2,810 2,342
Sales, excluding purchases 1,033 848 2,787 2,336
Average realized price per pound $ 4.20 $ 3.01 $ 4.22 $ 2.73
Site production and delivery costs per $ 1.88 $ 1.77 b $ 1.92 c $ 1.92 b
pounda
Unit net cash costs per pounda $ 1.24 $ 1.32 $ 1.36 $ 1.55
Gold (thousands of recoverable ounces)
Production 374 237 976 584
Sales, excluding purchases 402 234 965 562
Average realized price per ounce $ 1,757 $ 1,902 $ 1,780 $ 1,810
Molybdenum (millions of recoverable
pounds)
Production 23 19 63 57
Sales, excluding purchases 20 20 63 59
Average realized price per pound $ 18.61 $ 9.23 a.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." b.Excludes charges totaling$0.04 per pound of copper in third-quarter 2020 and$0.09 per pound of copper for the first nine months of 2020, primarily associated with idle facility and contract cancellations costs related to the COVID-19 pandemic and employee separation costs associated with theApril 2020 revised operating plans. c.Includes$0.03 per pound of copper associated with nonrecurring labor-related costs at Cerro Verde for agreements reached with approximately 65 percent of its hourly employees. Refer to "Operations - South America Mining" for further discussion.
Revenues
Consolidated revenues totaled$6.1 billion in third-quarter 2021,$3.9 billion in third-quarter 2020,$16.7 billion for the first nine months of 2021 and$9.7 billion for the first nine months of 2020. 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. Following is a summary of changes in our consolidated revenues between periods (in millions): Three Months Ended Nine Months Ended September 30 September 30 Consolidated revenues - 2020 period $ 3,851 $ 9,703 Higher sales volumes: Copper 554 1,231 Gold 319 730 Molybdenum 1 38 Higher (lower) average realized prices: Copper 1,229 4,152 Gold (58) (29) Molybdenum 186 254 Adjustments for prior period provisionally priced copper sales (80) 271 Higher Atlantic Copper revenues 244 819 (Lower) higher revenues from purchased copper (43) 84 Higher treatment charges (31) (74) Higher royalties and export duties (90) (242) Other, including intercompany eliminations 1 (256) Consolidated revenues - 2021 period $ 6,083 $ 16,681 34
-------------------------------------------------------------------------------- Table of Contents Sales Volumes. Consolidated copper and gold sales volumes increased in the 2021 periods, compared to the 2020 periods, primarily reflecting the ramp-up of underground mining at PT-FI. 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 third-quarter 2021, compared with third-quarter 2020, were 40 percent higher for copper, 8 percent lower for gold and 102 percent higher for molybdenum and average realized prices for the first nine months of 2021, compared with the first nine months of 2020, were 55 percent higher for copper, 2 percent lower for gold and 39 percent higher for molybdenum. Average realized copper prices include net (unfavorable) favorable adjustments to current period provisionally priced copper sales totaling$(93) million in third-quarter 2021,$23 million in third-quarter 2020,$54 million for the first nine months of 2021 and$120 million for the first nine months of 2020. As discussed in Note 6, substantially all of our copper concentrate and cathode sales contracts provide final copper pricing in a specified future month (generally one to four months from the shipment date) based primarily on quoted LME monthly average copper prices. We record revenues and invoice customers at the time of shipment based on then-current LME prices, which results in an embedded derivative on provisionally priced concentrate and cathode sales that is adjusted to fair value through earnings each period, using the period-end forward prices, until final pricing on the date of settlement. To the extent final prices are higher or lower than what was recorded on a provisional basis, an increase or decrease to revenues is recorded each reporting period until the date of final pricing. Accordingly, in times of rising copper prices, our revenues benefit from adjustments to the final pricing of provisionally priced sales pursuant to contracts entered into in prior periods; in times of falling copper prices, the opposite occurs. Prior Period Provisionally Priced Copper Sales. Net (unfavorable) favorable adjustments to prior periods' provisionally priced copper sales (i.e., provisionally priced sales atJune 30, 2021 and 2020, andDecember 31, 2020 and 2019) recorded in consolidated revenues totaled$(9) million in third-quarter 2021,$71 million in third-quarter 2020,$169 million for the first nine months of 2021 and$(102) million for the first nine months of 2020. Refer to Notes 6 and 9 for a summary of total adjustments to prior period and current period provisionally priced sales. AtSeptember 30, 2021 , we had provisionally priced copper sales totaling 313 million pounds of copper (net of intercompany sales and noncontrolling interests) recorded at an average of$4.05 per pound, subject to final pricing over the next several months. We estimate that each$0.05 change in the price realized from theSeptember 30, 2021 , provisional price recorded would have an approximate$10 million effect on our 2021 net income attributable to common stock. The LME copper price settled at$4.52 per pound onOctober 29, 2021 .
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 28 million pounds in third-quarter 2021, 56 million pounds in third-quarter 2020, 149 million pounds for the first nine months of 2021 and 215 million pounds for the first nine months of 2020. The decrease in revenues associated with purchased copper in third-quarter 2021, compared to third-quarter 2020, primarily reflects lower volumes. The increase in revenues associated with purchased copper for the first nine months of 2021, compared to the first nine months of 2020 periods, reflects higher prices, partly offset by lower volumes.
