Quarterly Report (10-q)

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United States

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark one)


☒			QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2020


☐			TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from to

Commission file number: 001-11307-01

Freeport-McMoRan Inc.

(Exact name of registrant as specified in its charter)


Delaware						74-2480931
(State or other jurisdiction of						(I.R.S. Employer Identification No.)
incorporation or organization)

333 North Central Avenue

Phoenix

85004-2189

(Address of principal executive offices)

(Zip Code)

(602) 366-8100

(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:


Title of each class	Trading Symbol(s)	Name of each exchange on which registered
Common Stock, par value $0.10 per share	FCX	The New York Stock Exchange

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. ☑ Yes ☐ No

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). ☑ Yes ☐ No

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.


Large accelerated filer	☑	Accelerated filer	☐
Non-accelerated filer	☐	Smaller reporting company	☐
		Emerging growth company	☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). ☐ Yes ☑ No

On October 30, 2020, there were issued and outstanding 1,452,868,421 shares of the registrant’s common stock, par value $0.10 per share.

Freeport-McMoRan Inc.

TABLE OF CONTENTS



			Page

Part I. Financial Information			3

Item 1. Financial Statements:			3

Consolidated Balance Sheets (Unaudited)			3

Consolidated Statements of Operations (Unaudited)			4

Consolidated Statements of Comprehensive Income (Loss) (Unaudited)			5

Consolidated Statements of Cash Flows (Unaudited)			6

Consolidated Statements of Equity (Unaudited)			7

Notes to Consolidated Financial Statements (Unaudited)			9

Report of Independent Registered Public Accounting Firm			26

Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations			27

Item 3. Quantitative and Qualitative Disclosures About Market Risk			69

Item 4. Controls and Procedures			69

Part II. Other Information			69

Item 1. Legal Proceedings			69

Item 1A. Risk Factors			69

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds			73

Item 4. Mine Safety Disclosures			73

Item 6. Exhibits			74

Signature			S-1

Table of Contents

Part I.FINANCIAL INFORMATION

Item 1.Financial Statements.

Freeport-McMoRan Inc.

CONSOLIDATED BALANCE SHEETS (Unaudited)


	September 30, 2020		December 31, 2019
	(In millions)
ASSETS
Current assets:
Cash and cash equivalents	$	2,403	$	2,020
Trade accounts receivable	893		741
Income and other tax receivables	464		426

Inventories:
Materials and supplies, net	1,610		1,649
Mill and leach stockpiles	1,004		1,143
Product	1,278		1,281
Other current assets	419		655

Total current assets	8,071		7,915
Property, plant, equipment and mine development costs, net	29,911		29,584


Long-term mill and leach stockpiles	1,463		1,425

Other assets	1,654		1,885

Total assets	$	41,099	$	40,809

LIABILITIES AND EQUITY
Current liabilities:
Accounts payable and accrued liabilities	$	2,533	$	2,576
Current portion of environmental and asset retirement obligations	397		436
Accrued income taxes	119		119
Current portion of debt	47		5
Dividends payable	—		73

Total current liabilities	3,096		3,209
Long-term debt, less current portion	9,983		9,821
Deferred income taxes	4,325		4,210
Environmental and asset retirement obligations, less current portion	3,693		3,630
Other liabilities	2,440		2,491

Total liabilities	23,537		23,361



Equity:
Stockholders’ equity:
Common stock	158		158
Capital in excess of par value	25,934		25,830
Accumulated deficit	(12,389)		(12,280)
Accumulated other comprehensive loss	(728)		(676)
Common stock held in treasury	(3,739)		(3,734)
Total stockholders’ equity	9,236		9,298
Noncontrolling interests	8,326		8,150
Total equity	17,562		17,448
Total liabilities and equity	$	41,099	$	40,809

The accompanying notes are an integral part of these consolidated financial statements.

Table of Contents

Freeport-McMoRan Inc.

CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited)


	Three Months Ended				Nine Months Ended
	September 30,				September 30,
	2020		2019		2020		2019
	(In millions, except per share amounts)
Revenues	$	3,851	$	3,153	$	9,703	$	10,491
Cost of sales:
Production and delivery	2,465		2,670		7,404		8,599
Depreciation, depletion and amortization	394		322		1,093		1,021

Metals inventory adjustments	9		41		92		100
Total cost of sales	2,868		3,033		8,589		9,720
Selling, general and administrative expenses	72		101		273		300
Mining exploration and research expenses	8		25		42		83
Environmental obligations and shutdown costs	21		20		58		85
Net loss (gain) on sales of assets	2		12		13		(13)
Total costs and expenses	2,971		3,191		8,975		10,175
Operating income (loss)	880		(38)		728		316
Interest expense, net	(120)		(123)		(362)		(401)
Net loss on early extinguishment of debt	(59)		(21)		(100)		(27)
Other income, net	22		33		62		52
Income (loss) from continuing operations before income taxes and equity in affiliated companies’ net earnings	723		(149)		328		(60)
Provision for income taxes	(297)		(91)		(333)		(181)
Equity in affiliated companies’ net earnings	6		5		12		7
Net income (loss) from continuing operations	432		(235)		7		(234)
Net gain from discontinued operations	—		1		—		2
Net income (loss)	432		(234)		7		(232)

Net (income) loss attributable to noncontrolling interests	(103)		27		(116)		(16)


Net income (loss) attributable to common stockholders	$	329	$	(207)	$	(109)	$	(248)






Basic and diluted net income (loss) per share attributable to common stockholders:
Continuing operations	$	0.22	$	(0.15)	$	(0.08)	$	(0.17)
Discontinued operations	—		—		—		—
	$	0.22	$	(0.15)	$	(0.08)	$	(0.17)

Weighted-average common shares outstanding:
Basic	1,453		1,452		1,453		1,451
Diluted	1,461		1,452		1,453		1,451

Dividends declared per share of common stock	$	—	$	0.05	$	—	$	0.15

The accompanying notes are an integral part of these consolidated financial statements.

Table of Contents

Freeport-McMoRan Inc.

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS) (Unaudited)


	Three Months Ended				Nine Months Ended
	September 30,				September 30,
	2020		2019		2020		2019
	(In millions)
Net income (loss)	$	432	$	(234)	$	7	$	(232)

Other comprehensive (loss) income, net of taxes:

Defined benefit plans:
Actuarial losses arising during the period	(89)		—		(89)		—
Amortization or curtailment of unrecognized amounts included in net periodic benefit costs	14		11		38		35
Foreign exchange losses	(1)		—		(2)		—


Other comprehensive (loss) income	(76)		11		(53)		35

Total comprehensive income (loss)	356		(223)		(46)		(197)
Total comprehensive (income) loss attributable to noncontrolling interests	(103)		28		(115)		(16)

Total comprehensive income (loss) attributable to common stockholders	$	253	$	(195)	$	(161)	$	(213)

The accompanying notes are an integral part of these consolidated financial statements.

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Freeport-McMoRan Inc.

CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)


	Nine Months Ended
	September 30,
	2020		2019
	(In millions)
Cash flow from operating activities:
Net income (loss)	$	7	$	(232)
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
Depreciation, depletion and amortization	1,093		1,021


Metals inventory adjustments	92		100

Net loss (gain) on sales of assets	13		(13)
Stock-based compensation	60		52
Net charges for environmental and asset retirement obligations, including accretion	166		160
Payments for environmental and asset retirement obligations	(162)		(164)
Net charges for defined pension and postretirement plans	59		79
Pension plan contributions	(30)		(58)
Net loss on early extinguishment of debt	100		27
Deferred income taxes	119		71

Dividends received from PT Smelting	3		33



Settlements of PT Freeport Indonesia (PT-FI) environmental and surface water tax matters	(19)		28
Payment for PT-FI environmental matter	(14)		—
Charges for Cerro Verde royalty dispute	26		40
Payments for Cerro Verde royalty dispute	(119)		(126)
Other, net	(23)		20
Changes in working capital and other:
Accounts receivable	132		210
Inventories	59		224
Other current assets	(17)		15
Accounts payable and accrued liabilities	40		(45)
Accrued income taxes and timing of other tax payments	105		(130)
Net cash provided by operating activities	1,690		1,312

Cash flow from investing activities:
Capital expenditures:
North America copper mines	(398)		(641)
South America	(156)		(176)
Indonesia	(959)		(992)

Molybdenum mines	(14)		(11)

Other	(46)		(97)







Proceeds from sales of assets	146		102
Other, net	(6)		(10)
Net cash used in investing activities	(1,433)		(1,825)

Cash flow from financing activities:
Proceeds from debt	3,236		1,681
Repayments of debt	(3,105)		(2,917)


Cash dividends and distributions paid:
Common stock	(73)		(218)
Noncontrolling interests	—		(79)
Contributions from noncontrolling interests	115		133
Stock-based awards net payments	(2)		(7)
Debt financing costs and other, net	(51)		(23)
Net cash provided by (used in) financing activities	120		(1,430)

Net increase (decrease) in cash, cash equivalents, restricted cash and restricted cash equivalents	377		(1,943)

Cash, cash equivalents, restricted cash and restricted cash equivalents at beginning of year	2,278		4,455
Cash, cash equivalents, restricted cash and restricted cash equivalents at end of period	$	2,655	$	2,512

The accompanying notes are an integral part of these consolidated financial statements.

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Freeport-McMoRan Inc.

CONSOLIDATED STATEMENTS OF EQUITY (Unaudited)

THREE MONTHS ENDED SEPTEMBER 30


	Stockholders’ Equity
	Common Stock					Accum-ulated Deficit		Accumu- lated Other Compre- hensive Loss		Common Stock Held in Treasury			Total Stock-holders’ Equity
	Number of Shares	At Par Value		Capital in Excess of Par Value						Number of Shares	At Cost				Non- controlling Interests		Total Equity

	(In millions)
Balance at June 30, 2020	1,583	$	158	$	25,905	$	(12,718)	$	(652)	131	$	(3,739)	$	8,954	$	8,201	$	17,155





Exercised and issued stock-based awards	1	—		1		—		—		—	—		1		—		1
Stock-based compensation, including the tender of shares	—	—		8		—		—		—	—		8		—		8






Change in ownership interests	—	—		—		—		—		—	—		—		1		1
Contributions from noncontrolling interests	—	—		20		—		—		—	—		20		21		41



Net income attributable to common stockholders	—	—		—		329		—		—	—		329		—		329
Net income attributable to noncontrolling interests	—	—		—		—		—		—	—		—		103		103
Other comprehensive loss	—	—		—		—		(76)		—	—		(76)		—		(76)
Balance at September 30, 2020	1,584	$	158	$	25,934	$	(12,389)	$	(728)	131	$	(3,739)	$	9,236	$	8,326	$	17,562


	Stockholders’ Equity
	Common Stock					Accum-ulated Deficit		Accumu- lated Other Compre- hensive Loss		Common Stock Held in Treasury			Total Stock-holders’ Equity
	Number of Shares	At Par Value		Capital in Excess of Par Value						Number of Shares	At Cost				Non- controlling Interests		Total Equity

	(In millions)
Balance at June 30, 2019	1,582	$	158	$	25,949	$	(12,082)	$	(582)	131	$	(3,734)	$	9,709	$	8,108	$	17,817






Stock-based compensation, including the tender of shares	—	—		9		—		—		—	(1)		8		1		9



Dividends	—	—		(72)		—		—		—	—		(72)		—		(72)



Contributions from noncontrolling interests	—	—		16		—		—		—	—		16		17		33

Adjustment for deferred taxes	—	—		(22)		—		—		—	—		(22)		—		(22)
Net loss attributable to common stockholders	—	—		—		(207)		—		—	—		(207)		—		(207)
Net loss attributable to noncontrolling interests	—	—		—		—		—		—	—		—		(27)		(27)
Other comprehensive income (loss)	—	—		—		—		12		—	—		12		(1)		11
Balance at September 30, 2019	1,582	$	158	$	25,880	$	(12,289)	$	(570)	131	$	(3,735)	$	9,444	$	8,098	$	17,542

The accompanying notes are an integral part of these consolidated financial statements.

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Freeport-McMoRan Inc.

CONSOLIDATED STATEMENTS OF EQUITY (Unaudited)

NINE MONTHS ENDED SEPTEMBER 30


	Stockholders’ Equity
	Common Stock					Accum-ulated Deficit		Accumu- lated Other Compre- hensive Loss		Common Stock Held in Treasury			Total Stock-holders’ Equity
	Number of Shares	At Par Value		Capital in Excess of Par Value						Number of Shares	At Cost				Non- controlling Interests		Total Equity

	(In millions)
Balance at December 31, 2019	1,582	$	158	$	25,830	$	(12,280)	$	(676)	131	$	(3,734)	$	9,298	$	8,150	$	17,448



Exercised and issued stock-based awards	2	—		2		—		—		—	—		2		—		2
Stock-based compensation, including the tender of shares	—	—		46		—		—		—	(5)		41		1		42



Change in ownership interests	—	—		—		—		—		—	—		—		1		1
Contributions from noncontrolling interests	—	—		56		—		—		—	—		56		59		115
Net loss attributable to common stockholders	—	—		—		(109)		—		—	—		(109)		—		(109)
Net income attributable to noncontrolling interests	—	—		—		—		—		—	—		—		116		116
Other comprehensive loss	—	—		—		—		(52)		—	—		(52)		(1)		(53)
Balance at September 30, 2020	1,584	$	158	$	25,934	$	(12,389)	$	(728)	131	$	(3,739)	$	9,236	$	8,326	$	17,562


	Stockholders’ Equity
	Common Stock					Accum-ulated Deficit		Accumu- lated Other Compre- hensive Loss		Common Stock Held in Treasury			Total Stock-holders’ Equity
	Number of Shares	At Par Value		Capital in Excess of Par Value						Number of Shares	At Cost				Non- controlling Interests		Total Equity

	(In millions)
Balance at December 31, 2018	1,579	$	158	$	26,013	$	(12,041)	$	(605)	130	$	(3,727)	$	9,798	$	8,094	$	17,892





Exercised and issued stock-based awards	3	—		1		—		—		—	—		1		—		1
Stock-based compensation, including the tender of shares	—	—		42		—		—		1	(8)		34		1		35



Dividends	—	—		(218)		—		—		—	—		(218)		(70)		(288)


Change in ownership interests	—	—		(1)		—		—		—	—		(1)		(11)		(12)
Contributions from noncontrolling interests	—	—		65		—		—		—	—		65		68		133
Adjustments for deferred taxes	—	—		(22)		—		—		—	—		(22)		—		(22)
Net loss attributable to common stockholders	—	—		—		(248)		—		—	—		(248)		—		(248)
Net income attributable to noncontrolling interests	—	—		—		—		—		—	—		—		16		16
Other comprehensive income	—	—		—		—		35		—	—		35		—		35
Balance at September 30, 2019	1,582	$	158	$	25,880	$	(12,289)	$	(570)	131	$	(3,735)	$	9,444	$	8,098	$	17,542

The accompanying notes are an integral part of these consolidated financial statements.

