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FREEPORT-MCMORAN INC.

(FCX)
  Report
Delayed Nyse  -  04:03 2022-09-29 pm EDT
28.17 USD   +1.11%
09/26Freeport-McMoRan Publishes Updated Climate Report
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09/21Freeport-McMoRan Declares Quarterly Cash Dividends on Common Stock
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FREEPORT-MCMORAN INC Management's Discussion and Analysis of Financial Condition and Results of Operations. (form 10-Q)

08/05/2022 | 03:15pm EDT
In Management's Discussion and Analysis of Financial Condition and Results of
Operations (MD&A), "we," "us" and "our" refer to Freeport-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
ended December 31, 2021 (2021 Form 10-K), filed with the United 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 in Phoenix,
Arizona. We operate large, long-lived, geographically diverse assets with
significant proven and probable mineral 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 in Indonesia, one of
the world's largest copper and gold deposits; and significant mining operations
in North America and South America, including the large-scale Morenci minerals
district in Arizona and the Cerro Verde operation in Peru.

Our results for the first six months of 2022 reflect solid operating results,
with strong margins and cash flow generation, despite the decline in copper
prices that began in second-quarter 2022. We believe the actions we have taken
in recent years to build a strong balance sheet, successfully expand low-cost
operations, and maintain flexible growth options while maintaining sufficient
liquidity will allow us to continue to execute our business plans in a prudent
manner, despite current economic uncertainty, while preserving substantial
future asset values. While we recognize the near-term volatility in our markets,
we are optimistic about our portfolio of assets, our strong management and
operating teams, and the long-term prospects for the copper markets we serve.

The London Metal Exchange (LME) copper settlement price averaged $4.43 per pound
for the first six months of 2022 and reached a record high of $4.87 per pound in
March 2022, supported by copper's increasingly important role in decarbonization
technologies and limited mine supply. Beginning in second-quarter 2022, a series
of macro-economic factors (concerns about the global economy, higher U.S.
interest rates and currency exchange rates among other factors) led to a
precipitous decline in copper prices. The LME copper settlement price declined
from $4.69 per pound at March 31, 2022, to $3.74 per pound at June 30, 2022, and
was $$3.54 per pound on July 29, 2022. Physical market fundamentals remain tight
as evidenced by low levels of global exchange stocks. Our global customer base
reports healthy demand for copper. We believe the outlook for copper
fundamentals in the medium- and long-term remain favorable, with studies
indicating that demand for copper may double in 15 years based on the global
movement towards decarbonization. We also believe substantial new mine supply
development will be required to meet the goals of the global energy transition,
and current prices for copper are insufficient to support new mine supply
development, which is expected to add to future supply deficits.

Our management team and global organization have substantial experience and
success in executing under volatile market conditions. We believe we benefit
from a diversified operations portfolio with an attractive cost structure,
long-lived reserves, optionality in our project pipeline and a strong balance
sheet and liquidity position.

We are closely monitoring market conditions and will adjust our operating plans
to protect our liquidity and preserve our asset values, as necessary. We expect
to maintain a strong balance sheet and liquidity position as we focus on
building long-term value in our business, executing our operating plans safely,
responsibly and efficiently, and prudently managing costs and capital
expenditures.

Net income attributable to common stock totaled $0.8 billion in second-quarter
2022, compared with $1.1 billion in second-quarter 2021, primarily reflecting
lower copper prices and unfavorable adjustments to provisionally priced copper
sales, partly offset by higher copper and gold sales volumes. Net income
attributable to common stock totaled $2.4 billion for the first six months of
2022, compared with $1.8 billion for the first six months of 2021, primarily
reflecting higher copper and gold sales volumes, partly offset by a higher
provision for income taxes and lower copper prices. The results for the 2022
periods, compared with the 2021 periods, also reflect increased energy and other
input costs. Refer to "Consolidated Results" for further discussion.

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At June 30, 2022, we had consolidated debt of $11.1 billion and consolidated
cash and cash equivalents of $9.5 billion, resulting in net debt of $1.6 billion
($1.0 billion excluding net debt for the Indonesia smelter projects). Refer to
"Net Debt" for reconciliations of consolidated debt and consolidated cash and
cash equivalents to net debt.

At June 30, 2022, we had $3.5 billion of availability under our revolving credit facility, and PT-FI and Cerro Verde have $1.3 billion and $350 million, respectively, of availability under their revolving credit facilities.

Refer to Note 5 and "Capital Resources and Liquidity" for further discussion.

OUTLOOK


Despite uncertain market conditions in the near-term, we continue to believe the
medium- and long-term outlook for our business is positive, supported by
limitations on supplies of copper and the expected 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. Copper
prices, in particular, experienced a significant drop beginning in
second-quarter 2022. Refer to "Markets" below and "Risk Factors" in Part I, Item
1A. of our 2021 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 2022:

Copper (millions of recoverable pounds):
North America copper mines                     1,505
South America mining                           1,160
Indonesia mining                               1,549
Total                                          4,214

Gold (millions of recoverable ounces)            1.7

Molybdenum (millions of recoverable pounds) 80 a

a.Projected molybdenum sales include 30 million pounds produced by our Molybdenum mines and 50 million pounds produced by our North America and South America copper mines.


Consolidated sales volumes in third-quarter 2022 are expected to approximate 1.0
billion pounds of copper, 400 thousand ounces of gold and 21 million pounds of
molybdenum. Projected sales volumes are dependent on operational performance,
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 2021
Form 10-K.

Consolidated Unit Net Cash Costs
Assuming average prices of $1,700 per ounce of gold and $16.00 per pound of
molybdenum for the second half of 2022 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 $1.50 per pound of copper for the
year 2022 (including $1.67 per pound of copper in third-quarter 2022). The
increase from previous estimates primarily reflects lower by-product credits
caused by lower projected gold and molybdenum prices. We also continue to
experience significant cost inflation, principally associated with higher energy
prices (which represents about 20 percent of our site operating costs) and
increased costs for other consumables such as sulfuric acid, explosives and
steel. The impact of price changes during the second half of 2022 on
consolidated unit net cash costs for the year 2022 would approximate $0.02 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 $2.00 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.


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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 $3.25 per pound for copper,
$1,700 per ounce for gold, and $16.00 per pound for molybdenum for the second
half of 2022, our consolidated operating cash flows are estimated to approximate
$4.5 billion (net of $1.4 billion of working capital and other uses) for the
year 2022. Estimated consolidated operating cash flows for the year 2022 also
reflect an estimated income tax provision of $2.0 billion (refer to
"Consolidated Results - Income Taxes" for further discussion of our projected
income tax rate for the year 2022). The impact of price changes for the second
half of 2022 on operating cash flows would approximate $230 million for each
$0.10 per pound change in the average price of copper, $80 million for each $100
per ounce change in the average price of gold and $50 million for each $2.00 per
pound change in the average price of molybdenum.

Consolidated Capital Expenditures
Capital expenditures are expected to approximate $4.5 billion for the year 2022
(including $1.9 billion for major mining projects and $1.4 billion for the
greenfield smelter and precious metals refinery (PMR) - collectively, the
Indonesia smelter projects). Projected capital expenditures for major mining
projects include $1.3 billion for planned projects primarily associated with
underground mine development in the Grasberg minerals district and supporting
mill and power capital costs and $0.6 billion for discretionary growth projects.
We closely monitor market conditions and will adjust our operating plans,
including capital expenditures, as necessary.