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 new domestic smelting with an annual capacity of 2 million metric tons of concentrate exceeds 50 percent. Refer to "Operations - Indonesia Mining" for further discussion of the current progress on a greenfield smelter inIndonesia and to Note 9 for a summary of royalty expense and export duties. 35 -------------------------------------------------------------------------------- Table of Contents Production and Delivery Costs Consolidated production and delivery costs totaled$3.0 billion in third-quarter 2021,$2.5 billion in third-quarter 2020,$8.9 billion for the first nine months of 2021 and$7.4 billion for the first nine months of 2020. Higher consolidated production and delivery costs in the 2021 periods primarily reflect higher sales volumes, higher milling and mining costs associated with the return to pre-COVID-19 operating rates and higher maintenance and input costs. The first nine months of 2021 also include nonrecurring labor-related charges at Cerro Verde totaling$74 million for agreements reached with approximately 65 percent of its hourly employees. The first nine months of 2020 also include charges totaling$202 million associated with the COVID-19 pandemic and revised operating plans. 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$1.88 per pound of copper in third-quarter 2021,$1.77 per pound of copper in third-quarter 2020,$1.92 per pound of copper for both the first nine months of 2021 and 2020. Consolidated site production and delivery costs per pound in the third quarter and first nine months of 2021 were higher, compared with the third quarter and first nine months of 2020, primarily reflecting higher mining and milling costs associated with the return to pre-COVID-19 operating rates and higher maintenance and input costs, partly offset by higher sales volumes and lower leach unit production costs associated with higher recoveries. Consolidated site production and delivery costs per pound for the first nine months of 2021 included nonrecurring labor-related charges at Cerro Verde for agreements reached with approximately 65 percent of its hourly employees and the first nine months of 2020 excluded charges associated with the COVID-19 pandemic and theApril 2020 revised operating plans. Refer to "Operations - Unit Net 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$528 million in third-quarter 2021,$394 million in third-quarter 2020,$1.4 billion for the first nine months of 2021 and$1.1 billion for the first nine months of 2020. Higher DD&A in the 2021 periods is primarily related to assets placed in service and higher sales volumes associated with the ramp-up of underground mining at PT-FI. Metals Inventory Adjustments Charges for metals inventory adjustments totaled$14 million in third-quarter 2021,$9 million in third-quarter 2020,$15 million for the first nine months of 2021 and$92 million for the first nine months of 2020. Metals inventory adjustments in the 2021 periods were primarily related to a leach stockpile adjustment. Metals inventory adjustments in the 2020 periods were related to volatility in copper and molybdenum prices associated with the COVID-19 pandemic. Net (Gain) Loss on Sale of Assets Net (gain) loss on sales of assets totaled$(60) million in third-quarter 2021,$2 million in third-quarter 2020,$(63) million for the first nine months of 2021 and$13 million for the first nine months of 2020. The gain on sales of assets in the 2021 periods primarily reflects the sale of Freeport Cobalt. Refer to Note 1 for further discussion. Interest Expense, Net Consolidated interest costs (before capitalization) totaled$157 million in third-quarter 2021,$160 million in third-quarter 2020,$482 million for the first nine months of 2021 and$490 million for the first nine months of 2020. Capitalized interest varies with the level of qualifying assets associated with our development projects and average interest rates on our borrowings, and totaled$19 million in third-quarter 2021,$40 million in third-quarter 2020,$51 million for the first nine months of 2021 and$128 million for the first nine months of 2020. The decrease in capitalized interest in the 2021 periods, compared with the 2020 periods, is primarily related to significant assets at PT-FI's underground mines being placed in service. Refer to "Capital Resources and Liquidity - Investing Activities" for discussion of capital expenditures associated with our major development projects. 36 -------------------------------------------------------------------------------- Table of Contents Income Taxes Following is a summary of the approximate amounts used in the calculation of our consolidated income tax provision (in millions, except percentages): Nine Months Ended September 30, 2021 2020 Income Tax Income Tax Effective (Provision) Income Effective (Provision) Income (Loss)a Tax Rate Benefit (Loss)a Tax Rate Benefit U.S.b $ 1,324 1 % $ (7) c$ (535) 10 % $ 56 d South America 1,425 40 % (576) 149 51 % (76) Indonesia 2,940 37 % (1,101) e 619 49 % (302) f Eliminations and other (3) N/A 19 95 N/A (28) Rate adjustmentg - N/A (9) - N/A 17 Consolidated FCX $ 5,686 29 % h$ (1,674) $ 328 102 % h,i $ (333) a.Represents income (loss) before income taxes and equity in affiliated companies' net (losses) earnings. b.In addition to ourNorth America mining operations, theU.S. jurisdiction reflects corporate-level expenses, which include interest expense associated with senior notes, general and administrative expenses, and environmental obligations and shutdown costs. c.Includes valuation allowance release on prior year unbenefited net operating losses (NOLs). d.Includes tax credits of$53 million associated with the reversal of a year-end 2019 tax charge related to the sale of our interest in the lower zone of the Timok exploration project inSerbia and$6 million associated with the removal of a valuation allowance on deferred tax assets. e.Includes net tax benefits totaling$83 million ($66 million net of noncontrolling interest), consisting of$69 million associated with the release of a portion of the valuation allowances recorded against PT Rio Tinto Indonesia (PT-FI's wholly owned subsidiary) NOLs and$24 million primarily associated with the reversal of a tax reserve related to the treatment of prior year contractor support costs; partly offset by a tax charge of$10 million associated with the audit of PT-FI's 2019 tax returns. f.Includes tax charges totaling$29 million ($24 million net of noncontrolling interest), consisting of$21 million associated with establishing a tax reserve related to the treatment of prior year contractor support costs and$8 million associated with an unfavorable 2012Indonesia Supreme Court ruling. g.In accordance with applicable accounting rules, we adjust our interim provision for income taxes equal to 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. i.OurU.S. jurisdiction generated net losses in the first nine months of 2020 that did not result in a realized tax benefit; applicable accounting rules required us to adjust our estimated annual effective tax rate to exclude the impact ofU.S. net losses. Assuming achievement of current sales volume and cost estimates and average fourth-quarter 2021 prices of$4.50 per pound for copper,$1,800 per ounce for gold and$19.00 per pound for molybdenum, we estimate our consolidated effective tax rate for the year 2021 would approximate 30 percent. Changes in projected sales volumes and average prices during 2021 would incur tax impacts at estimated effective rates of 40 percent forPeru , 38 percent forIndonesia and 0 percent for theU.S.