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Freeport-McMoRan Inc.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

NOTE 1. GENERAL INFORMATION

The accompanying unaudited consolidated financial statements have been prepared in accordance with the instructions to Form 10-Q and do not include all information and disclosures required by generally accepted accounting principles (GAAP) in the United States (U.S.). Therefore, this information should be read in conjunction with Freeport-McMoRan Inc.’s (FCX) consolidated financial statements and notes contained in its annual report on Form 10-K for the year ended December 31, 2019 (2019 Form 10-K). The information furnished herein reflects all adjustments that are, in the opinion of management, necessary for a fair statement of the results for the interim periods reported. All such adjustments are, in the opinion of management, of a normal recurring nature. Operating results for the nine-month period ended September 30, 2020, are not necessarily indicative of the results that may be expected for the year ending December 31, 2020.

Operations Update. In April 2020, FCX announced revised operating plans in response to the global COVID-19 pandemic and resulting negative impact on the global economy. FCX proactively implemented operating protocols at each of its operating sites to contain and mitigate the risk of spread of COVID-19. FCX also continues to work closely with communities where it operates across the globe and has provided monetary support and in-kind contributions of medical supplies, equipment and food.

Following COVID-19 restrictions imposed by the Peruvian government in March 2020, Cerro Verde, FCX’s mine in Peru, implemented strict health protocols and a plan to restore its operations was approved by the Peruvian government in second-quarter 2020. Cerro Verde continued to make progress toward restoring operations during third-quarter 2020.

FCX completed a review of options for restarting its Chino mine in New Mexico and currently expects to restart Chino at a reduced rate beginning in 2021.

During second-quarter 2020, FCX implemented a series of actions to reduce administrative and centralized support costs in conjunction with its April 2020 revised operating plans. Cost savings initiatives included a temporary reduction in certain employee benefits, furloughs and an employee separation program, and reductions in third party service costs, facilities costs, travel and other expenses.

FCX recognized charges totaling $34 million in third-quarter 2020 and $258 million for the first nine months of 2020 associated with the COVID-19 pandemic and revised operating plans, including employee separation charges. These charges, none of which were capitalized into inventory, were recorded to production and delivery ($30 million in third-quarter 2020 and $202 million for the first nine months of 2020); depreciation, depletion and amortization ($3 million in third-quarter 2020 and $32 million for the first nine months of 2020); selling, general and administrative expenses (less than $1 million in third-quarter 2020 and $15 million for the first nine months of 2020) and mining exploration and research expenses (less than $1 million in third-quarter 2020 and $8 million for the first nine months of 2020).

Pension Plan Amendment. In August 2020, the FMC Retirement Plan (the Plan) was amended such that, effective September 1, 2020, participants will no longer accrue any additional benefits under the Plan. As a result, FCX remeasured its pension assets and benefit obligation as of July 31, 2020. The discount rate and expected long-term rate of return on the plan assets used for the July 31, 2020, remeasurement were 2.40 percent and 6.25 percent, respectively, compared to 3.40 percent and 6.50 percent, respectively at December 31, 2019. The rate of compensation increase was unchanged (3.25 percent). The remeasurement and curtailment resulted in the projected benefit obligation increasing by $184 million and plan assets increasing by $103 million. In addition, FCX recognized a curtailment loss of $4 million in third-quarter 2020. As of September 30, 2020, the funded status of the Plan was a net liability of $888 million (included in other liabilities in the consolidated balance sheet).

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NOTE 2. EARNINGS PER SHARE

FCX calculates its basic net income (loss) per share of common stock under the two-class method and calculates its diluted net income (loss) per share of common stock using the more dilutive of the two-class method or the treasury-stock method. Basic net income (loss) per share of common stock was computed by dividing net income (loss) attributable to common stockholders (after deducting accumulated dividends and undistributed earnings to participating securities) by the weighted-average shares of common stock outstanding during the period. Diluted net income (loss) per share of common stock was calculated by including the basic weighted-average shares of common stock outstanding adjusted for the effects of all potential dilutive shares of common stock.

Reconciliations of net income (loss) and weighted-average shares of common stock outstanding for purposes of calculating basic and diluted net income (loss) per share follow (in millions, except per share amounts):


	Three Months Ended				Nine Months Ended
	September 30,				September 30,
	2020		2019		2020		2019
Net income (loss) from continuing operations	$	432	$	(235)	$	7	$	(234)
Net (income) loss from continuing operations attributable to noncontrolling interests	(103)		27		(116)		(16)

Undistributed earnings allocated to participating securities	(3)		(3)		(3)		(3)
Net income (loss) from continuing operations attributable to common stockholders	326		(211)		(112)		(253)



Net income from discontinued operations attributable to common stockholders	—		1		—		2


Net income (loss) attributable to common stockholders	$	326	$	(210)	$	(112)	$	(251)


Basic weighted-average shares of common stock outstanding	1,453		1,452		1,453		1,451
Add shares issuable upon exercise or vesting of dilutive stock options and restricted stock units (RSUs)a	8		—		—		—
Diluted weighted-average shares of common stock outstanding	1,461		1,452		1,453		1,451

Basic and diluted net income (loss) per share attributable to common stockholders:
Continuing operations	$	0.22	$	(0.15)	$	(0.08)	$	(0.17)
Discontinued operations	—		—		—		—
	$	0.22	$	(0.15)	$	(0.08)	$	(0.17)

a.Excludes approximately 2 million shares in third-quarter 2020, 10 million shares in third-quarter 2019, 13 million shares for the first nine months of 2020 and 11 million shares for the first nine months of 2019 associated with outstanding stock options with exercise prices less than the average market price of FCX’s common stock and RSUs that were anti-dilutive.

Outstanding stock options with exercise prices greater than the average market price of FCX’s common stock during the period are excluded from the computation of diluted net income (loss) per share of common stock. Stock options for 28 million shares of common stock in third-quarter 2020, 43 million shares of common stock in third-quarter 2019, 35 million shares of common stock for first nine months of 2020 and 42 million shares of common stock for the first nine months of 2019 were excluded.

