FREEPORT-MCMORAN INC. 
In Management's Discussion and Analysis of Financial Condition and Results of Operations (MD&A), "we," "us" and "our" refer toFreeport-McMoRan Inc. (FCX) and its consolidated subsidiaries. You should read this discussion in conjunction with our consolidated financial statements, the related MD&A and the discussion of our Business and Properties in our annual report on Form 10-K for the year endedDecember 31, 2020 (2020 Form 10-K), filed with theUnited States (U.S.) Securities and Exchange Commission (SEC). The results of operations reported and summarized below are not necessarily indicative of future operating results (refer to "Cautionary Statement" for further discussion). References to "Notes" are Notes included in our Notes to Consolidated Financial Statements (Unaudited). Throughout MD&A, all references to income or losses per share are on a diluted basis. OVERVIEW We are a leading international mining company with headquarters inPhoenix, Arizona . We operate large, long-lived, geographically diverse assets with significant proven and probable reserves of copper, gold and molybdenum. We are one of the world's largest publicly traded copper producers. Our portfolio of assets includes the Grasberg minerals district inIndonesia , one of the world's largest copper and gold deposits; and significant mining operations inNorth America andSouth America , including the large-scaleMorenci minerals district inArizona and the Cerro Verde operation inPeru . Our results for the first six months of 2021 reflect strong operating and financial performance, and cash flow generation. We achieved the balance sheet targets outlined in our financial policy adopted earlier this year, and believe that we are well positioned to increase cash returns to shareholders and for investments in long-term future growth. We continue to execute our operating plans in a safe, efficient and responsible manner and remain focused on building long-term value through solid management of our portfolio of long-lived and high-quality copper assets. The ramp-up of underground mining atPT Freeport Indonesia (PT-FI) is advancing on schedule andCerro Verde's concentrator facilities have performed well with milling rates averaging 382,100 metric tons of ore per day for the first six months of 2021. OurLone Star copper leach project, which was successfully completed in the second half of 2020, has achieved design capacity approximating 200 million pounds of copper annually with potential for further increases. Refer to "Operations" for further discussion. Net income (loss) attributable to common stock totaled$1.1 billion in second-quarter 2021,$53 million in second-quarter 2020,$1.8 billion for the first six months of 2021 and$(438) million for the first six months of 2020. Results for the 2021 periods, compared with the 2020 periods, reflect higher copper prices and volumes, partly offset by a higher provision for income taxes. The results for the 2020 periods also reflect charges directly associated with the COVID-19 pandemic and revised operating plans, including employee separation costs, totaling$144 million in second-quarter 2020 and$153 million for the first six months of 2020. Refer to "Consolidated Results" for further discussion. We continue to monitor the impact of the COVID-19 pandemic on our business and maintain our vigilant operating protocols to contain and mitigate the risk of spread of COVID-19 at each of our operating sites. To date, our protocols have been effective in mitigating and preventing a major outbreak of COVID-19 at our operating sites. We will continue to monitor, assess and update our COVID-19 response and to provide assistance to employees in obtaining vaccinations. AtJune 30, 2021 , we had consolidated debt of$9.7 billion and consolidated cash and cash equivalents of$6.3 billion , resulting in net debt of$3.4 billion . This represents a reduction in net debt of$2.7 billion from year-end 2020. Refer to "Net Debt" for reconciliations of debt and cash and cash equivalents to net debt. AtJune 30, 2021 , we had no borrowings and$3.5 billion available under our revolving credit facility. We have$1.1 billion in debt maturities through 2022, including our 3.55% Senior Notes ($0.5 billion ) and the Cerro Verde Term Loan ($0.5 billion ). Refer to Note 5 and "Capital Resources and Liquidity" for further discussion. 25 -------------------------------------------------------------------------------- Table of Contents OUTLOOK We continue to view the long-term outlook for our business positively, supported by limitations on supplies of copper and by the requirements for copper in the world's economy. Our financial results vary as a result of fluctuations in market prices primarily for copper, gold and, to a lesser extent, molybdenum, as well as other factors. World market prices for these commodities have fluctuated historically and are affected by numerous factors beyond our control. Refer to "Markets" below and "Risk Factors" in Part I, Item 1A. of our 2020 Form 10-K for further discussion. Because we cannot control the prices of our products, the key measures that management focuses on in operating our business are sales volumes, unit net cash costs, operating cash flows and capital expenditures. Consolidated Sales Volumes Following are our projected consolidated sales volumes for the year 2021: Copper (millions of recoverable pounds):North America copper mines 1,465South America mining 1,050Indonesia mining 1,335 Total 3,850 Gold (millions of recoverable ounces) 1.3
Molybdenum (millions of recoverable pounds) 86 a
a.Projected molybdenum sales include 28 million pounds produced by our
Molybdenum mines and 58 million pounds produced by our
Consolidated sales volumes in third-quarter 2021 are expected to approximate 1.035 billion pounds of copper, 360 thousand ounces of gold and 21 million pounds of molybdenum. Projected sales volumes are dependent on operational performance, continued progress of the ramp-up of underground mining at PT-FI, impacts and duration of the COVID-19 pandemic, weather-related conditions, timing of shipments, and other factors. For other important factors that could cause results to differ materially from projections, refer to "Cautionary Statement" and "Risk Factors" contained in Part I, Item 1A. of our 2020 Form 10-K. Consolidated Unit Net Cash Costs Assuming average prices of$1,800 per ounce of gold and$16.00 per pound of molybdenum for the second half of 2021 and achievement of current sales volume and cost estimates, consolidated unit net cash costs (net of by-product credits) for our copper mines are expected to average$1.35 per pound of copper for the year 2021 (including$1.33 per pound of copper in third-quarter 2021). The impact of price changes for the second half of 2021 on consolidated unit net cash costs for the year 2021 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 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. Consolidated Operating Cash Flows Our consolidated operating cash flows vary with sales volumes; prices realized from copper, gold and molybdenum sales; production costs; income taxes; other working capital changes; and other factors. Based on current sales volume and cost estimates, and assuming average prices of$4.25 per pound for copper,$1,800 per ounce for gold, and$16.00 per pound for molybdenum for the second half of 2021, our consolidated operating cash flows are estimated to approximate$7.5 billion (including$0.4 billion of working capital and other sources) for the year 2021. Estimated consolidated operating cash flows for the year 2021 also reflect an estimated income tax provision of$2.5 billion (refer to "Consolidated Results - Income Taxes" for further discussion of our projected income tax rate for the year 2021). The impact of price changes for the second half of 2021 on operating cash flows would approximate$200 million for each$0.10 per pound change in the average price of copper,$50 million for each$100 per ounce change in the average price of gold and$55 million for each$2 per pound change in the average price of molybdenum. 26 -------------------------------------------------------------------------------- Table of Contents Consolidated Capital Expenditures Consolidated capital expenditures, excluding estimated expenditures associated withIndonesia smelter development, are expected to approximate$2.2 billion for the year 2021, including$1.4 billion for major projects, primarily associated with underground development activities in the Grasberg minerals district.Indonesia smelter development expenditures are currently expected to approximate$0.4 billion for the year 2021 (including$0.3 billion during the second half of 2021). All costs of smelter development inIndonesia will be shared 49 percent by FCX and 51 percent byPT Indonesia Asahan Aluminium (Persero) (PT Inalum, also known as MIND ID), and will be largely offset by a phase-out of the 5 percent export duty currently paid to theIndonesia government as well as the tax deductibility of smelter costs by PT-FI. PT-FI plans to use its$1 billion , five-year, unsecured credit facility (refer to Note 5) and additional debt financing to fund these projects.