Capital expenditures for the Indonesia smelter projects are being funded with
PT-FI's senior notes and its available revolving credit facility. Construction
of the additional domestic smelter capacity will result in the elimination of
export duties, providing an offset to the economic cost associated with the
Indonesia smelter projects. Based on current development progress of additional
smelting capacity, PT-FI expects export duties to be reduced from the current
rate of 5 percent to 2.5 percent by the end of 2022, and eliminated in the
second half of 2023.

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MARKETS

World prices for copper, gold and molybdenum can fluctuate significantly. During
the period from January 2012 through June 2022, the LME copper settlement price
varied from a low of $1.96 per pound in 2016 to a record high of $4.87 per pound
in 2022; the London 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 2021 Form 10-K.

[[Image Removed: fcx-20220630_g2.jpg]]


This graph presents LME copper settlement prices and the combined reported
stocks of copper at the LME, Commodity Exchange Inc., and the Shanghai Futures
Exchange from January 2012 through June 2022. During second-quarter 2022, LME
copper settlement prices ranged from a low of $3.74 per pound to a high of $4.73
per pound, averaged $4.31 per pound and settled at $3.74 per pound on June 30,
2022. Beginning in June 2022, copper prices declined sharply as a result of a
series of macro-economic factors, including concerns about the global economy,
Chinese economic data, rising U.S. interest rates and currency exchange rates
related to the strength of the U.S. dollar. The LME copper settlement price was
$3.54 per pound on July 29, 2022. Future copper prices may continue to be
volatile and are expected to be influenced by, among other things, demand from
China and economic activity, including the possibility of global recession.

We believe the weakness in current financial market sentiment is inconsistent
with physical markets and longer-term fundamentals. We continue to believe
future demand will be supported by copper's role in the global transition to
renewable power, electric vehicles and other carbon-reduction initiatives, and
continued urbanization in developing countries. The small number of approved,
large-scale projects scheduled beyond those that have been announced, the long
lead times required to permit and build new mines and declining ore grades at
existing operations continue to highlight the fundamental supply challenges for
copper. The current copper price weakness is expected to add to the already
significant barriers to future copper supply development.
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[[Image Removed: fcx-20220630_g3.jpg]]

This graph presents London PM gold prices from January 2012 through June 2022.
During second-quarter 2022, London PM gold prices ranged from a low of $1,810
per ounce to a high of $1,977 per ounce, averaged $1,871 per ounce, and closed
at $1,817 per ounce on June 30, 2022. The strength of the U.S. dollar has
negatively impacted gold prices as the U.S. dollar index reached a 20-year high
in June 2022. The London PM gold price was $1,753 per ounce on July 29, 2022.


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[[Image Removed: fcx-20220630_g4.jpg]]


This graph presents the Metals Week Molybdenum Dealer Oxide weekly average price
from January 2012 through June 2022. During second-quarter 2022, the weekly
average price of molybdenum ranged from a low of $17.08 per pound to a high of
$19.31 per pound, averaged $18.42 per pound, and was $17.08 per pound on
June 30, 2022. During second-quarter 2022, concerns about China's zero-COVID-19
policies, inflation and anticipated lower summer steel production prompted price
weakness that has continued into July 2022. The Metals Week Molybdenum Dealer
Oxide weekly average price was $15.15 per pound on July 29, 2022.



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CONSOLIDATED RESULTS

                                                   Three Months Ended June 30,             Six Months Ended June 30,
                                                      2022              2021                 2022                2021
SUMMARY FINANCIAL DATA                                            (in millions, except per share amounts)
Revenuesa,b                                       $   5,416          $  5,748          $      12,019          $ 10,598
Operating incomea                                 $   1,736          $  2,067          $       4,545          $  3,599

Net income attributable to common stockc $ 840 d $ 1,083 e $ 2,367 d $ 1,801 e Diluted net income per share of common stock $ 0.57 $ 0.73 $ 1.61 $ 1.21


Diluted weighted-average shares of common stock
outstanding                                           1,457             1,483                  1,463             1,480

Operating cash flowsf                             $   1,621          $  2,395          $       3,312          $  3,470
Capital expenditures                              $     863          $    433          $       1,586          $    803
At June 30:
Cash and cash equivalents                         $   9,492          $  6,313          $       9,492          $  6,313
Total debt, including current portion             $  11,092          $  

9,695 $ 11,092 $ 9,695

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 $(355) million ($(154)
million to net income attributable to common stock or $(0.10) per share) in
second-quarter 2022, $173 million ($66 million to net income attributable to
common stock or $0.05 per share) in second-quarter 2021, $65 million ($27
million to net income attributable to common stock or $0.02 per share) for the
first six months of 2022 and $169 million ($65 million to net income
attributable to common stock or $0.04 per share) for the first six months of
2021. 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 charges totaling $14 million ($0.01 per share) in second-quarter
2022 and $52 million ($0.04 per share) for the first six months of 2022. Net
charges for second-quarter 2022 were primarily associated with environmental
obligations and metals inventory adjustments, partly offset by a net gain on
early extinguishment of debt. Net charges for the first six months of 2022 also
included the settlement of an administrative fine and an adjustment to
prior-period export duties at PT-FI, and asset retirement obligation (ARO)
adjustments.

e.Includes net charges totaling $56 million ($0.04 per share) in second-quarter
2021 and $94 million ($0.06 per share) for the first six months of 2021,
primarily associated with contested matters at PT-FI (including historical tax
audits and an administrative fine levied by the Indonesia government),
nonrecurring labor-related costs at Cerro Verde and adjustments to environmental
obligations and AROs.

f.Working capital and other sources (uses) totaled $100 million in second-quarter 2022, $523 million in second-quarter 2021, $(711) million for the first six months of 2022 and $187 million for the first six months of 2021.

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                                               Three Months Ended June 30,               Six Months Ended June 30,
                                                 2022                 2021                 2022                2021
SUMMARY OPERATING DATA
Copper (millions of recoverable pounds)
Production                                          1,075               913                  2,084             1,823
Sales, excluding purchases                          1,087               929                  2,111             1,754
Average realized price per pound           $         4.03          $   4.34          $        4.18          $   4.25
Site production and delivery costs per     $         2.09          $   2.02      b   $        2.06          $   1.94      b
pounda
Unit net cash costs per pounda             $         1.41          $   1.48          $        1.37          $   1.44
Gold (thousands of recoverable ounces)
Production                                            476               305                    891               602
Sales, excluding purchases                            476               305                    885               563
Average realized price per ounce           $        1,827          $  1,794          $       1,861          $  1,785
Molybdenum (millions of recoverable
pounds)
Production                                             23                20                     44                40
Sales, excluding purchases                             20                22                     39                43
Average realized price per pound           $        19.44          $  13.11 

$ 19.37 $ 12.38



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 (credits) 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.Includes $0.07 per pound of copper in second-quarter 2021 and $0.04 per pound
of copper for the first six months of 2021 associated with nonrecurring
labor-related costs at Cerro Verde. Refer to "Operations - South America Mining"
for further discussion.


