Fitch Affirms Freeport-McMoRan Copper & Gold's IDR at 'BBB'; Outlook Stable

Fitch Ratings has affirmed the Issuer Default Rating (IDR) of Freeport-McMoRan Copper & Gold Inc. (NYSE: FCX) and Freeport-McMoRan Oil & Gas LLC (FM O&G) at 'BBB', along with the outstanding debt of FCX and its subsidiaries FM O&G and Freeport-McMoRan Corporation (FMC) formerly known as Phelps Dodge Corporation. A full list of rating actions follows at the end of this release.

The Rating Outlook is Stable.

KEY RATING DRIVERS

The ratings reflect FCX's leading position in the mining industry, strong liquidity, and sound operational and financial management. Operations benefit from low average costs, large scale and long lived copper reserves. Long-term copper fundamentals benefit from limited new supply, modest inventories, strong demand from China and solid demand from developed nations. FCX management has a long experience with oil and gas and the transaction does diversify the company's international exposure.

The ratings contemplate a successful resolution, in the near term, of the conflict between the company's Contract of Work with the Indonesian government and the government's desire to restrict copper concentrate exports. Should the conflict drag on or place undue pressure on earnings, Fitch would expect the operation to optimize its cost structure, production and capital spending.

Of the $2.0 billion in cash on hand at Dec. 31, 2013, $1.3 billion would be available to the holding company after withholding taxes and minority interests. At Dec. 31, 2013, total debt was $20.7 billion (including $0.7 billion of fair value adjustments) with scheduled maturities over the next five years of $312 million in 2014, $1.1 billion in 2015, $751 million in 2016 and $700 million in 2017. The $3 billion revolver, maturing in 2018, was fully available except for $46 million representing letters of credits. Financial covenants under the revolver and term loan are a maximum net debt to EBITDAX ratio of 3.75x with debt net of domestic cash capped at $1 billion and a minimum interest coverage ratio of 2.5x.

The Stable Outlook reflects FCX's intent to reduce debt and Fitch's expectation that they will manage with FFO adjusted leverage at or below 2.5x on average and be free cash flow positive. FFO adjusted leverage was 2.9x at December 31, 2013 with earnings of the acquired companies for seven months.

Expectations

Guidance for 2014 operating cash flow is about $9 billion assuming no change to the company's planned Indonesian concentrate shipments and average realizations of copper at $3.25/lb., gold at $1,200/oz., molybdenum at $9.50/lb., and Brent oil prices of $105/bbl. This compares to 2013 net cash provided by operating activities of $6.1 billion on average realizations of copper at $3.30/lb., gold at $1,315/oz., and molybdenum at $11.85/lb.

Fitch expects that operating cash flows could fall to between $6 billion and $7 billion depending on the resumption of concentrate shipments and commodity prices. Fitch's Base Case price assumptions for 2014 are $3.18/lb. copper, $1,200/oz. gold, and $96/bbl. for Brent crude oil.

Guidance for capital expenditures is $7.1 billion for 2014, $7.3 billion in 2015 and $6.6 billion in 2016. Of this amount, $3.1 billion in 2014, $2.6 billion in 2015 and $1.4 billion in 2016 primarily relate to brown field expansion projects at Cerro Verde, Morenci and Grasberg. Oil & Gas expenditures are expected to be $3 billion in 2014, $3.5 billion in 2015 and $4 billion in 2016. Fitch expects spending to be in line with operating cash flows allowing for debt repayment. Fitch estimates annual interest costs at $900 million per year and ordinary common dividends to be about $1.3 billion per year.

Fitch expects free cash flow to be neutral to positive. Fitch expects FFO adjusted leverage to be under 2.5x on average over the next 24 months.

Fitch notes that earnings and cash flows are highly leveraged to commodity prices and a $0.10/lb. decline in copper prices could cut average 2015/2016 expected EBITDA by $525 million and expected operating cash flows by $375 million over a 12-month period.

Operating cash flows will be sensitive to oil sales prices even after accounting for hedges. Using a base Brent price of $100/bbl. on average for in 2015/ 2016, a $5/bbl. decrease in price would result in a decrease in EBITDA of $205 million (net of mining cost impacts).

RATING SENSITIVITIES

Negative: Future developments that may, individually or collectively, lead to negative rating action include:

--Expectations that FFO adjusted leverage remains above 2.5x and free cash flow is negative in a normalized price environment after 2014.

Positive: Not anticipated over the next 12 months given the PXP and MMR transaction:

--Repayment of debt ahead of expectations.

Fitch affirms the following ratings:

FCX
--IDR at 'BBB';
--$3 billion unsecured bank revolver at 'BBB';
--$4 billion unsecured term loan at 'BBB';
--$500 million 1.40% senior notes due 2015 at 'BBB';
--$500 million 2.15% senior notes due 2017 at 'BBB';
--$1.5 billion 2.375% senior notes due 2018 at 'BBB';
--$1 billion 3.1% senior notes due 2020 at 'BBB';
--$2 billion 3.55% senior notes due 2022 at 'BBB';
--$2 billion 3.875% senior notes due 2023 at 'BBB'; and
--$2 billion 5.450% senior notes due 2043 at 'BBB'.

FMC
--7.125% senior unsecured debentures due 2027 at 'BBB';
--9.50% senior unsecured notes due 2031 at 'BBB'; and
--6.125% senior unsecured notes due 2034 at 'BBB'.

FM O&G
--IDR at 'BBB';
--$750 million 6.125% senior notes due 2019 at 'BBB';
--$400 million 8.625% senior notes due 2019 at 'BBB';
--$300 million 7.625% senior notes due 2020 at 'BBB';
--$1.5 billion 6.5% senior notes due 2020 at 'BBB';
--$600 million 6.625% senior notes due 2021 at 'BBB';
--$1 billion 6.75% senior notes due 2022 at 'BBB'; and
--$1.5 billion 6.875% senior notes due 2023 at 'BBB'.

Additional information is available at 'www.fitchratings.com'.

Applicable Criteria and Related Research:
--'Corporate Rating Methodology' (Aug. 2013).

Applicable Criteria and Related Research:
Corporate Rating Methodology: Including Short-Term Ratings and Parent and Subsidiary Linkage
http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=715139

Additional Disclosure
Solicitation Status
http://www.fitchratings.com/gws/en/disclosure/solicitation?pr_id=821823
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