MARKETS
World prices for copper, gold and molybdenum can fluctuate significantly. During the period fromJanuary 2011 throughJune 2021 , theLondon Metal Exchange (LME) copper settlement price varied from a low of$1.96 per pound in 2016 to a record high of$4.86 per pound in 2021; theLondon Bullion Market Association (London ) PM gold price fluctuated from a low of$1,049 per ounce in 2015 to a record high of$2,067 per ounce in 2020; and the Metals Week Molybdenum Dealer Oxide weekly average price ranged from a low of$4.46 per pound in 2015 to a high of$19.90 per pound in 2021. Copper, gold and molybdenum prices are affected by numerous factors beyond our control as described further in "Risk Factors" contained in Part I, Item 1A. of our 2020 Form 10-K. [[Image Removed: fcx-20210630_g2.jpg]] This graph presents LME copper settlement prices and the combined reported stocks of copper at the LME,Commodity Exchange Inc. , and theShanghai Futures Exchange fromJanuary 2011 throughJune 2021 . During second-quarter 2021, LME copper settlement prices ranged from a low of$3.98 per pound to a high of$4.86 per pound, averaged$4.40 per pound and settled at$4.26 per pound onJune 30, 2021 . AsChina's economy began to recover from the COVID-19 pandemic, copper prices increased throughout 2020 and reached a record high during second-quarter 2021 before moderating inJune 2021 as a result of a strengtheningU.S. dollar andChina's announcement that it would begin selling stockpiled metal commodities, including copper, to curb rising commodity costs. The LME copper settlement price was$4.42 per pound onJuly 30, 2021 . 27 -------------------------------------------------------------------------------- Table of Contents Expectations for longer-term copper demand growth remain in place. We expect future demand to be supported by the global transition to renewable energy and other carbon-reduction initiatives, and continued urbanization in developing countries. The limited number of approved, large-scale projects scheduled, the long lead times required to permit and build new mines and declining ore grades at existing operations highlight the supply challenges for copper. [[Image Removed: fcx-20210630_g3.jpg]] This graph presents London PM gold prices fromJanuary 2011 throughJune 2021 . During second-quarter 2021, London PM gold prices ranged from a low of$1,726 per ounce to a high of$1,903 per ounce, averaged$1,816 per ounce, and closed at$1,763 per ounce onJune 30, 2021 . While the continued global economic recovery has put downward pressure on gold prices, many analysts expect gold prices to remain supported by the effects of elevated debt levels associated with large pandemic-related stimulus efforts, historically lowU.S. interest rates and a weakerU.S. dollar. The London PM gold price was$1,826 per ounce onJuly 30, 2021 . 28
-------------------------------------------------------------------------------- Table of Contents [[Image Removed: fcx-20210630_g4.jpg]] This graph presents the Metals Week Molybdenum Dealer Oxide weekly average price fromJanuary 2011 throughJune 2021 . During second-quarter 2021, the weekly average price of molybdenum ranged from a low of$10.99 per pound to a high of$19.90 per pound, averaged$13.81 per pound, and was$18.95 per pound onJune 30, 2021 . Molybdenum prices have reacted to supply concerns as mines in bothChile andPeru reported lower production and logistics challenges continued globally. The Metals Week Molybdenum Dealer Oxide weekly average price was$18.13 per pound onJuly 30, 2021 . 29 --------------------------------------------------------------------------------
Table of Contents
CONSOLIDATED RESULTS
Three Months Ended June 30, Six Months Ended June 30,
2021 2020 2021 2020
SUMMARY FINANCIAL DATA (in millions, except per share amounts)
Revenuesa,b $ 5,748 $ 3,054 $ 10,598 $ 5,852
Operating income (loss)a,c $ 2,067 d,e,f $ 321 g $ 3,599 d,e,f,g $ (152) e,g
Net income (loss) attributable to common stockh
$ 53 j,k,l$ 1,801 i$ (438) j,k,l Diluted net income (loss) per share of common stock $ 0.73$ 0.03 $ 1.21$ (0.30)
Diluted weighted-average common shares outstanding 1,483
1,458 1,480 1,453
Operating cash flowsm $ 2,395 $ 491 $ 3,470 $ 453
Capital expenditures $ 433 $ 527 $ 803 $ 1,137
At June 30:
Cash and cash equivalents $ 6,313 $ 1,465 $ 6,313 $ 1,465
Total debt, including current portion $ 9,695 $ 9,914 $ 9,695 $ 9,914
a.Refer to Note 9 for a summary of revenues and operating income (loss) by
operating division.
b.Includes favorable (unfavorable) adjustments to prior period provisionally
priced concentrate and cathode copper sales totaling $173 million ($66 million
to net income attributable to common stock or $0.05 per share) in second-quarter
2021, $55 million ($19 million to net income attributable to common stock or
$0.01 per share) in second-quarter 2020, $169 million ($65 million to net income
attributable to common stock or $0.04 per share) for the first six months of
2021 and $(102) million ($(43) million to net loss attributable to common stock
or $(0.03) per share) for the first six months of 2020 (refer to Note 6 for
further discussion).
c.Includes net charges associated with environmental obligations and related
litigation reserves totaling $20 million ($20 million to net income attributable
to common stock or $0.01 per share) in second-quarter 2021, $1 million ($1
million to net income attributable to common stock or less than $0.01 per share)
in second-quarter 2020, $17 million ($17 million to net income attributable to
common stock or $0.01 per share) for the first six months of 2021 and $15
million ($15 million to net loss attributable to common stock or $0.01 per
share) for the first six months of 2020.
d.The second quarter and first six months of 2021 include nonrecurring
labor-related charges totaling $69 million ($22 million to net income
attributable to common stock or $0.01 per share) at Cerro Verde for agreements
reached with 57 percent of its hourly employees. Refer to "Operations - South
America Mining" for further discussion.
e.Includes net gains (losses) on sales of assets totaling $3 million ($3 million
to net income attributable to common stock or less than $0.01 per share) for the
second quarter and first six months of 2021 and $(11) million ($(11) million to
net loss attributable to common stock or $0.01 per share) for the first six
months of 2020.
f.Second-quarter 2021 includes net credits totaling $10 million ($10 million to
net income attributable to common stock or $0.01 per share) associated with
asset retirement obligation adjustments. The first six months of 2021 also
include other net charges totaling $23 million ($20 million to net income
attributable to common stock or $0.01 per share) primarily associated with
employee separation charges, international tax matters and asset retirement
obligation adjustments.
g.Includes metals inventory adjustments totaling $139 million ($101 million to
net income attributable to common stock or $0.07 per share) in second-quarter
2020, $(1) million ($(1) million to net income attributable to common stock or
less than $(0.01) per share) for the first six months of 2021 and $(83) million
($(81) million to net loss attributable to common stock or $(0.06) per share)
for the first six months of 2020.
h.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.
i.Includes net charges associated with contested matters at PT-FI totaling $32
million ($28 million to net income attributable to common stock or 0.02 per
share) in second-quarter 2021 and $54 million ($48 million to net income
attributable to common stock or 0.03 per share) for the first six months of
2021. These charges were recorded to production and delivery ($17 million in
second-quarter 2021 and $30 million for the first six months of 2021), interest
expense, net ($4 million in second-quarter 2021 and $8 million for the first six
months of 2021) and other income, net ($11 million in second-quarter 2021 and
$16 million for the first six months of 2021).
j.Includes after-tax net losses on early extinguishment of debt totaling $9
million ($0.01 per share) in second-quarter 2020 and $41 million ($0.03 per
share) for the first six months of 2020.
k.Includes charges totaling $196 million ($144 million to net income
attributable to common stock or $0.10 per share) in second-quarter 2020 and $224
million ($153 million to net loss attributable to common stock or $0.11 per
share) for the first six months of 2020 associated with the COVID-19 pandemic
and revised operating plans, including employee separation costs. These charges
were recorded to production and delivery ($153 million in second-quarter 2020
and $173 million for the first six months of 2020); depreciation, depletion and
amortization ($21 million in second-quarter 2020 and $29 million for
30
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the first six months of 2020); selling, general and administrative ($15 million
for each of the second quarter and first six months of 2020) and mining
exploration and research expense ($7 million for each of the second quarter and
first six months of 2020).
l.Includes net tax credits of $53 million ($0.04 per share) in second-quarter
2020 and $52 million ($0.04 per share) for the first six months of 2020. Refer
to "Income Taxes" for further discussion of these net tax credits.
m.Working capital and other sources totaled $523 million in second-quarter 2021,
$22 million in second-quarter 2020, $187 million for the first six months of
2021 and $141 million for the first six months of 2020.