The net 0 percent
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Table of Contents
OPERATIONS
Responsible Production
2020 Climate Report. In September 2021 , we published our updated Climate Report,
which details the work underway across our global business to reduce GHG
emissions, improve energy efficiency, advance the use of renewable energy and
enhance our resilience to future climate-related risks. The updated Climate
Report reflects our continued progress towards alignment with the current
recommendations of the Task Force on Climate-related Financial Disclosures .
The Copper Mark. We are committed to validating all of our copper producing
sites with the Copper Mark. The Copper Mark is a robust assurance framework that
demonstrates the copper industry's responsible production practices and
contribution to the United Nations Sustainable Development Goals. Participating
sites must complete an external assurance process to assess conformance with the
Copper Mark's 32 environmental, social and governance requirements, with a goal
of being awarded the Copper Mark. We have six sites which have been certified,
with five additional sites in progress.
North America Copper Mines
We operate seven open-pit copper mines in
TheNorth 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 ourNorth America copper mines is cast into copper rod by our Rod & Refining segment. The remainder of ourNorth 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 ourNorth America copper mines. Operating and Development Activities. OurNorth America operating sites continue to achieve strong execution of operating plans. Current operations at theLone Star copper leach project, which was completed in the second half of 2020, are exceeding the initial design capacity of 200 million pounds annually by approximately 25 percent. We continue to advance opportunities to increaseLone Star operating rates and are evaluating a potential additional incremental oxide expansion to increase volumes to over 300 million pounds of copper per year. The oxide project advances the opportunity for development of the large-scale sulfide resources atLone Star . We are increasing exploration in the area to support metallurgical testing and mine development planning for a potential long-term investment in a concentrator. We have substantial resources inNorth America , primarily associated with existing mining operations. Evaluations of project options for future growth are being advanced. In addition toLone Star , we are reviewing and actively evaluating an additional concentrator to add new capacity at our long-livedBagdad operation, and are utilizing data analytics and testing new applications to recover additional copper from existing leach stockpiles. 38 -------------------------------------------------------------------------------- Table of Contents Operating Data. Following is summary consolidated operating data for theNorth America copper mines: Nine Months Ended Three Months Ended September 30, September 30, 2021 2020 2021 2020 Operating Data, Net of Joint Venture Interests Copper (millions of recoverable pounds) Production 377 369 1,090 1,083 Sales, excluding purchases 375 379 1,072 1,102 Average realized price per pound$ 4.34 $ 3.01 $ 4.24 $ 2.67 Molybdenum (millions of recoverable pounds) Productiona 9 7 26 24 100% Operating Data Leach operations Leach ore placed in stockpiles (metric tons 579,100 692,000 656,900 708,100 per day) Average copper ore grade (percent) 0.30 0.26 0.29 0.27 Copper production (millions of recoverable 270 286 797 786
pounds)
Mill operations Ore milled (metric tons per day) 274,300 255,200 269,000 291,500 Average ore grade (percent): Copper 0.39 0.36 0.38 0.35 Molybdenum 0.03 0.03 0.03 0.02 Copper recovery rate (percent) 81.6 84.4 80.9 85.4 Copper production (millions of recoverable 170 155 476 509
pounds)
a.Refer to "Consolidated Results" for our consolidated molybdenum sales volumes,
which include sales of molybdenum produced at the
Our consolidated copper sales volumes fromNorth America totaled 375 million pounds in third-quarter 2021, 379 million pounds in third-quarter 2020, and 1.1 billion pounds for both the first nine months of 2021 and 2020.North America copper sales are estimated to approximate 1.46 billion pounds for the year 2021, compared with 1.4 billion pounds for the year 2020. 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. generally accepted accounting principles (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. 39 -------------------------------------------------------------------------------- Table of Contents 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 September 30, 2021 2020 Co-Product Method Co-Product Method By- Product Molyb- By- Product Molyb- Method Copper denuma Method Copper denuma Revenues, excluding adjustments$ 4.34 $ 4.34 $ 16.69 $ 3.01 $ 3.01 $ 7.72 Site production and delivery, before net noncash and other costs shown below 2.12 1.93 8.97 1.76 1.67 5.52 By-product credits (0.39) - - (0.18) - - Treatment charges 0.09 0.09 - 0.09 0.08 - Unit net cash costs 1.82 2.02 8.97 1.67 1.75 5.52 DD&A 0.25 0.23 0.73 0.24 0.23 0.43 Metals inventory adjustments 0.03 0.03 - (0.01) (0.01) - Noncash and other costs, net 0.08 0.08 0.23 0.10 b 0.09 0.06 Total unit costs 2.18 2.36 9.93 2.00 2.06 6.01 Revenue adjustments, primarily for pricing on prior period open sales (0.02) (0.02) - - - - Gross profit per pound$ 2.14 $ 1.96 $ 6.76 $ 1.01 $ 0.95 $ 1.71 Copper sales (millions of recoverable pounds) 375 375 378 378 Molybdenum sales (millions of recoverable pounds)a 9 7 Nine months ended September 30, 2021 2020 Co-Product