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NOTE 3. INVENTORIES, INCLUDING LONG-TERM MILL AND LEACH STOCKPILES

The components of inventories follow (in millions):


	September 30, 2020		December 31, 2019
Current inventories:
Total materials and supplies, neta	$	1,610	$	1,649

Mill stockpiles	$	185	$	220
Leach stockpiles	819		923
Total current mill and leach stockpiles	$	1,004	$	1,143

Raw materials (primarily concentrate)	$	360	$	318
Work-in-process	163		124
Finished goods	755		839
Total product	$	1,278	$	1,281

Long-term inventories:
Mill stockpiles	$	211	$	181
Leach stockpiles	1,252		1,244
Total long-term mill and leach stockpilesb	$	1,463	$	1,425

a.Materials and supplies inventory was net of obsolescence reserves totaling $32 million at September 30, 2020, and $24 million at December 31, 2019.

b.Estimated metals in stockpiles not expected to be recovered within the next 12 months.

During third-quarter 2020, FCX recorded net realizable value inventory adjustments to decrease long-term metals inventory carrying values by $9 million, primarily for molybdenum inventories because of lower market prices at September 30, 2020. Net realizable value inventory adjustments to decrease metals inventory carrying values totaled $92 million for the first nine months of 2020 associated with lower market prices for copper ($58 million) and molybdenum ($34 million). Net realizable value inventory adjustments to decrease metals inventory carrying values totaled $41 million in third-quarter 2019, primarily for copper inventories, and $100 million for the first nine months of 2019, primarily for cobalt inventories ($58 million) and copper inventories ($41 million), because of lower market prices (refer to Note 9 for metals inventory adjustments by business segment).

NOTE 4. INCOME TAXES

Geographic sources of FCX’s benefit from (provision for) income taxes follow (in millions):


	Nine Months Ended
	September 30,
	2020			2019
U.S. operations	$	56	a	$	73	b
International operations	(389)		c	(254)
Total	$	(333)		$	(181)	d

a.Includes a tax credit of $53 million associated with the reversal of a year-end 2019 tax charge related to the sale of FCX’s interest in the lower zone of the Timok exploration project in Serbia.

b.Includes tax credits totaling $24 million primarily associated with state law changes and settlement of state income tax examinations.

c.Includes a tax charge of $21 million ($17 million net of noncontrolling interests) associated with establishing a tax reserve related to the treatment of prior year contractor support costs.

d.Includes net tax charges totaling $49 million primarily to adjust deferred taxes on historical balance sheet items in accordance with tax accounting principles.

Variations in the relative proportions of jurisdictional income result in fluctuations to FCX’s consolidated effective income tax rate. FCX’s consolidated effective income tax rate was 102 percent for the first nine months of 2020 and 302 percent for the first nine months of 2019. Because FCX's U.S. jurisdiction generated net losses in the first nine

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months of 2020 and 2019 that will not result in a realized tax benefit, applicable accounting rules require FCX to adjust its estimated annual effective tax rate to exclude the impact of U.S. net losses.

In connection with the negative impacts of the COVID-19 pandemic on the global economy, governments throughout the world are announcing measures that are intended to provide tax and other financial relief. Such measures include the Coronavirus Aid, Relief, and Economic Security Act (CARES Act), signed into law by President Trump on March 27, 2020. None of these measures resulted in material impacts to FCX’s provision for income taxes for the nine months ended September 30, 2020. However, certain provisions of the CARES Act provided FCX with the opportunity to accelerate collections of tax refunds, primarily those associated with the U.S. alternative minimum tax. FCX collected U.S. alternative minimum tax credit refunds of $221 million in July 2020 and $24 million in October 2020. FCX expects to collect an additional $23 million within the next 12 months. FCX continues to evaluate income tax accounting considerations of COVID-19 measures as they develop, including any impact on its measurement of existing deferred tax assets and deferred tax liabilities. FCX will recognize any impact from COVID-19 related changes to tax laws in the period in which the new legislation is enacted.

NOTE 5. DEBT AND EQUITY

The components of debt follow (in millions):


	September 30, 2020		December 31, 2019



Senior notes and debentures:
Issued by FCX	$	8,780	$	8,602
Issued by Freeport Minerals Corporation (FMC)	356		357

Cerro Verde credit facility	827		826

Other	67		41
Total debt	10,030		9,826
Less current portion of debt	(47)		(5)
Long-term debt	$	9,983	$	9,821

Revolving Credit Facility. At September 30, 2020, FCX had no borrowings outstanding and $13 million in letters of credit issued under its revolving credit facility, resulting in availability of approximately $3.5 billion, of which approximately $1.5 billion could be used for additional letters of credit. Availability under FCX’s revolving credit facility consists of $3.28 billion maturing April 2024 and $220 million maturing April 2023.

In June 2020, FCX, PT-FI and Freeport-McMoRan Oil & Gas LLC (FM O&G LLC) amended the $3.5 billion unsecured revolving credit facility. The key changes under the amendment include (i) a suspension of the total leverage ratio through June 30, 2021, followed by a limit of 5.25x beginning with the quarter ending September 30, 2021, and stepping down to 3.75x beginning January 1, 2022; and (ii) a reduction in the interest expense coverage ratio to a minimum of 2.00x through December 31, 2021, reverting to 2.25x beginning January 1, 2022. FCX also agreed to a minimum liquidity covenant of $1 billion (consisting of consolidated unrestricted cash and availability under the revolving credit facility) applicable to each quarter through June 30, 2021, and additional restrictions on priority debt and liens, and the payment of common stock dividends through December 31, 2021. FCX retained the option to revert to the previous covenant requirements if it is determined additional flexibility is no longer needed. At September 30, 2020, FCX was in compliance with its revolving credit facility covenants.

Senior Notes. On July 27, 2020, FCX completed the sale of $650 million of 4.375% Senior Notes due 2028 and $850 million of 4.625% Senior Notes due 2030 for proceeds, net of underwriting fees, totaling $1.485 billion. Interest on these senior notes is payable semiannually on February 1 and August 1 of each year. These senior notes rank equally with FCX’s other existing and future unsecured and unsubordinated indebtedness. FCX used $1.4 billion of the net proceeds from this offering to purchase a portion of its 3.55% Senior Notes due 2022, 3.875% Senior Notes due 2023 and 4.55% Senior Notes due 2024, and the payment of accrued and unpaid interest, premiums, fees and expenses in connection with these transactions. The remaining net proceeds from this offering will be used for general corporate purposes, which may include repurchases or redemptions of outstanding senior notes.

On March 4, 2020, FCX completed the sale of $700 million of 4.125% Senior Notes due 2028 and $600 million of 4.25% Senior Notes due 2030 for proceeds, net of underwriting fees, totaling $1.285 billion. Interest on these senior notes is payable semiannually on March 1 and September 1 of each year. These senior notes rank equally with FCX’s other existing and future unsecured and unsubordinated indebtedness. FCX used a portion of the net proceeds from this offering to purchase a portion of its 4.00% Senior Notes due 2021 and its 3.55% Senior Notes

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due 2022 and the payment of accrued and unpaid interest, premiums, fees and expenses in connection with these transactions. On April 3, 2020, FCX used the remaining net proceeds to fund the make-whole redemption of all of its remaining 4.00% Senior Notes due 2021 and the payment of accrued and unpaid interest, premiums, fees and expenses in connection with the transaction.