Three Months Ended June 30, Six Months Ended June 30,
2021 2020 2021 2020
SUMMARY OPERATING DATA
Copper (millions of recoverable pounds)
Production 913 767 1,823 1,498
Sales, excluding purchases 929 759 1,754 1,488
Average realized price per pound $ 4.34 $ 2.55 a $ 4.25 $ 2.53 a
Site production and delivery costs per $ 2.02 c $ 1.82 d $ 1.94 c $ 2.00 d
poundb
Unit net cash costs per poundb $ 1.48 $ 1.47 $ 1.44 $ 1.68
Gold (thousands of recoverable ounces)
Production 305 191 602 347
Sales, excluding purchases 305 184 563 328
Average realized price per ounce $ 1,794 $ 1,749 $ 1,785 $ 1,709
Molybdenum (millions of recoverable
pounds)
Production 20 19 40 38
Sales, excluding purchases 22 18 43 39
Average realized price per pound $ 13.11 $ 10.53 a.Includes reductions to average realized prices of$0.03 per pound of copper in second-quarter 2020 and$0.02 per pound of copper for the first six months of 2020 related to forward sales contracts covering 150 million pounds of copper sales for May andJune 2020 at a fixed price of$2.34 per pound. There are no remaining forward sales contracts. b.Reflects per pound weighted-average production and delivery costs and unit net cash costs (net of by-product credits) for all copper mines, before net noncash and other costs. For reconciliations of per pound unit costs by operating division to production and delivery costs applicable to sales reported in our consolidated financial statements, refer to "Product Revenues and Production Costs." c.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 charges at Cerro Verde for agreements reached with 57 percent of its hourly employees. Refer to "Operations - South America Mining" for further discussion. d.Excludes charges totaling$0.20 per pound of copper in second-quarter 2020 and$0.12 per pound of copper for the first six months of 2020, primarily associated with idle facility and contract cancellations costs related to the COVID-19 pandemic and employee separation costs associated with theApril 2020 revised operating plans. 31
-------------------------------------------------------------------------------- Table of Contents Revenues Consolidated revenues totaled$5.7 billion in second-quarter 2021,$3.1 billion in second-quarter 2020,$10.6 billion for the first six months of 2021 and$5.9 billion for the first six months of 2020. Revenues from our mining operations primarily include the sale of copper concentrate, copper cathode, copper rod, gold in concentrate and molybdenum. Refer to Note 9 for a summary of product revenues. Following is a summary of changes in our consolidated revenues between periods (in millions): Three Months Ended Six Months Ended June 30 June 30 Consolidated revenues - 2020 period $ 3,054 $ 5,852 Higher sales volumes: Copper 435 674 Gold 215 402 Molybdenum 43 38 Higher average realized prices: Copper 1,664 3,017 Gold 14 43 Molybdenum 56 66 Adjustments for prior period provisionally priced copper sales 118 271 Higher Atlantic Copper revenues 328 575 Higher revenues from purchased copper 144 127 Higher treatment charges (26) (43) Higher royalties and export duties (84) (152) Other, including intercompany eliminations (213) (272) Consolidated revenues - 2021 period $ 5,748
$ 10,598
Sales Volumes. Consolidated copper and gold sales volumes increased in the 2021 periods, compared to the 2020 periods, primarily reflecting continued progress of the ramp-up of underground mining at PT-FI. Refer to "Operations" for further discussion of sales volumes at our mining operations. Realized Prices. Our consolidated revenues can vary significantly as a result of fluctuations in the market prices of copper, gold and molybdenum. Average realized prices for second-quarter 2021, compared with second-quarter 2020, were 70 percent higher for copper, 3 percent higher for gold and 25 percent higher for molybdenum and average realized prices for the first six months of 2021, compared with the first six months of 2020, were 68 percent higher for copper, 4 percent higher for gold and 14 percent higher for molybdenum. Average realized copper prices include net (unfavorable) favorable adjustments to current period provisionally priced copper sales totaling$(55) million in second-quarter 2021,$107 million in second-quarter 2020,$156 million for the first six months of 2021 and$26 million for the first six months of 2020. As discussed in Note 6, substantially all of our copper concentrate and cathode sales contracts provide final copper pricing in a specified future month (generally one to four months from the shipment date) based primarily on quoted LME monthly average copper prices. We record revenues and invoice customers at the time of shipment based on then-current LME prices, which results in an embedded derivative on provisionally priced concentrate and cathode sales that is adjusted to fair value through earnings each period, using the period-end forward prices, until final pricing on the date of settlement. To the extent final prices are higher or lower than what was recorded on a provisional basis, an increase or decrease to revenues is recorded each reporting period until the date of final pricing. Accordingly, in times of rising copper prices, our revenues benefit from adjustments to the final pricing of provisionally priced sales pursuant to contracts entered into in prior periods; in times of falling copper prices, the opposite occurs. Prior Period Provisionally Priced Copper Sales. Net favorable (unfavorable) adjustments to prior periods' provisionally priced copper sales (i.e., provisionally priced sales atMarch 31, 2021 and 2020, andDecember 31, 2020 and 2019) recorded in consolidated revenues totaled$173 million in second-quarter 2021,$55 million in second-quarter 2020,$169 million for the first six months of 2021 and$(102) million for the first six months of 2020. Refer to Notes 6 and 9 for a summary of total adjustments to prior period and current period provisionally priced sales. 32 -------------------------------------------------------------------------------- Table of Contents AtJune 30, 2021 , we had provisionally priced copper sales totaling 368 million pounds of copper (net of intercompany sales and noncontrolling interests) recorded at an average of$4.25 per pound, subject to final pricing over the next several months. We estimate that each$0.05 change in the price realized from theJune 30, 2021 , provisional price recorded would have an approximate$12 million effect on our 2021 net income attributable to common stock. The LME copper price settled at$4.42 per pound onJuly 30, 2021 .
Atlantic Copper Revenues. Atlantic Copper revenues totaled
Purchased Copper. We purchase copper cathode primarily for processing by our Rod & Refining operations. The volumes of copper purchases vary depending on cathode production from our operations and totaled 68 million pounds in second-quarter 2021, 71 million pounds in second-quarter 2020, 121 million pounds for the first six months of 2021 and 159 million pounds for the first six months of 2020. The increase in revenues associated with purchased copper in the 2021 periods, compared to the 2020 periods, reflects higher 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.