Method Co-Product Method By- Product Molyb- By- Product Molyb- Method Copper denuma Method Copper denuma Revenues, excluding adjustments$ 4.24 $ 4.24 $ 13.09 $ 2.67 $ 2.67 $ 8.57 Site production and delivery, before net noncash and other costs shown below 2.11 1.95 7.54 1.91 1.78 7.05 By-product credits (0.32) - - (0.19) - - Treatment charges 0.09 0.09 - 0.10 0.10 - Unit net cash costs 1.88 2.04 7.54 1.82 1.88 7.05 DD&A 0.26 0.24 0.59 0.25 0.23 0.57 Metals inventory adjustments 0.01 0.01 - 0.05 0.04 - Noncash and other costs, net 0.10 0.09 0.12 0.10 b 0.10 0.12 Total unit costs 2.25 2.38 8.25 2.22 2.25 7.74 Revenue adjustments, primarily for pricing on prior period open sales 0.01 0.01 - (0.01) (0.01) - Gross profit per pound$ 2.00 $ 1.87 $ 4.84 $ 0.44 $ 0.41 $ 0.83 Copper sales (millions of recoverable pounds) 1,072 1,072 1,100 1,100 Molybdenum sales (millions of recoverable pounds)a 26 24 a.Reflects sales of molybdenum produced by certain of theNorth America copper mines to our molybdenum sales company at market-based pricing. b.Includes charges totaling$0.03 per pound of copper for both third-quarter 2020 and the first nine months of 2020, primarily associated with theApril 2020 revised operating plans (including employee separation costs) and the COVID-19 pandemic. 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) for theNorth America copper mines of$1.82 per pound of copper in third-quarter 2021 and$1.88 per pound of copper for first nine months of 2021 were higher than unit net cash costs of$1.67 per pound in third-quarter 2020 and$1.82 per pound for the first nine months of 2020, primarily reflecting higher mining and milling costs associated with the return to pre-COVID-19 operating rates and higher maintenance and input costs, partly offset by higher by-product credits and lower leach unit production costs associated with higher recoveries. 40 -------------------------------------------------------------------------------- Table of Contents 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$1.85 per pound of copper for the year 2021, based on achievement of current sales volume and cost estimates and assuming an average molybdenum price of$19.00 per pound in fourth-quarter 2021.North America's average unit net cash costs for the year 2021 would change by approximately$0.01 per pound for each$2 per pound change in the average price of molybdenum in fourth-quarter 2021. 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.
Cerro Verde Labor Agreement.
Operating and Development Activities. Milling rates atCerro Verde's concentrator facilities averaged 381,500 metric tons of ore per day for the first nine months of 2021. Subject to ongoing monitoring of COVID-19 protocols,Cerro Verde is targeting milling rates to average approximately 400,000 metric tons of ore per day in 2022. El Abra is increasing operating rates to pre-COVID-19 pandemic levels. Stacking rates at El Abra averaged 93,100 metric tons per day in third-quarter 2021, approximately 25 percent higher than third-quarter 2020. Increased stacking rates are expected to result in incremental annual production of approximately 70 million pounds of copper beginning in mid-2022, compared with 2020 levels. A new leach pad is under construction to accommodate planned stacking rates for the next several years. We continue to evaluate a large-scale expansion at El Abra to process additional sulfide material and to achieve higher copper recoveries. El Abra's large sulfide resource could potentially support a major mill project similar to facilities constructed at Cerro Verde in 2015. Technical and economic studies continue to be evaluated to determine the optimal scope and timing for the sulfide project, and we are engaging stakeholders and preparing data required for submission of a robust permit application. We are monitoring potential changes in government regulatory and fiscal matters inChile and will defer major investment decisions pending clarity on these matters. 41
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Operating Data. Following is summary consolidated operating data for
Three Months Ended September 30, Nine months ended September 30,
2021 2020 2021 2020
Copper (millions of recoverable pounds)
Production 260 253 764 716
Sales 280 250 769 716
Average realized price per pound $ 4.12 $
3.02
Molybdenum (millions of recoverable pounds) Productiona 5 6 14 14 Leach operations Leach ore placed in stockpiles (metric tons per day) 171,600 172,400 171,900 165,600 Average copper ore grade (percent) 0.30 0.35 0.33 0.35 Copper production (millions of recoverable 62 55 180 pounds) 188 Mill operations Ore milled (metric tons per day) 380,300 351,000 381,500 317,600 b Average ore grade (percent): Copper 0.31 0.33 0.30 0.35 Molybdenum 0.01 0.01 0.01 0.01 Copper recovery rate (percent) 86.1 88.4 86.3 83.5 Copper production (millions of recoverable 199 198 576 536
pounds)
a.Refer to "Consolidated Results" for our consolidated molybdenum sales volumes,
which include sales of molybdenum produced at Cerro Verde.
b.
Our consolidated copper sales volumes fromSouth America totaled 280 million pounds in third-quarter 2021, 250 million pounds in third-quarter 2020, 769 million pounds for the first nine months of 2021 and 716 million pounds for the first nine months of 2020. Higher copper sales volumes in third-quarter 2021, compared with third-quarter 2020, primarily reflect timing of shipments. Higher copper sales volumes for the first nine months of 2021, compared with the first nine months of 2020, primarily reflect continued progress to return to pre-COVID-19 operating rates.