Revenues
Consolidated revenues totaled $5.4 billion in second-quarter 2022, $5.7 billion
in second-quarter 2021, $12.0 billion for the first six months of 2022 and $10.6
billion for the first six months of 2021. 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         Six Months Ended
                                                             June 30                    June 30

Consolidated revenues - 2021 period                    $           5,748          $         10,598
Higher (lower) sales volumes:
Copper                                                               681                     1,515
Gold                                                                 305                       575
Molybdenum                                                           (34)                      (49)

(Lower) higher average realized prices:
Copper                                                              (337)                     (148)
Gold                                                                  16                        67
Molybdenum                                                           121                       270
Adjustments for prior period provisionally priced
copper sales                                                        (528)                     (104)
Lower Atlantic Copper revenues                                      (361)                     (330)
Lower revenues from purchased copper                                (206)                     (354)

Higher treatment charges                                             (38)                      (74)
Higher royalties and export duties                                   (69)                     (170)
Other, including intercompany eliminations                           118                       223
Consolidated revenues - 2022 period                    $           5,416    

$ 12,019

Sales Volumes. Consolidated copper and gold sales volumes increased in the 2022 periods, compared with the 2021 periods, primarily reflecting increased operating rates at the Grasberg minerals district and Cerro Verde. Refer to "Operations" for further discussion of sales volumes at our mining operations.

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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 in second-quarter 2022, compared with second-quarter 2021, were
7 percent lower for copper, 2 percent higher for gold and 48 percent higher for
molybdenum, and average realized prices for the first six months of 2022,
compared with the first six months of 2021, were 2 percent lower for copper, 4
percent higher for gold and 56 percent higher for molybdenum.
Average realized copper prices include net (unfavorable) favorable adjustments
to current period provisionally priced copper sales totaling $(365) million in
second-quarter 2022, $(55) million in second-quarter 2021, $(567) million for
the first six months of 2022 and $156 million for the first six months of 2021.
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 at March 31, 2022 and 2021, and December 31, 2021 and
2020) recorded in consolidated revenues totaled $(355) million in second-quarter
2022, $173 million in second-quarter 2021, $65 million for the first six months
of 2022 and $169 million for the first six months of 2021. Refer to Notes 6 and
9 for a summary of total adjustments to prior period and current period
provisionally priced sales.

At June 30, 2022, we had provisionally priced copper sales totaling 447 million
pounds of copper (net of intercompany sales and noncontrolling interests)
recorded at an average of $3.75 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, 2022, provisional price recorded would have an approximate $14
million effect on our 2022 net income attributable to common stock. The LME
copper price settled at $$3.54 per pound on July 29, 2022.

Atlantic Copper Revenues. Atlantic Copper revenues totaled $433 million in
second-quarter 2022 and $1.2 billion for the first six months of 2022, compared
with $794 million in second-quarter 2021 and $1.5 billion for the first six
months of 2021. Lower revenues in the 2022 periods, compared with 2021 periods,
primarily reflects reduced operations as a result of a scheduled major
maintenance turnaround that began in second-quarter 2022.

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 23 million pounds in second-quarter
2022, 68 million pounds in second-quarter 2021, 38 million pounds for the first
six months of 2022 and 121 million pounds for the first six months of 2021. The
decrease in revenues associated with purchased copper in the 2022 periods,
compared to the 2021 periods, reflects the impact of lower purchases and copper
prices.

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. The
increase in the treatment charges in the 2022 periods primarily reflects higher
copper sales volumes.

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. Higher
royalties and export duties in the 2022 periods, compared to the 2021 periods,
are primarily associated with increased copper and gold sales volumes. PT-FI
currently pays duties on concentrate exports of 5 percent, declining to 2.5
percent when development progress for additional smelting capacity in Indonesia
exceeds 30 percent, and eliminated when development progress for additional
smelting capacity in Indonesia exceeds 50 percent. Based on current development
progress of additional smelting capacity, PT-FI expects export duties to be
reduced from the current rate of 5 percent to 2.5 percent by the end of 2022,
and eliminated in the second half of 2023. Refer to "Operations - Indonesia
Mining" for further discussion of the current progress on additional smelting
capacity in Indonesia and to Note 9 for a summary of royalty expense and export
duties.

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Production and Delivery Costs
Consolidated production and delivery costs totaled $3.0 billion in
second-quarter 2022, $3.1 billion in second-quarter 2021, $6.2 billion for the
first six months of 2022 and $5.9 billion for the first six months of 2021. We
continue to experience significant cost inflation, principally associated with
higher energy prices (which represents approximately 20 percent of our site
operating costs) and increased costs for other consumables such as sulfuric
acid, explosives and steel. These higher costs were partly offset by lower costs
at Atlantic Copper related to reduced operations as a result of a scheduled
major maintenance turnaround that began in second-quarter 2022.

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 sulfuric acid, explosives, steel, reagents,
liners and tires. Consolidated site production and delivery costs (before net
noncash and other costs) for our copper mines averaged $2.09 per pound of copper
in second-quarter 2022, $2.02 per pound of copper in second-quarter 2021, $2.06
for the first six months of 2022 and $1.94 for the first six months of 2021.

Higher consolidated site production and delivery costs per pound of copper for
the second quarter and first six months of 2022, compared with the second
quarter and first six months of 2021, primarily reflect higher costs associated
with energy, input costs (including operating supplies such as sulfuric acid,
explosives and steel) and maintenance. 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 $507
million in second-quarter 2022, $483 million in second-quarter 2021, $996
million for the first six months of 2022 and $902 million for the first six
months of 2021. Higher DD&A in the 2022 periods primarily reflects higher sales
volumes and assets placed in service associated with the ramp-up of underground
mining at PT-FI.

Metals Inventory Adjustments
Metals inventory adjustments totaled $18 million for the second quarter and
first six months of 2022 and $1 million for the first six months of 2021. Metals
inventory adjustments in the 2022 periods include net realizable value (NRV)
inventory adjustments related to lower market prices for copper ($9 million) and
a stockpile write-off at Cerro Verde ($9 million).

As discussed in "Markets," there has been a sharp decline in the price of copper
in recent months. The LME copper settlement price was $3.74 per pound on June
30, 2022, and $3.54 per pound on July 29, 2022. Prolonged or further declines in
the prices of the commodities that we sell, particularly copper, could result in
additional NRV inventory adjustments, which could be significant.

Interest Expense, Net
Consolidated interest costs (before capitalization) totaled $189 million in
second-quarter 2022, $165 million in second-quarter 2021, $342 million for the
first six months of 2022 and $325 million for the first six months of 2021.
Higher interest costs (before capitalization) in the 2022 periods are primarily
related to PT-FI's senior notes that were issued in April 2022. Nearly all of
our outstanding debt is fixed rate.

Capitalized interest varies with the level of qualifying assets associated with
our development projects and average interest rates on our borrowings.
Capitalized interest totaled $33 million in second-quarter 2022, $17 million in
second-quarter 2021, $59 million for the first six months of 2022 and $32
million for the first six months of 2021. The increase in capitalized interest
in the 2022 periods, compared with the 2021 periods, is related to major mining
projects primarily associated with underground development activities in the
Grasberg minerals district and development of the greenfield smelter in
Indonesia. Refer to "Capital Resources and Liquidity - Investing Activities" for
discussion of capital expenditures associated with our major development
projects.