Royalties and Export Duties. Royalties are primarily on PT-FI sales and vary with the volume of metal sold and the prices of copper and gold. PT-FI will continue to pay export duties until development progress for new domestic smelting with an annual capacity of 2 million metric tons of concentrate exceeds 50 percent. Refer to "Operations - Indonesia Mining" for further discussion of the current progress on a greenfield smelter inIndonesia and to Note 9 for a summary of royalty expense and export duties. Production and Delivery Costs Consolidated production and delivery costs totaled$3.1 billion in second-quarter 2021,$2.4 billion in second-quarter 2020,$5.9 billion for the first six months of 2021 and$4.9 billion for the first six months of 2020. Higher consolidated production and delivery costs in the 2021 periods primarily reflect higher sales volumes, higher milling and mining costs and nonrecurring labor-related charges at Cerro Verde for agreements reached with 57 percent of its hourly employees. The 2020 periods also include charges associated with the COVID-19 pandemic and revised operating plans. Site Production and Delivery Costs Per Pound. Site production and delivery costs for our copper mining operations primarily include labor, energy and commodity-based inputs, such as sulphuric acid, reagents, liners, tires and explosives. Consolidated site production and delivery costs (before net noncash and other costs) for our copper mines averaged$2.02 per pound of copper in second-quarter 2021,$1.82 per pound of copper in second-quarter 2020,$1.94 per pound of copper for the first six months of 2021 and$2.00 per pound of copper for the first six months of 2020. Consolidated site production and delivery costs per pound in the second quarter and first six months of 2021, compared with the second quarter and first six months of 2020, primarily reflected higher mining and milling costs and nonrecurring labor-related charges at Cerro Verde, partly offset by higher sales volumes. Consolidated site production and delivery costs for the 2020 periods excluded charges primarily associated with the COVID-19 pandemic and theApril 2020 revised operating plans. Refer to "Operations - Unit Net Cash Costs" for further discussion of unit net cash costs associated with our operating divisions and to "Product Revenues and Production Costs" for reconciliations of per pound costs by operating division to production and delivery costs applicable to sales reported in our consolidated financial statements. 33 -------------------------------------------------------------------------------- Table of Contents 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$483 million in second-quarter 2021,$358 million in second-quarter 2020,$902 million for the first six months of 2021 and$699 million for the first six months of 2020. Higher DD&A in the 2021 periods is primarily related to assets placed in service and higher sales volumes associated with the ramp-up of underground mining at PT-FI. Metals Inventory Adjustments Net realizable value metals inventory adjustments totaled a net credit of$139 million in second-quarter 2020 and net charges of$1 million for the first six months of 2021 and$83 million for the first six months of 2020. Metals inventory adjustments in 2020 were related to volatility in copper and molybdenum prices associated with the COVID-19 pandemic. Interest Expense, Net Consolidated interest costs (before capitalization) totaled$165 million in second-quarter 2021,$159 million in second-quarter 2020,$325 million for the first six months of 2021 and$330 million for the first six months of 2020. Capitalized interest varies with the level of qualifying assets associated with our development projects and average interest rates on our borrowings, and totaled$17 million in second-quarter 2021,$44 million in second-quarter 2020,$32 million for the first six months of 2021 and$88 million for the first six months of 2020. The decrease in capitalized interest in the 2021 periods, compared with the 2020 periods, is primarily related to significant assets at PT-FI's underground mines being placed in service. Refer to "Capital Resources and Liquidity - Investing Activities" for discussion of capital expenditures associated with our major development projects. Income Taxes Following is a summary of the approximate amounts used in the calculation of our consolidated income tax (provision) benefit (in millions, except percentages): Six Months Ended June 30, 2021 2020 Income Tax Income Tax Income Effective (Provision) Income Effective (Provision) (Loss)a Tax Rate Benefit (Loss)a Tax Rate Benefit U.S.b$ 743 - % $ (3) c$ (581) 10 % $ 58 d South America 923 39 % (356) (57) 58 % 33 Indonesia 1,759 41 % (719) 169 54 % (91) e Eliminations and other (99) N/A 5 74 N/A (16) Rate adjustmentf - N/A 27 - N/A (20) Consolidated FCX$ 3,326 31 % g$ (1,046) $ (395) (9) % g,h $ (36) a.Represents income (loss) before income taxes and equity in affiliated companies' net earnings. b.In addition to ourNorth America mining operations, theU.S. jurisdiction reflects corporate-level expenses, which include interest expense associated with senior notes, general and administrative expenses, and environmental obligations and shutdown costs. c.Includes valuation allowance release on prior year unbenefited net operating losses. d.Includes a tax credit of$53 million associated with the reversal of a year-end 2019 tax charge related to the sale of our interest in the lower zone of the Timok exploration project inSerbia . Also includes a tax credit of$6 million associated with the removal of a valuation allowance on deferred tax assets. e.Includes a tax charge of$8 million ($7 million net of noncontrolling interest) associated with an unfavorable 2012Indonesia Supreme Court ruling. f.In accordance with applicable accounting rules, we adjust our interim provision for income taxes equal to our consolidated tax rate. g.Our consolidated effective income tax rate is a function of the combined effective tax rates for the jurisdictions in which we operate. h.OurU.S. jurisdiction generated net losses in the first six months of 2020 that did not result in a realized tax benefit; applicable accounting rules required us to adjust our estimated annual effective tax rate to exclude the impact ofU.S. net losses.
Assuming achievement of current sales volume and cost estimates and average
prices of
34
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our consolidated effective tax rate for the year 2021 would approximate 31
percent. Changes in projected sales volumes and average prices during 2021 would
incur tax impacts at estimated effective rates of 40 percent for Peru , 38
percent for Indonesia and 0 percent for the U.S. The net 0 percent
OPERATIONS
Responsible Production 2020 Annual Report on Sustainability. InApril 2021 , we published our 2020 Annual Report on Sustainability, which is available on our website at fcx.com. We have a long history of environmental, social and governance (ESG) programs and are continuously striving to improve and respond to evolving stakeholder expectations. This report marked our 20th year of reporting on our sustainability progress and our first year reporting in alignment with the Sustainability Accounting Standards Board Metals & Mining framework. We are committed to building upon our achievements in sustainability and seek to contribute positively to society by supplying the world with responsibly produced copper. The Copper Mark. The Copper Mark is a robust assurance framework that demonstrates the copper industry's responsible production practices and contribution to the United Nations Sustainable Development Goals. To date, we have six sites that have achieved the Copper Mark (theMorenci operations,Miami smelter and mine, andEl Paso refinery inNorth America ;Cerro Verde and El Abra mines inSouth America ; and Atlantic Copper smelter and refinery inSpain ). InJune 2021 , we commenced the Copper Mark assessment process at five additional operating sites, includingBagdad , Chino, Tyrone,Safford and Sierrita. Each of these sites will complete an external assurance process to assess conformance with the Copper Mark's 32 ESG requirements, with a goal of being awarded the Copper Mark. We have future plans to validate all of our copper producing sites with the Copper Mark requirements.
North America Copper Mines
We operate seven open-pit copper mines in
TheNorth America copper mines include open-pit mining, sulfide ore concentrating, leaching and solution extraction/electrowinning (SX/EW) operations. A majority of the copper produced at ourNorth America copper mines is cast into copper rod by our Rod & Refining segment. The remainder of ourNorth America copper production is sold as copper cathode or copper concentrate, a portion of which is shipped to Atlantic Copper (our wholly owned smelter). Molybdenum concentrate, gold and silver are also produced by certain of ourNorth America copper mines. Operating and Development Activities. OurNorth America operating sites continue to achieve strong execution of operating plans. We successfully completed the initial development of theLone Star copper leach project in the second half of 2020, and current operations are exceeding initial design capacity approximating 200 million pounds annually. We continue to advance opportunities to increase operating rates and for development of the large-scale sulfide resource atLone Star , including evaluating a potential additional incremental oxide expansion to increase volumes to over 300 million pounds of copper per year. We have substantial resources in theU.S. , primarily associated with existing mining operations. Evaluation of project options for future growth are under way. In addition toLone Star , we are actively advancing studies to add new capacity at our long-livedBagdad operation in northwestArizona . 35 -------------------------------------------------------------------------------- Table of Contents Operating Data. Following is summary consolidated operating data for theNorth America copper mines: Three Months Ended June 30, Six months ended June 30, 2021 2020 2021 2020 Operating Data, Net of Joint Venture Interests Copper (millions of recoverable pounds) Production 360 368 713 714 Sales, excluding purchases 389 368 697 723 Average realized price per pound $ 4.42 $
2.42 a $ 4.19
Molybdenum (millions of recoverable pounds) Productionb 9 9 17 17 100% Operating Data Leach operations Leach ore placed in stockpiles (metric tons 688,000 744,000 696,500 736,100 per day) Average copper ore grade (percent) 0.30 0.28 0.29 0.28 Copper production (millions of recoverable 265 265 527 500
pounds)
Mill operations Ore milled (metric tons per day) 264,700 286,200 266,300 309,800 Average ore grade (percent): Copper 0.36 0.37 0.37 0.34 Molybdenum 0.03 0.02 0.03 0.02 Copper recovery rate (percent) 82.4 84.6 80.5 85.8 Copper production (millions of recoverable 155 176 306 354
pounds)
a.Includes reductions to average realized prices of$0.06 per pound of copper in second-quarter 2020 and$0.03 per pound of copper for the first six months of 2020 related to forward sales contracts covering 150 million pounds of copper sales for May andJune 2020 at a fixed price of$2.34 per pound. There are no remaining forward sales contracts. b.Refer to "Consolidated Results" for our consolidated molybdenum sales volumes, which include sales of molybdenum produced at theNorth America copper mines. Our consolidated copper sales volumes fromNorth America totaled 389 million pounds in second-quarter 2021, 368 million pounds in second-quarter 2020, 697 million pounds for the first six months of 2021 and 723 million pounds for the first six months of 2020. The changes in sales volumes for the 2021 periods, compared with the 2020 periods, primarily reflect timing of shipments.