As a result of these transactions, FCX recorded losses on early extinguishment of debt totaling $59 million in third-quarter 2020 and $100 million for the nine months ended September 30, 2020.

Interest Expense, Net. Consolidated interest costs (before capitalization) totaled $160 million in third-quarter 2020, $163 million in third-quarter 2019, $490 million for the first nine months of 2020 and $508 million for the first nine months of 2019. Capitalized interest added to property, plant, equipment and mine development costs, net, totaled $40 million in both third-quarter 2020 and third-quarter 2019, $128 million for the first nine months of 2020 and $107 million for the first nine months of 2019.

Common Stock. In March 2020, in response to the COVID-19 pandemic and resulting global economic uncertainties, the FCX Board of Directors (the Board) suspended FCX’s quarterly cash dividend of $0.05 per share previously planned for May 1, 2020. The Board does not expect to declare common stock dividends during 2020. The declaration and payment of future dividends is at the discretion of the Board and will be assessed on an ongoing basis, taking into account FCX’s financial results, cash requirements, future prospects, global economic conditions and other factors deemed relevant by the Board. As noted above, in accordance with the June 2020 amendment to the revolving credit facility, FCX is restricted from declaring or paying common stock dividends through December 31, 2021, unless FCX, at its option, reverts to the previous covenant requirements which would also eliminate the restriction on the declaration or payment of common stock dividends.

NOTE 6. FINANCIAL INSTRUMENTS

FCX does not purchase, hold or sell derivative financial instruments unless there is an existing asset or obligation, or it anticipates a future activity that is likely to occur and will result in exposure to market risks, which FCX intends to offset or mitigate. FCX does not enter into any derivative financial instruments for speculative purposes, but has entered into derivative financial instruments in limited instances to achieve specific objectives. These objectives principally relate to managing risks associated with commodity price changes, foreign currency exchange rates and interest rates.

Commodity Contracts. From time to time, FCX has entered into derivative contracts to hedge the market risk associated with fluctuations in the prices of commodities it purchases and sells. Derivative financial instruments used by FCX to manage its risks do not contain credit risk-related contingent provisions.

In April 2020, FCX entered into forward sales contracts for 150 million pounds of copper for settlement in May and June of 2020. The forward sales provided for fixed pricing of $2.34 per pound of copper on approximately 60 percent of North America's sales volumes for May and June 2020. These contracts resulted in hedging losses totaling $24 million for the nine months ended September 30, 2020. There were no remaining forward sales contracts after June 30, 2020.

A discussion of FCX’s other derivative contracts and programs follows.

Derivatives Designated as Hedging Instruments – Fair Value Hedges

Copper Futures and Swap Contracts. Some of FCX’s U.S. copper rod customers request a fixed market price instead of the Commodity Exchange Inc. (COMEX) average copper price in the month of shipment. FCX hedges this price exposure in a manner that allows it to receive the COMEX average price in the month of shipment while the customers pay the fixed price they requested. FCX accomplishes this by entering into copper futures or swap contracts. Hedging gains or losses from these copper futures and swap contracts are recorded in revenues. FCX did not have any significant gains or losses resulting from hedge ineffectiveness during the nine-month periods ended September 30, 2020 and 2019. At September 30, 2020, FCX held copper futures and swap contracts that qualified for hedge accounting for 50 million pounds at an average contract price of $2.76 per pound, with maturities through December 2021.

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A summary of gains (losses) recognized in revenues for derivative financial instruments related to commodity contracts that are designated and qualify as fair value hedge transactions, including the unrealized gains (losses) on the related hedged item follows (in millions):


	Three Months Ended				Nine Months Ended
	September 30,				September 30,
	2020		2019		2020		2019
Copper futures and swap contracts:
Unrealized gains (losses):
Derivative financial instruments	$	1	$	(2)	$	8	$	3
Hedged item – firm sales commitments	(1)		2		(8)		(3)

Realized gains (losses):
Matured derivative financial instruments	15		(8)		(1)		(9)

Derivatives Not Designated as Hedging Instruments

Embedded Derivatives. Certain FCX concentrate, copper cathode and gold sales contracts provide for provisional pricing primarily based on the London Metal Exchange (LME) copper price or the COMEX copper price and the London Bullion Market Association (LBMA) gold price at the time of shipment as specified in the contract. FCX receives market prices based on prices in the specified future month, which results in price fluctuations recorded in revenues until the date of settlement. FCX records revenues and invoices customers at the time of shipment based on then-current LME or COMEX copper prices and the LBMA gold prices as specified in the contracts, which results in an embedded derivative (i.e., a pricing mechanism that is finalized after the time of delivery) that is required to be bifurcated from the host contract. The host contract is the sale of the metals contained in the concentrate or cathode at the then-current LME or COMEX copper price, and the LBMA gold price. FCX applies the normal purchases and normal sales scope exception in accordance with derivatives and hedge accounting guidance to the host contract in its concentrate or cathode sales agreements since these contracts do not allow for net settlement and always result in physical delivery. The embedded derivative does not qualify for hedge accounting and is adjusted to fair value through earnings each period, using the period-end LME or COMEX copper forward prices and the adjusted LBMA gold prices, until the date of final pricing. Similarly, FCX purchases copper under contracts that provide for provisional pricing. Mark-to-market price fluctuations from these embedded derivatives are recorded through the settlement date and are reflected in revenues for sales contracts and in inventory for purchase contracts.

A summary of FCX’s embedded derivatives at September 30, 2020, follows:


	Open Positions	Average Price Per Unit				Maturities Through
		Contract		Market
Embedded derivatives in provisional sales contracts:
Copper (millions of pounds)	381	$	2.91	$	3.03	March 2021
Gold (thousands of ounces)	116	1,941		1,891		January 2021
Embedded derivatives in provisional purchase contracts:
Copper (millions of pounds)	113	2.95		3.03		January 2021

Copper Forward Contracts. Atlantic Copper, FCX’s wholly owned smelting and refining unit in Spain, enters into copper forward contracts designed to hedge its copper price risk whenever its physical purchases and sales pricing periods do not match. These economic hedge transactions are intended to hedge against changes in copper prices, with the mark-to-market hedging gains or losses recorded in production and delivery costs. At September 30, 2020, Atlantic Copper held net copper forward purchase contracts for 26 million pounds at an average contract price of $3.05 per pound, with maturities through November 2020.

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Summary of Gains (Losses). A summary of the realized and unrealized gains (losses) recognized in operating income for commodity contracts that do not qualify as hedge transactions, including embedded derivatives, follows (in millions):


	Three Months Ended				Nine Months Ended
	September 30,				September 30,
	2020		2019		2020		2019
Embedded derivatives in provisional sales contracts:a
Copper	$	94	$	(57)	$	18	$	(57)
Gold and other metals	15		6		39		17
Copper forward contractsb	(7)		—		12		(3)

a.Amounts recorded in revenues.

b.Amounts recorded in cost of sales as production and delivery costs.