Net Gain on Early Extinguishment of Debt
Net gain on extinguishment of debt totaled $8 million in the second quarter and
first six months of 2022, consisting of $18 million associated with senior note
purchases, partly offset by a charge of $10 million associated with the
repayment of the PT-FI term loan. Refer to Note 5 for further discussion.
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Income Taxes
Following is a summary of the approximate amounts used in the calculation of our
consolidated income tax provision (in millions, except percentages):
                                                                                Six Months Ended June 30,
                                                          2022                                                             2021
                                                                           Income Tax                                                       Income Tax
                                 Income             Effective              (Provision)             Income             Effective             (Provision)
                                 (Loss)a             Tax Rate                Benefit               (Loss)a            Tax Rate                Benefit
U.S.b                          $    909                      1  %   c   $           (5)          $    743                     -  %   c   $           (3)
South America                       776                     39  %                 (302)               923                    39  %                 (356)
Indonesia                         2,625                     39  %               (1,020)             1,759                    41  %                 (719)

Eliminations and other                2                       N/A                   (7)               (99)                     N/A                    5
Rate adjustmentd                      -                       N/A                  (61)                 -                      N/A                   27

Consolidated FCX               $  4,312                     32  %       $       (1,395)          $  3,326                    31  %       $       (1,046)

a.Represents income before income taxes and equity in affiliated companies' net earnings.

b.In addition to our North America mining operations, the U.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.

d.In accordance with applicable accounting rules, we adjust our interim provision for income taxes equal to our consolidated tax rate.



Assuming achievement of current sales volume and cost estimates and average
prices of $3.25 per pound for copper, $1,700 per ounce for gold and $16.00 per
pound for molybdenum for the second half of 2022, we estimate our consolidated
effective tax rate for the year 2022 would approximate 34 percent (which would
result in a 47 percent effective tax rate in third-quarter 2022). The
consolidated effective tax rate would decrease with higher prices - for example,
we estimate that an increase in the average price of copper to $3.50 per pound
for the second half of 2022 would result in an estimated effective tax rate of
approximately 33 percent for the year 2022 (which would result in a 38 percent
effective tax rate in third-quarter 2022). Changes in projected sales volumes
and average prices during 2022 would incur tax impacts at estimated effective
rates of 39 percent for Peru, 38 percent for Indonesia and 0 percent for the
U.S.

OPERATIONS

Responsible Production
2021 Annual Report on Sustainability. In April 2022, we published our 2021
Annual Report on Sustainability, which is available on our website at
fcx.com/sustainability. We have a long history of environmental, social and
governance (ESG) programs, and we are focused on leading as a responsible copper
producer.

The Copper Mark. We are committed to validating all of our copper producing
sites with the Copper Mark, a comprehensive assurance framework designed to
demonstrate the copper industry's responsible production practices. To achieve
the Copper Mark, each site is required to complete an external assurance process
to assess conformance with 32 ESG requirements. During second-quarter 2022,
Safford and Sierrita were awarded the Copper Mark. To date, we have achieved the
Copper Mark at all 11 of our eligible copper producing sites in North America,
South America and Europe, and PT-FI has signed a letter of commitment and
initiated the validation process.

Leaching Innovation Initiatives
We are advancing efforts to improve copper recovery from all ore types using
leach processes. Several initiatives ongoing across our North America and South
America operations incorporate new applications, technologies and data
analytics. We believe these leach innovation initiatives provide potential
opportunities to produce incremental copper from our large existing leach
stockpiles and lower-grade material currently classified as waste. Initial
results support the potential for incremental low-cost additions to our
production and reserve profile.


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Feasibility and Optimization Studies
We are engaged in various studies associated with potential future expansion
projects primarily in North America and South America. The costs for these
studies are charged to production and delivery costs as incurred and totaled $31
million in second-quarter 2022, $11 million in second-quarter 2021, $50 million
for the first six months of 2022 and $16 million for the first six months of
2021. We estimate the costs of these studies will approximate $180 million for
the year 2022 (including approximately $60 million in third-quarter 2022),
compared with approximately $60 million for the year 2021, subject to market
conditions and other factors.

North America Copper Mines We operate seven open-pit copper mines in North America - Morenci, Bagdad, Safford (including Lone Star), Sierrita and Miami in Arizona, and Chino and Tyrone in New Mexico. All of the North America mining operations are wholly owned, except for Morenci. 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. We have substantial reserves and future opportunities in the U.S., primarily associated with existing mining operations.


Lone Star is increasing its operating rates to achieve targeted production of
approximately 300 million pounds of copper per year in 2023 from oxide ores
(compared with the initial design capacity of 200 million pounds per year). The
oxide project at Lone Star advances the opportunity for development of the
underlying, large-scale sulfide resources. We are also increasing exploration in
the area to support metallurgical testing and mine development planning for a
potential significant long-term investment to build additional scale on an
economically attractive basis.

We are planning an expansion to double the concentrator capacity of our Bagdad
operation in northwest Arizona. We are engaging stakeholders and have commenced
a feasibility study, which is expected to be completed in 2023, for this
project.


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Operating Data. Following is summary consolidated operating data for the North
America copper mines:

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

                                                    2022                  2021                  2022                  2021
Operating Data, Net of Joint Venture
Interests
Copper (millions of recoverable pounds)
Production                                               382                 360                     736                713
Sales, excluding purchases                               389                 389                     770                697
Average realized price per pound             $          4.36          $     

4.42 $ 4.46 $ 4.19


Molybdenum (millions of recoverable pounds)
Productiona                                                8                   9                      15                 17

100% Operating Data
Leach operations
Leach ore placed in stockpiles (metric tons          722,900             688,000                 715,800            696,500
per day)
Average copper ore grade (percent)                      0.29                0.30                    0.29               0.29
Copper production (millions of recoverable               254                 265                     499                527

pounds)


Mill operations
Ore milled (metric tons per day)                     306,900             264,700                 299,200            266,300
Average ore grade (percent):
Copper                                                  0.39                0.36                    0.38               0.37
Molybdenum                                              0.02                0.03                    0.02               0.03
Copper recovery rate (percent)                          83.2                82.4                    82.1               80.5
Copper production (millions of recoverable               195                 155                     364                306

pounds)

a.Refer to "Consolidated Results" for our consolidated molybdenum sales volumes, which include sales of molybdenum produced at the North America copper mines.


Our consolidated copper sales volumes from North America totaled 389 million
pounds in both second-quarter 2022 and second-quarter 2021, 770 million pounds
for the first six months of 2022 and 697 million pounds for the first six months
of 2021. The changes in production and sales volumes for the 2022 periods,
compared with the 2021 periods, primarily reflect timing of shipments.

North America copper sales are estimated to approximate 1.5 billion pounds for the year 2022.