Copper sales from
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 per Pound of Copper The following table summarizes unit net cash costs and gross profit per pound of copper at ourSouth America mining operations. Unit net cash costs per pound of copper are reflected under the by-product and co-product methods as theSouth 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. 42
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Three
Months Ended
2021 2020
By-Product Co-Product By-Product Co-Product
Method Method Method Method
Revenues, excluding adjustments $ 4.12 $
4.12
Site production and delivery, before net noncash and other costs shown below 2.14 a 1.96 1.84 1.73 By-product credits (0.38) - (0.17) - Treatment charges 0.13 0.13 0.15 0.15 Royalty on metals 0.01 0.01 0.01 0.01 Unit net cash costs 1.90 2.10 1.83 1.89 DD&A 0.40 0.36 0.42 0.39 Noncash and other costs, net 0.07 0.06 0.04 b 0.04 Total unit costs 2.37 2.52 2.29 2.32 Revenue adjustments, primarily for pricing on prior period open sales (0.03) (0.03) 0.16 0.16 Gross profit per pound$ 1.72 $ 1.57 $ 0.89 $ 0.86 Copper sales (millions of recoverable pounds) 280 280 250 250 Nine months ended September 30, 2021 2020 By-Product Co-Product By-Product Co-Product Method Method Method Method Revenues, excluding adjustments$ 4.21 $
4.21
Site production and delivery, before net noncash and other costs shown below 2.20 a 2.04 1.83 1.72 By-product credits (0.31) - (0.15) - Treatment charges 0.13 0.13 0.15 0.15 Royalty on metals 0.01 0.01 0.01 0.01 Unit net cash costs 2.03 2.18 1.84 1.88 DD&A 0.40 0.36 0.44 0.41 Noncash and other costs, net 0.07 0.06 0.16 b 0.15 Total unit costs 2.50 2.60 2.44 2.44 Revenue adjustments, primarily for pricing on prior period open sales 0.13 0.13 (0.10) (0.10) Gross profit per pound$ 1.84 $ 1.74 $ 0.25 $ 0.25 Copper sales (millions of recoverable pounds) 769 769 716 716 a.Includes$0.02 per pound of copper in third-quarter 2021 and$0.10 per pound of copper for the first nine months of 2021 associated with nonrecurring labor-related charges at Cerro Verde for agreements reached with approximately 65 percent of its hourly employees. b.Third-quarter 2020 includes charges totaling$0.02 per pound of copper, primarily associated with the COVID-19 pandemic (including health and safety costs). The first nine months of 2020 includes charges totaling$0.13 per pound of copper, primarily associated with idle facility (Cerro Verde ) and contract cancellation costs related to the COVID-19 pandemic, and employee separation costs associated with theApril 2020 revised operating plans. 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) for theSouth America copper mines were$1.90 per pound of copper in third-quarter 2021,$1.83 per pound of copper in third-quarter 2020,$2.03 per pound of copper for the first nine months of 2021 and$1.84 per pound of copper for the first nine months of 2020. Higher unit net cash costs in the 2021 periods, compared with the 2020 periods, primarily reflect increased milling activities, profit-sharing costs and higher maintenance and input costs, partly offset by higher sales volumes and by-product credits. The first nine months of 2021 also included nonrecurring labor-related charges at Cerro Verde ($0.10 per pound of copper) for new CLAs as discussed above. 43
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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$2.04 per pound of copper for the year 2021, based on current sales volume and cost estimates and assuming an average price of$19.00 per pound of molybdenum in fourth-quarter 2021. 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 2020 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. PT-FI continues to operate with heightened protocols and travel restrictions designed to protect the health and safety of its workforce and the surrounding community during the COVID-19 pandemic. These measures have proven effective and have enabled PT-FI to operate reliably throughout the pandemic.
Substantially all of PT-FI's copper concentrate is sold under long-term
contracts. During the first nine months of 2021, 44 percent of PT-FI's
concentrate production was sold to PT Smelting (PT-FI's 39.5-percent owned
copper smelter and refinery in Gresik,
Operating and Development Activities. The ramp-up of underground production at the Grasberg minerals district inIndonesia continues to advance on schedule. Third-quarter 2021 highlights include: •Production approximated 90 percent of the projected ultimate annualized level and is expected to reach 100 percent by year-end 2021. •A total of 27 new drawbells were constructed at theGrasberg Block Cave andDeep Mill Level Zone (DMLZ) underground mines, bringing cumulative open drawbells to 490. •Combined average production from the Grasberg Block Cave and DMLZ underground mines approximated 136,200 metric tons of ore per day and PT-FI's milling rates averaged 157,400 metric tons of ore per day. PT-FI's milling rates averaged over 177,000 metric tons of ore per day for the month ofSeptember 2021. PT -FI expects milling rates to average approximately 175,000 metric tons of ore per day in fourth-quarter 2021 and to continue at that rate until additional milling facilities are installed as currently planned in 2023, which PT-FI expects will result in mill capacity of approximately 