Unsettled Derivative Financial Instruments

A summary of the fair values of unsettled commodity derivative financial instruments follows (in millions):


	September 30, 2020		December 31, 2019
Commodity Derivative Assets:
Derivatives designated as hedging instruments:
Copper futures and swap contracts	$	13	$	6
Derivatives not designated as hedging instruments:
Embedded derivatives in provisional sales/purchase contracts	51		68
Copper forward contracts	1		—
Total derivative assets	$	65	$	74

Commodity Derivative Liabilities:
Derivatives designated as hedging instruments:
Copper futures and swap contracts	$	—	$	—
Derivatives not designated as hedging instruments:
Embedded derivatives in provisional sales/purchase contracts	20		20


Copper forward contracts	—		1
Total derivative liabilities	$	20	$	21

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FCX’s commodity contracts have netting arrangements with counterparties with which the right of offset exists, and it is FCX’s policy to generally offset balances by contract on its balance sheet. FCX’s embedded derivatives on provisional sales/purchase contracts are netted with the corresponding outstanding receivable/payable balances.

A summary of these unsettled commodity contracts that are offset in the balance sheets follows (in millions):


	Assets				Liabilities
	September 30, 2020		December 31, 2019		September 30, 2020		December 31, 2019

Gross amounts recognized:
Embedded derivatives in provisional
sales/purchase contracts	$	51	$	68	$	20	$	20

Copper derivatives	14		6		—		1
	65		74		20		21

Less gross amounts of offset:
Embedded derivatives in provisional
sales/purchase contracts	3		—		3		—


	3		—		3		—

Net amounts presented in balance sheet:
Embedded derivatives in provisional
sales/purchase contracts	48		68		17		20

Copper derivatives	14		6		—		1
	$	62	$	74	$	17	$	21

Balance sheet classification:
Trade accounts receivable	$	46	$	66	$	5	$	—
Other current assets	14		6		—		—


Accounts payable and accrued liabilities	2		2		12		21

	$	62	$	74	$	17	$	21

Credit Risk. FCX is exposed to credit loss when financial institutions with which it has entered into derivative transactions (commodity, foreign exchange and interest rate swaps) are unable to pay. To minimize the risk of such losses, FCX uses counterparties that meet certain credit requirements and periodically reviews the creditworthiness of these counterparties. FCX does not anticipate that any of the counterparties it deals with will default on their obligations. As of September 30, 2020, the maximum amount of credit exposure associated with derivative transactions was $52 million.

Other Financial Instruments. Other financial instruments include cash and cash equivalents, restricted cash, restricted cash equivalents, accounts receivable, investment securities, legally restricted funds, accounts payable and accrued liabilities, dividends payable and long-term debt. The carrying value for cash and cash equivalents (which included time deposits of $0.2 billion at September 30, 2020, and $1.3 billion at December 31, 2019), restricted cash, restricted cash equivalents, accounts receivable, accounts payable and accrued liabilities, and dividends payable approximates fair value because of their short-term nature and generally negligible credit losses (refer to Note 7 for the fair values of investment securities, legally restricted funds and long-term debt).

In addition, as of September 30, 2020, FCX has contingent consideration assets related to the sales of certain oil and gas properties (refer to Note 7 for the related fair values).

Cash, Cash Equivalents, Restricted Cash and Restricted Cash Equivalents. The following table provides a reconciliation of total cash, cash equivalents, restricted cash and restricted cash equivalents presented in the consolidated statements of cash flows (in millions):


	September 30, 2020		December 31, 2019
Balance sheet components:
Cash and cash equivalents	$	2,403	$	2,020
Restricted cash and restricted cash equivalents included in:
Other current assets	103		100
Other assets	149		158
Total cash, cash equivalents, restricted cash and restricted cash equivalents presented in the consolidated statements of cash flows	$	2,655	$	2,278

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NOTE 7. FAIR VALUE MEASUREMENT

Fair value accounting guidance includes a hierarchy that prioritizes the inputs to valuation techniques used to measure fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1) and the lowest priority to unobservable inputs (Level 3). FCX did not have any significant transfers in or out of Level 3 during third-quarter 2020.

FCX’s financial instruments are recorded on the consolidated balance sheets at fair value except for contingent consideration associated with the sale of the Deepwater Gulf of Mexico (GOM) oil and gas properties (which was recorded under the loss recovery approach) and debt. A summary of the carrying amount and fair value of FCX’s financial instruments (including those measured at net asset value (NAV) as a practical expedient), other than cash and cash equivalents, restricted cash, restricted cash equivalents, accounts receivable, accounts payable and accrued liabilities, and dividends payable (refer to Note 6) follows (in millions):


	At September 30, 2020
	Carrying		Fair Value
	Amount		Total		NAV		Level 1		Level 2		Level 3
Assets
Investment securities:a,b
U.S. core fixed income fund	$	29	$	29	$	29	$	—	$	—	$	—

Equity securities	6		6		—		6		—		—
Total	35		35		29		6		—		—

Legally restricted funds:a
U.S. core fixed income fund	64		64		64		—		—		—
Corporate bonds	43		43		—		—		43		—
Government bonds and notes	42		42		—		—		42		—
Government mortgage-backed securities	33		33		—		—		33		—
Asset-backed securities	15		15		—		—		15		—
Money market funds	9		9		—		9		—		—
Collateralized mortgage-backed securities	4		4		—		—		4		—
Municipal bonds	1		1		—		—		1		—
Total	211		211		64		9		138		—

Derivatives:
Embedded derivatives in provisional sales/purchase contracts in a gross asset positionc	51		51		—		—		51		—

Copper futures and swap contractsc	13		13		—		12		1		—
Copper forward contractsc	1		1		—		1		—		—



Total	65		65		—		13		52		—

Contingent consideration for the sale of the
Deepwater GOM oil and gas propertiesa	113		84		—		—		—		84



Liabilities
Derivatives:c
Embedded derivatives in provisional sales/purchase contracts in a gross liability position	20		20		—		—		20		—










Long-term debt, including current portiond	10,030		10,735		—		—		10,735		—

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	At December 31, 2019
	Carrying		Fair Value
	Amount		Total		NAV		Level 1		Level 2		Level 3
Assets
Investment securities:a,b
U.S. core fixed income fund	$	27	$	27	$	27	$	—	$	—	$	—

Equity securities	4		4		—		4		—		—
Total	31		31		27		4		—		—

Legally restricted funds:a
U.S. core fixed income fund	59		59		59		—		—		—
Government mortgage-backed securities	43		43		—		—		43		—
Government bonds and notes	36		36		—		—		36		—
Corporate bonds	33		33		—		—		33		—
Asset-backed securities	14		14		—		—		14		—
Collateralized mortgage-backed securities	7		7		—		—		7		—
Money market funds	3		3		—		3		—		—
Municipal bonds	1		1		—		—		1		—
Total	196		196		59		3		134		—

Derivatives:
Embedded derivatives in provisional sales/purchase contracts in a gross asset positionc	68		68		—		—		68		—
Copper futures and swap contractsc	6		6		—		5		1		—

Contingent consideration for the sale of onshore
California oil and gas propertiesa	11		11		—		—		11		—
Total	85		85		—		5		80		—

Contingent consideration for the sale of the
Deepwater GOM oil and gas propertiesa	122		108		—		—		—		108



Liabilities
Derivatives:c
Embedded derivatives in provisional sales/purchase contracts in a gross liability position	20		20		—		—		20		—

Copper forward contracts	1		1		—		—		1		—


Total	21		21		—		—		21		—




Long-term debt, including current portiond	9,826		10,239		—		—		10,239		—

a.Current portion included in other current assets and long-term portion included in other assets.

b.Excludes time deposits (which approximated fair value) included in (i) other current assets of $103 million at September 30, 2020, and $100 million at December 31, 2019, and (ii) other assets of $148 million at September 30, 2020, and $157 million at December 31, 2019, primarily associated with an assurance bond to support PT-FI’s commitment for the development of a new smelter in Indonesia and PT-FI’s closure and reclamation guarantees.

c.Refer to Note 6 for further discussion and balance sheet classifications.

d.Recorded at cost except for debt assumed in acquisitions, which are recorded at fair value at the respective acquisition dates.