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. generally accepted accounting principles (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 per Pound of Copper and Molybdenum
The following table summarizes unit net cash costs and gross profit per pound at
our North 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.
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                                                                                    Three Months Ended June 30,
                                                                   2022                                                     2021
                                                                     Co-Product Method                                        Co-Product Method
                                            By- Product                               Molyb-         By- Product                               Molyb-
                                              Method              Copper              denuma           Method              Copper              denuma
Revenues, excluding adjustments             $   4.36          $    4.36             $ 18.75          $   4.42          $    4.42             $ 11.75

Site production and delivery, before net
noncash
and other costs shown below                     2.50               2.30               12.42              2.14               2.03                6.86
By-product credits                             (0.35)                 -                   -             (0.25)                 -                   -
Treatment charges                               0.11               0.11                   -              0.08               0.07                   -
Unit net cash costs                             2.26               2.41               12.42              1.97               2.10                6.86
DD&A                                            0.27               0.24                0.81              0.26               0.25                0.55
Metals inventory adjustments                    0.02               0.02                0.16                 -                  -                   -
Noncash and other costs, net                    0.09               0.08                0.32              0.08               0.08                0.06
Total unit costs                                2.64               2.75               13.71              2.31               2.43                7.47
Revenue adjustments, primarily for pricing
on prior period open sales                     (0.10)             (0.10)                  -              0.02               0.02                   -
Gross profit per pound                      $   1.62          $    1.51             $  5.04          $   2.13          $    2.01             $  4.28

Copper sales (millions of recoverable
pounds)                                          389                389                                   389                389
Molybdenum sales (millions of recoverable
pounds)a                                                                                  8                                                        9


                                                                                     Six Months Ended June 30,
                                                                   2022                                                     2021
                                                                     Co-Product Method                                        Co-Product Method
                                            By- Product                               Molyb-         By- Product                               Molyb-
                                              Method              Copper              denuma           Method              Copper              denuma
Revenues, excluding adjustments             $   4.46          $    4.46             $ 18.36          $   4.19          $    4.19             $ 11.12

Site production and delivery, before net
noncash
and other costs shown below                     2.44               2.25               11.68              2.09               1.96                6.76
By-product credits                             (0.35)                 -                   -             (0.27)                 -                   -
Treatment charges                               0.10               0.10                   -              0.09               0.09                   -
Unit net cash costs                             2.19               2.35               11.68              1.91               2.05                6.76
DD&A                                            0.27               0.25                0.85              0.26               0.24                0.51
Metals inventory adjustments                    0.01               0.01                0.08                 -                  -                   -
Noncash and other costs, net                    0.09               0.07                0.23              0.11               0.11                0.06
Total unit costs                                2.56               2.68               12.84              2.28               2.40                7.33
Revenue adjustments, primarily for pricing
on prior period open sales                     (0.01)             (0.01)                  -              0.01               0.01                   -
Gross profit per pound                      $   1.89          $    1.77             $  5.52          $   1.92          $    1.80             $  3.79

Copper sales (millions of recoverable
pounds)                                          770                770                                   697                697
Molybdenum sales (millions of recoverable
pounds)a                                                                                 15                                                       17


a.Reflects sales of molybdenum produced by certain of the North America copper mines to our molybdenum sales company at market-based pricing.


Our North America copper mines have varying cost structures because of
differences in ore grades and characteristics, processing costs, by-product
credits and other factors. Our mining operations continue to experience
significant cost inflation, principally associated with higher energy and other
input costs. In addition to these higher costs, average unit net cash costs (net
of by-product credits) for the North America copper mines of $2.26 per pound of
copper in second-quarter 2022 and $2.19 per pound for the first six months of
2022, compared with $1.97 per pound in second-quarter 2021 and $1.91 per pound
for the first six months of 2021, reflect higher operating rates, partly offset
by higher by-product credits.

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.

Second-quarter 2022 revenue adjustments at our North America copper mines primarily reflect the impact of declining copper prices on provisionally priced copper sales, which include intercompany sales that are eliminated upon consolidation.

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Average unit net cash costs (net of by-product credits) for our North America
copper mines are expected to approximate $2.25 per pound of copper for the year
2022, based on achievement of current sales volume and cost estimates and
assuming an average molybdenum price of $16.00 per pound for the second half of
2022. North America's average unit net cash costs for the year 2022 would change
by approximately $0.02 per pound for each $2.00 per pound change in the average
price of molybdenum for the second half of 2022.

South America Mining
We operate two copper mines in South America - Cerro Verde in Peru (in which we
own a 53.56 percent interest) and El Abra in Chile (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 our South America mines is sold
as copper concentrate or cathode under long-term contracts. Our South America
mines also sell a portion of their copper concentrate production to Atlantic
Copper. In addition to copper, the Cerro Verde mine produces molybdenum
concentrate and silver.

Operating and Development Activities. The first six months of 2022 reflected
strong performance from Cerro Verde's concentrator facilities, including
achievement of a quarterly record milling average of 427,100 metric tons of ore
per day during second-quarter 2022. Subject to ongoing monitoring of COVID-19
protocols, milling rates at Cerro Verde are currently expected to average over
400,000 metric tons of ore per day for the second half of 2022.

Operating rates at El Abra have returned to pre-COVID-19 levels and increased
mining and stacking activities are expected to result in an approximate 30
percent increase in El Abra copper production for the year 2022, compared with
the year 2021.

El Abra's large sulfide resource supports a potential major mill project similar
to the large-scale concentrator 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. We are considering options to invest in water
infrastructure to provide options to extend existing operations, while we
continue to monitor potential changes in Chile's regulatory and fiscal matters.
We will defer major investment decisions pending clarity on Chile's regulatory
and fiscal matters.

Operating Data. Following is summary consolidated operating data for South
America mining:

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

                                                    2022                  2021                  2022                  2021
Copper (millions of recoverable pounds)
Production                                               286                 245                     560                504
Sales                                                    288                 230                     552                489
Average realized price per pound             $          3.83          $     

4.31 $ 4.00 $ 4.28


Molybdenum (millions of recoverable pounds)
Productiona                                                7                   4                      14                  9

Leach operations
Leach ore placed in stockpiles (metric tons
per day)                                             157,700             190,200                 148,800            172,100
Average copper ore grade (percent)                      0.37                0.33                    0.36               0.34
Copper production (millions of recoverable                71                  65                                        126
pounds)                                                                                              132

Mill operations
Ore milled (metric tons per day)                     427,100             374,100                 410,800            382,100
Average ore grade (percent):
Copper                                                  0.31                0.29                    0.32               0.30
Molybdenum                                              0.01                0.01                    0.02               0.01

Copper recovery rate (percent)                          84.4                85.2                    85.5               86.4
Copper production (millions of recoverable               215                 179                     428                377

pounds)

a.Refer to "Consolidated Results" for our consolidated molybdenum sales volumes, which include sales of molybdenum produced at Cerro Verde.

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Our consolidated copper sales volumes from South America totaled 288 million
pounds in second-quarter 2022, 230 million pounds in second-quarter 2021, 552
million pounds for the first six months of 2022 and 489 million pounds for the
first six months of 2021. Higher copper sales volumes in the 2022 periods,
compared with the 2021 periods, primarily reflect higher mining and milling
rates at Cerro Verde.

Copper sales from South America mining are expected to approximate 1.2 billion pounds for the year 2022.