Unit Net Cash Costs. Unit net cash costs per pound of copper is a measure intended to provide investors with information about the cash-generating capacity of our mining operations expressed on a basis relating to the primary metal product for our respective operations. We use this measure for the same purpose and for monitoring operating performance by our mining operations. This information differs from measures of performance determined in accordance withU.S. generally accepted accounting principles (GAAP) and should not be considered in isolation or as a substitute for measures of performance determined in accordance withU.S. GAAP. This measure is presented by other metals mining companies, although our measure may not be comparable to similarly titled measures reported by other companies. Gross Profit per Pound of Copper and Molybdenum The following table summarizes unit net cash costs and gross profit per pound at ourNorth America copper mines. Refer to "Product Revenues and Production Costs" for an explanation of the "by-product" and "co-product" methods and a reconciliation of unit net cash costs per pound to production and delivery costs applicable to sales reported in our consolidated financial statements. 36
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Three Months Ended June 30,
2021 2020
Co-Product Method Co-Product Method
By- Product Molyb- By- Product Molyb-
Method Copper denuma Method Copper denuma
Revenues, excluding adjustments $ 4.42 $ 4.42 $ 11.75 $ 2.42 b $ 2.42 $ 8.33
Site production and delivery, before net
noncash
and other costs shown below 2.14 2.03 6.86 1.85 1.73 6.76
By-product credits (0.25) - - (0.17) - -
Treatment charges 0.08 0.07 - 0.10 0.10 -
Unit net cash costs 1.97 2.10 6.86 1.78 1.83 6.76
DD&A 0.26 0.25 0.55 0.24 0.22 0.55
Metals inventory adjustments - - - (0.24) (0.24) -
Noncash and other costs, net 0.08 0.08 0.06 0.09 c 0.09 0.08
Total unit costs 2.31 2.43 7.47 1.87 1.90 7.39
Revenue adjustments, primarily for pricing
on prior period open sales 0.02 0.02 - 0.02 0.02 -
Gross profit per pound $ 2.13 $ 2.01 $ 4.28 $ 0.57 $ 0.54 $ 0.94
Copper sales (millions of recoverable
pounds) 389 389 368 368
Molybdenum sales (millions of recoverable
pounds)a 9 9
Six months ended June 30,
2021 2020
Co-Product Method Co-Product Method
By- Product Molyb- By- Product Molyb-
Method Copper denuma Method Copper denuma
Revenues, excluding adjustments $ 4.19 $ 4.19 $ 11.12 $ 2.50 b $ 2.50 $ 8.99
Site production and delivery, before net
noncash
and other costs shown below 2.09 1.96 6.76 2.00 1.85 7.81
By-product credits (0.27) - - (0.19) - -
Treatment charges 0.09 0.09 - 0.10 0.10 -
Unit net cash costs 1.91 2.05 6.76 1.91 1.95 7.81
DD&A 0.26 0.24 0.51 0.25 0.23 0.64
Metals inventory adjustments - - - 0.08 0.07 -
Noncash and other costs, net 0.11 0.11 0.06 0.09 c 0.09 0.15
Total unit costs 2.28 2.40 7.33 2.33 2.34 8.60
Revenue adjustments, primarily for pricing
on prior period open sales 0.01 0.01 - (0.03) (0.03) -
Gross profit per pound $ 1.92 $ 1.80 $ 3.79 $ 0.14 $ 0.13 $ 0.39
Copper sales (millions of recoverable
pounds) 697 697 722 722
Molybdenum sales (millions of recoverable
pounds)a 17 17
a.Reflects sales of molybdenum produced by certain of the North America copper
mines to our molybdenum sales company at market-based pricing.
b.Includes reductions to average realized prices of $0.06 per pound of copper in
second-quarter 2020 and $0.03 per pound of copper for the first six months of
2020 related to forward sales contracts covering 150 million pounds of copper
sales for May and June 2020 at a fixed price of $2.34 per pound. There are no
remaining forward sales contracts.
c.Includes charges totaling $0.06 per pound of copper in second-quarter 2020 and
$0.03 per pound of copper for the first six months of 2020, primarily associated
with the April 2020 revised operating plans (including employee separation
costs) and the COVID-19 pandemic.
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. Average unit net cash costs (net of by-product
credits) for the North America copper mines of $1.97 per pound of copper in
second-quarter 2021 were higher than unit net cash costs of $1.78 per pound in
second-quarter 2020, primarily reflecting costs associated with higher mining
and milling rates and higher maintenance and input costs, partly offset by
higher by-product credits. Average unit net cash costs (net of by-product
credits) of $1.91 per pound of copper for first six months of 2021 approximated
average unit net cash costs for the first six months of 2020.
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Because certain assets are depreciated on a straight-line basis, North America's
average unit depreciation rate may vary with asset additions and the level of
copper production and sales.
Average unit net cash costs (net of by-product credits) for our North America
copper mines are expected to approximate $1.91 per pound of copper for the year
2021, based on achievement of current sales volume and cost estimates and
assuming an average molybdenum price of $16.00 per pound for the second half of
2021. North America's average unit net cash costs for the year 2021 would change
by approximately $0.02 per pound for each $2 per pound change in the average
price of molybdenum for the second half of 2021.
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.
Cerro Verde Labor Agreement.
During second-quarter 2021, Cerro Verde reached agreements with 57 percent of
its hourly employees (including early agreement of a new four-year collective
labor agreement (CLA) with one of its three unions) and incurred nonrecurring
charges totaling $69 million associated with these agreements. Negotiations for
new CLAs for Cerro Verde's remaining hourly employees are ongoing. The current
CLA is scheduled to expire on August 31, 2021 .
Operating and Development Activities. Cerro Verde's concentrator facilities have
continued to perform well with milling rates averaging 382,100 metric tons of
ore per day for the first six months of 2021. Cerro Verde expects milling rates
to return to pre-COVID-19 pandemic levels of approximately 400,000 metric tons
of ore per day in 2022.
El Abra continues to implement plans to increase operating rates to pre-COVID-19
pandemic levels, subject to ongoing monitoring of public health conditions in
Chile . Stacking rates at El Abra averaged 94,200 metric tons per day in
second-quarter 2021, approximately 25 percent higher than second-quarter 2020.
Increased stacking rates are expected to result in incremental annual production
of approximately 70 million pounds of copper beginning in mid-2022, compared
with 2020 levels. A new leach pad is under construction to accommodate planned
stacking rates for the next several years.
We continue to evaluate a large-scale expansion at El Abra to process additional
sulfide material and to achieve higher copper recoveries. El Abra's large
sulfide resource could potentially support a major mill project similar to
facilities constructed at Cerro Verde in 2015. Technical and economic studies
continue to be evaluated to determine the optimal scope and timing for the
sulfide project. We are monitoring potential changes in government fiscal
matters in Chile and will defer major investment decisions pending clarity on
these matters.