Valuation Techniques. The U.S. core fixed income fund is valued at NAV. The fund strategy seeks total return consisting of income and capital appreciation primarily by investing in a broad range of investment-grade debt securities, including U.S. government obligations, corporate bonds, mortgage-backed securities, asset-backed securities and money market instruments. There are no restrictions on redemptions (which are usually within one business day of notice).

Equity securities are valued at the closing price reported on the active market on which the individual securities are traded and, as such, are classified within Level 1 of the fair value hierarchy.

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Fixed income securities (government securities, corporate bonds, asset-backed securities, collateralized mortgage-backed securities and municipal bonds) are valued using a bid-evaluation price or a mid-evaluation price. These evaluations are based on quoted prices, if available, or models that use observable inputs and, as such, are classified within Level 2 of the fair value hierarchy.

Money market funds are classified within Level 1 of the fair value hierarchy because they are valued using quoted market prices in active markets.

FCX’s embedded derivatives on provisional copper concentrate, copper cathode and gold purchases and sales are valued using quoted monthly LME or COMEX copper forward prices and the adjusted LBMA gold prices at each reporting date based on the month of maturity (refer to Note 6 for further discussion); however, FCX’s contracts themselves are not traded on an exchange. As a result, these derivatives are classified within Level 2 of the fair value hierarchy.

FCX’s derivative financial instruments for copper futures and swap contracts and copper forward contracts that are traded on the respective exchanges are classified within Level 1 of the fair value hierarchy because they are valued using quoted monthly COMEX or LME prices at each reporting date based on the month of maturity (refer to Note 6 for further discussion). Certain of these contracts are traded on the over-the-counter market and are classified within Level 2 of the fair value hierarchy based on COMEX and LME forward prices.

In 2016, FCX completed the sale of its onshore California oil and gas properties, which included contingent consideration of up to $150 million, consisting of $50 million per year for 2018, 2019 and 2020 if the price of Brent crude oil averages over $70 per barrel in each of these calendar years. Based on current and forecasted oil prices for the remainder of 2020, FCX has concluded the fair value of the last tranche of this contingent consideration derivative approximates zero at September 30, 2020. The fair value of the contingent consideration derivative was $11 million (included in other assets in the consolidated balance sheets) at December 31, 2019. Future changes in the fair value of this contingent consideration derivative will continue to be recorded in operating income. Also, contingent consideration of $50 million was realized in 2018 and collected in first-quarter 2019 (included in proceeds from sales of assets in the consolidated statements of cash flows) because the average Brent crude oil price exceeded $70 per barrel for 2018. Contingent consideration of $50 million was not realized in 2019 because the average Brent crude oil price did not exceed $70 per barrel for 2019. The fair value at December 31, 2019, was calculated based on average commodity price forecasts through the applicable maturity date using a Monte-Carlo simulation model. The model used various observable inputs, including Brent crude oil forward prices, volatilities and discount rates. As a result, this contingent consideration asset was classified within Level 2 of the fair value hierarchy.

In December 2016, FCX’s sale of its Deepwater GOM oil and gas properties included up to $150 million in contingent consideration that was recorded at the total amount under the loss recovery approach. The contingent consideration is being received over time as future cash flows are realized from a third-party production handling agreement for an offshore platform, with the related payments commencing in third-quarter 2018. The contingent consideration included in (i) other current assets totaled $12 million at September 30, 2020, and $18 million at December 31, 2019, and (ii) other assets totaled $101 million at September 30, 2020, and $104 million at December 31, 2019. The fair value of this contingent consideration was calculated based on a discounted cash flow model using inputs that include third-party estimates for reserves, production rates and production timing, and discount rates. Because significant inputs are not observable in the market, the contingent consideration is classified within Level 3 of the fair value hierarchy.

Long-term debt, including current portion, is primarily valued using available market quotes and, as such, is classified within Level 2 of the fair value hierarchy.

The techniques described above may produce a fair value that may not be indicative of net realizable value or reflective of future fair values. Furthermore, while FCX believes its valuation techniques are appropriate and consistent with other market participants, the use of different techniques or assumptions to determine fair value of certain financial instruments could result in a different fair value measurement at the reporting date. There have been no changes in the techniques used at September 30, 2020, as compared with those techniques used at December 31, 2019.

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A summary of the changes in the fair value of FCX’s Level 3 instrument, contingent consideration for the sale of the Deepwater GOM oil and gas properties, during the first nine months of 2020 follows (in millions):



Fair value at January 1, 2020	$	108
Net unrealized loss related to assets still held at the end of the period	(15)
Settlements	(9)
Fair value at September 30, 2020	$	84

NOTE 8. CONTINGENCIES AND COMMITMENTS

Litigation

There were no significant updates to previously reported legal proceedings included in Note 12 of FCX’s 2019 Form 10-K, other than the matters discussed below, which previously were updated in Note 8 of FCX’s quarterly report on Form 10-Q for the quarters ended March 31, 2020, and June 30, 2020, and are further updated here.

Louisiana Parishes Coastal Erosion Cases. As previously disclosed, in September 2019, affiliates of FCX reached an agreement in principle to settle all 13 cases filed in Louisiana state courts by six south Louisiana parishes (Cameron, Jefferson, Plaquemines, St. Bernard, St. John the Baptist and Vermilion) and the parties that intervened in the litigation in support of the parishes’ claims, including the state of Louisiana, alleging that certain oil and gas exploration and production operations and sulphur mining and production operations of the FCX affiliates damaged coastal wetlands and caused significant land loss along the Louisiana coast.

The agreement in principle does not include any admission of liability by FCX or its affiliates. FCX recorded a charge in third-quarter 2019 for the initial payment of $15 million, which will be paid upon execution of the settlement agreement. The settlement agreement has been executed by the FCX affiliates and several of the Louisiana parishes. FCX expects the agreement to be executed by all parties; however, execution has been delayed by the ongoing COVID-19 pandemic. Upon execution of the settlement agreement by all parties, the FCX affiliates will be fully released and dismissed from all 13 pending cases.