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 per Pound of Copper
The following table summarizes unit net cash costs and gross profit per pound of
copper at our South America mining operations. 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,
                                                              2022                                       2021
                                                 By-Product            Co-Product           By-Product           Co-Product
                                                   Method                Method               Method               Method
Revenues, excluding adjustments               $      3.83            $      

3.83 $ 4.31 $ 4.31


Site production and delivery, before net                                                                   a
noncash and other costs shown below                  2.48                   2.29                 2.48                 2.30
By-product credits                                  (0.35)                     -                (0.31)                   -
Treatment charges                                    0.15                   0.15                 0.13                 0.13
Royalty on metals                                    0.01                   0.01                 0.01                 0.01
Unit net cash costs                                  2.29                   2.45                 2.31                 2.44
DD&A                                                 0.35                   0.32                 0.40                 0.37
Metals inventory adjustments                         0.04        b          0.03                    -                    -
Noncash and other costs, net                         0.06                   0.06                 0.08                 0.07
Total unit costs                                     2.74                   2.86                 2.79                 2.88
Revenue adjustments, primarily for pricing on
prior period open sales                             (0.53)                 (0.53)                0.38                 0.38
Gross profit per pound                        $      0.56            $      0.44          $      1.90          $      1.81

Copper sales (millions of recoverable pounds)         288                    288                  230                  230


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                                                                        Six Months Ended June 30,
                                                              2022                                      2021
                                                By-Product            Co-Product           By-Product           Co-Product
                                                  Method                Method               Method               Method
Revenues, excluding adjustments               $       4.00          $      

4.00 $ 4.28 $ 4.28


Site production and delivery, before net                                                                  a
noncash and other costs shown below                   2.45                 2.26                 2.23                 2.09
By-product credits                                   (0.38)                   -                (0.26)                   -
Treatment charges                                     0.15                 0.15                 0.13                 0.13
Royalty on metals                                     0.01                 0.01                 0.01                 0.01
Unit net cash costs                                   2.23                 2.42                 2.11                 2.23
DD&A                                                  0.36                 0.32                 0.40                 0.37
Metals inventory adjustments                          0.02      b          0.02                    -                    -
Noncash and other costs, net                          0.06                 0.06                 0.06                 0.05
Total unit costs                                      2.67                 2.82                 2.57                 2.65
Revenue adjustments, primarily for pricing on
prior period open sales                               0.06                 0.06                 0.20                 0.20
Gross profit per pound                        $       1.39          $      1.24          $      1.91          $      1.83

Copper sales (millions of recoverable pounds)          552                  552                  489                  489


a.Includes $0.30 per pound of copper in second-quarter 2021 and $0.14 per pound of copper for the first six months of 2021 associated with nonrecurring labor-related costs at Cerro Verde.

b.Primarily reflects a stockpile write-off at Cerro Verde.



Our South America mines have varying cost structures because of differences in
ore grades and characteristics, processing costs, by-product credits and other
factors. Our mining operations continue to experience significant cost
inflation, principally associated with higher energy and other input costs. In
addition to higher overall costs, average unit net cash costs (net of by-product
credits) for South America mining of $2.29 per pound of copper in second-quarter
2022 and $2.23 per pound of copper for the first six months of 2022, compared
with $2.31 per pounds of copper in second-quarter 2021 and $2.11 per pound of
copper for the first six months of 2021, reflect higher sales volumes and
by-product credits. Average unit net cash costs for the 2022 periods also
reflect the impact of a change in estimate of copper recoveries in a leach
stockpile at El Abra (refer to Note 3) and the 2021 periods reflect nonrecurring
labor-related costs at Cerro Verde.

As discussed in Note 3, the change in estimate of recoverable copper in the
existing leach stockpile at El Abra resulted in a 135-million-pound reduction to
its work in-process inventory volumes, which resulted in a higher average cost
per pound of copper. Refer to "Consolidated Results - Metals Inventory
Adjustments" for discussion of potential future NRV adjustments that may result
because of prolonged or further declines in the price of copper.

Revenues from Cerro Verde's concentrate sales are recorded net of treatment charges, which will vary with Cerro Verde's sales volumes and the price of copper.


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) for South America mining
are expected to approximate $2.31 per pound of copper for the year 2022, based
on current sales volume and cost estimates and assuming an average price of
$16.00 per pound of molybdenum for the second half of 2022.

Indonesia Mining
PT-FI operates one of the world's largest copper and gold mines at the Grasberg
minerals district in Papua, 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 2021 Form
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10-K, under the terms of the 2018 shareholders agreement, our economic interest
in PT-FI approximates 81 percent through 2022, and 48.76 percent thereafter.
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 first six months of 2022, 37 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, Indonesia).

Operating and Development Activities. PT-FI currently has three underground
operating mines in the Grasberg minerals district: Grasberg Block Cave, Deep
Mill Level Zone (DMLZ) and Big Gossan. In late 2021, PT-FI achieved quarterly
copper and gold volumes approximating 100 percent of projected annualized levels
of approximately 1.6 billion pounds of copper and 1.6 million ounces of gold.

PT-FI's milling rates for ore produced from its underground mines averaged
191,800 metric tons of ore per day for the first six months of 2022, and PT-FI
expects milling rates to average approximately 190,000 metric tons of ore per
day for the second half of 2022. The installation of additional milling
facilities at PT-FI is currently expected to be completed in 2023, which would
increase milling capacity to approximately 240,000 metric tons of ore per day
and provide for continued annualized copper and gold production volumes of
approximately 1.6 billion pounds of copper and 1.6 million ounces of gold. PT-FI
is also advancing a mill recovery project with the installation of a new copper
cleaner circuit that is expected to be completed in the first half of 2024, and
is expected to provide incremental metal production of approximately 60 million
pounds of copper and 40 thousand ounces of gold per year.
For the year 2022, PT-FI's estimated capital spending on the Grasberg Block Cave
and DMLZ underground projects, including construction of a dual-fuel power
plant, is expected to approximate $1.0 billion, net of scheduled contributions
from PT Indonesia Asahan Aluminium (Persero) (PT Inalum, also known as MIND ID).
In accordance with applicable accounting guidance, the aggregate costs (before
scheduled contributions from PT Inalum), expected to approximate $1.2 billion
for the year 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.

Kucing Liar. PT-FI commenced long-term mine development activities for its
Kucing Liar deposit during 2021, which is expected to produce over 6 billion
pounds of copper and 5 million ounces of gold over the life of the project.
Pre-production development activities will occur over an approximate 10-year
timeframe, and capital investments are expected to average approximately $400
million per year (including approximately $200 million for the year 2022). At
full operating rates, annual production from Kucing Liar is expected to
approximate 600 million pounds of copper and 500 thousand ounces of gold,
providing PT-FI with sustained long-term, large-scale and low-cost production.
Kucing Liar will benefit from substantial shared infrastructure and PT-FI's
experience and long-term success in block-cave mining.

Indonesia Smelter. In connection with PT-FI's 2018 agreement with the Indonesia
government to secure the extension of its long-term mining rights, PT-FI
committed to construct additional domestic smelting capacity totaling 2 million
metric tons of concentrate per year by the end of 2023 (subject to force majeure
provisions).