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Table of Contents Operating Data. Following is summary consolidated operating data forSouth America mining: Three Months Ended June 30, Six months ended June 30, 2021 2020 2021 2020 Copper (millions of recoverable pounds) Production 245 218 504 463 Sales 230 219 489 466 Average realized price per pound $ 4.31 $
2.67 $ 4.28
Molybdenum (millions of recoverable pounds) Productiona 4 4 9 8 Leach operations Leach ore placed in stockpiles (metric tons per day) 190,200 141,900 172,100 162,200 Average copper ore grade (percent) 0.33 0.33 0.34 0.35 Copper production (millions of recoverable 65 62 125 pounds) 126 Mill operations Ore milled (metric tons per day) 374,100 251,800 b 382,100 300,700 b Average ore grade (percent): Copper 0.29 0.39 0.30 0.36 Molybdenum 0.01 0.01 0.01 0.01 Copper recovery rate (percent) 85.2 83.9 86.4 80.8 Copper production (millions of recoverable 179 156 377 338
pounds)
a.Refer to "Consolidated Results" for our consolidated molybdenum sales volumes,
which include sales of molybdenum produced at Cerro Verde.
b.
Our consolidated copper sales volumes fromSouth America totaled 230 million pounds in second-quarter 2021, 219 million pounds in second-quarter 2020, 489 million pounds for the first six months of 2021 and 466 million pounds for the first six months of 2020. Higher copper sales volumes in the 2021 periods, compared with the 2020 periods, primarily reflect higher milling rates at Cerro Verde, partly offset by timing of shipments.
Copper sales from
Unit Net Cash Costs. Unit net cash costs per pound of copper is a measure intended to provide investors with information about the cash-generating capacity of our mining operations expressed on a basis relating to the primary metal product for our respective operations. We use this measure for the same purpose and for monitoring operating performance by our mining operations. This information differs from measures of performance determined in accordance withU.S. GAAP and should not be considered in isolation or as a substitute for measures of performance determined in accordance withU.S. GAAP. This measure is presented by other metals mining companies, although our measure may not be comparable to similarly titled measures reported by other companies. Gross Profit (Loss) per Pound of Copper The following table summarizes unit net cash costs and gross profit (loss) per pound of copper at ourSouth America mining operations. Unit net cash costs per pound of copper are reflected under the by-product and co-product methods as theSouth America mining operations also had sales of molybdenum and silver. Refer to "Product Revenues and Production Costs" for an explanation of the "by-product" and "co-product" methods and a reconciliation of unit net cash costs per pound to production and delivery costs applicable to sales reported in our consolidated financial statements. 39
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Three Months Ended June 30,
2021 2020
By-Product Co-Product By-Product Co-Product
Method Method Method Method
Revenues, excluding adjustments $ 4.31 $
4.31
Site production and delivery, before net noncash and other costs shown below 2.48 a 2.30 1.64 1.57 By-product credits (0.31) - (0.11) - Treatment charges 0.13 0.13 0.15 0.15 Royalty on metals 0.01 0.01 - - Unit net cash costs 2.31 2.44 1.68 1.72 DD&A 0.40 0.37 0.47 0.44 Metals inventory adjustments - - (0.26) (0.26) Noncash and other costs, net 0.08 0.07 0.32 b 0.30 Total unit costs 2.79 2.88 2.21 2.20 Revenue adjustments, primarily for pricing on prior period open sales 0.38 0.38 0.20 0.20 Gross profit per pound$ 1.90 $ 1.81 $ 0.66 $ 0.67 Copper sales (millions of recoverable pounds) 230 230 219 219 Six months ended June 30, 2021 2020 By-Product Co-Product By-Product Co-Product Method Method Method Method Revenues, excluding adjustments$ 4.28 $
4.28
Site production and delivery, before net noncash and other costs shown below 2.23 a 2.09 1.84 1.72 By-product credits (0.26) - (0.14) - Treatment charges 0.13 0.13 0.15 0.15 Royalty on metals 0.01 0.01 - - Unit net cash costs 2.11 2.23 1.85 1.87 DD&A 0.40 0.37 0.45 0.42 Metals inventory adjustments - - 0.01 0.01 Noncash and other costs, net 0.06 0.05 0.21 b 0.20 Total unit costs 2.57 2.65 2.52 2.50 Revenue adjustments, primarily for pricing on prior period open sales 0.20 0.20 (0.15) (0.15) Gross profit (loss) per pound$ 1.91 $
1.83
Copper sales (millions of recoverable pounds) 489 489 466 466 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 charges at Cerro Verde Verde for agreements reached with 57 percent of its hourly employees. b.Includes charges totaling$0.30 per pound of copper in second-quarter 2020 and$0.18 per pound of copper for the first six months of 2020, primarily associated with idle facility (Cerro Verde ) and contract cancellation costs related to the COVID-19 pandemic and employee separation costs associated with theApril 2020 revised operating plans. OurSouth America mines have varying cost structures because of differences in ore grades and characteristics, processing costs, by-product credits and other factors. Average unit net cash costs (net of by-product credits) for theSouth America copper mines were$2.31 per pound of copper in second-quarter 2021,$1.68 per pound of copper in second-quarter 2020,$2.11 per pound of copper for the first six months of 2021 and$1.85 per pound of copper for the first six months of 2020. Higher unit net cash costs in the 2021 periods, compared with the 2020 periods, primarily reflect increased mining and milling activities and non-recurring labor-related costs at Cerro Verde ($0.30 per pound in second-quarter 2021 and$0.14 per pound for the first six months of 2021), partly offset by higher volumes.
Revenues from
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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 $2.02 per pound of copper for the year 2021, 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 2021.
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 2020 Form 10-K, under the terms of the shareholders agreement, our
economic interest in PT-FI approximates 81 percent through 2022. PT -FI's results
are consolidated in our financial statements.
PT-FI continues to operate with protocols designed to protect the health and
safety of its workforce during the COVID-19 pandemic. During second-quarter
2021, PT -FI began to administer vaccines to its workforce and expects this
program to accelerate through the second half of 2021. Following an increase in
COVID-19 cases in Indonesia , PT-FI has recently reinstituted heightened
protocols and travel restrictions to protect the health of its workforce and the
surrounding community.
Substantially all of PT-FI's copper concentrate is sold under long-term
contracts. During first six months of 2021, 46 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. The ramp-up of underground production at
the Grasberg minerals district in Indonesia continues to advance on schedule.
Second-quarter 2021 highlights include:
•Production approximated 78 percent of the projected ultimate annualized level
and is expected to reach 100 percent by year-end 2021.
•A total of 41 new drawbells were constructed at the Grasberg Block Cave and
Deep Mill Level Zone (DMLZ) underground mines, bringing cumulative open
drawbells to over 460.
•Combined average production from the Grasberg Block Cave and DMLZ underground
mines approximated 118,300 metric tons of ore per day. During second-quarter
2021, Grasberg Block Cave achieved a daily record of 107,000 metric tons of ore
per day.
The successful completion of this ramp up is expected to enable PT-FI to
generate average annual production of 1.55 billion pounds of copper and
1.6 million ounces of gold for the next several years at an attractive unit net
cash cost, providing significant margins and cash flows. PT-FI expects
production for the year 2021 to approximate 1.3 billion pounds of copper and
1.3 million ounces of gold, nearly double 2020 levels.
PT-FI's estimated annual capital spending on underground mine development
projects is expected to average approximately $0.9 billion per year for 2021 and
2022, net of scheduled contributions from PT Inalum. In accordance with
applicable accounting guidance, aggregate costs (before scheduled contributions
from PT Inalum), which are expected to average $1.1 billion per year for 2021
and 2022, will be reflected as an investing activity in our cash flow statement,
and contributions from PT Inalum will be reflected as a financing activity.
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Indonesia Smelter . As discussed in Note 13 of our 2020 Form 10-K, PT-FI
committed to construct new domestic smelting capacity totaling 2 million metric
tons of concentrate per year by December 2023 .
To fulfill its obligation for new domestic smelter capacity in Indonesia , PT-FI
is planning the following:
•Expansion of annual capacity at PT Smelting by 300,000 metric tons of
concentrate, a 30 percent increase. PT-FI is advancing agreements with the
majority owner of PT Smelting to implement the expansion plans with a target
completion date of year-end 2023. PT -FI would fund the cost of the expansion,
estimated to approximate $250 million , and increase its ownership in PT Smelting
to a majority ownership interest.