Asbestos and Talc Claims. As previously disclosed, there has been a significant increase in the number of cases alleging the presence of asbestos contamination in talc-based personal care products and in cases alleging exposure to talc products that are not alleged to be contaminated with asbestos. The primary targets have been the producers of those products, but defendants in many of these cases also include talc miners. Cyprus Amax Minerals Company (CAMC), an indirect wholly owned subsidiary of FCX, and Cyprus Mines Corporation (Cyprus Mines), a wholly owned subsidiary of CAMC, are among those targets. Cyprus Mines was engaged in talc mining from 1964 until 1992 when it exited its talc business by conveying it to a third party in two related transactions. Those transactions involved (i) a transfer by Cyprus Mines of the assets of its talc business to a newly formed subsidiary that assumed all pre-sale and post-sale talc liabilities, subject to limited reservations, and (ii) a sale of the stock of that subsidiary to the third party. In 2011, the third party sold that subsidiary to Imerys Talc America (Imerys), an affiliate of Imerys S.A.

Cyprus Mines has contractual indemnification rights, subject to limited reservations, against Imerys, which has historically acknowledged those indemnification obligations, and had taken responsibility for all cases tendered to it. However, on February 13, 2019, Imerys filed for Chapter 11 bankruptcy protection, which triggered an immediate automatic stay under the federal bankruptcy code prohibiting any party from continuing or initiating litigation or asserting new claims against Imerys. As a result, Imerys is no longer defending the talc lawsuits against Cyprus Mines and CAMC. In addition, Imerys has taken the position that it alone owns, and has the sole right to access, the proceeds of the legacy insurance coverage of Cyprus Mines and CAMC for talc liabilities. In late March 2019, Cyprus Mines and CAMC challenged this position and obtained emergency relief from the bankruptcy court to gain access to the insurance until the question of ownership and contractual access can be decided in an adversary proceeding before the bankruptcy court, which was previously scheduled for March 2020, but has been put on hold.

During first-quarter 2019, in a case pending at the time Imerys filed bankruptcy, a California jury entered a $29 million verdict against Johnson & Johnson (J&J) and Cyprus Mines, of which approximately $2 million was attributed to Cyprus Mines. Taking advantage of the temporary access to the insurance authorized by the bankruptcy court, Cyprus Mines used the insurance to fully resolve the case. Cyprus Mines and the insurers also settled several other cases and secured delays or dismissals in other cases.

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Cyprus Mines and CAMC also have contractual indemnification rights against J&J, which J&J disputes. In June 2020, Cyprus Mines and CAMC filed a complaint in the Imerys bankruptcy case asserting that J&J was required to indemnify Cyprus Mines and CAMC for liabilities related to J&J products. J&J filed a motion to dismiss which is currently pending and has not been heard.

FCX continues to believe that Cyprus Mines and CAMC each has strong defenses to legal liability and that both should have access to the remaining legacy insurance to cover defense costs, settlements and judgments relating to talc proceedings, at least until the bankruptcy court decides otherwise or the insurance is exhausted. FCX recorded legal defense and settlement costs associated with talc-related litigation totaling approximately $20 million for the first nine months of 2020 and $28 million for the year 2019. Multiple trials previously scheduled during 2020 have been postponed because of the ongoing COVID-19 pandemic. Postponed cases may be reset prior to the adversary proceeding regarding the legacy insurance, which is currently on hold.

Cyprus Mines and CAMC are exploring a possible global settlement framework through the Imerys bankruptcy process to release Cyprus Mines and CAMC and their respective affiliates from all present and future talc claims. The outcome of any such global settlement may result in future charges that could be material to FCX’s results of operations for the relevant period during which any such agreement is reached. However, there can be no assurance that a global settlement will be reached and, if an agreement among the parties is reached, the implementation of a global settlement would require, among other things, further proceedings in the bankruptcy court and judicial approval. Given the uncertainties and complexities involved, Cyprus Mines and CAMC continue to prepare for trial with respect to the postponed cases and intend to vigorously defend themselves in all such cases. At this time, FCX believes a loss is reasonably possible but due to the number of cases pending, the number of potential future claimants, the complexity of the issues, the possibility of success at trial, whether any settlement(s) will be reached and, if reached, the amount and terms of any such settlement(s), and other factors, FCX cannot estimate the range of possible loss.

Other Matters

PT-FI and PT Smelting Export Licenses. In March 2020, PT-FI received a one-year extension of its export license through March 15, 2021, and PT Smelting (PT-FI’s 25 percent-owned smelter and refinery in Indonesia) received an extension of its anode slimes export license through March 10, 2021.

Cerro Verde Royalty Dispute. In November 2019, Cerro Verde filed a notice of intent to initiate international arbitration against the Peruvian government, which triggered a period for mandatory good faith settlement discussions. The parties were unable to find an amicable resolution and, on February 28, 2020, FCX and Cerro Verde filed international arbitration proceedings against the Peruvian government. In April 2020, SMM Cerro Verde Netherlands B.V. (SMM), another shareholder of Cerro Verde, filed a parallel arbitration proceeding under a different investment treaty against the Peruvian government.

NOTE 9. BUSINESS SEGMENTS

FCX has organized its mining operations into four primary divisions – North America copper mines, South America mining, Indonesia mining and Molybdenum mines, and operating segments that meet certain thresholds are reportable segments. Separately disclosed in the following tables are FCX’s reportable segments, which include the Morenci, Bagdad, Cerro Verde and Grasberg (Indonesia Mining) copper mines, the Rod & Refining operations and Atlantic Copper Smelting & Refining.

Beginning in fourth-quarter 2019, the Bagdad copper mine became a reportable segment. As a result, FCX revised its segment disclosure for the three and nine months ended September 30, 2019, to conform with the current year presentation.

Intersegment sales between FCX’s business segments are based on terms similar to arms-length transactions with third parties at the time of the sale. Intersegment sales may not be reflective of the actual prices ultimately realized because of a variety of factors, including additional processing, timing of sales to unaffiliated customers and transportation premiums.

FCX defers recognizing profits on sales from its mines to other segments, including Atlantic Copper Smelting & Refining, and on 25 percent of PT-FI’s sales to PT Smelting, until final sales to third parties occur. Quarterly variations in ore grades, the timing of intercompany shipments and changes in product prices result in variability in FCX’s net deferred profits and quarterly earnings.

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FCX allocates certain operating costs, expenses and capital expenditures to its operating divisions and individual segments. However, not all costs and expenses applicable to an operation are allocated. U.S. federal and state income taxes are recorded and managed at the corporate level (included in Corporate, Other & Eliminations), whereas foreign income taxes are recorded and managed at the applicable country level. In addition, most mining exploration and research activities are managed on a consolidated basis, and those costs, along with some selling, general and administrative costs, are not allocated to the operating divisions or individual segments. Accordingly, the following Financial Information by Business Segment reflects management determinations that may not be indicative of what the actual financial performance of each operating division or segment would be if it was an independent entity.

Product Revenues. FCX’s revenues attributable to the products it sold for the third quarters and first nine months of 2020 and 2019 follow (in millions):


	Three Months Ended				Nine Months Ended
	September 30,				September 30,
	2020		2019		2020		2019
Copper:
Concentrate	$	1,185	$	952	$	2,783	$	3,251
Cathode	1,085		878		3,046		2,696
Rod and other refined copper products	634		537		1,479		1,560
Purchased coppera	167		210		568		872
Gold	497		415		1,108		1,111
Molybdenum	189		295		626		910

FCX

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