Freeport-McMoRan Copper & Gold Inc. — 2012 Form 10-K
Reporting period: Fiscal year ended December 31, 2012. The filing is an annual report, not a standalone fourth-quarter filing; quarterly figures below are unaudited. The company reported a diversified copper, gold and molybdenum mining business, with major operations in North and South America, Indonesia and the Democratic Republic of Congo.
Financial and operating performance
| Metric | 2012 | 2011 |
|---|---|---|
| Revenue | $18.010 billion | $20.880 billion |
| Operating income | $5.814 billion | $9.140 billion |
| Net income attributable to FCX common stockholders | $3.041 billion | $4.560 billion |
| Diluted earnings per share | $3.19 | $4.78 |
| Operating cash flow | $3.774 billion | $6.620 billion |
| Capital expenditures | $3.494 billion | $2.534 billion |
| Cash and cash equivalents, year-end | $3.705 billion | $4.822 billion |
| Total debt, year-end | $3.527 billion | $3.537 billion |
Derived from reported figures, gross margin was approximately 35.8% (revenue less production and delivery costs and depreciation, depletion and amortization), operating margin 32.3%, and net margin attributable to common stockholders 16.9%. Operating cash flow less capital expenditures was approximately $280 million; this is a simple calculation, not a company-defined measure. The current ratio was approximately 3.1, based on $10.297 billion of current assets and $3.343 billion of current liabilities. FCX reported approximately $2.7 billion of net cash available after noncontrolling interests, withholding taxes and other adjustments, and about $1.5 billion available under its existing revolving facility.
Annual production was 3.663 billion pounds of copper, 958,000 ounces of gold and 85 million pounds of molybdenum. Average realized prices were $3.60 per pound of copper, $1,665 per ounce of gold and $14.26 per pound of molybdenum. Copper sales volume was 3.648 billion pounds, excluding purchased copper.
Fourth quarter 2012: Revenue was $4.513 billion, operating income $1.358 billion, net income $945 million, net income attributable to FCX common stockholders $743 million and diluted EPS $0.78.
Changes versus 2011
- Revenue declined 13.7%, operating income 36.4%, common-stockholder net income 33.3%, and operating cash flow 43.0%.
- Copper sales volume fell to 3.648 billion pounds from 3.698 billion, while the average realized copper price declined to $3.60 from $3.86 per pound. Gold sales fell to 1.010 million ounces from 1.378 million, despite a higher realized gold price. Molybdenum sales increased to 83 million pounds from 79 million, but its realized price declined.
- Higher copper production in North America and Africa was offset by lower production and grades in Indonesia and lower South American volumes. Indonesia copper production fell to 695 million pounds from 846 million; gold production fell to 862,000 ounces from 1.272 million.
- Consolidated copper unit net cash costs rose to $1.48 per pound from $1.01, while site production and delivery costs rose to $2.00 per pound from $1.72. Management cited lower Indonesian sales volumes, higher mining and input costs, and reduced by-product credits.
- Capital expenditures increased to $3.494 billion, including $2.2 billion for major projects. Debt remained broadly stable after refinancing: FCX issued $3.0 billion of low-coupon notes and redeemed its remaining $3.0 billion of 8.375% notes.
Outlook, material items and risks
- For 2013, management projected sales of 4.3 billion pounds of copper, 1.38 million ounces of gold and 90 million pounds of molybdenum. At assumed prices of $3.65/lb copper, $1,700/oz gold and $11/lb molybdenum, it estimated operating cash flow of about $7 billion, including $450 million from working-capital sources and other tax payments; projected taxes were $2.6 billion.
- Management estimated 2013 consolidated copper unit net cash costs at $1.35/lb, assuming the stated gold and molybdenum prices and achievement of volume and cost targets. Quarterly costs were expected to vary, with Indonesian production and costs dependent on higher-grade ore access and the ramp-up of underground mines.
- Planned 2013 capital expenditures were approximately $4.6 billion, including $2.8 billion for major projects. Key projects included the approximately $1.4 billion Morenci expansion, targeting additional annual copper production of 225 million pounds in 2014; the approximately $4.4 billion Cerro Verde expansion, targeting additional annual production of 600 million pounds of copper and 15 million pounds of molybdenum beginning in 2016; and underground development at Grasberg.
- Unusual 2012 items included a $59 million insurance settlement gain related to prior-year Indonesian pipeline incidents, a $168 million loss on early debt extinguishment, and a $234 million deferred tax benefit from reversal of a Cerro Verde tax liability. Environmental obligations and shutdown costs were a net credit of $22 million.
- Proposed acquisitions of Plains Exploration & Production and McMoRan Exploration were announced in December 2012 and were expected to close in the second quarter of 2013, subject to approvals and conditions. The filing’s financial statements and outlook do not reflect these transactions. Financing plans included a $4.0 billion term loan and remaining interim commitments; permanent financing was still being pursued. FCX also agreed to acquire a cobalt refinery in Finland, subject to closing conditions.
- Principal risks include volatile metal prices; Indonesia security incidents, labor disruptions, Contract of Work negotiations and uncertainty over extensions beyond 2021; water-rights disputes and water scarcity; environmental, reclamation and closure costs; political and regulatory risks in the DRC; project execution and cost overruns; and pending tax, environmental and acquisition-related litigation. The company recorded $1.2 billion in environmental obligations and $1.1 billion in asset retirement obligations at year-end.
Important facts for investors to verify
- Whether 2013 production, grade, cost and cash-flow guidance was achieved, especially the planned Grasberg recovery and underground-mine ramp-up.
- Actual financing, leverage, dilution, integration costs and transaction outcomes for the proposed PXP and MMR acquisitions, and whether the projected benefits materialized.
- Progress, final cost and timing of the Morenci, Cerro Verde and Grasberg projects, including the water and permitting requirements for expansion.
- Developments in Indonesian Contract of Work negotiations, export and domestic-processing rules, security conditions and labor agreements.
- Changes in commodity prices, provisional pricing exposures, working capital, environmental and reclamation estimates, and the disputed Peruvian and Indonesian tax assessments.
- The sustainability of dividends and liquidity after planned capital spending and acquisition financing; dividend declarations remain at the Board’s discretion.