240,000 metric tons of ore per day. PT-FI expects to generate average annual production of 1.55 billion pounds of copper and 1.6 million ounces of gold for the next several years at an attractive unit net cash cost, providing significant margins and cash flows. For the year2021, PT -FI production is expected to approximate 1.3 billion pounds of copper and 1.3 million ounces of gold, nearly double 2020 levels. PT-FI's estimated annual capital spending on underground mine development projects is expected to average approximately$0.9 billion per year for 2021 and 2022, net of scheduled contributions from PT Inalum. In accordance with applicable accounting guidance, aggregate costs (before scheduled contributions from PT Inalum), which are expected to average$1.1 billion per year for 2021 and 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. 44 -------------------------------------------------------------------------------- Table of Contents Kucing Liar. PT-FI is planning to commence long-term mine development activities for its Kucing Liar deposit to produce approximately 6 billion pounds of copper and 6 million ounces of gold over the life of the project. Refer to our 2020 Form 10-K for further discussion of Kucing Liar. Similar to PT-FI's experience with large-scale, block-cave mines, pre-production development activities will occur over an approximate 10-year timeframe. At full operating rates, annual production from Kucing Liar is expected to exceed 500 million pounds of copper and 500,000 ounces of gold, providing PT-FI with sustained long-term, large-scale and low-cost production. Capital investments for Kucing Liar over the next 10 years are expected to average approximately$400 million per year. Kucing Liar will benefit from substantial shared infrastructure and PT-FI's experience and long-term success in block-cave mining.Indonesia Smelter . As discussed in Note 13 of our 2020 Form 10-K, PT-FI committed to construct additional domestic smelting capacity totaling 2 million metric tons of concentrate per year. During2020, PT -FI notified theIndonesia government of schedule delays for construction of the greenfield smelter resulting from the COVID-19 pandemic and continues to review with the government a revised schedule for the project. To fulfill its obligation for additional domestic smelter capacity inIndonesia , PT-FI is planning the following: •Construction of a new greenfield smelter in Gresik,Indonesia with a capacity to process approximately 1.7 million metric tons of concentrate per year. InJuly 2021, PT -FI awarded a construction contract to Chiyoda with an estimated cost of$2.8 billion . The smelter construction is expected to be completed as soon as feasible in 2024, which is subject to, among other things, pandemic-related disruptions. •Expansion of annual capacity at PT Smelting by 300,000 metric tons of concentrate, a 30 percent increase. PT-FI is advancing agreements with the majority owner of PT Smelting to implement the expansion plans with a target completion date of year-end2023. PT -FI would fund the cost of the expansion, estimated to approximate$250 million , and increase its ownership in PT Smelting to a majority ownership interest. •Construction of a PMR to process gold and silver from the new greenfield smelter and PT Smelting at an estimated cost of$250 million . All costs of smelter development inIndonesia will be shared 49 percent by FCX and 51 percent by PT Inalum, and will be largely offset by a phase-out of the 5 percent export duty currently paid to theIndonesia government as well as the tax deductibility of smelter costs by PT-FI. InJuly 2021, PT -FI entered into a$1.0 billion , five-year, unsecured bank credit facility to advance these projects. As ofSeptember 30, 2021 ,$158 million ($146 million net of debt issuance costs) was drawn under this facility. Additional debt financing is being evaluated to fund the projects. Refer to Note 5 and "Capital Resources and Liquidity" for further discussion of the credit facility. Capital expenditures for theIndonesia smelter project totaled$0.1 billion for the first nine months of 2021, and are expected to approximate$0.3 billion for the year 2021. 45
-------------------------------------------------------------------------------- Table of Contents Operating Data. Following is summary consolidated operating data forIndonesia mining: Three Months Ended September 30, Nine months ended September 30, 2021 2020 2021 2020 Copper (millions of recoverable pounds) Production 350 222 956 543 Sales 378 219 946 518 Average realized price per pound$ 4.11 $ 3.00
Gold (thousands of recoverable ounces) Production 371 236 968 577 Sales 399 230 957 549 Average realized price per ounce$ 1,757 $ 1,902
Ore extracted and milled (metric tons per day): Grasberg Block Cave underground minea 76,500 30,800 64,300 25,700 DMLZ underground minea 59,700 29,100 53,500 25,100 Deep Ore Zone underground mineb 2,700 20,700 10,600 20,900 Big Gossan underground mine 7,400 7,100 7,500 6,600 Other 11,100 (400) 5,700 2,200 Total 157,400 87,300 141,600 80,500 Average ore grades: Copper (percent) 1.30 1.45 1.32 1.30 Gold (grams per metric ton) 1.05 1.20 1.04 1.08 Recovery rates (percent): Copper 90.1 92.3 90.0 92.0 Gold 78.6 79.3 77.8 78.2
a.Includes ore from development activities that result in metal production.