•Construction of a new greenfield smelter in Gresik, Indonesia with a capacity
to process approximately 1.7 million metric tons of concentrate per year. In
July 2021, PT -FI awarded a construction contract to Chiyoda with an estimated
contract cost of $2.8 billion . The smelter construction is expected to be
completed as soon as feasible in 2024, which is dependent on no further
pandemic-related disruptions.
•Construction of a precious metals refinery to process gold and silver from PT
Smelting and the new greenfield smelter in Gresik, at an estimated cost of $250
million .
All costs of smelter development in Indonesia will be shared 49 percent by FCX
and 51 percent by PT Inalum, and will be largely offset by a phase-out of the 5
percent export duty currently paid to the Indonesia government as well as the
tax deductibility of smelter costs by PT-FI. In July 2021, PT -FI entered into a
$1 billion , five-year, unsecured credit facility to advance these project and
additional debt financing is being evaluated. Refer to Note 5 and "Capital
Resources and Liquidity" for further discussion of the credit facility.
Operating Data. Following is summary consolidated operating data for Indonesia
mining:
Three Months Ended June 30, Six months ended June 30,
2021 2020 2021 2020
Copper (millions of recoverable pounds)
Production 308 181 606 321
Sales 310 172 568 299
Average realized price per pound $ 4.27 $
2.67
Gold (thousands of recoverable ounces) Production 303 189 597 341 Sales 302 180 558 319 Average realized price per ounce$ 1,795 $
1,748
Ore extracted and milled (metric tons per day): Grasberg Block Cave underground minea 64,400 27,200 58,100 23,100 DMLZ underground minea 53,900 27,600 50,300 23,100 DOZ underground mine 10,800 21,600 14,700 20,900 Big Gossan underground mine 8,200 5,900 7,500 6,300 Grasberg open pit - - - 3,600 b Other 5,700 (400) 3,000 - Total 143,000 81,900 133,600 77,000 Average ore grades: Copper (percent) 1.28 1.27 1.34 1.21 Gold (grams per metric ton) 1.00 1.04 1.03 1.02 Recovery rates (percent): Copper 88.8 91.7 90.0 91.7 Gold 75.9 78.3 77.4 77.6
a.Includes ore from development activities that result in metal production. b.Represents ore from the Grasberg open-pit stockpiles.
Our consolidated copper and gold sales from PT-FI totaled 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, compared with copper and gold
sales of 172 million pounds and 180 thousand ounces in second-quarter 2020 and
299 million pounds and 319 thousand ounces for the first six months of 2020. The
increase in sales volumes for the 2021 periods primarily reflects the ramp-up of
underground mining at PT-FI.
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Consolidated sales volumes from PT-FI are expected to approximate 1.33 billion
pounds of copper and 1.3 million ounces of gold for the year 2021, compared with
0.8 billion pounds of copper and 0.8 million ounces of gold for the year 2020.
Unit Net Cash Costs. Unit net cash costs per pound of copper is a measure
intended to provide investors with information about the cash-generating
capacity of our mining operations expressed on a basis relating to the primary
metal product for our respective operations. We use this measure for the same
purpose and for monitoring operating performance by our mining operations. This
information differs from measures of performance determined in accordance 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 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.
Three Months Ended June 30,
2021 2020
By-Product Co-Product Method By-Product Co-Product Method
Method Copper Gold Method Copper Gold
Revenues, excluding adjustments $ 4.27 $ 4.27 $ 1,795 $ 2.67 $ 2.67 Site production and delivery, before net noncash and other costs shown below 1.54 1.07 449 2.00 1.17 766 Gold and silver credits (1.93) - - (1.95) - - Treatment charges 0.24 0.16 70 0.27 0.16 105 Export duties 0.14 0.10 42 0.09 0.05 35 Royalty on metals 0.26 0.19 66 0.15 0.08 65 Unit net cash costs 0.25 1.52 627 0.56 1.46 971 DD&A 0.79 0.55 232 0.72 0.42 276 Noncash and other costs, net 0.04 0.03 11 0.05 a 0.03 17 Total unit costs 1.08 2.10 870 1.33 1.91 1,264 Revenue adjustments, primarily for pricing on prior period open sales 0.28 0.28 53 0.07 0.07
41
PT Smelting intercompany loss (0.13) (0.09) (39) (0.15) (0.09)
(57)
Gross profit per pound/ounce$ 3.34 $ 2.36 $ 939 $ 1.26 $ 0.74
Copper sales (millions of recoverable pounds) 310 310 172 172
Gold sales (thousands of recoverable ounces) 302 180
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Six Months Ended June 30,
2021 2020
By-Product Co-Product Method By-Product Co-Product Method
Method Copper Gold Method Copper Gold
Revenues, excluding adjustments $ 4.29 $ 4.29 $ 1,785 $ 2.54 $ 2.54 Site production and delivery, before net noncash and other costs shown below 1.51 1.05 439 2.29 1.31 884 Gold and silver credits (1.86) - - (1.91) - - Treatment charges 0.24 0.17 71 0.28 0.17 110 Export duties 0.13 0.09 37 0.07 0.04 25 Royalty on metals 0.25 0.18 68 0.15 0.08 58 Unit net cash costs 0.27 1.49 615 0.88 1.60 1,077 DD&A 0.78 0.55 228 0.75 0.43 289 Noncash and other costs, net 0.01 b - 1 0.12 a 0.06 45 Total unit costs 1.06 2.04 844 1.75 2.09 1,411 Revenue adjustments, primarily for pricing on prior period open sales 0.12 0.12 (8) (0.07) (0.07)
14
PT Smelting intercompany loss (0.16) (0.11) (46) - -
-
Gross profit per pound/ounce$ 3.19 $ 2.26 $ 887 $ 0.72 $ 0.38
Copper sales (millions of recoverable pounds) 568 568 299 299 Gold sales (thousands of recoverable ounces) 558
319
a.Includes COVID-19 related costs of$0.03 per pound of copper in second-quarter 2020 and$0.01 per pound of copper for the first six months of 2020. b.Includes credits of$0.05 per pound of copper associated with adjustments to prior year treatment and refining charges and charges of$0.03 per pound of copper associated with a potential settlement of an administrative fine levied by theIndonesia government. Because of the fixed nature of a large portion of PT-FI's costs, unit net cash costs can vary significantly from quarter to quarter depending on copper and gold volumes. PT-FI's unit net cash costs (including gold and silver credits) of$0.25 per pound of copper in second-quarter 2021 and$0.27 per pound for the first six months of 2021, were lower than$0.56 per pound in second-quarter 2020 and$0.88 per pound for the first six months of 2020, primarily reflecting higher sales volumes. Treatment charges vary with the volume of metals sold and the price of copper, and royalties vary with the volume of metals sold and the prices of copper and gold. PT-FI's export duties totaled$44 million in second-quarter 2021,$16 million in second-quarter 2020,$73 million for the first six months of 2021 and$20 million for the first six months of2020. PT -FI will continue to pay export duties until development progress for new domestic smelting with an annual capacity of 2 million metric tons of concentrate exceeds 50 percent. PT-FI's royalties totaled$80 million in second-quarter 2021,$25 million in second-quarter 2020,$140 million for the first six months of 2021 and$44 million for the first six months of 2020. The increase in export duties and royalties for the 2021 periods, compared with the 2020 periods, primarily reflect higher sales volumes and copper prices. Because certain assets are depreciated on a straight-line basis, PT-FI's unit depreciation rate may vary with asset additions and the level of copper production and sales. DD&A per pound of copper under the by-product method was$0.79 per pound in second-quarter 2021 and$0.78 per pound for the first six months of 2021, compared with$0.72 per pound in second-quarter 2020 and$0.75 per pound for the first six months of 2020. The increase in the rate per pound of copper for the 2021 periods, compared with the 2020 periods, primarily reflects the impact of an ongoing ramp up of underground mining, which resulted in significantly higher copper production and sales volumes and a related unit of production depreciation rate increase resulting from significant underground development assets placed into service.