PT-FI is actively engaged in the following projects for additional domestic smelting capacity:


•Construction of a greenfield smelter in Gresik, Indonesia with a capacity to
process approximately 1.7 million metric tons of copper concentrate per year. In
July 2021, PT-FI awarded a construction contract to a third-party contractor
with an estimated cost of $2.8 billion. The greenfield smelter construction,
currently approximately 30 percent complete, is expected to be completed as soon
as feasible in 2024.

•Expansion of PT Smelting's capacity by 30 percent to 1.3 million metric tons of
concentrate per year, which is expected to be completed by the end of 2023.
PT-FI completed agreements in November 2021 with the majority owner of PT
Smelting to implement the expansion plans. PT-FI is funding the cost of the
expansion, estimated to approximate $250 million, with a loan that is expected
to convert to equity, increasing ownership in PT Smelting from a 39.5 percent
ownership interest to a majority ownership interest once the expansion is
complete.

•Construction of a PMR to process gold and silver from the greenfield smelter and PT Smelting at an estimated cost of $400 million.


Capital expenditures for the Indonesia smelter projects, which are being funded
with PT-FI's senior notes and available revolving credit facility, totaled $0.3
billion for the first six months of 2022 and are expected to approximate $1.4
billion for the year 2022.
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Construction of the additional domestic smelter capacity will result in the
elimination of export duties, providing an offset to the economic cost
associated with the Indonesia smelter projects. Based on current development
progress of additional smelting capacity, PT-FI expects export duties to be
reduced from the current rate of 5 percent to 2.5 percent by the end of 2022,
and eliminated in the second half of 2023.

Operating Data. Following is summary consolidated operating data for Indonesia
mining:

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

                                                    2022                  2021                 2022                 2021
Copper (millions of recoverable pounds)
Production                                               407                308                    788                606
Sales                                                    410                310                    789                568
Average realized price per pound              $         3.86          $    

4.27 $ 4.04 $ 4.29


Gold (thousands of recoverable ounces)
Production                                               473                303                    885                597
Sales                                                    474                302                    880                558
Average realized price per ounce              $        1,827          $   

1,795 $ 1,861 $ 1,785


Ore extracted and milled (metric tons per
day):
Grasberg Block Cave underground mine                 101,800             64,400                101,100             58,100
DMLZ underground mine                                 77,300             53,900                 77,800             50,300
Big Gossan underground mine                            7,400              8,200                  7,500              7,500
Deep Ore Zone underground minea and other             10,500             16,500                  5,400             17,700

Total                                                197,000            143,000                191,800            133,600
Average ore grades:
Copper (percent)                                        1.22               1.28                   1.22               1.34
Gold (grams per metric ton)                             1.08               1.00                   1.05               1.03
Recovery rates (percent):
Copper                                                  89.8               88.8                   89.6               90.0
Gold                                                    79.0               75.9                   78.2               77.4


a.Ore body depleted in 2021.

Our consolidated copper and gold sales from PT-FI totaled 410 million pounds and
474 thousand ounces in second-quarter 2022 and 789 million pounds and 880
thousand ounces for the first six months of 2022, compared with copper and gold
sales of 310 million pounds and 302 thousand ounces in second-quarter 2021 and
568 million pounds and 558 thousand ounces for the first six months of 2021. The
increase in sales volumes for the 2022 periods, primarily reflects increased
operating rates at the Grasberg minerals district.

Consolidated sales volumes from PT-FI are expected to approximate 1.5 billion pounds of copper and 1.7 million ounces of gold for the year 2022.


Unit Net Cash (Credits) Costs. Unit net cash (credits) 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 per Pound of Copper and per Ounce of Gold
The following table summarizes the unit net cash (credits) costs and gross
profit per pound of copper and per ounce of gold at our Indonesia 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.
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                                                                                          Three Months Ended June 30,
                                                                       2022                                                         2021
                                                By-Product                 Co-Product Method                 By-Product                 Co-Product Method
                                                  Method                Copper               Gold              Method                Copper               Gold
Revenues, excluding adjustments               $       3.86          $    3.86             $ 1,827          $       4.27          $    4.27           

$ 1,795


Site production and delivery, before net
noncash and other costs shown below                   1.43               0.91                 433                  1.54               1.07                 449
Gold and silver credits                              (2.17)                 -                   -                 (1.93)                 -                   -
Treatment charges                                     0.24               0.15                  72                  0.24               0.16                  70
Export duties                                         0.21               0.13                  63                  0.14               0.10                  42
Royalty on metals                                     0.27               0.18                  74                  0.26               0.19                  66
Unit net cash (credits) costs                        (0.02)              1.37                 642                  0.25               1.52                 627
DD&A                                                  0.63               0.41                 193                  0.79               0.55                 232
Noncash and other costs, net                          0.01               0.01                   2                  0.04               0.03                  11
Total unit costs                                      0.62               1.79                 837                  1.08               2.10                 870
Revenue adjustments, primarily for pricing on
prior period open sales                              (0.49)             (0.49)                (17)                 0.28               0.28          

53

PT Smelting intercompany profit (loss)                0.06               0.04                  19                 (0.13)             (0.09)                (39)
Gross profit per pound/ounce                  $       2.81          $    1.62             $   992          $       3.34          $    2.36             $   939

Copper sales (millions of recoverable pounds)          410                410                                       310                310
Gold sales (thousands of recoverable ounces)                                                  474                                                          302


                                                                                           Six Months Ended June 30,
                                                                       2022                                                         2021
                                                By-Product                 Co-Product Method                 By-Product                 Co-Product Method
                                                  Method                Copper               Gold              Method                Copper               Gold
Revenues, excluding adjustments               $       4.04          $    4.04             $ 1,861          $       4.29          $    4.29           

$ 1,785


Site production and delivery, before net
noncash and other costs shown below                   1.42               0.92                 426                  1.51               1.05                 439
Gold and silver credits                              (2.17)                 -                   -                 (1.86)                 -                   -
Treatment charges                                     0.24               0.16                  73                  0.24               0.17                  71
Export duties                                         0.21               0.14                  63                  0.13               0.09                  37
Royalty on metals                                     0.26               0.17                  72                  0.25               0.18                  68
Unit net cash (credits) costs                        (0.04)              1.39                 634                  0.27               1.49                 615
DD&A                                                  0.64               0.42                 194                  0.78               0.55                 228
Noncash and other costs, net                          0.04               0.03                  11                  0.01                  -                   1
Total unit costs                                      0.64               1.84                 839                  1.06               2.04                 844
Revenue adjustments, primarily for pricing on
prior period open sales                               0.04               0.04                   3                  0.12               0.12           

(8)

PT Smelting intercompany (loss)                      (0.03)             (0.02)                (10)                (0.16)             (0.11)                (46)
Gross profit per pound/ounce                  $       3.41          $    2.22             $ 1,015          $       3.19          $    2.26             $   887

Copper sales (millions of recoverable pounds)          789                789                                       568                568
Gold sales (thousands of recoverable ounces)                                                  880                                                          558



For the 2022 periods, PT-FI's gold and silver credits exceeded its cash costs
resulting in unit net cash credits of $0.02 per pound of copper in
second-quarter 2022 and $0.04 per pound for the first six months of 2022,
compared to unit net cash costs of $0.25 per pound in second-quarter 2021 and
$0.27 per pound for the first six months of 2021.