b.Expected to cease production by
Our consolidated copper and gold sales from PT-FI totaled 378 million pounds and 399 thousand ounces in third-quarter 2021 and 946 million pounds and 957 thousand ounces for the first nine months of 2021, compared with copper and gold sales of 219 million pounds and 230 thousand ounces in third-quarter 2020 and 518 million pounds and 549 thousand ounces for the first nine months of 2020. The increase in sales volumes for the 2021 periods primarily reflects the ramp-up of underground mining at PT-FI and the timing of shipments. Consolidated sales volumes from PT-FI are expected to approximate 1.3 billion pounds of copper and 1.3 million ounces of gold for the year 2021, compared with 0.8 billion pounds of copper and 0.8 million ounces of gold for the year 2020. 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. 46 -------------------------------------------------------------------------------- Table of Contents Gross Profit per Pound of Copper and per Ounce of Gold The following table summarizes the unit net cash costs and gross profit 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 Ended September 30, 2021 2020 By-Product Co-Product Method By-Product Co-Product Method Method Copper Gold Method Copper Gold Revenues, excluding adjustments$ 4.11 $ 4.11 $ 1,757 $ 3.00 $ 3.00
Site production and delivery, before net noncash and other costs shown below 1.46 0.99 424 1.71 1.01 639 Gold and silver credits (1.97) - - (2.16) - - Treatment charges 0.24 0.16 69 0.26 0.16 98 Export duties 0.19 0.13 54 0.11 0.06 40 Royalty on metals 0.25 0.18 63 0.21 0.12 79 Unit net cash costs 0.17 1.46 610 0.13 1.35 856 DD&A 0.74 0.50 215 0.68 0.40 256 Noncash and other costs, net - - - 0.11 a 0.06 40 Total unit costs 0.91 1.96 825 0.92 1.81 1,152 Revenue adjustments, primarily for pricing on prior period open sales - - 16 0.13 0.13
49
PT Smelting intercompany loss (0.04) (0.03) (12) (0.08) (0.05)
(31)
Gross profit per pound/ounce$ 3.16 $ 2.12 $ 936 $ 2.13 $ 1.27
Copper sales (millions of recoverable pounds) 378 378 219 219
Gold sales (thousands of recoverable ounces) 399 230
Nine Months Ended September 30,
2021 2020
By-Product Co-Product Method By-Product Co-Product Method
Method Copper Gold Method Copper Gold
Revenues, excluding adjustments $ 4.21 $ 4.21 $ 1,780 $ 2.79 $ 2.79 Site production and delivery, before net noncash and other costs shown below 1.49 1.03 434 2.05 1.19 773 Gold and silver credits (1.91) - - (2.02) - - Treatment charges 0.24 0.17 70 0.28 0.16 104 Export duties 0.15 0.10 45 0.08 0.05 31 Royalty on metals 0.26 0.18 66 0.18 0.10 68 Unit net cash costs 0.23 1.48 615 0.57 1.50 976 DD&A 0.76 0.52 222 0.72 0.42 273 Noncash and other costs, net 0.01 b 0.01 1 0.11 a 0.07 41 Total unit costs 1.00 2.01 838 1.40 1.99 1,290 Revenue adjustments, primarily for pricing on prior period open sales 0.08 0.08 (5) (0.03) (0.03)
8
PT Smelting intercompany loss (0.11) (0.08) (33) (0.04) (0.02)
(13)
Gross profit per pound/ounce$ 3.18 $ 2.20 $ 904 $ 1.32 $ 0.75
Copper sales (millions of recoverable pounds) 946 946 518 518 Gold sales (thousands of recoverable ounces) 957
549
a.Includes COVID-19 related costs (including one-time incremental employee benefits and health and safety costs) totaling$0.05 per pound of copper in third-quarter 2020 and$0.03 per pound of copper for the first nine months of 2020. b.Includes credits of$0.03 per pound of copper associated with adjustments to prior year treatment and refining charges and charges of$0.02 per pound of copper associated with a potential settlement of an administrative fine levied by theIndonesia government. 47 -------------------------------------------------------------------------------- Table of Contents Because of the fixed nature of a large portion of PT-FI's costs, unit net cash costs depend on copper and gold volumes. PT-FI's unit net cash costs (net of gold and silver credits) of$0.17 per pound of copper in third-quarter 2021 were higher than$0.13 per pound in third-quarter, primarily reflecting lower by-product credits and higher export duties and royalties associated with higher copper prices, partly offset by higher volumes. PT-FI's unit net cash costs (net of gold and silver credits) of$0.23 per pound for the first nine months of 2021, were lower than$0.57 per pound for the first nine months of 2020, primarily reflecting higher sales volumes, partly offset by higher mining costs associated with the ramp-up of underground mining and higher export duties and royalties. 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's export duties totaled$71 million in third-quarter 2021,$24 million in third-quarter 2020,$145 million for the first nine months of 2021 and$43 million for the first nine months of2020. PT -FI will continue to pay export duties until development progress for additional domestic smelting capacity of 2 million metric tons of concentrate per year exceeds 50 percent. PT-FI's royalties totaled$94 million in third-quarter 2021,$45 million in third-quarter 2020,$234 million for the first nine months of 2021 and$92 million for the first nine months of 2020. The increase in export duties and royalties for the 2021 periods, compared with the 2020 periods, primarily reflect higher sales volumes and copper prices. 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$0.74 per pound in third-quarter 2021 and$0.76 per pound for the first nine months of 2021, compared with$0.68 per pound in third-quarter 2020 and$0.72 per pound for the first nine months of 2020. The increase in the rate per pound of copper for the 2021 periods, compared with the 2020 periods, primarily reflects the significant underground development assets placed into service.
Revenue adjustments primarily result from changes in prices on provisionally priced copper sales recognized in prior periods.