Revenue adjustments primarily result from changes in prices on provisionally priced copper sales recognized in prior periods.
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PT Smelting intercompany 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 $1,800 per ounce for the second half of 2021
and achievement of current sales volume and cost estimates, unit net cash costs
(including gold and silver credits) for PT-FI are expected to approximate $0.19
per pound of copper for the year 2021. PT -FI's unit net cash costs for the year
2021 would change by approximately $0.06 per pound for each $100 per ounce
change in the average price of gold for the second half of 2021.
PT -FI's projected sales volumes and unit net cash costs for the year 2021 are
dependent on a number of factors, including continued progress of the ramp-up of
underground mining, operational performance, impacts and duration of the
COVID-19 pandemic and timing of shipments.
Molybdenum Mines
We operate two wholly owned molybdenum mines in Colorado - the Henderson
underground mine and the Climax open-pit mine. The Henderson and Climax mines
produce high-purity, chemical-grade molybdenum concentrate, which is typically
further processed into value-added molybdenum chemical products. The majority of
the molybdenum concentrate produced at the Henderson and Climax mines, as well
as from our North America and South America copper mines, is processed at our
own conversion facilities.
Operating and Development Activities. Production from the Molybdenum mines of 7
million pounds of molybdenum in second-quarter 2021 and 14 million pounds for
the first six months of 2021, was slightly higher than production of 6 million
pounds of molybdenum in second-quarter 2020 and 13 million pounds for the first
six months of 2020. 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 $8.14 per pound of
molybdenum in second-quarter 2021 and $8.53 per pound for the first six months
of 2021 were lower than average unit net cash costs of $8.97 per pound in
second-quarter 2020 and $9.52 per pound for the first six months of 2020,
primarily reflecting higher volumes. Based on current sales volume and cost
estimates, average unit net cash costs for the Molybdenum mines are expected to
approximate $9.65 per pound of molybdenum for the year 2021.
Refer to "Product Revenues and Production Costs" for a reconciliation of unit
net cash costs per pound to production and delivery costs applicable to sales
reported in our consolidated financial statements.
Smelting and Refining
We wholly own and operate a smelter in Arizona (Miami smelter), a refinery in
Texas (El Paso refinery ) and a smelter and refinery in Spain (Atlantic Copper).
PT-FI also has a 39.5 percent ownership interest in a smelter and refinery in
Gresik, Indonesia (PT Smelting). Treatment charges for smelting and refining
copper concentrate consist of a base rate per pound of copper and per ounce of
gold and are generally fixed. Treatment charges represent a cost to our mining
operations and income to Atlantic Copper and PT Smelting. Thus, higher treatment
charges benefit our smelter operations and adversely affect our mining
operations. 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.
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Our Miami smelter processes concentrate produced by our U.S. mines and also
provides acid for copper leaching operations. During the first six months of
2021, we incurred charges totaling $87 million associated with a major
maintenance turnaround at our Miami smelter, which were higher than original
estimates as a result of extended downtime to address additional required
maintenance work, the COVID-19 pandemic and weather events. The next major
maintenance turnaround is scheduled for the first half of 2024.
Atlantic Copper smelts and refines copper concentrate and markets refined copper
and precious metals in slimes. During the first six months of 2021, Atlantic
Copper's concentrate purchases included 38 percent from our copper mining
operations and 62 percent from third parties.
PT-FI's contract with PT Smelting provides for PT-FI to supply 100 percent of
the copper concentrate requirements (subject to a minimum or maximum treatment
charge rate) necessary for PT Smelting to produce 205,000 metric tons of copper
annually on a priority basis. PT-FI may also sell copper concentrate to PT
Smelting at market rates for quantities in excess of 205,000 metric tons of
copper annually. During the first six months of 2021, PT -FI supplied the
substantial majority of PT Smelting's concentrate requirements. In July 2021, PT
Smelting received a six-month extension of its anodes slimes export license,
which currently expires December 30, 2021 .
We defer recognizing profits on sales from our mining operations to Atlantic
Copper and on PT-FI's sales to PT Smelting (on 25 percent through April 30,
2021 , and on 39.5 percent thereafter) until final sales to third parties occur.
Changes in these deferrals attributable to variability in intercompany volumes
resulted in net (reductions) additions to operating income (loss) totaling $(99)
million ($(81) million to net income attributable to common stock) in
second-quarter 2021 and $(17) million ($(6) million to net income attributable
to common stock) in second-quarter 2020, $(185) million ($(145) million to net
income attributable to common stock) for the first six months of 2021 and $(6)
million ($1 million to net loss attributable to common stock) for the first six
months of 2020. Our net deferred profits on our inventories at Atlantic Copper
and PT Smelting to be recognized in future periods' net income attributable to
common stock totaled $207 million at June 30, 2021 . Quarterly variations in ore
grades, the timing of intercompany shipments and changes in product prices will
result in variability in our net deferred profits and quarterly earnings. We
currently estimate that approximately 40 percent of the net deferred profit
balance will be recognized as income in the second half of 2021.
CAPITAL RESOURCES AND LIQUIDITY
Our consolidated operating cash flows vary with sales volumes; prices realized from copper, gold and molybdenum sales; production costs; income taxes; other working capital changes; and other factors.
We generated significant cash flows during the first six months of 2021, reflecting strong operating and financial performance and favorable market conditions. This strong performance allowed us to achieve the balance sheet targets outlined in our financial policy discussed below earlier than originally projected. Accordingly, we are well positioned to increase cash returns to shareholders and for investments in long-term growth.
We believe that we have a high-quality portfolio of long-lived copper assets positioned to generate long-term value. PT-FI has several projects in the Grasberg minerals district related to the development of its large-scale, long-lived, high-grade underground ore bodies that are progressing on schedule. We are also evaluating opportunities inNorth America andSouth America to enhance net present values, and we continue to consider future development of our copper resources, the timing of which will be dependent on market conditions. We believe that our cash generating capability and financial condition, together with availability under our revolving credit facility, will be adequate to meet our operating, investing and financing needs. Subject to future commodity prices for copper, gold, and molybdenum, our projected consolidated operating cash flows of$7.5 billion for the year 2021 significantly exceed our expected consolidated capital expenditures of$2.2 billion (which excludes capital expenditures for smelter development inIndonesia ) and other cash requirements for the year, including common stock dividends and noncontrolling interest distributions. We plan to fund our smelter development projects inIndonesia with PT-FI's new$1 billion , unsecured bank credit facility (see "Debt" below and Note 5) and additional debt financing. Refer to "Outlook" for further discussion of projected operating cash flows and capital expenditures for 2021. AtJune 30, 2021 , we had$9.8 billion in liquidity, comprised of$6.3 billion in consolidated cash and$3.5 billion of availability under our revolving credit facility. 46
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Table of Contents Financial Policy. InFebruary 2021 , our Board adopted a new financial policy for the allocation of cash flows aligned with our strategic objectives of maintaining a strong balance sheet, increasing cash returns to shareholders and advancing opportunities for future growth. The policy includes a base dividend of$0.30 per share per year and a performance-based payout framework to be implemented following achievement of a net debt target in the range of$3 billion to$4 billion , excluding project debt for additional smelting capacity inIndonesia . Under the performance-based payout framework, up to 50 percent of available cash flows generated after planned capital spending and distributions to noncontrolling interests would be allocated to shareholder returns and the balance to debt reduction and investments in value enhancing growth projects, subject to the Board's discretion. Available cash flows for performance-based payout distributions in excess of the base dividend will be assessed by the Board at least annually. With the recent achievement of our net debt target, we expect the Board to consider the amount of additional cash returns to shareholders following its 2021 annual results. As ofJune 30, 2021 , our consolidated net debt totaled$3.4 billion , a$2.7 billion reduction fromDecember 31, 2020 (refer to "Net Debt" for further discussion).
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