Lower site production and delivery unit costs (before net noncash and other costs) in the 2022 periods primarily reflect higher sales volumes, partly offset by higher operating rates, energy and other input costs.


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.
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PT-FI's export duties totaled $85 million in second-quarter 2022, $44 million in
second-quarter 2021, $164 million for the first six months of 2022 and $73
million for the first six months of 2021. The increase in export duties for the
2022 periods, compared with the 2021 periods, primarily reflects higher export
sales volumes.

PT-FI's royalties totaled $108 million in second-quarter 2022, $80 million in
second-quarter 2021, $201 million for the first six months of 2022 and $140
million for the first six months of 2021. The increase in royalties for the 2022
periods, compared with the 2021 periods, primarily reflects higher sales
volumes.

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. The decrease in the DD&A rate per pound of copper for the
2022 periods, compared with the 2021 periods, primarily reflects depletion of
the Deep Ore Zone underground mine during 2021 and higher volumes associated
with increased operating rates, partly offset by 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 profit (loss) represents the change in the deferral of
PT-FI's profit on sales to PT Smelting (25 percent prior to April 30, 2021, and
39.5 percent thereafter). Refer to "Smelting and Refining" below for further
discussion.

Assuming an average gold price of $1,700 per ounce for the second half of 2022
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 $0.18 per
pound of copper for the year 2022. PT-FI's unit net cash costs for the year 2022
would change by approximately $0.07 per pound of copper for each $100 per ounce
change in the average price of gold for the second half of 2022.

PT-FI's projected sales volumes and unit net cash costs for the year 2022 are
dependent on a number of factors, including operational performance and timing
of shipments.

Molybdenum Mines
We operate two wholly owned molybdenum mines in Colorado - the Climax open-pit
mine and the Henderson underground mine. The Climax and Henderson 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 the Climax and Henderson mines, as well as
from our North America and South America copper mines, is processed at our
conversion facilities.

Operating and Development Activities. Production from the Molybdenum mines
totaled 8 million pounds of molybdenum in second-quarter 2022, 15 million pounds
for the first six months of 2022, 7 million pounds in second-quarter 2021 and 14
million pounds for the first six months of 2021. Refer to "Consolidated Results"
for our consolidated molybdenum operating data, which includes sales of
molybdenum produced at our Molybdenum mines and from our North America and South
America copper mines. Refer to "Outlook" for projected consolidated molybdenum
sales volumes.

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 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.

Average unit net cash costs for our Molybdenum mines of $10.62 per pound of
molybdenum in second-quarter 2022 and $10.75 per pound for the first six months
of 2022 were higher than average unit net cash costs of $8.14 per pound in
second-quarter 2021 and $8.53 per pound for the first six months of 2021,
primarily reflecting higher energy, outside service costs and other input costs,
and increased development costs at the Henderson mine. Based on current sales
volume and cost estimates, average unit net cash costs for the Molybdenum mines
are expected to approximate $11.75 per pound of molybdenum for the year 2022.
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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 the Miami smelter in Arizona, the El Paso refinery in
Texas and Atlantic Copper, a smelter and refinery in Spain. Additionally, PT-FI
has a 39.5 percent ownership interest in PT Smelting and expects its ownership
to increase to a majority interest upon completion of the expansion of PT
Smelting's smelting capacity. 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. Our
North America copper mines are less significantly affected by changes in
treatment charges because these operations are largely integrated with our Miami
smelter and El 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 2022, Atlantic
Copper's concentrate purchases included 37 percent from our copper mining
operations and 63 percent from third parties.

Atlantic Copper's major maintenance turnarounds typically occur approximately
every eight years, with shorter-term maintenance turnarounds in the interim. In
second-quarter 2022, Atlantic Copper substantially completed a 78-day major
maintenance turnaround and incurred maintenance charges and idle facility costs
totaling $40 million.

Our Miami smelter completed a major maintenance turnaround in second-quarter
2021 and incurred maintenance charges and idle facility costs totaling $19
million in second-quarter 2021 and $87 million for the first six months of 2021.
Major maintenance turnarounds at the Miami smelter are anticipated to occur
approximately every two or three years, with the next major maintenance
turnaround scheduled for the first half of 2024.

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. In November 2021, PT-FI entered into a tolling agreement with
PT Smelting that will be effective January 1, 2023, and will replace the current
concentrate sales agreement, as amended. Under the tolling agreement, PT-FI will
pay PT Smelting to smelt and refine its concentrate and will retain title to all
products for sale to third parties.

We defer recognizing profits on sales from our mining operations to Atlantic
Copper and on 39.5 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
totaling $(7) million (less than $1 million to net income attributable to common
stock) in second-quarter 2022, $(99) million ($(81) million to net income
attributable to common stock) in second-quarter 2021, $40 million ($23 million
to net income attributable to common stock) for the first six months of 2022 and
$(185) million ($(145) million to net income attributable to common stock) for
the first six months of 2021. 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 $157 million at June 30, 2022. 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.

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 operating cash flows
totaling $3.3 billion during the first six months of 2022, reflecting solid
operating and financial performance. We believe the actions we have taken in
recent years to build a strong balance sheet, successfully expand low-cost
operations and maintain flexible growth options while maintaining sufficient
liquidity, will allow us to continue to execute our business plans in a prudent
manner despite current economic uncertainty while preserving substantial future
asset values. We are closely monitoring market conditions and will be prepared
to adjust our operating plans if required. We will maintain a strong balance
sheet and liquidity position as we focus on building
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Table of Contents long-term value in our business, executing our operating plans safely, responsibly and efficiently, and prudently managing costs and capital expenditures.


Based on current sales volume, cost and metal price estimates discussed in
"Outlook," our projected consolidated operating cash flows for the year 2022 of
$4.5 billion are expected to exceed projected capital expenditures of $3.1
billion, which includes $1.9 billion for major mining projects but excludes $1.4
billion of projected capital expenditures for the Indonesia smelter projects
that are being funded with PT-FI's senior notes and its available revolving
credit facility. We have cash on hand and the financial flexibility to fund
these expenditures as well as our other cash requirements for the year,
including noncontrolling interest distributions, income tax payments, debt
repayments, common stock dividends (base and variable) and any share
repurchases.

Our cash generating capability and financial condition at June 30, 2022, which
includes $9.5 billion of consolidated cash and cash equivalents (including $2.4
billion from PT-FI's senior notes), together with $3.5 billion of availability
under our revolving credit facility, is expected to be adequate to meet our
operating, investing and financing needs for the foreseeable future. In
addition, PT-FI and Cerro Verde have $1.3 billion and $350 million,
respectively, of availability under their revolving credit facilities.

Refer to "Outlook" for further discussion of projected operating cash flows and capital expenditures for the year 2022 and to "Debt" below.


Financial Policy. Our financial policy is 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 interest would be allocated to shareholder
returns and the balance to debt reduction and investments in value enhancing
growth projects, subject to us maintaining our net debt at a level not to exceed
the net debt target of $3.0 billion to $4.0 billion (excluding project debt for
additional smelting capacity in Indonesia). The Board will review the structure
of the performance-based payout framework at least annually.

At June 30, 2022, our net debt, excluding net debt for the Indonesia smelter projects, totaled $1.0 billion. Refer to "Net Debt."

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