PT Smelting intercompany loss represents the change in the deferral of PT-FI's profit on sales to PT Smelting (25 percent prior toApril 30, 2021 , and 39.5 percent thereafter). Refer to "Smelting and Refining" below for further discussion. Assuming an average gold price of$1,800 per ounce in fourth-quarter 2021 and achievement of current sales volume and cost estimates, unit net cash costs (net of gold and silver credits) for PT-FI are expected to approximate$0.22 per pound of copper for the year 2021. The impact of prices changes during fourth-quarter 2021 on PT-FI's unit net cash costs for the year 2021 would approximate$0.04 per pound of copper for each$100 per ounce change in the average price of gold. PT-FI's projected sales volumes and unit net cash costs for the year 2021 are dependent on a number of factors, including continued progress of the ramp-up of underground mining, operational performance, timing of shipments and other factors detailed in the "Cautionary Statement" below. 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. Operating and Development Activities. Production from the Molybdenum mines of 9 million pounds of molybdenum in third-quarter 2021 and 23 million pounds for the first nine months of 2021, was higher than production of 6 million pounds of molybdenum in third-quarter 2020 and 19 million pounds for the first nine months of 2020, primarily reflecting higher milling rates at the Climax mine as it returns to pre-COVID-19 levels. FCX may increase rates at the Climax mine if necessary to satisfy increasing requirements for molybdenum. 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. 48 -------------------------------------------------------------------------------- Table of Contents 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$8.54 per pound of molybdenum for both the third quarter and first nine months of 2021 were lower than average unit net cash costs of$9.72 per pound in third-quarter 2020 and$9.58 per pound for the first nine months of 2020, primarily reflecting higher volumes. Based on current sales volume and cost estimates, average unit net cash costs for the Molybdenum mines are expected to approximate$9.10 per pound of molybdenum for the year 2021. 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). PT-FI has a 39.5 percent ownership interest in 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 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. OurMiami smelter processes concentrate produced by ourU.S. mines and also provides acid for copper leaching operations. During the first nine months of 2021, we incurred charges totaling$87 million associated with a major maintenance turnaround at ourMiami smelter, which were higher than original estimates as a result of extended downtime to address additional required maintenance work, the COVID-19 pandemic and weather events. The next major maintenance turnaround is scheduled for the first half of 2024. Atlantic Copper smelts and refines copper concentrate and markets refined copper and precious metals in slimes. During the first nine months of 2021,Atlantic Copper's concentrate purchases included 33 percent from our copper mining operations and 67 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 nine months of2021, PT -FI supplied the substantial majority of PT Smelting's concentrate requirements. InJuly 2021, PT Smelting received a six-month extension of its anodes slimes export license, which currently expiresDecember 30, 2021 . We defer recognizing profits on sales from our mining operations toAtlantic Copper and on PT-FI's sales to PT Smelting (on 25 percent throughApril 30, 2021 , and on 39.5 percent thereafter) until final sales to third parties occur. Changes in these deferrals attributable to variability in intercompany volumes resulted in net additions (reductions) to operating income totaling$41 million ($48 million to net income attributable to common stock) in third-quarter 2021,$(21) million ($(21) million to net income attributable to common stock) in third-quarter 2020,$(144) million ($(97) million to net income attributable to common stock) for the first nine months of 2021 and$(27) million ($(20) million to net loss attributable to common stock) for the first nine months of 2020. 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$156 million atSeptember 30, 2021 . Quarterly variations in ore grades, the timing of intercompany shipments and changes in product prices will result in variability in our net deferred profits and quarterly earnings. Based on current estimates, in fourth-quarter 2021, we do not expect a significant change in our net deferred profits on intercompany copper sales but project a net deferral of profits on intercompany molybdenum sales of approximately$40 million ($30 million to net income attributable to common stock). 49 -------------------------------------------------------------------------------- Table of Contents 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 generated significant cash flows during the first nine months of 2021, reflecting strong operating and financial performance. With a favorable market outlook and a focus on executing our operating plans, we expect further increases in sales volumes and cash flows in 2022 and we believe we are well positioned to provide cash returns to shareholders consistent with our financial policy. We believe that we have a high-quality portfolio of long-lived copper assets positioned to generate long-term value. The ramp-up of underground mining at PT-FI continues to be successful and is advancing on schedule, with production rates expected to reach the projected ultimate annualized levels by year-end 2021. With the success of the Grasberg Block Cave and DMLZ underground projects, PT-FI is planning to commence long-term mine development activities for its Kucing Liar deposit. We are also evaluating organic growth opportunities for expansion of certain of our operations inNorth America andSouth America , including atBagdad ,Lone Star and El Abra, the timing of which will be dependent on, among other things, market conditions. Based on current sales volume, cost and metal price estimates discussed in "Outlook", our projected consolidated operating cash flows of$7.5 billion for the year 2021 significantly exceed our expected consolidated capital expenditures of$2.3 billion (which include$0.3 billion of capital expenditures for theIndonesia smelter project) and other cash requirements for the year, including debt repayments, common stock dividends and noncontrolling interest distributions. We believe that our cash generating capability and financial condition, together with availability under our revolving credit facility, will be adequate to meet our operating, investing and financing needs. Expenditures for theIndonesia smelter project are currently being funded by PT-FI's new$1.0 billion unsecured bank credit facility and additional debt financing for this project is being evaluated. Refer to "Outlook" for further discussion of projected operating cash flows and capital expenditures for 2021 and to "Debt" below and Note 5 for further discussion of PT-FI's credit facility.
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Financial Policy. InFebruary 2021 , our Board of Directors (Board) adopted a financial policy for the allocation of cash flows aligned with our strategic objectives of maintaining a strong balance sheet and increasing cash returns to shareholders while advancing opportunities for future growth. The policy includes a base dividend and a performance-based payout framework whereby up to 50 percent of available cash flows generated after planned capital spending and distributions to noncontrolling interests would be allocated to shareholder returns and the balance to debt reduction and investments in value enhancing growth projects, subject to maintaining the net debt target described below. InFebruary 2021 , the Board reinstated a cash dividend on our common stock (base dividend) at an annual rate of$0.30 per share, and onNovember 1, 2021 , the Board approved (i) a new share repurchase program authorizing repurchases of up to$3.0 billion of our common stock and (ii) a variable cash dividend on common stock for 2022 at an annual rate of$0.30 per share. The combined annual rate of the base dividend and the variable dividend is expected to total$0.60 per share. The Board intends to declare quarterly dividends for 2022 of$0.15 per share (including the$0.075 variable component), with the initial quarterly dividend expected to be paid onFebruary 1, 2022 . Based on current shares outstanding totaling 1.47 billion, the total common stock dividend (base and variable) for 2022 currently expected to be paid approximates$0.9 billion . Refer to "Cautionary Statement." Our performance-based payout framework is designed to maintain net debt at a level not to exceed the range of$3 billion to$4 billion (excluding project debt for additional smelting capacity inIndonesia ). The Board will review the structure and the amount of the performance-based payout framework at least annually. 50
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